Pakistan’s solution to the energy crisis

The share of domestic consumption in Pakistan is much greater than in most countries

Shahid Javed Burki May 08, 2017
The writer is a former caretaker finance minister and served as vice-president at the World Bank

When the present government assumed power in Islamabad, in May 2013, it promised to deal with the three major problems the country faced at that time.

It called these the three “Es” — extremism, energy and the economy. It kept its word and worked hard and well in all three areas. Progress was made: force has been used to beat back the spread of extremism in the country; plans were made and implemented in addressing the problem of energy shortages; and with help from the IMF, the economy was stabilised and put on the course for sustained development.

There is a direct relationship between economic development and power consumption. Pakistan’s per capita consumption of electricity, estimated at 451 kWh, is only one-sixth of the world average of 2,730 kWh. It is increasing at the rate of 8 per cent a year. The International Energy Agency forecasts that total energy demand of the country will be 49GW in 2025. This means that Pakistan will need to generate an additional 28GW of electricity in the next eight years or 3,500MW a year. Putting it in a different way, Pakistan will need to bring into production six power plants a year, each with the capacity to generate 600MW of power. This is a task way beyond the government’s stressed resources. Two major policy initiatives are needed to make this possible: greater reliance on private money and greater use of coal.

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K-Electric, the privately owned company that supplies electricity to the megacity of Karachi is a good case study of the change privatization could bring in this vital area. Many parts of the city suffered 10 hours a day without electricity. But Karachi was not alone, peak demand in the country “surpassed generating capacity by 6GW — equivalent to about 12 medium-sized coal power plants,” wrote Kiran Stacey and Henny Sender in the Financial Times, in their story “Pakistan Electricity Generation: Coal gives glimmer of hope on blackouts.” Privatisation of poorly managed publicly-owned distribution companies was one possible solution to the energy crisis. However, K-Electric, then known as KEPCO, was the only entity that was handed over to the private sector. “But it has taken years for engineers from K-Electric, the local power company, to unpick the tangle of loose wires and illegal connections that were symptomatic of a city deprived of regular electricity for the past decade,” wrote Stacey and Sender.

The government headed by Prime Minister Nawaz Sharif decided to focus on increasing power generation as a way of solving the energy crisis that was creating both economic and political problems. Cutting down on losses because of the antiquated transmission and distribution systems and reducing pilferage would take time the policymakers believed the country did not have. Many of the under-construction coal plants are being built by Chinese companies under CPEC that will bring in some $50 billion of Chinese investment into the country. Some $35 billion of this amount will be spent on constructing new power plants. Several of these will use local coal as the source of power, taking advantage of the 175 billion tonnes of coal reserves discovered at Thar in Sindh. According to the government, at least one new plant will come online every month until March 2018, producing 8GW of new capacity. This additional supply would not only close the demand-supply gap but leave the country with some surplus.

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The use of coal as the source of power production will change the energy balance in the country. Imported furnace oil produces 35 per cent of the total supply currently, gas both imported and local provides another 29 per cent, hydroelectricity generates another 29 per cent and nuclear is the source of the remaining 6 per cent. At present the share of coal is miniscule. Oil is expensive, one reason why Pakistan has some of the highest power prices in Asia. The average price of unit of electricity is $0.13, compared to $0.12 for India and $0.11 for China. These countries rely much more on coal.  With greater reliance on coal, Pakistan should be able to reduce the cost of electricity for consumers.

However, the longer-term solution will need to go beyond increasing the capacity to generate additional power. Efficiency of transmission and distribution and the use of electricity will need to be included in the strategy. In fact, the government’s approach should go beyond eliminating load-shedding. It should determine how electricity could contribute to increasing the growth in national product as well as ensuring that people become efficient consumers of the power they are provided. Losses incurred in both transmission and distribution are large, reducing them would obviate the need for investing huge amounts in generating additional supplies. There is also the question of the pricing of power.

The share of domestic consumption in Pakistan is much greater than in most countries at its stage of development. The reason is that the state subsidises domestic consumption, especially for more affluent households. This happens at the cost of power for industrial consumers. This is one reason why compared to the size of the economy, the country remains less industrialised. A wellrounded energy policy, therefore, must cover a number of areas, not just concentration on the supply-side.

Published in The Express Tribune, May 8th, 2017.

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