The International Monetary Fund (IMF) has asked Pakistan to continue development of hydropower projects for long-term sustainable power supply and import LNG to deal with gas shortages. IMF''s Staff Report on Pakistan, available at Fund''s website, notes that energy crisis threatens country''s broader economy. The sector is burdened with structural problems, price distortions, insufficient collection, theft, untargeted subsidies, inadequate supply, and poor governance.
Long and unpredictable blackouts, reaching 16 hours/day in some areas, have been disruptive for businesses, while adding to dissatisfaction and frustration among the population. According Fund''s staff, energy sector is a major drag on economic activity. The sector remains saddled with considerable problems that have led to unreliable electricity supply and large fiscal costs, including price distortions, insufficient collections, costly and poorly targeted subsidies, inadequate e governance and low efficiency in energy supply and distribution, regulatory inadequacies, and insufficient investment in new energy production and modernisation.
As a result, power outages have averaged around 8 to 10 hours a day, constraining production and employment. Output losses are estimated at 2 percent of GDP annually. Energy-related subsidies reached 13/4 percent of GDP in 2012/13 and payments arrears-estimated at 4 percent of GDP-continue to accumulate due to below cost recovery tariff rates, and delays in tariff determination and fuel cost adjustments. The government cleared 1.5 percent of GDP of this circular debt in June 2013 and is expected to clear an additional 3/4 percent of GDP in the coming months.
Technical and financial problems in the energy sector have led to large-scale power outages which have depressed output. In the 2000-10 period, Pakistan increased energy supply by 11 percent in per capita GWh, lagging behind her peers by almost one fourth. Energy supply has also lagged behind growing demand at notified prices which fell behind the cost recovery levels. The total installed capacity as of end FY12/13 reached around 23.52 GW, however net electrical output has been declining.
In the last three years due to drags created by the growing payment arrears, de-rated power plants, and insufficient supply of gas the current generation falls short of estimated demand by 4-5 GW leading to 8-10 hours of load shedding in the system. Delays in tariff determination and low collection rates contributed to increasing arrears in the sector, which further depressed supply.
Transmission and distribution (T&D) losses hover around 22 percent of total supply - triple high income economies and more than double the world average. Load shedding in this period led to declining capacity utilisation which is estimated to cost around 10 percent of GDP. Energy supply relies on costly fuel mix. Despite power sector''s heavy reliance on gas as a generating fuel, the insufficient supply of gas led to the substitution to costly imported fuel. Growing allocation of gas to domestic users further elevated the shortage in the power sector. Fuel imports reach 36 percent of the total energy mix, however it constitutes 70 percent of the total energy generation cost.
Pakistan consumes all of its domestic gas production, however due to lack of investment production is dropping. The current level of gas supply is just over one half of unconstrained demand due to low prices and insufficient investment. The lack of infrastructure also makes it difficult to import gas. At current regulated domestic gas prices, quantity based allocations divert gas from the power sector to households, transport, fertiliser production and industry. Nevertheless, low user prices discourage new investment, promote inefficiency in gas use, and have the potential to generate fiscal cost from the gas sector. The current level of un-accounted for gas losses reached 11 percent-way above international benchmarks. Until recently, the increasing stock of circular debt posed to limit energy supply. The stock was estimated to reach 4 percent of GDP as of end-FY13. The debt emerges due to the gap between the actual cost of production and the revenues, and delayed payments by distribution companies to the Central Power Purchasing Agency (CPPA). T&D losses, delays in price determination and notification, delays in pass through of fuel price changes, poor revenue collections, courts interference to power sector governance, delays in subsidy payments by the government to distribution companies all contributed to the growing circular debt. In June 2013, the government cleared a large portion of the circular debt, about 1.4 percent of GDP, which should help elevate electricity supply. However, until the underlying issues are addressed in a systemic way the problem will emerge in the future.
Staff pointed out that pricing and other market based instruments to encourage energy conservation will significantly improve resource allocation and energy efficiency. Staff also urged authorities to promulgate the Pakistan Energy Efficiency and Conservation Act.
Changes in the energy mix are required to decrease the production costs. The use of gas and coal rather than fuel oil needs to be prioritised. Moreover, the development of hydropower projects needs to continue for long-term sustainable supply.
To help tackle the gas shortages in the short-run, import of Liquefied Natural Gas (LNG) should be a priority, along with limiting further expansion of the gas distribution networks for domestic consumption and limiting the use of compressed natural gas to fuel vehicles. In the medium-term new investment in gas production should be a priority, both from existing fields and new exploration. Gradual price rationalisation would encourage new production and would allocate gas consumption to the most efficient uses.
