On May 17, as denizens of the Islamic Republic of Pakistan were preparing to welcome the holy month of Ramazan, there was a massive electricity blackout across Khyber Pakhtunkhwa (KP) and the Punjab. As I write these lines from the capital city, we are experiencing random bouts of load shedding, despite the fact that the recovery rates here are the best in the country. These events expose the hollowness of claims regarding the end of load shedding and also beget the bigger question: why is Pakistan unable to solve its electricity problems?
First, for those interested in an easily understandable discussion of the power system and its faults, head over to Soch Bicharpodcasts hosted by Dr Nadeemul Haque, one of Pakistan’s eminent economists. This article should ideally be considered an extension of the same debate.
Some issues are well known. We have an archaic governing system in the power distribution sector that is based on colonial-era style administration and complemented by an unproductive monopoly in the form of Water and Power Development Authority (WAPDA). The pricing structure is inefficient and is based on political aims rather than market mechanism. Almost 10 to 15 percent of the electricity generated is lost during transmission due to faulty, old lines. Of the remaining, a substantial chunk is lost to pilferage across Pakistan and to WAPDA staff itself. Projects like Neelum Jhelum are way off the schedules due to poor planning - extracting a massive price from the taxpayers - or are disrupted by unnecessary controversy, for example the Kalabagh dam. The present scheme of electricity generation is environmentally unfriendly and set to become even dirtier due to massive coal-based plants planner under the China Pakistan Economic Corridor (CPEC). Government policies towards electricity generation are primarily based on political compulsions rather than efficient, long-term planning and innovative solutions. These give rise to the uncontrollable genie of circular debt – a shortage of cash within the power system.
These are the relatively better known aspects of this problem. There are, however, others that are equally important but usually evade discussion. The biggest missing component of this debate is the demand side. In short, all of Pakistan’s policies are centered upon the supply side (power generation, power distribution, etc.).
For an easy understanding of what is meant by the ‘demand side,’ let us turn to the California energy miracle. The miracle in this story is that since 1974, California’s per capita electricity consumption has remained the same. In simple English, it means that California’s residents are using the same amount of electricity as they were in 1977! This is miraculous because it happened despite population and income growth, which is usually accompanied by more power consumption and more projects for electricity production. It did not happen in California despite a rise in population from about 22 million to 39 million and an increase in real household income from $50,000 to $66,000.
In a country like Pakistan, such developments send clueless governments rushing to construct expensive new projects to increase supply and in the process, leaving a trail of corruption, incompetence and inefficiency. How did California manage to avoid such a predicament? How is it that its residents are still getting enough electricity to satisfy their needs despite no new dam or coal fired behemoths? The simple answer is that they addressed the demand aspects. Strict regulations govern the efficiency of electrical appliances in use. This has ensured that over time, the amount of energy needed to operate electrical appliances has declined. The same kinds of strict regulations and codes govern design and operations of buildings, ensuring that electricity usage is minimal and as per conservation standards. California’s residents can also choose from among various energy suppliers who compete for customers. This competitive streak in the power sector has led to lower prices and customer-friendly deals offered by competing suppliers. Moreover, pressured by competition, suppliers are always on the lookout for technology that could improve production, hence lowering production costs and improving their profits without recourse to predatory pricing, as is the custom in Pakistan. Complementing all these is a market-based pricing system that ensures the best use of the available resource.
In contrast, the electric appliances in Pakistan are some of the most inefficient, putting additional strain upon the grid. Building codes and regulations are not friendly for the environment and in no way cater towards electricity conservation. The Pakistani market for electricity provision and services, previously governed by a single monopoly (WAPDA), is now littered by regional monopolies that fare little better. It is unbelievable, for example, that the task of electricity provision in a mega city like Karachi has been left to a single monopoly. Since these monopolies face little or no competition, there is little incentive to improve upon the existing methods of production or to compete for customers through attractive packages. Pricing structure is non-competitive and predatory, overseen by a largely inept regulator in the form of National Electric Power Regulatory Authority (NEPRA) which fixes prices along political considerations. This failure to allow prices to be charged as per the market forces of demand and supply is what gave rise to circular debt in the first place and also explains other anomalies like production plants running at half capacity.
All this can be combined to get a picture based on supply-demand deficiencies in the power sector and to understand why this system unravels after every few years despite, gulping down billions of rupees. One of the major implications of this is that the increase in electricity production would only increase the circular debt! That is why the victorious proclamations of adding 17,000 megawatts through CPEC-related projects should be a cause of worry. Unless the governance structure is corrected and the demand side is addressed properly, merely changing faces will do little to alleviate the problem plaguing this sector. Unfortunately, there is little sign of change.
Aside from the demand side, policymakers would also need to be creative to solve the power sector conundrum. There is a need, for example, to get rid of the policy of laying thousands of kilometres of transmission lines for electricity provision (actively supported by ‘donors’ through loans) since off-grid, local solutions are available. Innovative solutions like Paul Harris’ Tres Amigas and Elon Musk’s storage batteries are quietly changing the workings of the power sector for the better and helping break monopolistic practices. Witness, for example, how the application of Tesla’s batteries in South Australia not only helped break the cartel controlling electricity provision there, but also lowered prices of services by a staggering 90 percent within a year.
