Pakistan is mired in an acute energy crisis’ one with immense implications for both the nation’s floundering economy and its volatile security situation.
According to some estimates, energy shortages have cost the country up to 4% of GDP over the past few years. They have also forced the closure of hundreds of factories including more than five hundred alone in the industrial hub city of Faisalabad, paralyzing production and exacerbating unemployment. Additionally, they imperil much-needed investments in development and infrastructure. Meanwhile, the nation has been convulsed by energy riots. Protestors, angered by unscheduled outages, have often resorted to violence. People blocked roads and attacked the homes and offices of members of both the ruling Pakistan Peoples Party and the Pakistan Muslim League(N), the chief opposition party.
Resolving this crisis requires far more than power-generation expansion and other supply-side quick fixes, the de facto policy of the country’s political leadership. Pakistan’s energy problems are deep and complex, and are rooted more in shortages of governance and political will than of pure supply.
If the nation is to overcome this crisis, it will need to begin with whole-scale institutional energy sector reform.
Origins and Nature of the Current Crisis
The origins of Pakistan’s energy crisis can be traced back to the 1990s. A major energy crisis was actually averted in the 1970s, when the government launched the massive Mangla and Tarbela dams, leading to a short-lived period of robust hydro-driven energy generation. However, after a period of strong economic growth in the 1980s, energy demand soared, and supply and infrastructure could not keep up. As Pakistan’s population has risen, and as urbanization has spawned the rise of new industries and other corporate energy customers, the situation has continued to worsen to the present day.
It is important to emphasize that Pakistan’s current energy quandary is rooted in paucities that go well beyond those of power supply. In fact, Pakistan is blessed with ample indigenous energy resources; it is especially rich in natural gas, hydroelectricity, and coal. However, in the case of the two most utilized sources of energy’ oil and gas’ consumption levels are so high that these domestic resources are being rapidly depleted. OGDCL predicts indigenous oil reserves will be exhausted by 2025, and that Pakistan will run out of domestic sources of natural gas by 2030. Meanwhile, hydroelectricity supply is imperiled by climate change, with less rainfall reducing river flows.
At the same time, governance shortfalls are a key challenge for the power sector. Pakistan’s energy policies come under the purview of several government ministries and agencies, but coordination is lacking, clear lines of authority are absent and inter’ agency turf wars are legion.
Yet one of the most critical deficiencies plaguing the energy sector is money. With Pakistan’s economy struggling, liquidity is dangerously low. In effect, energy consumers, private producers, the national transmission agency, distribution companies, and even the government itself cannot pay their power bills. Of note, according to figures provided by Pakistan’s water and power ministry, ‘influential defaulters’ owe about $1 billion in overdue energy bills. As a result, the energy sector is deprived of desperately needed revenue to pay for generation, transmission, and distribution, as well as operating and administrative costs. This gap between revenue and expenses’ often referred to as ‘circular debt’has approached a whopping $4.5 billion.
A Lack of Strategy and Political Will
A subset of the energy financing problem is an inability or unwillingness to muster the necessary political will to address the money shortage. More broadly, Pakistan has never developed a comprehensive, integrated energy strategy, and Islamabad’s haphazard policies have failed to address the crisis’s deep roots. The problem lies not with civil servants, bureaucrats and technical experts who focus on developing energy policies but rather with the non-expert, high-level political appointees.
Recent recommendations put forth by Pakistan’s Planning Commission, however, offer some hope. In 2011, the commission released what it described as a ‘new framework’ for economic growth, which calls for more focus on the private sector, cities and youth. If implemented, the impact would be immense, as the plan would represent a paradigm shift in Pakistan’s development philosophy.
Yet here lies a major dilemma, because Pakistan’s government would significantly increase its revenue’and hence its ability to pay its energy bills’ if more of the country paid its taxes. Pakistan’s Federal Board of Revenue estimates that 700,000 wealthy Pakistanis are not paying their taxes. However, the government refuses to pressure its most affluent citizens, because many of them are politically connected or politicians themselves.
Scenarios for the Future
Given that Pakistan lacks the revenue to finance an energy recovery, future opportunities abound for international donors, including the United States. In fact, the Obama administration identifies energy as a priority area in its civilian assistance programme to Pakistan, and Congress released nearly $300 million in new energy aid last summer alone.
