Energy crisis costs two percent of GDP annually

Poor policymaking was considered main cause of the prevailing energy crisis in Pakistan leading to an annual 2 percent of Gross Domestic Product loss, revealed a report on power sector.
Sources said USAID/Pakistan energy office prepared a report on the power sector for "Pak-US energy sector stabilisation development partnership" that indicated long duration of electricity and natural gas load shedding during most months of the year as the most immediate and highest profile economic and social problem of Pakistan.
"All the estimates suggest that power shortages have resulted in an output loss amounting to 2pc of GDP," it pointed out and attributed poor policy making resulting in chronic under-investment, unsustainable subsidies and market distortion that increasingly undermined the sector's ability to meet growing demand. As a result overall power generation and supplies remained almost stagnant in the country at a time when demand for energy surged in excess of 6 percent.
Although the 2002 policy offers very attractive terms and conditions, it failed to bring any foreign investor to the power sector and all new projects in 2010 under the policy are locally financed. The main reason for this was the 1990s Independent Power Plants (IPPs) programme wherein the experience of the foreign investors was not favourable.
The fuel mix, under utilisation of local resources increasing dependence on imported thermal oil, high cost of capital and circular debt as well as regulatory issues are major challenges facing the power sector.
The country's fuel mix remains heavily skewed towards fuel oil and gas at over 77 percent of total consumption, leading to an excessively expensive power generation. The high power generation cost exacerbates collection and under recoveries of the DISCOs, leading to balance sheet deterioration of the power Purchaser (Wapda) and ultimately a persistent liquidity crunch for the power producers. Moreover, indigenous resources of power generation remained unutilised.
The government is required to work closely with stakeholders to ensure cost efficiency, lower cost expansion and smoothing of the eventual power generation cost in order to achieve sustainable recoveries of DISCOs. In addition to regulatory and institutional challenges, investors face relatively high capital costs in Pakistan. This is primarily related to country risk and associated higher costs of raising debt or equity. The circular debt was another major issue in the power sector and is unlikely to be resolved soon. The impact of the unresolved circular debt on liquidity of the entire energy chain would be negative.