Energy Crisis in Pakistan: Causes, Ramifications, and Suggestions

Energy Crisis in Pakistan: Causes, Ramifications, and Suggestions

CSS and PMS Solved Essays | Energy Crisis in Pakistan: Causes, Ramifications, and Suggestions

Areeba Fatima, a Sir Syed Kazim Ali student, has attempted the CSS essay Energy Crisis in Pakistan: Causes, Ramifications, and Suggestionson the given pattern, which Sir Syed Kazim Ali teaches his students. Sir Syed Kazim Ali has been Pakistan’s top English writing and CSS, PMS essay and precis coach with the highest success rate of his students. The essay is uploaded to help other competitive aspirants learn and practice essay writing techniques and patterns to qualify for the essay paper.

1-Introduction

2- Energy profile of Pakistan

  • ✓According to the National Electric Power Regulatory Authority’s (NEPRA) 2021 yearly report, Pakistan’s total installed power generation capacity is 39772 MW.

 3-Overview of current situation of energy crisis in Pakistan 

  • ✓7-8 hours of load shedding
  • ✓Shortage of about 8,500 megawatts (MW)

4-Repercussions of energy crisis on Pakistan

  • Lowering economic growth
  • Case in point: According to some estimates, energy shortages have cost the country up to 4% of GDP over the past few years.
  • Rising spike of unemployment
  • Case in point: According to the International Monetary Fund, the unemployment ratio of Pakistan has increased to 6.5 per cent in the fiscal year 2023.
  • Increasing load shedding 
  • Case in point: Electricity shortfalls reached a peak of 8,500 megawatts (MW)—more than 40% of national demand.
  • Reducing foreign investment
  • Case in point: According to the State Bank of Pakistan, Foreign Direct Investment (FDI) in 2023 experienced a 25 % decline compared to the previous year
  • Increasing dependence on imports
  • Case in point: According to the Pakistan’s ministry of energy and the Oil and Gas Regulatory Authority, energy-deficit Pakistan imports approximately 430,000 metric ton (mt) of motor gasoline, 200,000 mt diesel and 650,000 mt crude oil at a cost of $1.3 billion/month

5- Root causes behind the energy crisis in Pakistan

  • Prevailing governance crisis
  • Case in point: According to the World Bank, governance crisis is the third most significant factor responsible for Pakistan’s energy crisis. 
  • Burgeoning circular debt
  • Case in point: According to the National Bureau of Asian Research (NBR), the circular debt of Pakistan has approached a whopping $4.5 billion.
  • Increasing transmission loses
  • Case in point: According to the current estimates, there is about 45 per cent transmission and distribution loss of electricity in Pakistan.
  • Escalating power theft
  • Case in point: According to the government estimates, electricity theft cost the country 500 billion Pakistani rupees over the past 15 months.
  • Soaring fuel shortages
  • Case in point: According to the Oil Companies Advisory Council (OCAC), delays in the opening of LCs will lead to a fuel shortage in Pakistan and it can face severe liquidity issues in future.

6- Countering measures to control the energy crisis of Pakistan  

  • ✓To introduce governance reforms for the maintenance of energy sector 
  • ✓To introduce streamline payment system to monitor circular debt
  • ✓To restructure transmission system to mitigate loss
  • ✓To shift from non-renewable energy resources to renewable one
  • ✓To reduce power theft through structural reforms
  • ✓To increase energy conservation by promoting energy efficient appliances

7-Critical analysis

8-Conclusion

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A country’s energy sector is indubitably a hub that fuels its social growth and economic development. However, the energy crisis- a multifaceted problem- has become an anathema for developing countries around the globe, robbing their socio-economic peace. Sad to relate, Pakistan, a fiscally fragile country, has also faced an energy shortfall over the last twenty years due to the failure of government policies. Sadly, the overarching energy crisis has pushed the country into a swamp of issues, such as unemployment, load shedding, and decelerated economic growth. All these problems are deeply rooted in governance shortfall, burgeoning circular debt, archaic methods of energy transformation, and lack of integrated energy policies. Thus, the government and policymakers need to adopt sensible and pragmatic steps to construct the broader picture of the energy sector. For instance, Pakistan should better diversify its energy mix, restructure transmission systems, and introduce sustainable technology to monitor loss. Furthermore, renewable energy sources, like wind turbines and hydropower, can save the country from falling into the pits of energy doom. This essay briefly discusses the overarching impacts of the energy crisis and its leading causes and sheds light on remedial measures to meet the challenge.

      Understanding the importance of energy for a country, it is considered the jugular vein of economic development of a country as it is widely utilized for production and development in both industrial and agricultural sectors. According to the National Electric Power Regulatory Authority’s (NEPRA) 2021 yearly report, Pakistan’s total installed power generation capacity is 39772 MW, where 63% of energy comes from thermal (fossil fuels), 25% from hydro, and 5.4% from renewable (Wind, Solar and Biomass) and 6.5% from nuclear energy resources. The report shows the importance of energy for the growth and progression of the country. Due to this, the government has always focused on broadening its fiscal capacity to provide subsidies necessary to supply electricity to the citizens at a price that consumers can afford, which is essential for the well-being of society.  

