Download Topic B: Energy Crisis

Inter-Services Intelligence
Alam Zia
Novice/ Intermediate
Topic B: Energy Crisis
Due to rising demand and a failing power infrastructure severe electricity shortages have
occurred in Pakistan. This has led to widespread rolling blackouts that have paralyzed
industry and led to protests and rioting. Power outages can last 6–8 hours a day in the cities
and many more in the rural areas
Pakistan is in the midst of one of the worst energy crises in its history. This is both slowing
the pace of economic activity and causing public unrest with prolonged outages of
electricity and gas. Capacity utilization in some key industries has fallen to nearly 50
percent. Worst affected is the fertilizer industry, which faces interruptions to its gas supply
and forced closures. Pakistan has the capacity to produce more than one million tons in exportable surplus urea, yet in 201112 it imported more than 1.1 million tons. This eroded the country’s foreign exchange reserves and effectively entailed the
payment of millions of dollars in subsidies, being the difference between the cost of locally produced and imported urea.
Pakistan urgently needs to make some strategic decisions and change the national energy mix.
Immediately after assuming power, the government of Nawaz Sharif came up with two policy decisions: pay half a trillion
rupees (just under $5 billion) to energy companies and announce a new power policy. Both steps are aimed at resolving
problems plaguing the companies belonging to the energy chain and bringing change to Pakistan’s energy mix to optimize the
average cost of electricity generation.
Pakistan’s woes have been exacerbated by its excessive reliance on thermal power plants, mainly using furnace oil. Two factors
contributed to the emergence of this situation: a change in lenders from the public to private sector, and Pakistan’s failure to
complete a hydroelectric project in recent decades. The last mega dam, Tarbella, was completed in the mid seventies and no
other dam has been constructed since. After the signing of the Indus Water Treaty with India, Pakistan was required to complete
construction of one mega-size hydroelectricity plant per decade to ensure year-round availability of low cost electricity and
irrigation water.
Over 30% of Pakistan’s power is from the burning of imported furnace oil. Rising oil prices have resulted in the weakening of
Pakistan’s currency, further increasing the price of keeping the power on. Furthermore, Pakistan lacks the capital and
technology to harness its own energy resources. The country’s GDP growth is only around 3%, too slow to help the economy.
To make matters worse, violence around the country has forced the government to allocate about one-fifth of its funds to the
military, capital that could be used for the energy infrastructure. Pakistan can neither afford to keep electricity flowing using
the current system nor pay to develop alternative sources of energy.
Theft and debt have also exacerbated Pakistan’s ability to pay its power bills. Ordinary citizens rig power meters to charge
lower prices, illegally attach wires to power lines, and pay some private sector businesspeople in advance for more than double
the amount of electricity they provide. The Pakistani government is also subsidizing the cost of electricity, keeping the price
below the cost of production. Essentially, energy generation companies owe the oil importers money, the distribution
companies owe money to the energy generation companies, and consumers owe the distribution companies money.
Resolving Pakistan’s energy crisis will thus require political will, additional funding, and new power-generation sources. As
the country lacks significant internal sources of revenue, opportunities exist for international donors to finance its energy
recovery. The United States already provides a considerable amount of energy assistance to Pakistan, with Congress having
released nearly $300 million in new energy aid last summer alone. However, indigenous energy solutions should not simply
be discarded, and the Pakistani government should explore the Thar coalfields and alternative energy sources, among other
options.