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IMPACT OF POWER SHORTAGES IN PAKISTAN AND ITS POSSIBLE REMEDIES

Submitted by: Submitted to:

Sanam Noor Ms Faiza Abdullah

Bahria University Karachi

December 2010
 Impact of Power Shortages in Pakistan and its Possible Remedies

Executive Summary

Electricity is one of the necessities which have linkages with all the industries, broadly speaking with the economic
activity of the country. Right now, Government of Pakistan is facing immense pressure from World Bank/International
Monetary Fund to remove subsidies from electricity tariff by rationalizing per unit cost (kwh - kilo watt hour) with
actual cost of production and distribution (inclusive of all transmission and distribution losses). The energy mix in
producing electricity [i, e from Hydel, Thermal (gas, diesel, residual fuel oil), Renewable (wind, solar, bio gas),
Nuclear sources] is right now more tilted towards expensive thermal modes of residual fuel oil. Pakistan’s dependence
on Hydel is much reduced due to heavy involvement of politics on this issue. The tariff structure for residential,
commercial, industrial and agricultural users is different without any consideration of Time of Demand (TOD)
/Prepaid Metering. In other countries electricity is being sold at higher rate during peak demand hour and as such
there is no concept of TOD metering in Pakistan. We still expect huge capital expenditure in power sector in order to
cope with 5,000 MW (approximate) shortfalls in Pakistan. In order to gain support of international agencies, we have
to curb huge transmission and distribution losses which are due to theft of electricity as well.

“We realize the suffering that load shedding causes our people. We are painfully aware of the darkness it
spreads, how children study by candlelight, and how the wheels of industry often stop.”
President Asif Ali Zardari's Speech at the Joint Session of Parliament
Islamabad, April 5, 2010

“The development of the power sector is on the top of the agenda of the present government as this plays a
key role in the development and growth of a country's economy. Today, Pakistan's economic growth is
seriously affected by the fast increasing gap between supply and demand of energy resources in general and
electricity in particular.”
Prime Minister Syed Yusuf Raza Gilani at the Inaugural Ceremony of the 62 Megawatt Gulf Rental Power
Plant (May 23, 2010)

According to Energy Sector Task Force (Friends of Democratic Pakistan) in its report ‘Integrated Energy
Sector Recovery Report and Plan, October 2010’, 30% of the population in Pakistan is deprived of Impact
electricity. Pakistan is currently standing at 165 out of 218 countries in per capita access to electricity
whereas India is at 160. Because of shortage of electricity there is load shedding of up to 20 hours in many
rural areas of Pakistan. In addition to the given problems of electricity shortages, the gas and petroleum
sectors are also facing problems of circular debt (the amount of money stuck up in receivable / payables
between different stake holders of energy sector).
 Impact of Power Shortages in Pakistan and its Possible Remedies

Source: Integrated Energy Sector Recovery Report and Plan, October 2010

The total peak demand in Pakistan ranges from 14,500 MW (winter) to 17,500 MW (summer). The
installed capacity is also de-rated due to wear and tear of plants and ageing. Pakistan has now been facing
shortage of up to 5,000 MW. In simple terms Pakistan current need is fifteen (15) thermal plants of Remedy
HUBCO’s size [installed capacity 1,296 MW, cost Rs 12- 18 per unit] or five (5) hydel plants of Terbela
dam [installed capacity 3,478, cost Rs 3 -6 per unit]. We are facing the current shortages due to lack of
vision of the past leadership / utility companies which fail to envisage such projects in order to meet future
demand.
The tariff structure of electricity is based on slab system (utilization of electricity). Though there is concept
of peak hour and off-peak hour tariff but the number of TOD (time of demand) meters are negligible in
number to distinguish peak hours (6 pm to 11 pm time). Moreover, there is no such concept of pre-paid
metering system in Pakistan. The basic tariff ranges from Rs 1.79 per unit to Rs 12.77 per unit for
residential and commercial users (refer Exhibit I). Besides the normal charges, there are other amounts
recoverable under fixed charges, meter rent, government taxes and surcharges. Similarly, Industrial,
Agricultural, Temporary, Seasonal Industrial Supply and Public lighting ranges from Rs 9 – Rs 12.29 per
Impact
kWh (excluding fixed charges and govt. levies). The ever increasing per unit cost of electricity prompts
theft of electricity as well as increase in transmission and distribution losses. It is the need of time to shift
our generation to cheap resources of Hydel, Coal, Wind and Solar generation.
Exhibit I - Residential and Commercial Tariff

Fixed Charges Variable Charges

S# Tariff Category Rs /kW per month Rs / kWh
Residential
a) For Sanction load of up to 5 kW
i Up to 50 Units 0 1.79
ii 1 -100 Units 0 4.2
iii 101-300 0 6.34
iv 307-700 0 10.24
v Above 700 0 12.77
11.77 peak hours
b) For Sanction load exceeding 5 kW 0 7.18 off peak hours
Minimum charges for single phase and 3 phase connection are Rs 75 and Rs 150 respectively

Commercial
 Impact of Power Shortages in Pakistan and its Possible Remedies

a) For Sanction load of up to 5 kW 0 12.53

b) For Sanction load exceeding 5 kW 339 7.82
11.05 peak hours
c) Time of use 339 6.74 off peak hours

Minimum charges for single phase and 3 phase connection are Rs 175 and Rs 350 respectively
Source: SRO (I)/2010 – 600 dated 01-07-2010

The substantial gap in demand and supply of electricity in Pakistan provides a perfect opportunity to
private sector investor (including foreign investor) to commission different projects in Pakistan. In fact,
2002 power policy gives perfect platform to the potential investors providing up to fifteen percent return
Remedy
on equity (inclusive of indexation). There are many independent power produces (IPP) which are able to
achieve completion under the latest 2002 power policy which includes project from Attock, Nishat,
Saphhire group. Interestingly all of the project are either residual fuel oil or gas based (thermal plant). The
need of time is to attract investment in big Hydel projects as well as in wind / solar /coal based projects in
Pakistan in order to generate cheap electricity. It takes around 3 to 6 months to install solar / wind turbine,
3 -6 years to complete Hydel project and 1 to 3 years to install thermal projects (excluding lead time for
manufacturing of parts and feasibility study). Right now Pakistan is in firefighting mode by opting for the
rental power project which are politically motivated and may involve kickback as well.
Pakistan is facing power crises but our mother land is potentially gifted with immense resources. Power of
at least 50,000 MW may be generated from the winds. The region between Karachi and Hyderabad
provides perfect wind corridor for this effect. Similarly, 50,000 MW may be generated through hydel
resources of Pakistan. Other than these potential, Thar has the largest deposit of coal reserve to meet
electricity/ energy requirement of Pakistan. The completion of project in these segments requires a strong
determination and significant allocation of funds for capital expenditure. There should no doubt in our
mind that this country may surpass this temporary crises situation of power shortages. We should always
expect a brighter and prosperous future of the nation and pray Allah to give this nation strength to
overcome this problem as soon as possible.