Ms Safia Mansoor is pursuing an MPhil in International Relations from Kinnaird College.
Introduction
This article employs the SWOT analysis to discuss strengths, weaknesses, opportunities, and threats to the energy sector of Pakistan. Furthermore, policy recommendations have been given to curb the energy woes of Pakistan.
Pakistan has been entangled in an acute-cum-lingering energy crisis which is draining the national economy and impeding life activities. The crisis emanated from the fuel mix transformation kicked off by the 1994 power policy which engendered excessive reliance on imported fuel for power generation.
Additionally, unprecedented fuel inflation coupled with poor energy governance and rising power demand due to the burgeoning population have created a conducive environment for the energy crisis in Pakistan.
As per the power division sources, the country’s power demand has escalated to 28,200 megawatts while the energy supply remains at 21,200 megawatts, causing the electricity shortfall to surpass 7,000 megawatts. 10-12 hours of load shedding, closure of several power plants, and ever-enhancing circular debt underlie the horrific plight of Pakistan’s power sector.
Strengths
Massive Coal Reserves
The total coal reserves in Pakistan are 186 billion tonnes, whereas the domestic production of coal is nearly 4.3 million tonnes. Despite the presence of gigantic coal reserves, the country’s coal imports fulfill 70% of domestic coal consumption. Tapping such huge coal potential can be instrumental in fulfilling the energy demand of the country while decreasing its dependence on expensive gas and oil imports.
The proven coal reserves of Pakistan are tantamount to 331.1 times its consumption of coal per annum, signifying that these reserves wouldn’t deplete for 331 years (at present levels of consumption and its exclusive of unproven coal reserves). Furthermore, the capacity of the Thar coalfield is 175 billion tonnes which can bring about energy liberalization and meet the demand of the growing population and industrial sector.
Wind Energy Potential
Pakistan is blessed with ample wind energy potential in the southern coastal regions of Balochistan and Sindh. Resultantly, it can harness wind energy given the presence of felicitous and consistent wind velocity corridors. In Sindh, there is the ‘Gharo-Jhimpir’ wind corridor with 43000MW gross wind power capacity. Furthermore, the government is carrying out a mapping project with regards to renewable energy in order to uncover new wind corridors.
Up till 2022, the operational wind power projects in Pakistan were 26 with a cumulative capacity of 1335MW. In addition, there are ten under-construction wind energy projects with a power potential of 510MW. In 2020, the government of Pakistan also approved the 2019 ARE-Alternate and Renewable Energy Policy to augment the renewable energy share (chiefly wind and solar) in the energy mix to 20% by 2025 and almost 30% by 2030.
Solar and Hydropower Potential
Pakistan also possesses humongous solar energy potential, as the average sunlight duration is 10 hours per day with 1500-2750 watts per square meter radiation intensity range in areas of Balochistan, Sindh, and southern Punjab. Currently, six solar energy projects in areas of Balochistan, Sindh, Punjab, and Kashmir having 430MW have been commissioned and are connected to the national grid. Moreover, four other solar power projects are underway in Sukkur and Layyah with 250MW cumulative capacity.
Pakistan also has the potential for micro hydropower projects primarily in Northern areas which can serve as an inexpensive and clean source of energy. The approval of the Indicative Generation Capacity Expansion Plan (IGCEP) (2022-2031) signifies the recognition of new generation requirements through harnessing indigenous resources, improving fuel technology, and increasing capacity for power generation. With respect to hydropower, this plan anticipates the development of new hydropower projects to generate 13000MV hydel energy by 2030.
Weaknesses
Poor Governance in Pakistan’s Power Sector
The chaotic situation in the energy sector of Pakistan is attributable to governance challenges. The National Electric Power Regulatory Authority (NEPRA) and subsequent governments have been unsuccessful in improving this sector. The incessant interference by governments, and pressure and power groups has been undermining the authority of management and the efficient functioning of distribution companies. Consequent to this, penurious technical and operational management has stunted the development of the power sector.
The collusive behavior of ministries and multiple ancillary organizations responsible for regulating and managing the power sector has plunged it into a dark abyss. Moreover, the use of dilapidated infrastructure and conventional methods coupled with the lack of new methods and the latest machinery for tapping the available resources have significantly played a part in transforming the energy conundrum into a catastrophe.
Reluctance and the inability of politicians to address the energy financing problem are other potent issues facing the energy sector. Most importantly, the absence of an integrated and holistic energy strategy has furthered the energy woes of Pakistan. The 2010 National Energy Plan, the formation of NEPRA for consumer protection, just energy competition as well as other well-disposed policy initiatives couldn’t bring about desired results due to political interference and the dearth of necessary political will.
Role of DISCOs and T&D Losses
Distribution companies or DISCOs are embrangled in governance issues inimical to the cost structures and functioning of the distribution segment. The operational management, accountability, and governance of these public sector entities remain abominable. Resultantly, these structural malfunctions beget transmission and distribution (T&D) losses which in turn increase the circular debt.