      At present, thelingering energy crisis has pushed Pakistan into the vortex of socio-economic evils. The country’s generating capacity falls below demand, and its available domestic energy supplies are dwindling, making it unable to meet burgeoning energy demands. Moreover, Russia-Ukraine conflict has dented the energy crisis in Pakistan, wildly inflating the supply of crude oil and gas from Russia. According to the Sustainable Development Policy Institute (SDPI), the war has directly contributed 8-9 per cent to the current inflation rate in Pakistan as the prices of oil commodities shoot up in the global market. Furthermore, 7-8 hours of load shedding in the country, the substantially inflated energy import bill, and the increased cost of production have triggered acute inflationary pressure on the country.

     Furthermore, the aftereffects of the energy crisis are harrowing and have impacted the country’s citizens in every walk of life. To elaborate, the dismal state of Pakistan’s energy crisis has curbed economic development, pushing the country into an economic decline. Moreover, the non-availability of coal, oil, and gas has also severely affected agricultural productivity, which has a significant share in its Gross Domestic Product (GDP). A report states, “The energy shortages in the country have cost it up to 4% of GDP over the past few years. Due to the energy shock, production costs have increased while production capacity has decreased, causing Pakistan to face the lowest ebb of economic growth. 

      Moving ahead, the energy crisis has also stipulated the closure of hundreds of factories, including more than fifteen hundred alone in the industrial hub province of Punjab. It has paralyzed production and exacerbated unemployment. To illustrate, unemployment is a structural issue which remains a significant hindrance to inclusive growth in the country. Additionally, it imperils much-needed investments in development and infrastructure. According to the International Monetary Fund, Pakistan’s unemployment ratio has increased to 6.5 per cent in the fiscal year 2023. Thus, it depicts that the energy crisis has become one of the gravest challenges for employment opportunities in the country.

      In the same way, unannounced load-shedding has discouraged the industrialists and decreased the country’s production ratio, causing a severe setback to the rate of exports. Electricity shortfalls peaked at 8,500 megawatts (MW)—more than 40% of national demand. Moreover,there are 7-8 hours of load shedding in homes and 1-2 hours of load-shedding in Pakistan’s industries. The cottage industry has also fallen victim to the uneven electricity schedules. In this way, the country has considerably constrained the flight of foreign capital. For this reason, Pakistan is facing an exacerbated export loss, which, in turn, makes it an economically free country. 

      Further, for a country suffering from the malaise of the energy crisis, Foreign Direct Investment is a blessing in disguise that creates more job opportunities and increases competition in the market. Unfortunately, Pakistan does not fall in the bracket of these countries, as international investors are discouraged by the lack of electricity and other infrastructure. According to the State Bank of Pakistan, Foreign Direct Investment (FDI) in 2023 experienced a 25 per cent decline as compared to the last year. It indicates a significant reduction in international investment, reducing the country’s capital inflow. Thus, a rising spike in the energy crisis has caused Pakistan’s foreign direct investment to decline. 

      Similarly, increasing fuel import demand has been the bone of contention for the country’s economy due to the burgeoning energy crisis.Pakistan has to import high-priced petroleum products, oil, coal, and gas and pay import taxes, pushing it into an economic doom. According to the Pakistan’s Ministry of Energy and the Oil and Gas Regulatory Authority, energy-deficit Pakistan imports approximately 430,000 metric tons of motor gasoline, 200,000 metric tons of diesel, and 650,000 metric tons of crude oil at a monthly cost of $1.3 billion. Ironically, the energy dilemma has increased Pakistan’s import dependence, pushing it into an economic crisis. 

      Since every problem has a cause, various factors have been responsible for the energy crisis in Pakistan. In particular, governance shortfalls are a crucial challenge for the power sector. As Pakistan’s energy policies come under the purview of several government ministries and agencies. However, coordination among all stakeholders is lacking, clear lines of authority are absent, and energy policies are partially implemented, making Pakistan vulnerable to energy disparity. According to the World Bank, the governance crisis is the third most significant factor responsible for Pakistan’s energy crisis. The energy sector in Pakistan is at the mercy of bureaucratic interests and ministerial benefits, creating a looming risk of energy recession. 

      Going down the ladder, circular debtis also a significant contributor to the vicious cycle of energy crisis. Subsidies and tariff disparities have been the primary reasons behind the cascade of circular debt. The subsidies’ payment went unpaid, making energy companies unable to pay fuel suppliers, curtailing the fuel supply and reducing generating capacity. Briefly, the revenue cost mismatch has pushed Pakistan into circular debt. According to the National Bureau of Asian Research (NBR), Pakistan’s circular debt has reached $4.5 billion. The government’s efforts to shield citizens from soaring expenses have inadvertently strained the financial health of Pakistan’s energy sector. 

      Likewise, the operational bottleneck of transmission loss, theft, and archaic infrastructure has also challenged the energy sector. Transmission lines connect generation plants and substations in the power sector, and there is a significant loss in energy before it reaches consumers owing to outdated infrastructure and poor technology. According to the current estimates, there is about 45 per cent transmission and distribution loss of electricity in Pakistan. These inefficiencies inflate the cost of electricity production, which can’t be met through consumers’ taxes and tariffs. Due to these inept transmission systems and transmission losses, Pakistan faces an energy dilemma.

