Pakistan’s energy shortage: The Economist

[Ali Ahmad Syed]

Pakistan’s energy shortage
Lights out
Another threat to a fragile country’s stability
Oct 8th 2011 | The Economist

ALTHOUGH Pakistan makes international news for terrorist attacks, anti-American demonstrations and its alleged support for insurgents in Afghanistan, it is the basic inability to switch on a light that is pushing this volatile country closer to the edge. Popular anger over Pakistan’s crippling electricity shortage boiled over on to the streets this week, with riots that paralysed whole cities, unleashing running battles with the police and causing widespread damage to government offices (see picture above).

It is clear why the people were angry. In many of the towns in revolt, they have gone 20 hours a day without power in a still-sweltering Pakistan. What is more, the government of President Asif Zardari has done little as the energy crisis has grown, dithering over its strategy even as it cooks up schemes for new power plants to enrich its cronies. In the process, the government has squandered billions of dollars.

This week’s demonstrations were the most serious protests against the government since a movement in 2008 to reinstate a sacked chief justice. The opposition leader, Nawaz Sharif, whose political performance had been lacklustre at best, quickly embraced the protesters, quipping that the “Zardari network” was more dangerous to the country than the Haqqani network, an Afghan jihadist group based on Pakistani soil.

The energy deficit, in both electricity and gas, means that businesses have to shut for part of each week, forcing many to go bankrupt. Power shortages are estimated to slice some 3-4% off GDP. “The textile industry of Punjab is doomed,” says Shabbir Ahmed, chief executive of Bashir Printing, a textile dyeing and printing factory in Faisalabad, in Punjab province. His plant now shuts for two days a week for lack of gas. Even when there is gas, he says, the electricity is cut four times a day.

For ordinary people, the frustrations are endless. Refrigerators become useless. Water runs out because it relies on electrical pumps. Children do their homework by candlelight.

Insufficient capacity is not even the biggest problem. That is a $6 billion chain of debt, ultimately owed by the state, that is debilitating the entire energy sector. Power plants are owed money by the national grid and the grid in turn cannot get consumers (including the Pakistani government) to pay for the electricity they use. This week, the financial crunch meant that oil supply to the two biggest private power plants was halted, because the state-owned oil company had no cash to procure fuel.

The central government also continues to subsidise the cost of electricity to the tune of billions of dollars a year. That money, say the government’s critics, could be better used to pay its own bills and thereby free up unused capacity in power plants that are mothballed because of non-payment and disrepair. Cutting subsidies to people’s electricity bills, however, could lead to even more unrest. Critics argue that the government’s hand-to-mouth policymaking is self-defeating, and illustrates its general lack of planning.

In the long term, help could be at hand. Pakistan says it is about to start work on a giant dam, the $12 billion Daimer-Basha, in the far north-east, with backing from the Asian Development Bank. The dam would add a large amount of generating capacity. America may provide aid for the project. (India, which believes that the dam lies in disputed territory, in part of the former princely state of Kashmir, is inevitably against the dam’s construction.)

There are also plans for a gas pipeline from Iran, though the Americans have warned that the scheme could fall foul of their sanctions against Iran. Alternatives include access to Pakistan’s abundant untapped coal reserves, or importing gas and electricity from central Asia, across Afghanistan, a daunting proposition.

However, it is the short term that is the real problem. Unless the Pakistani government can solve its cycle of debt and disorganisation, ordinary Pakistanis will continue to vent their fury.

Pakistan Energy Crisis