New power minister plans to shift energy mix in 3 'pain' filled years

Khwaja Asif intends to reduce expensive fuel imports and shift to hydropower, eliminating loadshedding in 3 years.

ISLAMABAD: The new energy minister said on Thursday that he aims to shift country's energy mix in three years, laying out an ambitious plan to tackle crippling power shortages that have devastated the economy and sparked violent protests, but warned that there would be a lot of "pain", before the "patient" can be up and rinning.

Blackouts lasting more than half a day in some areas have infuriated many Pakistanis, prompting the new prime minister, Nawaz Sharif, to declare tackling the crisis one of his top priorities.

Minister for water and power Khawaja Asif, told Reuters that his team would reduce Pakistan's reliance on expensive oil imports, build new power plants and pay off a chain of debt choking one of the most inefficient energy sectors in the world.

As part of the new plan, Asif said the government would announce
significant cuts to subsidised tariffs for powerful industries in the next few days and boost investment to upgrade ageing transmission lines and power generation facilities.

"The whole thing is a nightmare," said Asif, describing the current state of his sector.

"We are going for a surgery. There will be a lot of pain. A lot of discomfort. But once the patient is up and about, running, then he will say that the pain was worthwhile."

Asif, seen as a pro-market technocrat, served as the petroleum minister in 2008 and was chairman of the privatisation commission in a previous Sharif cabinet in the 1990s.

His plan, due to be unveiled next week, is set to be Pakistan's boldest attempt in over a decade to tackle persistent power cuts that have stunted economic growth in a country already plagued by sectarian violence, poverty and corruption.

But critics have questioned just how far Sharif will be prepared to go to overhaul an important sector criss-crossed by decades-long alliances, industry loyalties and lobby groups watching each other's backs.

Asif said his first step was to plug a Rs500 billion ($5 billion) financing hole, known as 'circular debt' - a vicious cycle of unpaid bills running through the entire power-generation chain - and to reduce the length of power cuts.

"The elimination of loadshedding (power cuts) completely will take place in three years, God willing," he said.

Privatisation

State owned power companies are notoriously inefficient. Many influential families refuse to pay their bills while the poor often cannot afford to pay.

The government sells power below the cost of production but pays subsidies late or not at all. Plants cannot afford fuel. As a result, Pakistan has lost an estimated Rs5 billion in the last five years, a loss it can ill-afford as it struggles to revive its moribund economy and reduce its budget deficit.

The government had already paid $3 billion of the circular debt in its first 40 days in office and plans to pay off the rest by the first week of August, Asif said.

"At the moment we need to get rid of this debt situation," he said. "If we don't do that, it will start piling up again."

In the longer term, he said Pakistan would move from relying on expensive imported oil to hydroelectric, coal and gas-based power to reduce the costs of generation.

"Our goal is to change the energy mix of our country," Asif said. "New generation capacity should be based on cheaper fuel."

For this, at least 10 hydroelectric power plants are in the pipeline, which Asif predicts will come online by 2016.

New projects also include a Chinese-financed wind power plant near the second city of Karachi, solar energy projects in Sharif's home province of Punjab and plans to import liquefied natural gas via a new terminal from 2014.

"Generation can be taken over by the private sector and distribution should be also done by the private sector. The government should gradually get out of this business," said Asif.

"We will increase the tariff in the coming days. Bigger consumers, they will have ... no subsidy. But we will protect the domestic consumers," he said, referring to individual households.