In conclusion, for resolving Pakistan’s power sector quagmire, there is an urgent need to move away from supply-centred policies towards a market-based supply and demand framework, better governance and search for innovative solutions. Otherwise, the coming generations are likely to face the same problems as we do and this puzzle will remain unsolved.
First, for those interested in an easily understandable discussion of the power system and its faults, head over to Soch Bicharpodcasts hosted by Dr Nadeemul Haque, one of Pakistan’s eminent economists. This article should ideally be considered an extension of the same debate.
Some issues are well known. We have an archaic governing system in the power distribution sector that is based on colonial-era style administration and complemented by an unproductive monopoly in the form of Water and Power Development Authority (WAPDA). The pricing structure is inefficient and is based on political aims rather than market mechanism. Almost 10 to 15 percent of the electricity generated is lost during transmission due to faulty, old lines. Of the remaining, a substantial chunk is lost to pilferage across Pakistan and to WAPDA staff itself. Projects like Neelum Jhelum are way off the schedules due to poor planning - extracting a massive price from the taxpayers - or are disrupted by unnecessary controversy, for example the Kalabagh dam. The present scheme of electricity generation is environmentally unfriendly and set to become even dirtier due to massive coal-based plants planner under the China Pakistan Economic Corridor (CPEC). Government policies towards electricity generation are primarily based on political compulsions rather than efficient, long-term planning and innovative solutions. These give rise to the uncontrollable genie of circular debt – a shortage of cash within the power system.
In California, strict regulations govern the efficiency of electrical appliances in use
These are the relatively better known aspects of this problem. There are, however, others that are equally important but usually evade discussion. The biggest missing component of this debate is the demand side. In short, all of Pakistan’s policies are centered upon the supply side (power generation, power distribution, etc.).
For an easy understanding of what is meant by the ‘demand side,’ let us turn to the California energy miracle. The miracle in this story is that since 1974, California’s per capita electricity consumption has remained the same. In simple English, it means that California’s residents are using the same amount of electricity as they were in 1977! This is miraculous because it happened despite population and income growth, which is usually accompanied by more power consumption and more projects for electricity production. It did not happen in California despite a rise in population from about 22 million to 39 million and an increase in real household income from $50,000 to $66,000.
In a country like Pakistan, such developments send clueless governments rushing to construct expensive new projects to increase supply and in the process, leaving a trail of corruption, incompetence and inefficiency. How did California manage to avoid such a predicament? How is it that its residents are still getting enough electricity to satisfy their needs despite no new dam or coal fired behemoths? The simple answer is that they addressed the demand aspects. Strict regulations govern the efficiency of electrical appliances in use. This has ensured that over time, the amount of energy needed to operate electrical appliances has declined. The same kinds of strict regulations and codes govern design and operations of buildings, ensuring that electricity usage is minimal and as per conservation standards. California’s residents can also choose from among various energy suppliers who compete for customers. This competitive streak in the power sector has led to lower prices and customer-friendly deals offered by competing suppliers. Moreover, pressured by competition, suppliers are always on the lookout for technology that could improve production, hence lowering production costs and improving their profits without recourse to predatory pricing, as is the custom in Pakistan. Complementing all these is a market-based pricing system that ensures the best use of the available resource.
In contrast, the electric appliances in Pakistan are some of the most inefficient, putting additional strain upon the grid. Building codes and regulations are not friendly for the environment and in no way cater towards electricity conservation. The Pakistani market for electricity provision and services, previously governed by a single monopoly (WAPDA), is now littered by regional monopolies that fare little better. It is unbelievable, for example, that the task of electricity provision in a mega city like Karachi has been left to a single monopoly. Since these monopolies face little or no competition, there is little incentive to improve upon the existing methods of production or to compete for customers through attractive packages. Pricing structure is non-competitive and predatory, overseen by a largely inept regulator in the form of National Electric Power Regulatory Authority (NEPRA) which fixes prices along political considerations. This failure to allow prices to be charged as per the market forces of demand and supply is what gave rise to circular debt in the first place and also explains other anomalies like production plants running at half capacity.
All this can be combined to get a picture based on supply-demand deficiencies in the power sector and to understand why this system unravels after every few years despite, gulping down billions of rupees. One of the major implications of this is that the increase in electricity production would only increase the circular debt! That is why the victorious proclamations of adding 17,000 megawatts through CPEC-related projects should be a cause of worry. Unless the governance structure is corrected and the demand side is addressed properly, merely changing faces will do little to alleviate the problem plaguing this sector. Unfortunately, there is little sign of change.
Aside from the demand side, policymakers would also need to be creative to solve the power sector conundrum. There is a need, for example, to get rid of the policy of laying thousands of kilometres of transmission lines for electricity provision (actively supported by ‘donors’ through loans) since off-grid, local solutions are available. Innovative solutions like Paul Harris’ Tres Amigas and Elon Musk’s storage batteries are quietly changing the workings of the power sector for the better and helping break monopolistic practices. Witness, for example, how the application of Tesla’s batteries in South Australia not only helped break the cartel controlling electricity provision there, but also lowered prices of services by a staggering 90 percent within a year.
In conclusion, for resolving Pakistan’s power sector quagmire, there is an urgent need to move away from supply-centred policies towards a market-based supply and demand framework, better governance and search for innovative solutions. Otherwise, the coming generations are likely to face the same problems as we do and this puzzle will remain unsolved.