The electricity landscape

Bill Clinton said it well: “it’s the economy, stupid”. And for a prolific and competitive economy, it is imperative to have a conducive environment that is based on, among other things, cheap and ubiquitous electricity supply.

Without uninterrupted and cheap electricity, corporations can’t sustain viable operations to produce competitive products and services. That has primarily been the dilemma with Pakistan’s economic meltdown and dwindling exports. By not planning and executing projects to supplement the electricity demand, Pakistan has annihilated its economy and competitive edge while even neighboring countries like Bangladesh have been able to make their mark on the world’s economy.

Mainly, the electricity crisis is caused by lack of planning, where the government didn’t build enough sources to cope with the demand. In the 1960s, a report was published (by the Planning Commission) that projected that Pakistan would need to build a few dams in the following decades to meet its electricity demand. However, like much other government planning and execution, the report went the wayside. Had the dams been commissioned then, Pakistan's electricity problems could have been largely curtailed.

Having said that, we must start somewhere since the country can’t bear the crisis any longer. A bottom-up approach is needed that is focused on restructuring the whole sector and involving the private sector on a competitive basis. Efforts have been made to streamline electricity production through contracts with IPPs, mainly in Karachi. However, mostly not enough credence and planning went into structuring the deals, which has not only resulted in sub-optimized electricity production but also expensive electricity delivered through the channels.

Further, instead of focusing on traditional electricity production channels, like dams, Pakistan has to bring forth alternate means. Solar, thermal, fossil fuel are some of the viable sources that need to be considered for large-scale, inexpensive electricity production. Importantly, deployment of alternate means cannot be effective without the integration of the private sector.

The electricity problem is magnified due to the depleted infrastructure. The transmission system is mostly obsolete and cannot supply electricity efficiently to consumers. The grid system with the transformers and regeneration centers was built in the 1960s and has mostly lived out its life. Combine that with over the surface gridlines and most of the electricity is lost by the time it gets to end-users.

Per the IAEA, in 2013 electricity production from coal and liquid was 3,450 and 45.9 million tons, respectively, and gas was 22.7 trillion cubic ft. Nuclear was zero and hydro and wind was 55 and 50 GW, respectively. Based on this data, most of Pakistan’s reliance has been on coal, along with hydro. Even though Pakistan has significant potential for electricity production from hydro energy, it’s not that efficient and comes with its own political and development issues. A case in point is the Basha Dam that’s been under construction for over a decade and may even take another decade if not longer to be completed.

Recently, the electricity crisis has taken a graver shape, with the circular debt skyrocketing, loadshedding exceeding over 10 hours in summers and electricity becoming a virtual novelty instead of a commodity that everyone can afford.

The solution to the electricity crisis is twofold – the source of electricity and infrastructure development. Even though we may have over 37,000 megawatts of electricity production with the demand of about 25,000 megawatts, the source of the current electricity production and its disbursement is a major issue, which is neither cost-effective nor distributed effectively. Further, the government is the sole buyer of the electricity and it also has to pay the IPPs, due to the contractual obligations, even if the electricity is not generated. This puts extra pressure on the cost of electricity which in turn is passed on to the public.

Moreover, Pakistan has been building power plants mainly through loans from China that have resulted in the excess electricity supply but due to the depleted transmission lines. Still over 50 million people in the country are without electricity, and those that get electricity pay for it through their nose. Pakistan has to pay back the loans taken for the production of electricity and the fixed capacity charges per year have gone over Rs850 billion and expected to reach Rs1.45 trillion by 2023.

Pakistan must take advantage of its indigenous resources and environment like fossil, thermal (oil, and gas) solar and wind potential and set up grid-fed solar farms through the private sector in all the major cities to produce inexpensive, ubiquitous electricity. In urban and rural areas where the electricity infrastructure is intact and capable of supplying electricity without significant losses, multiple IPPs should be given long-term contracts. Except for areas of national security, Wapda and its affiliate organizations have to be privatized and decentralized.

Based on the current electricity fiasco, the only viable solution is to privatize the power sector, and offload to the extent possible the debt burden on to the private sector. The sheer size of the consumer and potential industry market is large enough to attract private corporations with attractive ROIs. On a competitive basis and market-driven rates, the corporations will be responsible for the generation and supply of electricity.

The writer is a finance/economics professional.

Email: usman.arbab@gmail.com