Energy Policy Directions: Seeking the Right Path
Preamble
Energy fuels economic growth! But for Pakistan’s energy sector, it’s a constant struggle. There has been a gradual buildup of chaotic situations over decades—one crisis after another, but the sector has failed to learn. The energy sector in Pakistan exemplifies a broader fallacy—a sector struggling with challenges beyond mere implementation hurdles. This underscores the longstanding and pervasive nature of the problem at hand.
Continuation of inconsistent and vague policies, short-term fixes without vision, an outdated governance model influenced by vested interests, and unprofessional management—all these and more have plagued the sector. There is no simple strategy or easy solution to this menace. Acknowledging and addressing the unique façades of the energy problem is central to meaningful progress.
Policymakers believe they know everything. They seek policy guidance only from donors or foreign consultants. Their assertions, or perhaps misconceptions, elude the intellectual rigor necessary to comprehend the intricate nature of this longstanding and profound mess, which poses real and substantial threats to the sector’s and country’s development.
Navigating Challenges in the Energy Sector
The financial strength of the energy[1] sector is crucial to ensure that it operates smoothly and effectively. In Pakistan’s electricity supply chain, unsustainable financial management, rather than inadequate financial resources, has caused a persistent deficit between incoming and outgoing cash flows – circular debt.
Circular debt grew from PKR 0.1 trillion in FY2006 to PKR 2.63 trillion as of January 2024, causing enormous damage to not just the sector but the whole economy. It is estimated that a 10 percent growth in circular debt causes a total public welfare loss of US$13 billion[2].
Unfortunately, the term circular debt has led policymakers to believe that it is simply an accounting matter. To balance the accounts, they have been using the tool of electricity tariffs. It has not been realized that increase in tariff further increases the circular debt. PIDE Immediate Reform Agenda: IMF and Beyond (2024) rightly defines this as Circularity—tariff increases circular debt; in turn, circular debt leads to tariff increase.
Source: NEPRA Reports
In FY2023, with the increase in tariffs, the financial gap was recorded at nearly PKR 403 billion only because of lower bill collections and unaccounted transmission and distribution losses.
The oversimplified strategy of solely increasing tariffs fails to consider the multifaceted nature of the sector mess, necessitating a meticulous unraveling of intricate complexities and contemplation from diverse perspectives. Beyond that, it’s imperative to recognize that resolving the decades-old imbroglio through quick fixes will only lead to more troubles. Unfortunately, in the last two decades, governments have merely scratched the surface in addressing sector issues[3].
To attract media attention, every other year, they shift blame to consumers or point to electricity theft as the primary cause of financial losses. This overlooks the deficiencies in management, incompetency, and bad decisions of decades. Electricity theft may be an issue, but not the sole factor contributing to financial troubles. Theft occurs only with the involvement of administrative staff[4]. To make matters worse, the administration often overcharges compliant consumers to compensate for theft, low collections, and other leakages due to technical constraints.
[1] This write-up focusses only on the electricity sector.
[2] Malik and Mustafa (2024).
[3] Malik (2020).
[4] PIDE (2024). The Immediate Reform Agenda for Pakistan, Seminar as part of PIDE ISLAH Series, Serena Hotel, Islamabad, April 01.
