Earlier on Monday, a tweet by political commentator Moeed Pirzada regarding prolonged electricity failure in Islamabad gathered enormous response on social media. People from across several cities united under the dismay of ‘load-shedding for maintenance’’.
In Islamabad, after every few days, there is a prolonged Electricity Failure (different sectors) that lasts several hours (F/8 most hit) without the slightest explanation or sense of shame; who is the incompetent man responsible? Is he accountable to anyone in this country?
— Moeed Pirzada (@MoeedNj) December 16, 2019
As Pakistan’s electricity generation has increased to roughly 20,000 MW, enough to meet the country’s requirements, this begged people to ask the question: if Pakistan isn’t suffering from energy shortage as it was before, why is the country still falling victim to load-shedding? After conversations with experts on the matter, the GVS team drafted the following explanation.
The problem centres around bad governance which fails to combat high revenue losses, and transmission and distribution constraints.
Circular Debt
In 2019, Pakistan’s 207 million people and its industries need 15.000 megawatts (MW) of electricity generation capacity, according to data from the power ministry. This need is estimated to rise 6-7% every year. That number will increase as demand rises in the peak summer months. But the ministry says that demand could easily be met using the country’s installed generation capacity of roughly 20,000MW from plants running on coal, oil, gas, hydroelectric and nuclear power.
However, a shortfall of supply exists despite sufficient generation because there is no money to pay for it.
At the heart of the problem is a phenomenon referred to in Pakistan as ‘circular debt‘ – a cascade of unpaid bills and government subsidies, coupled with transmission line losses.
A major component of this debt, according to a 2018 World Bank report, is unpaid subsidies from the government to power distributing companies, compensating them for the below-market tariffs these firms have to charge consumers. As a result, distributors are often unable to pay power producers, who then find it difficult to pay for fuel and are forced to keep plants idle.
Last fiscal year, losses due to theft or transmission system inefficiency stood at 29 percent of power generated, amounting to roughly 140 billion Pakistani rupees ($990 million) in electricity that was generated but never paid for because it never reached consumers
Taking thermal power run by IPPs for example, which accounts of 64% of the country’s power production, the issue lies with the structurally week power purchase agreements (PPA) signed in the 1990’s under PPP’s regime. The agreements establish that IPPs will receive, both, energy and capacity payments. If a producer has set up a project with 500 MW capacity but the government, who is responsible for the provision of oil to these IPPs, is unable to do so, the IPPs still receive their payments from the government which defaults while IPPs fail to produce electricity and shut down provision.
Smaller parts of the debt are composed of discrepancies between the government-notified tariff and market rates caused by delays in government adjustments to the tariff and fluctuating international fuel prices.
As of April 2019, Pakistan’s circular debt in the power sector stood at roughly $10.6 million and estimated to grow $6.4 million every day
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Transmission & Distribution Chaos
The mandate of Pakistan’s National Transmission and Dispatch Company (NTDC) is the evacuation of electricity from plan to grids such as IESCO, LESCO, etc. that handle the distribution thereon.
The government has identified 19 transmission constraint issues which result in line losses of power well above the 15-16% average estimated. The outdated infrastructure is not capable of efficiently carrying electricity to distributors that have to provide electricity to industries and people.
Last fiscal year, losses due to theft or transmission system inefficiency stood at 29 percent of power generated, amounting to roughly 140 billion Pakistani rupees ($990 million) in electricity that was generated but never paid for because it never reached consumers.
In addition, the government is investing in a $100 million pilot project to install ‘smart’ meters, which would make theft more difficult, in the northern city of Rawalpindi, with a view to expanding the project to cover the entire country
These losses also occur due to theft plaguing the industry.
Distribution, on the other hand, fares even worse. As generation continues to meet the country’s needs, distribution companies do not have the capacity to hold and distribute the amount of power required in their respective cities. The limited distribution capacity leads to shortfalls in supply and consequently, ‘load-shedding’.
Fixing distribution issues is underlined with financial, time, and logistical issues. Not only will the overhaul require billions but the existing mechanism will have to be entirely revamped. For example, it would be close to impossible to establish underground distribution by digging through proper routes in an undeveloped city such as Rawalpindi riddled with urban mismanagement. Even if surface technology is considered as an alternative, getting Right of Way (ROW) would involve chaotic legal dilemmas.
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Load-shedding due to actual ‘maintenance’ should occur as a rare phenomenon as it involves quick repairs and maintenance checks by distributors, but the reality seems to be that it is an excuse used by distributors unable to announce their lack of capacity to the frustrated public.
Government Action
The government is planning a multi-pronged approach to tackle its power issues.
First, the government intends to raise its tariffs so they are closer to market rates and recover costs. While it is clear that customers should not be paying for theft of others or inefficiencies of the system, they should be paying for the cost of delivery of services.
I congratulate Omar Ayub and his whole team. Rs 81 billion increase in collection in 8 months. Rs 58 billion from theft control. 80 percent of the country free from load shedding. Zero load shedding at sehr and iftar. Keep up the good work. This is Naya Pakistan.
— Imran Khan (@ImranKhanPTI) May 24, 2019
The government will also be working on reducing transmission and distribution losses – long cited as a structural obstacle by analysts – in order to stem the financial losses in the sector. The government is targeting these losses through both arrests of those found to be stealing electricity and by attempting to address the infrastructure problems that lead to transmission losses in the first place.
In addition, the government is investing in a $100 million pilot project to install ‘smart’ meters, which would make theft more difficult, in the northern city of Rawalpindi, with a view to expanding the project to cover the entire country. The total cost of the countrywide replacement of meters would stand at roughly $3.5 billion.