By: Safiya Aftab
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The energy crisis is the largest single drain on Pakistan’s 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 bill (particularly on the part of public institutions) trigger a chain of delayed payments for imported 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 government’s resources, with energy subsidies 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, adjusting tariffs to improve resource allocation and encourage conservation, and implementing fuel policies aimed at ensuring natural gas supplies to power plants.