According to the State of Industry report by NEPRA, distribution companies’ actual losses were 17.13% during fiscal year 2021-2022 which is substantially higher than the permitted 13.41%. The centralized structure of DISCOs hinges on their ability to take independent commercial and financial decisions and therefore obstructs their transformation into commercially viable companies.
Although the government created Pakistan Electric Power Company (PEPCO) in 1998 under the Strategic Plan for Restructuring of Pakistan Power Sector for the corporatization of these energy entities, PEPCO undertook supervisory-cum-managerial charge and couldn’t fulfil its role. It was dissolved in 2021 and till now public sector entities alongside DISCOs in the energy sector have been under centralized control. Besides this, the technical constraint of power transformer overloading is alarming which remained at 20% during fiscal year 2022.
Issues in the Energy Supply Chain
Pakistan’s energy supply chain also suffers from different issues enumerated below:
- Efficiency losses are caused by obsolete energy infrastructure, scanty investment, and energy losses throughout the supply chain.
- Below-cost and inadequate tariff recovery structures increase the gap between retail price and the cost of the tariff.
- Lack of private sector investment coupled with the inability of the public sector amplifies the energy gap.
Corruption
The gas and oil industry of the country is extremely vulnerable to rampant corruption aggravating the energy crisis. Corruption with respect to permit applications, licensing processes, as well as subcontracting of various energy companies’ operations has become normal. The integrity risks in this sector are evident from the National Accountability Bureau investigated 19 cases in 2018.
These risks include: a) clandestine contracting by government officials working at Pakistan State Oil (PSO); b) embezzlement of public funds for paying extortionate salaries to different government officials; c) counterfeit reports documenting the overvalued assets secured by state-owned enterprises; and lastly d) illicit promotions and appointments in energy regulating agencies.
Opportunities
Clean and Green Energy
Given Pakistan’s gargantuan potential for renewable energy resources, green power or energy offers a promising opportunity for Pakistan to overcome its energy insecurity. Green power implies the power generation from biogas, geothermal, wind, solar, and small-scale hydroelectric sources providing substantial environmental boons. The 2019 ARE Policy is fully commensurate with this opportunity and emphasizes enhancing green energy share in Pakistan’s energy mix, providing a conducive environment for private sector investment, and developing the power market and local Alternate and Renewable Energy Technologies (ARET).
Furthermore, CPEC also entails green energy projects such as small hydel projects, wind, as well as solar projects. Two crucial events, the global energy crunch because of the Ukraine war and the disastrous ramifications of climate change for Pakistan, necessitate the emphasis on clean and green energy. In this regard, nuclear power is considered one of the efficient, clean, and cost-effective energy resources that engenders extremely less carbon emissions.
Six operational nuclear power plants in the country offer prospects for the use of nuclear technology for generating electricity. By overcoming the challenges of international cooperation and financial constraints, the investment in nuclear power would substantially provide energy to the country’s national grid while simultaneously decreasing load shedding and saving foreign exchange reserves due to less dependence on imported fuel.
CPEC Energy Projects
China-Pakistan Economic Corridor (CPEC) provides a golden opportunity for Pakistan to overcome the energy-demand supply gap. US $34 billion out of a total of $46 billion in CPEC has been earmarked for CPEC energy projects comprising solar, wind, hydro, and coal. These will abate the country’s dependence on imported fuel while providing the opportunity to exploit indigenous energy resources such as coal.
International commentators and observers also believe that CPEC would allow Pakistan to triumph over its energy crunch. According to Michael Kugelman, CPEC provides an enormous potential to assuage energy supply shortages in Pakistan and it can even eliminate its energy deficit with a 5000-7000 megawatts range, bring about energy diversification, dispense cheap energy options, and reduce extreme reliance on gas and oil imports.
Within CPEC power projects’ purview, the 21 power projects would generate 12,000 MW of energy. Although these projects are quintessential for subduing the energy supply issues, the benefits of CPEC energy projects can be reaped by overcoming the key challenges such as inefficient power transmission; circular debt and liquidity constraints; power theft; financial, technical, security and capacity building issues; corruption; as well as associated environmental issues.
Threats
Rising Circular Debt
One of the gravest threats to the energy sector of Pakistan is the burgeoning circular debt. Circular debt originates when a key institution in a particular sector facing multifaceted issues with regards to cash inflows defers payments to creditors as well as suppliers, causing issues of cash inflow to infiltrate the payment chain’s other components.
Being the core entity of Pakistan’s energy sector, Pakistan Electric Power Company (PEPCO) has been mired in perilous cash flow problems, resulting in circular debt. As PEPCO manages and controls the financial flows of other energy sector-related entities, any issue in its cash flows cascades down to related entities of the energy supply chain.
