Power shortages - cause and effect

Power riots have hit several cities of the Punjab, including Lahore and the textile capital of the country Faisalabad. Cities and towns in other provinces have begun to witness power riots too. The loss of revenue because of unrest is staggering with crowds getting violent and destroying public and private property. The anger, one can argue, is justified to the extent that the government has miserably failed to resolve the crisis fourth year running.
What has added fuel to the fire of public discontent is the fact that senior members of the executive including the Prime Minister periodically direct the sector not to engage in loadshedding for a specific event, for example during a cricket match, a direction that many argue reflects the obvious fact that there is no generational energy shortage that cannot be managed. This is not an accurate analysis. The demand for electricity hovers around 12,000MW to 15,000MW, while production is between 8,000MW and 9,000MW. There is, therefore, a persistent huge shortfall. As a result, most consumers in the country, suffer loadshedding of around six hours a day. In the last two days, output of Mangla and Tarbela dropped from 3,000MW to 1,500MW and two major IPPs - Hubco and Lalpir - stopped production, adding to the deficit another 700MW. As a result, power outages increased from six to 18 hours as electricity generation fell to a measly 7,700MW.
The major cause of the current energy shortage is not only water shortage, due to the prolonged winter this year, which has delayed the ice melt as well as rains that feed our rivers, but the overriding fact is that the sector remains hostage to circular debt. The distribution companies lament that only 70 percent of their utility bills are cleared by their clients, the biggest defaulters being federal and provincial ministries and departments which do not enable them to clear their own bills to generation companies.
This, in turn, implies that the generation companies are unable to clear their bills to Pakistan State Oil which, in turn, finds it extremely difficult to make payment to refineries. It also adversely impact this energy company's ability to freely import Mogas, HSD, JP1 and furnace oil (FO) as and when required to meet the supply deficit of the country. To enable the sector to implement the Prime Minister's directives to end loadshedding for a day is therefore dependent on the release of enough money by the Finance Ministry to clear enough of the circular debt that would enable the generation companies to reduce shortages for a limited period of time. Until and unless the entire circular debt is cleared loadshedding is unlikely to end.
Additionally, it is relevant to note that the federal government does not have the finances to clear the entire debt; recently the government pressurised banks, which resisted attempts to increase their exposure to the sector, to provide less than 150 billion rupees to the liquidity-starved sector. While many may argue this is a step in the right direction yet it is relevant to note that it is a small and not very important amount as total circular debt is estimated at over 500 billion rupees. Thus the PM's directives are of extremely limited duration given that the releases by the Ministry of Finance for this purpose are no more than 10 billion to 15 billion rupees because of the inability of the government to eliminate circular debt once and for all.
The ongoing disturbances were taken notice of by Prime Minister Gilani in Seoul and he directed the relevant authorities to end unscheduled loadshedding. This exhortation is unlikely to be fully heeded for the simple reason that the number of hours of loadshedding required to meet existing power supply shortages would be too high to be acceptable to the public. In short, if over 12 to 16 hours of loadshedding is announced it is unlikely to be received with equanimity by the public.
Additionally, Indus River System Authority has noted a 21 percent water shortage for the Kharif crops and has recommended that irrigation for the crops must be given priority over using water for power generation. It is unfortunate, but at the present moment in time the government has no other option but to ensure that irrigation is given preference over energy generation with the objective of ensuring that the country does not have power riots as well as food riots. However, the loss of gross national income due to electricity shortages will continue to escalate - a loss that would impact on not only inflation in the country as too few goods would be chasing too much money (due to increased public sector borrowing) but employment levels in the country would also plummet.
Federal Ministry of Finance's unwillingness to clear the circular debt in one go is quite understandable because debt-servicing alone is already consuming Rs 500 billion to Rs 600 billion of the federal budget. Monetisation of the debt would also amount to acceptance that overdue payments from various provincially managed departments are now non-receivable. Pressure on government entities to pay up to power distribution companies would ease off. This pressure tactic has not worked for four years and is not likely to work in the future as well.
It is about time country's political leadership ends the blame-game and instead addresses the issue in earnest. A national energy plan with the backing of both sides of aisle in the Parliament needs to be drawn up which recognises that the present energy mix in the power sector is no more affordable nor is economically feasible. Political convergence on hydel and coal (imported in the short-term and local in the medium-term) needs to be achieved and benchmark targets fixed. Installed capacity is said to be around 23,000MW while production at present is 8500MW. Persistent subsidy to the power sector is not a sustainable option. Unless the present political gridlock on moving forward on the power front is broken the country shall continue to limp from crisis to crisis. The national energy plan should constitute an integrated and indivisible whole, each part of which is related to and dependent upon the other. No partial plan for energy security can be effective, or should be accepted by the policymakers in particular.