Serious problems in the energy sector
EDITORIAL (November 20 2007): While consumers in Pakistan continue to face energy shortages, multilateral institutions also seem to be equally worried about the issues in the energy sector. According to a World Bank study on "Potential and Prospects for Regional Energy Trade in the South Asia Region", the huge accumulative losses of Wapda and KESC are a matter of great concern and the government needs to work out a plan to overcome the growing power shortage in the country.
"One estimate places the annual financial losses of Wapda and KESC at about 585 million dollars in the early years of this decade. The losses are increasing since Wapda's losses alone were estimated at 817 million dollars for financial year 2006". The system losses of the two power utilities were also very significant.
During the 10 years between 1996 and 2005, Wapda's total system losses, (including auxiliary consumption of generation plants, transmission and distribution losses) ranged between 24.13 percent (the lowest in the period), and 27.55 percent (the highest in the period), while KESC's system losses ranged between 35.14 percent and 47.39 percent.
Non-payment of bills and theft of electricity in the KESC were so rampant that the army had to be called in to prevent theft and enforce collections. Collection was also particularly difficult in the Federally Administered Tribal Areas. Tariffs have traditionally lagged behind cost of supply and both the power utilities had been accumulating substantial losses despite periodic financial recovery packages.
The World Bank has also discussed the issues relating to natural gas and inter-connection of grids in the regional context. According to its projections, gas demand in Pakistan would grow annually at the rate of seven percent over the next 25 to 30 years, while the supply shortfall would be about four percent to 10 percent till 2010, and thereafter widen to 20 percent or more.
Gas demand in India is forecast to grow at an annual rate of eight percent in the next 25 to 30 years. At present, India and Pakistan have a total gas consumption of about 2.50 tcf. After inter-connection of their grids, Pakistan and India would be able to create a full regional electricity and gas market serving a population of 1.5 billion people.
This market would be largest in the world, whose sheer size would make it easier to mitigate the various risks, bear external shocks, reduce costs, create additional and more profitable trading opportunities and attract investments.
The hydropower import of 1000 MW from Tajikistan and Kyrgyz Republic to Pakistan and Afghanistan was being currently discussed and formulated with the help of multilateral and bilateral development partners led by the World Bank. The Bank believes that Pakistan could also become a major market for surplus energy from Iran and Turkmenistan.
The World Bank's study, in our view, has once again highlighted the issues in the energy sector in a very candid fashion. These may not be new or have been presented dramatically but certainly call for a thorough review of the situation and undertaking of appropriate measures at the earliest to ensure viability and solvency of the power utilities in the country.
It must be understood that inaction on this front is no more an option and could lead to a major economic catastrophe. A very sad aspect of this ugly situation is that every government, instead of taking long-term measures, has relied on adhocism and tried to postpone the inevitable one way or the other. Seen closely, the problems of the energy sector are really mind-boggling.
The magnitude of system losses and the financial haemorrhage borne by Wapda and KESC are too great to be sustained year after year and the government exchequer cannot carry the burden of mismanagement of the power utilities for long due to lack of fiscal space.
In fact, no power utility can hope to survive if its system losses are one third of its total generation. The fact that even the army has not been successful in arresting this hopeless trend speaks volumes about the dishonesty, corruption and institutional decay in the country.
Added to this is the usual reluctance of the sitting governments to adjust power tariffs to cover the losses in response to higher production costs, out of political expediency. The position could somehow be managed if hydropower potential of the country was fully exploited.
But this cheap source of energy remains largely untapped due to political bickering and indecision. Privatisation, once regarded as a way out of the crisis, seems to be in great disrepute as a strategy option after the experience of KESC which has sunk to new lows as far as efficiency and performance are concerned.
The idea of linking of grids between Pakistan and India is both workable and useful but full advantage of such a project could only be realised if there is a complete understanding on political issues between the two countries.
Seen from every angle, the situation is complex and serious and the authorities need to work overtime for the resolution of problems of the energy sector on a long-term basis. Failure on this front could lead to disastrous consequences. The recent rapid progress on the gas line project between Pakistan and Iran shows that a way can always be found if there is a will to succeed.
Business Recorder [Pakistan's First Financial Daily]
