Shah Faisal Afridi

The electricity shortfall reached almost to 7,000 megawatt (MW) this year while the country is generating 15,000 MW of electricity and the current demand is 25,000 MW. As of 2015 total installed electrical generation capacity in Pakistan is 21,593 MW and producing approximately 15,000 MW.

The year 2015 witnessed a major increase in the frequency and intensity of power load shedding or outages generally in Pakistan and in particular in the industrial sector.

Industries which have been affected more by outages are textiles, machinery and equipment, food, glass and allied products.

Present energy shortage is leading to “Gen-set Economy”. Power shortage has made the manufacturing sector of Pakistan dependent to the Generators and self generation of electricity has raised the cost of production due to the increased import bill of furnace oil and the machinery used for alternative source of electricity. “With the every import bill rise, the economy faces imbalance in trade”.

According to some official reports the country paid a total of $6.69 billion for the import of petroleum products and furnace oil during the July-Nov 2014-15. The amount was higher than the import bill of the same period last year which was around $6.43b.

Firms frequently make adjustments in their operations to recover at least some of the output lost during and immediately after outages. These are referred to as indirect costs of outages. The particular mechanisms chosen for recovering output lost, will, of course, be based on cost minimisation considerations. Accordingly, firms would opt for a particular strategy up to the point where it is cheaper than the other options. It is possible, therefore, for a firm to make multiple types of adjustments in response to outages. Typically, types of adjustments made by a firm include: acquiring self-generation capacity; more intensive utilisation of capacity; working overtime; working additional shifts and; changing shift timings.

The import bill of power generating machinery also rose by 50 percent this year as compared to the last year. Import bill of power generating machinery stood at $283.706 million at the end of first quarter of FY 15 registering 49.83 percent increase over the import bill of $189.351 million in same period of FY 14.”Government was continuously claiming addition of significant electricity in national grid during last year, but the statistics indicate that industries are still struggling to prevail over energy shortened related worries.

Manufacturers are left with no other option than development of own sources of energy supply through investment in generators. The case for such investment becomes greater the larger the time losses due to outages and the stronger the expectation that relatively high levels of power interruptions will persist in the long run.

75 percent of the total manufacturing units have gone in for self-generation during outages by investment in stand - by generating capacity. Industries with a relatively high proportion of firms with generators are chemicals, petrochemicals, machinery and equipment.

The average cost of self-generation is almost two and a half times more than this, i.e. Rs. 19.85 per Kwh implying that self-generation costs an extra Rs. 11.91 per Kwh. Therefore the extra cost to the industrial sector due to self -generation of electricity is about Rs. 32 billion. This is also the extent to which profitability of firms is lower because of load shedding.

In order to generate sufficient electricity to avoid hampered production a manufacturer has to compromise on the value addition of his product. Therefore, outages in the industrial sector also impedes economic activity in other sectors of the national economy like wholesale and retail trade, transport and communications, banking and insurance, etc.

High cost of utilities is also making Pakistani products uneconomical in the international market. The cost of production has increased as industrialists have to spend more money on alternative sources of energy. The country’s biggest industry, the largest employer and accounting for more than 60 percent of overall exports, the textile industry has recorded a 10.2 percent decline in output according to recent reports.

The cost of production has increased as industrialists have to spend more money on alternative sources of energy. Leading importers and wholesalers of generators are importing 70 to 80 percent electricity generators from China.

SBP reports that textiles, the country’s biggest industry, the largest employer and accounting for more than 60 percent of overall exports, recorded a 10.2 percent decline in output in the first four months, July-October of FY2011. Besides, load-shedding has badly hit daily-wage workers who are frustrated of starvations and discontinuation of education of their children. The people are spending sleepless nights. Construction sector, responsible for creating one million jobs for unskilled labour is also now stagnant.

“The LSM sector has also been badly affected during the last four years, owing to high cost of credit and higher interest rate regime in Pakistan.

The energy crisis has caused serious set-backs as it has badly affected gross domestic product (GDP) which further resulted in fiscal deficit. The crisis can be managed by harnessing energy from wind and sun, procurement by Iran–Pakistan gas pipeline, and construction of more dams.

“Electricity demand is increasing by 8pc per annum, but during the past four years we have not been able to plug the supply-demand gap, which is widening.” In order to ensure sustained supplies, the government should start at least two mega hydropower projects immediately, he suggested.

World has built 45,000 large dams so far while Pakistan has built only two large dams with 7pc of world’s irrigated area, which shows the criminal neglect in safeguarding the life-giving waters. Pakistan has the 21st largest river in the world in terms of annual flow, many small rivers and one of the largest irrigation systems with abundant canals. There is proven potential to generate more than 40,000 megawatts by hydroelectric power alone. A large number of small dams can be easily constructed by entrepreneurs under a liberal public-private partnership policy. Hydroelectric power should be given top priority as it is the cleanest and cheapest form of energy. The solution lies in taking short and long-term measures simultaneously as the energy shortage could lead to food insecurity.

In short-term solutions, there is a need for pursuing projects of Nandipur and Chechu Ki Malian, which would add around 950MW of electricity. Sugarcane waste can also be used to produce 1,500MW. Kalabagh Dam was the only short-term option to overcome the energy crisis and revive the stagnant economy. It was a feasible project, which could be constructed in just four years and produce 4,000 megawatts at a cheaper rate of Rs1.5 per unit, he said.

Energy crisis is disrupting the economic and social fabric of the country. It is causing business closure and unemployment. Income, profitability and competitiveness are also eroding and energy insecurity is growing.

(The writer is President PCJCCI and CEO Haier Ruba SEZ)