At around 7.30 on the morning of January 23rd, 2023,
much of Pakistan’s population of nearly 230 million people plunged into darkness.
If there’s a nationwide, full blackout for 24 hours or for 12 hours,
then imagine the patients who are sitting at home and have to use nebulizers,
or humidification or BiPap machine, what will happen to them?
Labelling it as a rarity, government officials blamed a voltage surge in
the south of the country that led to a major breakdown in the national grid.
For close to 24 hours until power was fully restored,
daily activity at hospitals, schools, homes, and businesses was heavily disrupted.
Pakistan’s textiles industry, its largest export sector,
reportedly suffered estimated losses of $70 million.
Dr Shayan Ansari is a surgeon at a private hospital in Islamabad, Pakistan’s capital.
We were quite lucky that in our hospital we had a good back-up system
But if you go to our government hospitals, which didn’t have back-up facilities or nursing homes,
they had to stop all their services basically.
The power outage that hurt Pakistan in January 2023 wasn’t a one-off event.
A similar incident occurred in October the previous year, while smaller-scale blackouts frequently impact cities
and villages for several hours a day. So, what’s the real issue with Pakistan’s energy crisis?
Dr. Ishrat Husain spent two decades at the World Bank
and was an adviser to ex-Prime Minister Imran Khan.
We don’t have a problem as far as the supply of energy is concerned
in Pakistan – both outages were caused because there were fluctuations on the
transmission lines which have not been updated for quite some time
It’s more the difference between the generation capacity and the capacity
to transmit it to the distribution companies.
In 2020, nearly 20 percent of energy was lost during transmission,
distribution, and delivery to end consumers.
In 2021, Pakistan generated around 150 terawatt-hours (150 TWh) of electricity
– half of what Indonesia generated – despite having a comparable population size.
But the real problem lies with how the power is distributed – it's obsolete and inefficient.
This results in significant power losses that limit the country’s
ability to adequately meet consumer demand.
Electrical consumption per resident in Pakistan is about a quarter of the global average.
And just 74 percent of its population is connected to the power grid
compared to the global average of 90 percent.
I’m more concerned about the financial crisis which the energy sector has created by getting into
almost PKR 2.5 trillion of the circular debt, which is almost $10 billion.
Because the government is saddled in debt and consumers come up short on
their electricity bills due to power cuts, neither have
been paying the power distribution companies in a timely fashion.
The distribution companies are then unable to pay the power generators,
which, in turn, struggle to compensate their fuel suppliers, who have no money to import oil.
This then affects the delivery of fuel supplies, resulting in shortages.
The “circular debt” phenomenon in Pakistan’s power sector boils down
to cashflow problems across the entire supply chain.
Domestic energy production in Pakistan includes coal, oil, and natural gas
A lack of investment in exploration and development activities, however,
means that the sector is heavily reliant on fossil fuel imports.
Fossil fuels make up nearly two-thirds of Pakistan’s energy mix,
leaving the country extremely vulnerable to fluctuations in global oil and gas prices,
which skyrocketed after Russia’s invasion of Ukraine.
The government plans to derive more than 60% of the country’s energy from
alternative and renewable sources such as hydropower, wind and solar energy by 2030.
Iqbal Singh Sevea is director at the National University of Singapore’s
Institute of South Asian Studies.
The large investments you need towards renewable energy sources, that’s not there yet.
There is an attempt to bring in private players to achieve the level of funding that one needs.
Pakistan has long been in negotiations for a gas pipeline from Iran,
from Turkmenistan, which includes Turkmenistan, Afghanistan, Pakistan and India.
The problem is they are stuck in broader geo-political conflicts.
The line from Turkmenistan is stuck because of the Taliban’s return in Afghanistan.
The Iran gas pipeline is stuck with
specific regards to the fact that America’s imposed sanctions on trading with Iran.
Volatile commodity prices aren’t the only concern for Pakistan’s government.
Dwindling foreign exchange reserves, double-digit inflation,
dangerously high national debt and a devaluation of the rupee
have heaped pressure on the power sector, leaving the country on the verge of a default.
The floods that affected a third of the land mass of our country,
killed our agricultural sector, 5 million acres of standing crop, took a huge chunk out of our GDP
and left us in an extremely difficult way as far as our economy is concerned.
Ijlal Naqvi is a sociology professor and the author of “Access to Power,”
which examines the state of electricity in Pakistan.
There’s a fundamental issue with the Pakistani power sector which
is that each unit of power that’s sold is unaffordable – it comes with a government subsidy
and that government subsidy has to be paid for and it's got to come out of what are essentially tax revenues.
Perhaps only 1 percent of Pakistanis are paying direct income taxes.
So what happens is that this shortfall in revenue needs to be funded.
That tends to be the focus of IMF programs and the World Bank.
The cash-strapped nation has turned to the IMF for help more than 10 times since
the late 1980s to help weather economic crises, and it's doing so again.
But the fund wants Islamabad to strengthen its fiscal position first by reducing subsidies
and increasing taxes, a move that would likely place an even greater burden on the consumer.
We’ve been arguing that instead of giving across-the-board subsidies,
you can restrict it to those who are poor or who are in the lower-middle-income group.
The tragedy is that our industry is not competitive because we are cross-subsidizing household domestic sectors
for political reasons rather than helping our industry and exports to take off.
Pakistan has also sought assistance from long-time ally and neighbor China to shore up its power infrastructure.
Since 2015, Beijing has invested more than $60 billion to develop
the China-Pakistan Economic Corridor (CPEC), a 3,000-kilometre infrastructure network project
that is central to China’s Belt and Road Initiative.
And energy projects are a critical part of that - with 14 across the country completed by the end of 2022.
However, due to the worsening economic situation,
Pakistan has struggled to pay off over $1 billion in debts it owes to Chinese power producers,
which have reportedly shut down multiple plants in retaliation.
When Pakistan first set out to develop nuclear energy, it looked to Canada.
But when India did its nuclear test in 1974, there were many countries who were suppliers of nuclear
agreed that unless you were a signatory to the nuclear non-proliferation treaty,
then you would not be able to purchase civilian nuclear facilities as well.
Which meant that Pakistan could only rely on those were willing to sell it. Then China stepped up.
The energy sector investments were done basically at commercial rates,
And they were done at the request of the Pakistan government. The Chinese-ness of it is incidental.
The fact that Pakistan struggles to pay for those investments on an ongoing basis is largely on the government side.
What we should have done according to agreement with the Chinese,
we should have created an escrow account in which all the payments due to the Chinese producers,
should have been deposited. So we have violated that agreement, which is annoying the Chinese,
so I consider that to be a breach of trust.
According to the IMF, more than 30 percent of Pakistan’s total foreign debt is owed to China.
Despite the unpaid dues, however, China continues to execute power projects under CPEC.
In February 2023, Pakistan inaugurated a $2.7 billion Chinese-designed nuclear reactor
in the commercial capital of Karachi.
We’re leveraging in essence our geo-strategic importance to say that you can’t let us fail
in the way that you let Sri Lanka fail. We’re too important, it’s too dangerous to the world.
And that’s disappointing but it is a path to getting dollars. I’m not sure that overseas
allies, friends, can really solve this set of issues. It’s down to how the Pakistan state
deals with its citizens, and that’s the actual relationship which needs to be transformed.
We have a proud history of being at the confluence of geopolitical risk. We played
a key facilitatory role in the establishment of diplomatic relations between the U.S. and China.
Going forward, we want to be a bridge between countries, not a dividing force.