PMS 2021 Solved Pakistan Affairs Past Papers | Write a Short Note on Energy Crisis
The following question of PMS Pakistan Affairs 2021 is solved by Miss Iqra Ali, the best Pakistan Affairs Coach, on the guided pattern of Sir Syed Kazim Ali, which he taught to his students, scoring the highest marks in compulsory subjects for years. This solved past paper question is uploaded to help aspirants understand how to crack a topic or question, how to write relevantly, what coherence is, and how to include and connect ideas, opinions, and suggestions to score the maximum.
Question Breakdown
In this question, we need to write a note on the Energy crisis in Pakistan, which can include its causes, effects, suggestions, and a brief overview of a few policies devised to resolve the matter. Moreover, a note on the Kashmir issue is asked, which should cover its background, developments to resolve the issue, and current developments. In the last note, there is a need to shed light on the national security challenges of the country, both internal and external, traditional, and non-traditional.
Outline
1-Introduction
2-Historical Background of Energy Crisis in Pakistan
3- Causes of Pakistan’s energy Crisis
- ✓ Poor Governance in Pakistan’s Power Sector
- ✓ Deficiency of Investment
- ✓ Issues in Energy Supply Chain
- ✓ Circular Debt
- ✓ Over-reliance on Fossil Fuels
4-Consequences of Pakistan’s energy Crisis
- ✓ Fuels Poor industrial sector growth
- ✓ Reduces Quality of Life
- ✓ Increases Poverty and Unemployment
- ✓ Brings a Decline in Competitiveness
- ✓ Discourages Domestic and Foreign Investors
- ✓ Sparks Political Instability
5- Overview of Pakistan’s energy Policies
- ✓ Power Policy 1994
- ✓ National Power Policy 2013
- ✓ Alternative and Renewable Energy Policy 2020
6-Way forward to Pakistan’s energy Crisis
- ✓ Investing in renewable energy sources
- ✓ Initiating institutional and political reforms
- ✓ Reducing Transportation and Distribution Losses
- ✓ Diminishing Circular Debts
- ✓ Boasting Nuclear energy share in Energy Mix
- ✓ Promoting Energy-efficient practices and appliances
7-Conclusion
Answer to the Question
Introduction
Pakistan has been grappling with a severe energy crisis since the 1990s. The demand for electricity is continuously increasing, but the supply remains insufficient to meet the growing demand. This energy predicament is linked to poor governance in the energy sector, deficiency of investments, circular debt and over-reliance on fossil fuels, impacting the country’s economy, quality of life, and export sector. Though the government has made efforts by drafting numerous policies, such as the Power Policy 1994, the National Power Policy 2013, and the Alternative and Renewable Energy Policy 2020, thorough implementation of these policies remains a challenge. Steps like investing in renewable energy sources, initiating institutional and political reforms, and reducing transportation and distribution costs are proposed to mitigate the country’s longstanding power crisis that has stifled its economic growth.
Historical Background of Energy Crisis in Pakistan
Historically, Pakistan had a power generation capacity of 60MW in 1947 for 31.5 million people. It was increased to 119 MW in 1959 after the establishment of WAPDA in 1958. In 1970, it rose to 1331MW, and the government installed many hydel and thermal power projects to increase the generation capacity. The capacity rose to 3000MW and 6700MW in the 1980s and 1990-91, respectively. However, in the start of the 1990s, power shortfall climbed to 2000MW, beginning the era of Pakistan’s energy crisis with significant loadshedding in the country. The crisis worsened with time, and, currently, Pakistan’s energy demand stands at 28,200MW while the supply stands at 21,200MW with the power gap surpassing 7000MW. Prolonged loadshedding, rising electricity tariffs, and mounting circular debts paint a grim picture of Pakistan’s energy dilemma.
Causes of Pakistan’s energy Crisis
- Poor Governance in Pakistan’s Power Sector
Pakistan’s energy crisis is attributed to its poor governance in the power sector. The establishment of National Electric Power Regulatory Authority (NEPRA) and the adoption of numerous power policies have failed to address the country’s energy dilemma. Moreover, the continuous interference by the government and power groups has undermined the authority of management and the efficient functioning of distribution companies. In addition, the role of concerned ministries and ancillary organizations in managing and regulating the power sector is also woeful. Similarly, the use of dilapidated power infrastructure and the absence of new and efficient methods for power generation and utilization of indigenous resources have contributed significantly to the country’s energy conundrum. Lastly, the absence of political will and determination to address the energy financing problem has further aggravated the situation.
- Issues in Energy Supply Chain
Losses in the energy supply chain, particularly due to the obsolete infrastructure, add to the energy crisis of the country. According to the State of Industry report by NEPRA, the total losses during the fiscal year 2021-22 were 17.13% while the permitted losses were 13.41%. Moreover, another issue is the below cost and inadequate tariff recovery structure, which affects the revenue collection of the power producers.
- Deficiency of Investment in Energy Sector
It is a sad reality that the country has not invested in the energy sector proportionally to the growing demand of electricity. For instance, the state still relies heavily on Mangla, Warsak and Tarbela dams for generating hydroelectricity with no major hydroelectric power projects established since the 1970s, despite its hydropower potential of 60,000MW according to Pakistan Economic Survey 2021-22, which reflects the non-serious investment efforts by public and private sector to address the energy conundrum. The country needs new power plants and upgrades to the older ones to meet the needs of the country.