Given the extent of Pakistan’s energy woes, and especially its circular debt ‘which, at its highest point of nearly $4.5 billion, far exceeded the value of Washington’s $1.5 billion in total annual civil assistance’ it is folly to expect US energy aid to make a major dent in the crisis. Conversely, if US civilian assistance to Pakistan were to be cut, the reduction of energy-intensive aid would be a significant loss to the country.
This is not to say that indigenous solutions should simply be discarded. Consider the vast Thar coalfields, the world’s sixth-largest coal deposit, in Sindh, where 200 billion tonnes of reserves have lay dormant since their discovery more than twenty years ago. Last year, Islamabad designated Thar as a special economic zone, hoping to lure investors with tax breaks and other incentives.
However, what both the government and political opposition fail to articulate is how Pakistan will overcome the formidable challenge of developing the technological and labour capacity to exploit this potential bonanza. Another problem is purely political. Ever since the Thar coal was discovered, the central government has been locked in a disagreement with the Sindh provincial government about how to divvy up the spoils that has effectively put on hold the exploitation of Thar’s resource treasures.
Encouragingly, Pakistan is also starting to explore other alternative energy sources. Several small-scale wind projects are under construction. The government has also announced that by 2030 it plans to have a minimum of 5.0% of total commercial energy supply provided by wind, solar and biowaste, and that 2.5% of Pakistan’s overall energy generation will come from renewables.
Ultimately, it is the issue of implementation that prolongs Pakistan’s energy crisis, making many experts pessimistic that the crisis can be resolved anytime soon. There is no shortage of research, conferences and proposals offering policy solutions. However, these measures are not executed, because there is no political will to do so. Tellingly, even in the rare cases when the government enacts politically risky measures to strengthen the energy sector and overall economy, it often reverses course.
The Clock Is Ticking
With no end in sight, the implications of Pakistan’s energy crisis are stark and go well beyond threats to the country’s economic well-being and stability. Pakistan is currently in the midst of two major societal shifts that could worsen the effects of its energy problems in the years ahead. One is urbanization. While today the majority of Pakistan’s population is rural, estimates suggest that at least 50% could be concentrated in urban areas by the 2020s. With droves of Pakistanis entering cities and becoming dependent on grids, pressures on supply will deepen exponentially.
Pakistan’s other notable societal shift is the devolution of governance from the federal level to the provincial and local levels. Thanks to the 18th constitutional amendment, federal ministerial responsibilities and resources are being passed down to local authorities and agencies. This means that many new energy-related functions and duties are being foisted upon provincial and district governments, which suffer from even more capacity constraints, inefficiencies and financial troubles than their federal counterpart.
How long can Pakistan ride out this storm? Today, many Pakistanis are getting by through their own resourcefulness. This winter, some residents have coped with the nation’s worst gas shortage on record by fashioning homemade pumps from old refrigerators and sucking gas out of distribution systems.
Recommendations and Conclusions
There are some short-term steps that Pakistan can and should take. One is to formally request a new loan from the International Monetary Fund (IMF) to bring both immediate relief to the economy and badly needed liquidity to finance solutions to the energy crisis. However, given that the IMF would probably impose politically delicate conditions, Islamabad is unlikely to make such a request until after this year’s election.
Above all, Pakistan must bring some urgently needed order and efficiency to its chaotic and dysfunctional energy sector. A better coordinated and integrated energy sector can best be attained through the consolidation of the country’s many energy-related institutions into a single ministry. A tighter institutional set-up would allow Pakistan’s energy sector to enjoy better coordination of planning, decision-making, and, above all, implementation. This would, in turn, enable it to do away with the reactive, haphazard, and ad-hoc policy environment that has characterized the energy sector for years. Although such a transformation will certainly be difficult to achieve, the seeds have already been planted. Today, some influential players in the energy scene’ including policymakers ‘have indicated their support for revisiting the idea. After a new institutional arrangement is in place, Pakistan could move on to policy reform. This should include new pricing measures that remove not all, but many, energy subsidies. Tax reform is another imperative’ and should be designed to provide Islamabad with more revenue.
There is just one obstacle to the implementation of these measures, and that is leadership. For years, Pakistani officials have been unwilling or unable to move forward. This spring, if Pakistanis elect leaders with a genuine desire to serve the interests of their country, then the end of its long energy struggles could conceivably be in sight. Yet if the election produces another governing dispensation concerned only about its own interests and political survival, then Pakistan’s energy conundrum could well become an energy catastrophe.