Electricity shortfall peaked at 6000 MW a couple of weeks ago and has fluctuated since. Last week it was in excess of 4000 MW as summer temperatures continued to soar. However, the past week witnessed many a violent protest in several cities where load shedding continued unabated. The public burdened with long hours of load shedding accused the government of understatement of the supply-demand gap.
PPP loyalists argue that the energy crisis is a national problem and requires national consensus. Members of the opposition accuse the government of not taking anyone on board while supporting policies that allegedly have enriched a few individuals. The reference is to the controversial rental power projects (RPPs) opposed by all major political parties within and outside parliament as well as by an independent third party audit. In this context it is relevant to note that Minister for Water and Power Naveed Qamar has categorically stated that there will be no additional RRPs but he added that the country will continue to face a 2,500 MW shortfall.
This, he maintained, would be in spite of full supply of oil - implying that the inter-circular debt that had compromised the ability to pay for the critical crude/refined oil imports leading to units operating well below existing capacity would no longer be a contributing factor in the energy shortage. At present, the stock of this debt remains very high (in excess of 200 billion rupees) but the flow of the debt has been dealt with through direct injections by the Ministry of Finance - injections that it can ill-afford and maybe unable to sustain even for the medium term. One would hope that a long-term strategy to eliminate this debt surfaces in the near future, however it is not a component of the fiscal budget 2011-12.
Qamar has made no mention of any concerted effort to improve performance of the sector by reducing pilferages and transmission losses or by rightsizing the workforce. This latter is a serious concern given Qamar's penchant for overstaffing ministries whose portfolio he has controlled in the past with his loyalists. However, he did state that disconnection would be the fate of all those who do not pay bills, be it the Prime Minister's House or the Presidency - residences that are official and not private his critics were quick to point out. Be that as it may, the public has been subjected to such rhetoric in the past with little positive outcome and there is no evidence that this time around would be any different.
The question is what are the options available to the government to meet the energy shortfall in the short, medium- and long-term? And are there likely to be differences of opinion between political parties on the best way forward? Too many papers on how to proceed forward generated through assistance by many a multilateral and bilateral donor at great cost are simply gathering dust in the Ministry of Water and Power.
The recommendations are fairly standard normal: in the short term the inter-circular debt needs to be eliminated on an emergent basis to ensure that the country is optimising the use of its generational capacity; in the medium term the government needs to begin to reduce line losses/transmission losses that are way above the average for the entire region; and in the long term the government must focus on adequate investment to expand generation capacity that may include building dams, as well as projects associated with import of gas/fuel or electricity.
The options favoured by the present government during the past three years are not in line with the above recommendations. In the short term the Ministry of Water and Power, under the leadership of Raja Parvez Ashraf, who has since lost his job, began to approve RPPs. After an across-the-board opposition the then Minister of Finance, Shaukat Tarin, managed to convince his cabinet colleagues to agree to a third party audit.
Instead of vindicating Raja Parvez Ashraf's proposal, the third party audit vindicated the stance taken up by his detractors and noted that (i) the generation capacity is not the issue, operating at the existing generating capacity is, (ii) the contracts awarded violated procurement rules by altering them midway into the bidding process, and (iii) only half of the projects sanctioned by the cabinet and as proposed by Raja Parvez Ashraf must be carried out - a recommendation based on the fact that projects where the award process had matured must not be rolled back as it would lead to costly and time-consuming litigation.
The other short-term measure that this government focused on without success was to convince oil exporting countries to provide us with a deferred payment facility. At present, no Arab country provides Pakistan with this facility other than UAE and Qatar and that too for two months only. In marked contrast, Saudi Arabia had allowed a year's deferred payment facility to the Nawaz Sharif government. Relations between President Zardari and the Saudi king are reportedly strained. However the government should have considered requesting Nawaz Sharif to support it in this endeavour instead of dispatching Rehman Malik on a mission that clearly failed.
It is significant that as early as in 2008 the International Monetary Fund (IMF) team while negotiating the terms and conditions of the 7.6 billion dollar Stand-By Arrangement (SBA) identified the inter-circular debt in the energy sector as a major issue. As per the Letter of Intent submitted by the government of Pakistan to the IMF Board as a prerequisite to the release of the first tranche the government committed to, "prepare, by end-March 2009, a plan for eliminating the inter-corporate circular debt within the fiscal deficit target.
The plan would clearly identify all elements of circular debt, including (i) the identification of all debts owed and due among the corporations, duly reconciled; (ii) the determination of the validity of the claims; (iii) a schedule by which respective entities would discharge their liabilities to each other; and (iv) a timeframe during which the Federal Adjuster would use his powers to make adjustments, in case of failure, to adhere to the approved schedule". Three years down the line the inter-circular debt is hovering around 300 billion rupees and periodic threats by the Pakistan State Oil to the government that it would be unable to import oil and products if its dues are not cleared remain a normal feature of our energy sector.
What is also clearly evident is that the government has also not yet turned its attention towards reducing transmission losses three years down the line and these remain one of the highest in the region.
The long-term solution to meet energy demand is through imports. Leading the list of countries that import their electricity is the world's sole superpower the United States of America. Its total imports from Mexico and Canada by 2008 were 51.396 billion Kilowatt hours (KWH). Canada, in turn, imported around 19.659 billion KWH. Italy imported 48,570 KWH in 2007, Switzerland 34,820 KWH, China 4771 KWH, and Mexico 484.2 KWH. India imports from Nepal and Bhutan totalling around 3189 KWH, while Nepal and Bhutan also import electricity. Pakistan has zero imports to-date. The likely sources from where we can import electricity were identified decades ago but work on these projects remains stalled. The US-supported Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project remains a hostage to (i) a civil war torn Afghanistan with risk of blowing up of a pipeline high, (ii) Russian concerns over the resultant increase in US leverage in its backyard; and (iii) Indian security concerns as the pipeline would pass through nuclear rival Pakistan. The other project namely Iran Pakistan gas pipeline is a non-starter given US and Western opposition to it. In addition Iran has made periodic revisions to the agreed price which further delayed the implementation of the project.
So what's the action plan three years down the line? More of the same, release funds as and when required to ensure full fuel supply to generation plants, continue to engage in dialogue for the start of IP and TAPI and drag their feet in dealing with the power sector reforms as much as possible. The only major decision, not yet implemented, is to integrate the various ministries dealing with the energy crisis in an effort to evolve a comprehensive strategy. However, in Pakistan, integration of ministries has remained hostage to the need to have an extremely large cabinet ostensibly for ensuring that the reconciliation process (at great cost to the public exchequer and the people of this country) continues; but in reality it is a way to keep a government without an overall majority in parliament propped up.