Energy Crises and Riots in Pakistan

The ways in which energy shortages can jeopardise the political stability in a democratic set-up became apparent during the recent power riots in Pakistan. Mass protests across the cities of Pakistan in the first week of October were symbolic of the angst of the common man directly affected by power cuts of about 14-18 hrs a day. These protests soon turned violent as demonstrators pelted stones, burnt electricity offices, vandalised government vehicles and property and attacked power distribution utilities. Realising the gravity of the situation and sensing an opportunity, political parties such as the PML-N and PML-Q upped the ante against the federal government. Nawaz Sharif, at his party’s Central Working Committee, decided to further mobilise street power in order to transform the outrage over the power shortage into a fully fledged movement against the government. And within the next 24 hours, the PML-Q announced its willingness to withdraw support from the PPP, thus raising the political stakes for the ruling dispensation.

With sceptics suggesting that the ‘number game’ could dislodge the government, short term measures like supplying an additional 2,500 MW to Lahore and other major cities at the cost of rural areas were undertaken. Prime Minister Gilani also ordered a payment of Rs. 11 billion to the state run Pakistan State Oil to increase fuel supplies for two major Independent Power Purchasers (IPP) whose generation had dropped to 500 MW (their combined production capacity is 2500 MW). It was also reported that the government even decided to shelve a proposed plan envisaging a hike in tariff rates.

Significantly, as these responses have controlled the violence resulting from mass outrage, it would be perhaps appropriate to delve a bit further on the state of the power sector in Pakistan. While power riots have not been a new phenomenon, they are indeed a reminder of the need to delineate appropriate strategies and implement policies.

The figures published by the Water and Power Development Authority reveal that in the first week of October generation from hydropower stood at 4,257 MW against the total capacity of 6,700 MW; thermal capacity reduced to 1321 MW as against the total capacity of 4800 MW; and the IPP purchased only 5157 MW as against their potential capacity of 6800 MW. The approximate demand for power in Pakistan this year stands at 17,550 MW, whereas the total supply was only 10,735 MW – a shortage of almost 7000 MW.

A combination of factors aggravated this year’s power shortage. At the top of the list is the circular debt problem which is triggered by a financial crunch caused by one company holding back payments to its suppliers and creditors. This ‘holding back’ of payments has an adverse impact on other concerned companies, who are dependent on these finances through a supply chain. Some other factors that contributed to the power deficit were fuel shortage for thermal power plants, the tripping of the Chasma nuclear plant and low hydel power generation since there was less demand for water in the farming sector.

While energy shortages have been a perpetual problem in Pakistan, circular debt which has increased in the past few years compelled Pakistan State Oil to stop fuel supplies to power companies. As per the figures provided by the Economic Survey, till April 2011, various organisations held Rs. 258.5 billion in inter-circular debt. While receivables amounted to Rs. 775.2 billion, the payables amounted to Rs. 516.7 billion. This problem of circular debt is highlighted in Pakistan’s leading fuel supplier’s (Pakistan State Oil) Annual Report released on June 30, 2011, which notes that major power generation companies including WAPDA, KAPCO, HUBCO and KESC owed Pakistan State Oil an aggregate amount of Rs. 115 billion and that the Government of Pakistan owed it another Rs. 14.5 billion. For its part, Pakistan State Oil owed Rs. 55 billion to local refineries and Rs. 94 billion to international suppliers.

Detailed below is the Inter Corporate Circular Debt as on April 2011.

Inter Corporate Circular Debt. (Rs. in Billion)

Source: Economic Survey of Pakistan, 2010-11, p. 192

The main factor behind the circular debt problem has been the failure of government controlled organisations to repay the required dues. A Lahore based paper, Pakistan Today, notes that not only have government controlled institutions and departments not cleared each others’ dues, even the federal and the provincial governments have also not paid the pending payments. Yet, the electricity connections of government departments have not been severed and they have been using electricity for free for years now. In the meeting presided by the prime minister on October 4, 2011, it was decided that a letter will be issued to all provincial governments and public sector organisations ordering them to clear their dues, failing which disconnection would follow.

The supply-demand gap, combined with excessive dependence on gas and oil, is another indicator for assessing the power deficit. If one compares the consumption percentage of the energy mix in Pakistan (2010), gas consumption stood at 43.9 per cent, followed by oil at 27.9 per cent, electricity at 15.6 per cent, coal at 11 per cent and LPG at 1.5 per cent. These figures are indicative of the shift towards gas consumption, primarily due to increasing international oil prices. In fact, there has been an increase in natural gas consumption by 7.7 percentage points during 2009-10 as compared to 2004-05. While electricity consumption since 2001-02 has increased at the rate of 5.2 per cent per annum, in the past one year the consumption rate increased by a further 2.8 per cent. A major reason for this, as accounted for by the Economic Survey, is the demand by the industrial sector which has shown an increase by 7.3 per cent. However, the sectoral consumption of electricity is the highest for domestic purposes with a share of 42.9 per cent. In comparison, industry consumes 25.1 per cent and agriculture 12.3 per cent. Thus, when load shedding is resorted to in order to manage power shortages, it is the domestic consumers who are hit the hardest.

In addition to circular debt and the supply–demand gap, there are other impeding factors related to subsidies, transmission and distribution losses and power thefts. Power subsidies have long been an issue of debate in Pakistan, costing the government almost $2 billion. Reports suggest that most of the subsidised power goes to people who are well-off. Besides, the transmission and distribution losses have increased by 0.2 per cent as compared to last year and amount to 19.8 per cent of the total electricity generated.

As a policy response to these protracted issues, the Economic Advisory Council of Pakistan came out with an Integrated Energy Plan 2009-2022. A primary goal identified by this energy plan is the reduction of dependence on imported fuel while exploring indigenous sources particularly gas, coal, hydro and alternative sources –resources which Pakistan is endowed with.

Implementing the necessary reforms requires able leadership and internal stability as well as a conducive and transparent environment for attracting investment. There is a growing realisation amongst the Pakistani intelligentsia about issues of misgovernance and the consequences it can have on Pakistan’s growth trajectory in the years to come. Indeed, with rising extremist challenges, rampant misgovernance and a sharpening of inter-provincial faultlines, initiatives aimed at rescuing the faltering power sector must adopt a comprehensive approach and effective implementation.