Improvements in the business climate would also encourage new domestic and foreign investment in the sector. Half of current circular debt is caused by inefficiencies in tariff determination and notification. Staff urged authorities to minimise the time to determine and notify tariffs and to consolidate the process under the National Electric Power Regulatory Authority (NEPRA) while strengthening NEPRA''s administrative capacity. Similarly fuel price adjustments need to be made on a timely basis. Finally, the institutional capacity of all energy sector PSEs needs to be strengthened to allow them to operate independently from the Government as efficient commercial entities.
http://www.brecorder.com/fuel-a-energy/193/1230537/
Long and unpredictable blackouts, reaching 16 hours/day in some areas, have been disruptive for businesses, while adding to dissatisfaction and frustration among the population. According Fund''s staff, energy sector is a major drag on economic activity. The sector remains saddled with considerable problems that have led to unreliable electricity supply and large fiscal costs, including price distortions, insufficient collections, costly and poorly targeted subsidies, inadequate e governance and low efficiency in energy supply and distribution, regulatory inadequacies, and insufficient investment in new energy production and modernisation.
As a result, power outages have averaged around 8 to 10 hours a day, constraining production and employment. Output losses are estimated at 2 percent of GDP annually. Energy-related subsidies reached 13/4 percent of GDP in 2012/13 and payments arrears-estimated at 4 percent of GDP-continue to accumulate due to below cost recovery tariff rates, and delays in tariff determination and fuel cost adjustments. The government cleared 1.5 percent of GDP of this circular debt in June 2013 and is expected to clear an additional 3/4 percent of GDP in the coming months.
Technical and financial problems in the energy sector have led to large-scale power outages which have depressed output. In the 2000-10 period, Pakistan increased energy supply by 11 percent in per capita GWh, lagging behind her peers by almost one fourth. Energy supply has also lagged behind growing demand at notified prices which fell behind the cost recovery levels. The total installed capacity as of end FY12/13 reached around 23.52 GW, however net electrical output has been declining.
In the last three years due to drags created by the growing payment arrears, de-rated power plants, and insufficient supply of gas the current generation falls short of estimated demand by 4-5 GW leading to 8-10 hours of load shedding in the system. Delays in tariff determination and low collection rates contributed to increasing arrears in the sector, which further depressed supply.
Transmission and distribution (T&D) losses hover around 22 percent of total supply - triple high income economies and more than double the world average. Load shedding in this period led to declining capacity utilisation which is estimated to cost around 10 percent of GDP. Energy supply relies on costly fuel mix. Despite power sector''s heavy reliance on gas as a generating fuel, the insufficient supply of gas led to the substitution to costly imported fuel. Growing allocation of gas to domestic users further elevated the shortage in the power sector. Fuel imports reach 36 percent of the total energy mix, however it constitutes 70 percent of the total energy generation cost.
Pakistan consumes all of its domestic gas production, however due to lack of investment production is dropping. The current level of gas supply is just over one half of unconstrained demand due to low prices and insufficient investment. The lack of infrastructure also makes it difficult to import gas. At current regulated domestic gas prices, quantity based allocations divert gas from the power sector to households, transport, fertiliser production and industry. Nevertheless, low user prices discourage new investment, promote inefficiency in gas use, and have the potential to generate fiscal cost from the gas sector. The current level of un-accounted for gas losses reached 11 percent-way above international benchmarks. Until recently, the increasing stock of circular debt posed to limit energy supply. The stock was estimated to reach 4 percent of GDP as of end-FY13. The debt emerges due to the gap between the actual cost of production and the revenues, and delayed payments by distribution companies to the Central Power Purchasing Agency (CPPA). T&D losses, delays in price determination and notification, delays in pass through of fuel price changes, poor revenue collections, courts interference to power sector governance, delays in subsidy payments by the government to distribution companies all contributed to the growing circular debt. In June 2013, the government cleared a large portion of the circular debt, about 1.4 percent of GDP, which should help elevate electricity supply. However, until the underlying issues are addressed in a systemic way the problem will emerge in the future.
Staff pointed out that pricing and other market based instruments to encourage energy conservation will significantly improve resource allocation and energy efficiency. Staff also urged authorities to promulgate the Pakistan Energy Efficiency and Conservation Act.
Changes in the energy mix are required to decrease the production costs. The use of gas and coal rather than fuel oil needs to be prioritised. Moreover, the development of hydropower projects needs to continue for long-term sustainable supply.
To help tackle the gas shortages in the short-run, import of Liquefied Natural Gas (LNG) should be a priority, along with limiting further expansion of the gas distribution networks for domestic consumption and limiting the use of compressed natural gas to fuel vehicles. In the medium-term new investment in gas production should be a priority, both from existing fields and new exploration. Gradual price rationalisation would encourage new production and would allocate gas consumption to the most efficient uses.
Improvements in the business climate would also encourage new domestic and foreign investment in the sector. Half of current circular debt is caused by inefficiencies in tariff determination and notification. Staff urged authorities to minimise the time to determine and notify tariffs and to consolidate the process under the National Electric Power Regulatory Authority (NEPRA) while strengthening NEPRA''s administrative capacity. Similarly fuel price adjustments need to be made on a timely basis. Finally, the institutional capacity of all energy sector PSEs needs to be strengthened to allow them to operate independently from the Government as efficient commercial entities.
http://www.brecorder.com/fuel-a-energy/193/1230537/
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