The inflows of the PEPCO collected in the form of tariffs from energy consumers such as the government, private sector, and Karachi Electric Supply Company (KESC) (as a consumer) always dawdle back the outflows –– payment to key entities, for instance, Oil Marketing Companies (OMCs), primary energy suppliers, power producers, and gas companies. Resultantly, the imbalance in cash flows of PEPCO occurs which primarily emanates from two sources:
- The meager end-consumer tariffs do not meet the surging power generation costs; additionally, the fiscal constraints ridden government remains unable to indemnify PEPCO against pecuniary losses.
- The inability of PEPCO to recover dues from various consumers such as departments in provincial and federal government, private individuals, and KESC.
The statistical analysis of the circular debt in fiscal year 2022-2023 underlies the gravity of the situation. The period between July-February witnessed a mammoth Rs52.5 billion average hike in circular debt on a monthly basis, as per the sources in the Ministry of Energy and Ministry of Finance. At the inception of the fiscal year, the circular debt amounted to Rs2.253 trillion which has now ballooned to Rs2.67 trillion.
Although the coalition government mushroomed the per unit prices of electricity by Rs7.91 in July 2022 commensurate with World Bank and IMF conditions, the move couldn’t kibosh the ever-enhancing growth of circular debt, given the lack of efforts in curbing energy theft and line losses coupled with paltry recovery of energy bills which substantially increase the circular debt.
During July-February of the same fiscal year, inadequate bills’ recovery added almost Rs173 billion while energy losses and inefficiency because of power distribution companies led to an addition of Rs59 billion to debt. Furthermore, the massive increase in circular debt is also attributed to colossal outstanding receivables of DISCOs, as per the 2022 State of Industry Report issued by the NEPRA. Distribution companies’ receivable amount increased from Rs1.98 trillion during fiscal year 2020-2021 to Rs1.6804 trillion during fiscal year 2021-2022 as per the same report.
Pakistan’s Energy Mix
Another potent threat to the energy sector is the lack of diversification in the country’s energy mix which is shown in the figure below. Pakistan heavily relies on imported thermal sources such as oil and natural gas for generating electricity while hydel, nuclear, and renewable energy resources have comparatively less share in power generation.
The energy sector of Pakistan is immensely contingent on imported Liquefied Natural Gas (LNG) and oil and will remain in the near future as well owing to low domestic capacity. Furthermore, the galactic devaluation of Pakistan’s currency and global oil price hikes have further exacerbated expenditures for importing fuel. Resultantly, the circular debt also increases due to deferment in bills of payments, primarily by public institutions of Pakistan. It stimulates a lethal chain of pending payments in order to import natural gas and oil that in turn detrimentally implicates the functioning of power plants and brings about extremely low optimum capacity usage.
Way Forward
- Institutional and political reforms: The energy sector shall be deregulated and decentralized to minimize political interference. Professional staffing of energy entities such as the Oil and Gas Regulatory Authority (OGRA) and NEPRA, restricting the role of the energy ministry to policy making rather than running entities in the energy sector, and the privatization of energy entities to overcome inefficiency and liquidity constraints is indispensable.
- Overcoming T&D losses: Technical T&D losses arising due to infrastructural issues shall be reduced through system improvement with respect to transmission as well as distribution. Pakistan may use extra high voltage, increase connectivity of transmission lines, and optimize controls to improve the transmission system. Phase balancing and distributed generation can diminish distribution losses. Commercial or nontechnical losses arising due to theft, faulty metering, and unpaid bills can be reduced through advanced metering, mandatory energy audits, and continuous supervision of the T&D system.
- Diminishing circular debt: The recent strategy of the government to reduce circular debt through increasing tariffs has not been successful due to T & D losses and unpaid bills. Therefore infrastructure upgradation shall be done to reduce T & D losses which in turn can be done through DISCOs’ privatization given the lack of government revenue necessary for this cause.
- Bilateral and multilateral clean and green energy initiatives: Pakistan shall emphasize the utilization of renewable energy resources. Bilateral initiatives with friendly states such as China and multilateral cooperation with states and organizations/agencies providing technical and financial assistance for development (such as World Bank and USAID) can prove instrumental in this regard.
- Boosting nuclear energy share in energy mix: Pakistan is a nuclear power which enables it to increase the share of nuclear energy which is a reliable and cheap way of enhancing energy production.
- Indigenous capacity building: Besides energy partnerships, indigenous capacity building shall be done through developing a pool of qualified human resources and energy experts that can provide local solutions to the country’s energy issues.
Conclusion
The SWOT analysis of the energy sector in Pakistan reveals that the protracted energy crisis is a consequence of policy failures, institutional deformities and poor energy governance, pathetic energy mix, and outdated infrastructure.
These challenges can be overcome given Pakistan’s enormous potential in renewable energy sources and various opportunities like CPEC and clean and green energy technologies. However, the prerequisites for utilizing strengths and harnessing opportunities such as political will, holistic energy strategy, transparency, and institutional reforms shall be foremost fulfilled.
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