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Energy sector in serious crisis, says World Bank

The World Bank in its recent report has said that Pakistan’s energy sector is in a serious crisis and that power shortages cause the country’s economy an estimated loss of around two percent of the GDP i.e Rs450 billion every year, writes Ansar Abbasi.

In its October report on Pakistan’s economy and energy sector, the WB, while referring to greater loadshedding, said, “These disruptions are hurting industrial, commercial and human needs. Their impact is estimated at around 2 percent of GDP.”

Talking of the incompetence of the power sector, the report said that nearly 12 percent of the electricity bills involving nearly US$ 1 billion (Rs105 billion) are not collected.

As against the tall claims of the Nawaz Sharif government, the World Bank said that Pakistan’s energy sector was in a serious crisis and warned that the haunting phenomenon of circular debt would re-emerge if the underlying cause of inefficient system was not resolved.

The report said: “Pakistan’s energy sector is in serious crisis. Key challenges include large and growing energy shortages, high energy costs, and inefficiencies that prevent the sector from financing all its costs. The sector therefore relies heavily on government support through subsidies and funding for almost its entire investment programme.”

The report said that not only there was a growing mismatch between production and demand which causes huge loss to the country’s economy, the cost of generating energy has also risen due to changes in the supply mix. “In the 1980s, energy generation was a mix of two-thirds hydro and one-third thermal. Today, the mix is only 30 percent hydro and 70 percent thermal.”

There has also been a shift from domestic low-priced gas to imported, higher priced, dirtier furnace oil that resulted into rising cost of power generation.

Reflecting badly on the performance of the country’s power sector, the WB report said that the costs have been further exacerbated by high losses and low collection rates.

“Transmission and distribution losses were 25 percent in 1996, 24 percent in 2006, and stayed at 24 percent in 2011. But the distribution companies (DISCOs) show a wide variation in losses: from 10 percent for Islamabad Electric Supply Company, to 35 percent for Peshawar Electric Supply Company in 2011.”

It added, “In addition, DISCOs do not collect all the bills issued: it is estimated that some 12 percent of bills, nearly $1 billion, was not collected.”

About the power tariff, the report said that although the tariffs have risen, they are still far short of supply costs. “The aggregation of tariffs determined by the National Electric Power Regulatory Authority (NEPRA) can be taken as a proxy for full cost recovery.”

Regarding the circular debt, the report said, “With revenue and resource shortfalls, the DISCOs build up arrears in payments. This in return delays payments to power producers, which then build up arrears to their fuel suppliers, refineries, and so on. It is estimated that the circular sector debt, as of June 30, 2012, was at Rs461 billion. This both reduces incentives for investment and creates shortages due to periodic liquidity issues.”

“But it must be stressed”, the report said, “that the circular debt is a symptom of an inefficient system that can only be addressed once the underlying causes have been resolved — otherwise it would just reemerge.”

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