Power sector a mess that requires reforms
photo: file
A research study has pointed out several flaws in the power sector of Pakistan and urged the government to adopt swift governance and policy reforms as well as develop business models to boost renewable energy and liberalise energy market through deregulation and privatisation.
In a report published recently, the Institute of Policy Studies (IPS) called the power sector “a mess” that required comprehensive and swift governance and policy reforms.
Some of these include development of business models to boost renewable energy production, liberalisation of energy market via deregulation and privatisation, renegotiating tariffs for independent power producers (IPPs), segregation and deregulation of administrative and operational activities of power distribution companies leading towards public-private partnership, and implementation of accelerated reforms for modernisation.
These and several other policy options and practical solutions for sustainable development of the power sector were put forward in a wide-ranging study titled “Pitfalls in Power Sector of Pakistan: Accumulation of Circular Debt – Causes, Consequences, and Way Forward”.
The IPS research report, while discussing constraints and shortcomings of the power sector, particularly focused on identifying the factors contributing to an exponential increase in circular debt, which had reached Rs4 trillion, and providing doable solutions.
The power sector has long been stifled by numerous issues that hamper not only sustainable development but also its efficient progress and strategic growth. As a result, “Pakistan has been severely affected by the energy crisis, resulting in a negative impact on the overall economy”.
Among the factors contributing to the rise in circular debt are dependence on expensive imported fuels, high power generation costs from thermal sources, unfavourable rupee-dollar parity, poor governance and policy lapses, regulatory issues, inadequate recovery of revenues by distribution companies, financial sustainability challenges, capacity charges, aging infrastructure, and line losses.
According to the report, the rise in circular debt requires regular tariff hikes to maintain a proper cash flow for public and private entities but this affects the energy affordability of consumers.
Additionally, the vertically integrated market of the power sector is partially monopolised, where state institutions play a dominant role. “This structure results in non-existent competition between entities.”
Read Concern over energy inefficiency
At present, 78 IPPs are operating in Pakistan and are mainly based on imported fuel.
The country’s total installed power generation capacity is 40,813 megawatts, excluding that of K-Electric. Peak demand during financial year 2021-22 was calculated at 28,253MW, however, the transmission capacity of electricity infrastructure remained restricted to 23,000MW.
On the other hand, transmission and distribution losses of state-owned distribution companies in FY22 amounted to over 17% against the target of 13% determined by the National Electric Power Regulatory Authority (Nepra).
So even with surplus electricity, according to the report, consumers face load-shedding despite paying higher power tariffs because of an obsolete and deficient transmission and distribution system.
In this scenario, public-private partnership is the way forward to extricate the power sector from this quagmire. “This also requires new investments in the transmission and distribution system and shift to the latest technology to reduce line losses.”
The study pointed out that a major reason for the burden on consumers was the obsolete and less efficient power transmission system, therefore, transmission must be made an investment priority area, along with energy transition and digitisation.
Commenting on the report, IPS Chairman Khalid Rahman underscored the urgency for the government to formulate a financing plan and investment policy.
He pointed out that investments oriented towards the transmission and distribution system along with digitisation could address the sector’s inefficiencies and help in rationalising power tariff, one of the highest in the region.
He also underlined the requirement of public-private partnership to give a boost to the power sector.
Published in The Express Tribune, May 2nd, 2023.
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