      Similarly, another factor serving as the bottleneck to Pakistan’s energy security is uncontrolled and mushrooming power theft. Moreover, illegal power theft continues to plague the nation, with up to 17 hours of load shedding daily, creating chaos and dissatisfaction nationwide. According to government estimates, electricity theft has cost the country 500 billion Pakistani rupees over the past 15 months. Thus, power theft, such as meter tampering, physical destruction of energy meters, and illegal connection, has badly undermined Pakistan’s energy security.

      Lastly, the soaring fuel shortage due to high prices has also rubbed salt in Pakistan’s energy wounds. Moreover, the State Bank of Pakistan (SBP) has stopped financing and facilitating import payments due to the depletion of foreign exchange reserves. According to the Oil Companies Advisory Council (OCAC), delays in opening LCs will lead to a fuel shortage in Pakistan, and the country can face severe liquidity issues in the future. Pakistan meets one-third of its energy demand using imported natural gas, and the delay in its import can cause severe setbacks to the energy sector. Hence, fuel shortages in the country have inflamed the energy crisis,which makes it reel behind energy security.

      Although the energy crisis has overshadowed all other concerns, it is not an issue without a solution. Pakistan can overcome the malice of the energy crisis by adopting holistic and integrated measures. In other words, a better-coordinated energy sector can be attained by consolidating the country’s many energy-related institutions into a single ministry. Moreover, governance reforms and privatization can also help mitigate the energy crisis. For instance, Norway- a politically stabilized country- has a sound governance system that ensures its energy security in the region, making it economically stabilized. Pakistan can also meet rising energy demands by avoiding bureaucratic hurdles and providing governance reforms.

      Moreover, implementing streamlined payment systems can significantly alleviate the circular debt. The government should also enforce penalties for payment defaults that can release its debt burden and prevent the domino effect of non-payments throughout the supply chain. Russia has an estimated low level of national debt, ranking it among the economic first-world powers. Pakistan should also focus on transparent and efficient regulatory mechanisms to prevent the escalation of the national debt. 

      Next, there is a dire need to update transmission lines and infrastructure to reduce energy losses during transmission. It can be done by using higher transmission voltages and increasing the wire sizes of transmission lines. However, it requires huge investment to increase the efficiency of transmission lines to reduce operational inefficiencies. However, once the transmission loss is cured, it will help the country mitigate transmission and distribution losses in the long term. For this reason, Pakistan has to get support from developed countries. Pakistan has signed a project with Iran to lay the transmission lines from the Pakistan-Iran border up to Quetta. Iran has shown its willingness to provide USD 900 million for the project. 

      Similarly, Pakistan should swiftly shift from expensive oil and gas power plants towards cheap and renewable energy resources. Using renewable energy resources- wind turbines, solar energy, and hydropower- can mitigate the energy production cost. China is the global renewable energy leader, harnessing nearly half of the world’s total operating wind and solar capacity. It has diversified the country’s energy mix and reduced its dependence on energy fuels, boosting economic development. Thus, energy costs can be mitigated by replacing energy resources, and Pakistan can escape the energy dilemma.

      Besides, immediate action and reforms are imperative to rectify the illegal power theft and safeguard the nation’s resources. To mitigate the crime, Pakistan should introduce a more advanced metering system with improved efficiency and modern infrastructure. Moreover, there is a need to exhibit an unyielding stance against power theft. In the United States of America, punishment for electricity theft can attract a fine of $150,000 and five years of imprisonment. Therefore, Pakistan should also take robust and punitive measures to send a strong message to thieves and curb the menace. 

      Finally, Pakistan should also take holistic measures for energy conservation to mitigate the energy crisis. Using energy-efficient appliances and buildings, turning off appliances when not in use, and harnessing renewable energy resources can help Pakistan guard against the shocks of the energy crisis. The Netherlands, a European country, has imposed high taxes and tariffs on electricity and natural gas that made citizens reduce energy usage and conserve more energy for a better future. Thus, it is crucial to recognize that saving energy is the most significant catalyst for minimizing the energy crisis.

      In a critical overview, energy is considered the foundation stone of the economic development of a country, and the energy crisis deprives the government of a financial future. It has also halted Pakistan’s socio-economic development owing to a lack of integrated national policies, good governance, and modern infrastructure. Consequently, the country faces a cascade of circular debt, increased inflation, and economic disparity. In brief, the energy crisis has made Pakistan march towards economic doom and threat of default. 

      In conclusion, the energy crisis has become a pressing issue for Pakistan. It has robbed millions of a bright future and placed the country in the economic doldrums. It is the need of the hour to meet the burgeoning energy demands, which can stimulate socio-economic growth and development. Moreover, importing clean coal, cheaper than imported oil and gas, can also help mitigate the overarching energy crisis. Henceforth, Pakistan can ensure its energy security by exploring alternative energy sources and addressing governance issues.   

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