Beruflich Dokumente
Kultur Dokumente
January 2014
Executive summary
The energy crisis is the largest single drain on Pakistans economy. This crisis stems from a
fuel mix transformation initiated two decades ago, when power generation came to rely more on
imported furnace oil than hydropower. The resultant increased power generation costs, coupled
with the high proportion of line losses, have led to the need to increase tariffs, while causing
losses to power generation, transmission and distribution companies. This in turn has given rise
to the phenomenon of circular debt in the energy sector, whereby slippages in the payment of
bills (particularly on the part of public institutions) trigger a chain of delayed payments for im-
ported furnace oil, natural gas or other inputs to the thermal generation system, which in turn
hamper the operation of the power plants and result in less than optimum capacity usage. In
addition, the energy crisis is a significant drain on the governments resources, with energy sub-
sidies taking up a substantial part of the federal budget. Under an International Monetary Fund
agreement of September 2013 the government is committed to clearing the circular debt, adjust-
ing tariffs to improve resource allocation and encourage conservation, and implementing fuel
policies aimed at ensuring natural gas supplies to power plants.
1 Global fuel prices averaged $50 per barrel at the beginning of 2007 and peaked at $147 per barrel in July 2008.
Noref Expert Analysis January 2014
2 The most obvious example is the proposed Kalabagh Dam, which is opposed by stakeholders in the provinces of Khyber Pakhtunkhwa and Sindh for a variety of techni-
cal and administrative reasons.
3 The U.S. dollar/rupee exchange rate is roughly 107 rupees to the dollar.
4 These consisted of adjustment of payables against receivables essentially book adjustments.
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5 The fiscal year in Pakistan runs from July 1st to June 30th.
6 See the Budget in brief document issued by the Ministry of Finance.
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government is encouraged to reduce generation, transmis- agency, issue rules and guidelines for its governance, and
sion and distribution costs by checking technical and initiate a payment and settlement system that would
financial losses, and improving governance in the sector. enable the CPPA to start purchasing power from IPPs
under terms and conditions acceptable to both sides.
Fuel allocation: The government has pledged to review its
natural gas allocation policy to divert the resource towards Conclusion
uses with higher economic value (mainly power generation, Pakistans energy sector has become a major drain on the
as opposed to domestic consumption). In addition, the economy and is impeding growth, both because of power
tariff-setting regime is to take into account the relative shortages (which have affected small manufacturing
economic value of the various uses of gas and set tariffs enterprises and services in particular) and because of the
such that prices alone dictate natural gas allocation in the budgetary impacts of energy subsidies, which divert
future. In addition, the government is to make arrange- much-needed resources from more productive sectors.
ments for the import of natural gas and increasing incen-
tives for domestic exploration. The energy sector has become a focus of public policy in
recent years and has garnered the attention of internation-
While the above measures were included in the programme al financial institutions, including the IMF. Pressure for
document as future actions, the programme required the reform of the sector as a whole, and the power generation,
government to undertake a series of actions prior to loan transmission and distribution regime in particular, has
approval to signal its preparedness. These measures grown substantially. The government is obliged to carry out
included the notification of new electricity tariffs for tariff adjustments, remove subsidies and ensure a level
industrial, commercial and bulk consumers that incorpo- playing field for all private sector entities active in power
rated a 50% increase in terms of weighted averages. A generation, in addition to other policy and governance
similar increase was notified for residents of the region reforms. The process has got off to a rocky start, with the
Azad Jammu and Kashmir, who had enjoyed highly subsi- judiciary calling into question the power sector regulators
dised tariffs thus far. A further 30% increase in weighted authority and competence. How the government handles
average tariffs for a second group of consumers was to be this delicate situation in the face of scepticism from state
notified by October 1st 2013. organs and hostility from consumers remains to be seen.
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The author
Safiya Aftab has degrees in economics and public administration
and has worked with and consulted for development agencies The Norwegian Peacebuilding Resource Centre
and research institutions. Her work covers a range of economics,
Norsk ressurssenter for fredsbygging
governance and political economy issues.