Pakistan made significant strides in improving its power supply situation: Thousands of megawatts of power were added to the infrastructure to bring the country into a surplus of generation capacity. At first glance this would be a tremendous milestone, but the fact is that it addresses only a part of the problems plaguing the sector as we know it.
The unfortunate state of affairs is that the increase in generation has not been met with a complementary enhancement of the transmission capacity of the National Grid. Nor has enough effort been made to reduce the Aggregate Technical and Commercial (AT&C) Losses, which is a major contributor to the country's Circular Debt dilemma. The global average for Transmission and Distribution losses is reported at about 8% (per World Bank's last reported statistics in 2014); in stark contrast, Pakistan today stands at an average of about 20%. According to recent estimates, the circular debt amount has crossed PKR 1.5 trillion, with a threat of growing further if no timely intervention takes place.
Further complicating matters are the dwindling reservoirs of natural gas and furnace oil as an expensive alternative fuel for generation. It is becoming increasingly imperative that Pakistan needs to diversify its fuel mix, fast track hydel projects in pipeline and prioritize inclusion of renewable power to reduce supply constraint vulnerability and reduce tariffs. Reduced tariffs have two major advantages. Firstly, it relieves the pressure on Discos by reducing the outstanding amounts, and increases the end consumer's propensity to pay a lower amount. Secondly, it will allow the government flexibility to reevaluate the current regime of subsidies and surcharges and propose modifications through which more financial resources can be available to reduce circular debt.
Significant investment underpins all these imperatives. The Finance Minister, Asad Umar, has said that the government is mulling introducing an open market mechanism in the energy sector to minimize the burden while "work(ing) full throttle on loss-making public sector enterprises". While this is clearly a step in the right direction, it contrasts with the extensive delay in materializing USD 9 billion investment in Karachi's power infrastructure.
In 2016 Shanghai Electric Power expressed its intent to acquire K-Electric followed by its plans to invest an unprecedented USD 9 billion across Karachi's energy value chain over a period of 10 years; this is more than 4 times the investment made between 2009 and 2017 as claimed by current K-Electric management. Disclosed focus areas for the investment are primarily large power projects increasing Karachi's installed generation capacity to at least 7500 MW and even as high as 11,000 MW depending on demand growth. Per SEP plan, this would be coupled with measures to strengthen efficiency significantly while also pursuing cheaper fuel sources including renewables. Considering that Karachi's generation capacity still includes a significant dependence on the National Grid, one can imagine the economic potential that would be unlocked with local industry's access to uninterrupted and cost-effective power and the subsequent impact on GDP.
The China Pakistan Economic Corridor is bringing almost USD 62 billion in investment in the country, with a majority of the amount earmarked for power projects. The irony is that some of these plants will be set up in Port Qasim, but not a single kilowatt is being allocated for Karachi's future demands. In effect, the only option that Pakistan's largest metropolis has for its progress is KE, and without adequate and timely investment in the infrastructure the situation will only worsen.
While KE's current owners, The Abraaj Group, were successful in turning the ailing public utility into a profitable business and there has been improvement in performance in 10 years, in the relay race of progress, this was merely the first leg. With the liquidation of The Abraaj Group, we must be cognizant that the parent company's circumstances and fundamentals limit K-Electric's ability to invest in transformative growth which will potentially stunt Karachi's development. To maintain the growth trajectory of the company and the city, the time seems ripe to hand over the baton to another investor, which has the expertise, intention and financial muscle to carry the company to the next level of its potential.
A cause for concern is the over two-year delay to Karachi realizing these benefits for a multitude of reasons including a delayed tariff, the utility's circular debt situation with KWSB and SSGC and perhaps even the vested interest of certain quarters in curtailing Karachi's growth. Had the matter been resolved earlier, Shanghai Electric would have been well on its way to actualizing these investment plans which would have gone on to cushion the projected surge in demand that accompanies the summer months.
Given Karachi's strategic and economic importance to the country, the slow pace is certainly alarming for the consumers in the city. Furthermore, it sets a shaky precedent for other investors who are using K-Electric's sale as a yardstick for the ease of entering the region.
With each passing day, we edge closer to the point of no return, where even aggressive investment will not be able to catch up with the demands of the city. It is imperative that the issues deterring this needed investment are resolved in a timely manner; otherwise it will be a huge setback for the city. The issues and challenges facing Karachi's power sector in particular must be highlighted and discussed at the highest levels.
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