Causes of Energy crisis — recommendations for short term solutions:

August 18, 2014 | By More

Pakistan is facing serious energy crisis for the last few years, which is taking a heavy toll on the trade & industry as well as on the energy2overall economy. Many factors have contributed to give rise to this crisis. The major causes of prevailing energy shortage are highlighted below along with some recommendations to address the same:

Issues:

1.    Circular debt:

 The recurring issue of circular debt creates cash flow problems for all players at each stage of the supply chain and results into reduction in power generation. More reliance on furnace oil not only enhances circular debt, it also pushes up the cost of electricity and government has to spend more on subsidy. The 2014-15 budget has earmarked an amount of Rs.350 billion for power subsidy while the actual subsidy is expected to come close to Rs.600 billion and this situation may further complicate the energy shortage problem.

2.    Gas shortage for Power Sector:

In the winter season when the country faces extreme shortage of gas, government normally cuts down the gas supply to power sector in order to meet the demand of domestic users and selected fertilizer companies, which reportedly causes a loss of USD 400 million to the power sector and causes shortage of energy generation.

3.    Power theft and under recovery of bills:

Power theft and under recovery of bills by DISCOs reportedly translate into a loss of Rs.260 billion to the power sector and discourages investment in the sector. The National Transmission and Despatch Company (NTDC) reportedly purchased 98342 GWh in 2013 for transmission to DISCOs while the units billed by DISCOs were 75926 GWh, which means the huge difference between purchased and billed units was due to power theft. Private consumers’ annual arrears have reportedly increased from 10 billion in 2008 to 63 billion in 2013.

4.    Reduction in hydropower production:

Pakistan has the capacity to produce 6600 MW electricity, but the country is generating around 3600 MW hydroelectricity due to water shortage on account of lack of water reservoirs.

5.    Old transmission network:

Pakistan has an old transmission network that suffers badly due to lack of investment. This situation is further compounded by the fact that the government has not encouraged any public investment in thermal power as the sector was to be privatized. As a result of this situation, power plants in public sector are producing far less power than their actual capacity.

Recommendations: 

  • Urgent improvement in billing and recoveries by DISCOs to improve the cash flows, which will help in increasing power production and reduce shortage. This can be done by administrative actions, better management practices and accountability of negligent officials. 
  • Liquidating circular debt. 
  • Consistent supply of gas to power sector for generation of more power at affordable cost. 
  • Taking policy measures to lure public investment in power sector and make GENCOs and DISCOs efficient organizations. 
  • Government should give priority to Investment in power sector instead of investing on costly roads projects.

 Source:          Factsheet Institute of Policy Reforms

Share:

Tags:

Category: Energy

Comments are closed.