Islamabad - The Asian Development Bank (ADB) has said that the biggest power consumers of Pakistan, including the provincial and federal governments, do not pay their electricity dues at the time when 40 percent electricity demand could not be met, which is hampering the economic growth of the country.

“Despite the rebound in the economy, energy shortages have been constraining the economic growth. Pakistan is facing domestic supply shortages of coal, oil, and natural gas as well as that of hydro generation capacities. These fuel constraints have severely affected the power sector, resulting in a significant decline in power production. At its peak, the gap between electricity demand and supply was as high as 40 percent,” stated the ADB report “Energy Outlook for Asia and the Pacific.”

The report states that Pakistan’s power sector has been confronting the so-called “circular-debt crisis”: Its central power purchasing agency faces revenue shortfalls, so it cannot pay the power supply companies fully. The circular-debt crisis involves many layers of issues, for instance, some private power producers had to cease operations as the state-owned power company did not pay them. This is a problem that was caused by nonpayment by the biggest consumers – the provincial and federal governments. Moreover, even if the electricity tariff is paid, it is not high enough to cover the cost of generation as it is regulated to maintain an affordable level for the public. Above all, one important issue revolving around the power sector — technical and non-technical transmission and distribution losses – remains unresolved.

Pakistan’s economy has recovered from the impacts of the 2009 global economic slowdown and registered an annual growth of 3.8 percent in 2010. Severe floods at the start of 2011 impacted the economic activity in the first half of the year, while the economy maintained an annual average growth of 2.4 percent supported by exports of textiles and flood relief-related service activity,” maintained the report.

According to the report, Pakistan is facing a number of challenges which are: (a) developing domestic energy sources to diversify from a heavy dependence on imported fuel oil; (b) securing affordable and reliable energy import sources; (c) restructuring the electricity sector to improve its financial basis and management, including electricity tariff rationalisation; (d) developing infrastructure necessary for electricity and gas supply, since 30 percent and 80 percent of the population has no access to electricity and pipeline gas, respectively; (e) investing in electricity supply infrastructure that can meet the demand growth while assuring reliability; and (f) improving sectoral energy efficiency to manage demand growth.

Since achieving all this takes time, Pakistan needs considering options in the short, medium and long terms.

The report further states that Pakistan’s GDP is projected to increase at an annual rate of 3.4 percent. With this growth, GDP will rise from $116 billion (constant 2,000 dollars) in 2013 to $269.6 billion in 2035. The population is projected to increase at a relatively fast pace of 1.4 percent through 2035, reaching 245.9 million in 2035 from 173.4 million in 2010.

The final energy demand of Pakistan is projected to increase at an annual rate of 2.1 percent by 2035, slower than the projected GDP growth rate of 3.4 percent during the same period. With this growth rate, the final energy demand will reach 117.6 Mtoe in 2035, up from 69.8 Mtoe in 2010.

In terms of domestic energy supply, Pakistan will have to increasingly rely on imported energy sources. Some initiatives and plans are underway to import natural gas from Iran, Qatar, and Turkmenistan. Cooperation with the neighboring countries will be important in this regard to lay the necessary infrastructure for import. Progress has been made in plans to develop domestic coal resources from the Thar coalfield. Nevertheless, the cost of development would be high as its deposits are spread over 9,000 kilometers, and the resources are located between 1.2 kilometers and 4.8 kilometers below the ground. Securing sufficient investment will be a challenge.

Steady progress will have to be made in diversifying energy sources from natural gas as well as in energy savings, particularly on the demand side, to cope with the challenges surrounding supply constraints. Nuclear, new and renewable energy sources are being considered for expansion. These generation sources will greatly reduce import needs, while the safety of nuclear usage as well as the enhancement of grid stability through the expanded new and renewable energy sources will have to be secured. The achievement of energy source diversification, particularly in the power sector, may require fundamental structural reform to ensure that electricity tariffs reflect the true cost and long-term purchases are made from the private generators.

It is important to note that demand-side efficiency improvements will greatly affect Pakistan’s overall energy requirements. It is, therefore, desirable for Pakistan to consider energy efficiency as a priority item in its energy policy agenda.