- Circular Debt
Circular debt is continuously aggravating the energy situation in the country. It results from the deferred payments by the government to the power producers, which results in the lack of funds for the producers to maintain and purchase fuel and disrupt the energy generation process. According to the latest report released by the Ministry of Energy, the circular debt increased by 84 billion in January 2024, reaching Rs. 2.63 trillion compared to Rs . 2.551 trillion by the end of December 2023.
- Over-reliance on Fossil Fuels
Pakistan’s current energy mix relies heavily on thermal energy as 59.4% of its energy comes from imported thermal sources, such as oil and gas, while the contribution of hydel, nuclear, and renewable energy is comparatively less to the national grid. Moreover, due to excessive reliance on imported fuel, Pakistan faces backlash due to the global oil prices hike and frequent devaluation of its currency, whose wrath is then faced by public in the form of mounting electricity tariffs.
Consequences of Pakistan’s energy Crisis
- Fuels Poor industrial sector growth
Pakistan’s frequent power outages have stifled the growth of the industrial sector, causing many businesses to close or downsize their operations. Pakistan’s important textile sector, making 60% of the country’s exports, has been badly affected by the energy crisis of the country. According to Qasim Malik, vice president of the Chamber of Commerce in Sialkot, “the textile industry is in a state of emergency,” which indicates the detrimental effect of the country’s energy crunch.
- Reduces Quality of Life
Pakistan’s frequent power outages have worsened the life of millions, especially in the months of summer. In scorching summer months, cooling becomes a matter of life and death, particularly to the elderly and young children. Moreover, prolonged electricity shutdowns have also affected vital services, such as health, education, and water systems.
- Increases Poverty and Unemployment
Massive power cuts bring unemployment and exacerbate the plight of the impoverished society in Pakistan. Due to the industries’ closure in response to persistent power outages, a number of individuals have become unemployed. For instance, back in August this year, around 150,000-200,000 people have become unemployed due to the shutdown of a number of industries in the Faisalabad textile industry.
- Brings a Decline in Competitiveness
Pakistan’s mounting electricity tariffs affect the country’s export sector badly as they make the country’s goods stand less competitive in international markets due to increased production costs. At present, power tariffs in the country are currently 17 cents/ Kwh, which is two times the regional average rates, with India charging 6 cents/ Kwh and Bangladesh charging 8.6 cents/Kwh. This eventually increases the price of the country’s goods production, which negatively impacts its potential to increase its exports.
- Discourages Domestic and Foreign investors
Pakistan’s growing energy dilemma discourages potential investors across the country and from the world because businesses always prefer to operate where they have reduced operational costs. Frequent power cuts and tariff hikes have added to the mounting cost of doing business in Pakistan, which eventually discourages new investors from operating in Pakistan.
- Sparks Political Instability
Frequent power outages have been contributing to growing political turmoil in the country in the form of protests against the government and the terms of international lending institutions, namely the International Monetary Fund (IMF), urging the government to cut subsidies in the energy sector for a $3 billion stand-by agreement. In a country where economic woes have taken new heights, such political chaos will further aggravate the poor socio-economic conditions of its people.
Overview of Pakistan’s Energy Policies
The country has passed numerous policies to address the energy crisis, starting with first Energy Policy in 1994, and legislating Hydropower Policy in 1995, New Private Independent Power Project Policy in 1997, Power Generation Project Policy in 2002, National Power Policy in 2013, down to Alternative and Renewable Energy Policy in 2019 and Alternative and Renewable Energy Policy in 2020. All these policies were great in their efforts, but lacked in implementation, causing the energy crisis to accelerate its pace instead of decelerating and diminishing. Below is a detailed analysis of the three important energy policies: Energy Policy 1994, The National Power Policy 2013 and Alternative and Renewable Energy Policy 2020.
- Power Policy 1994
The government launched its first ever energy policy in 1994, aiming to encourage foreign investors in the power generation process. The policy offers lucrative opportunities to the Independent Power Producers (IPPs) in the form of tax incentives, upfront cost of US cents 6.5/Kwh, state’s sovereign guarantee for payments, and 18% internal rate of returns. Moreover, the policy allowed IPPs permission to use any technology and any type of fuel to generate energy at a site they prefer. Though the policy added around 3000MWs to national grid, its drawbacks were unveiled when petroleum prices skyrocketed and rupee depreciated, bringing significant burden on the shoulders of public sector as government had to pay heavily for the produced electricity, along with capacity payments for electricity that was not even used, owing to the flawed contractual agreements on Take-or-Pay principle. Moreover, the policy of indexing rupees with dollars resulted in increased returns for the IPPs upon a devaluation of the rupee, putting an immense financial burden on the government. Initially, the rate of return on equity was 18% under the aforementioned policy, but it was later reduced to 12%. However, it is still considered high compared to global standards. All this has led to a decrease in the electricity usage and an increase in electricity tariffs.
- The National Power Policy 2013 (NPP 2013)
In 2013, another national policy was drafted with the vision of developing the most efficient, consumer-centric power generation, transmission, and distribution system that meets the needs of the people and boosts economic growth. The goals of the policy are to produce affordable energy using domestic resources, minimize electricity theft, reduce inefficiencies in distribution systems, and reduce financial losses across the system. However, the policy failed to give an integrated energy policy incorporating various energy sources, which is needed to address the issue. Similarly, the NPP 2013 seems less imminent on decentralization of the energy sector, which is crucial for effective governance in this sector. Further, NPP 2013 is totally oblivious over the issue of human capacity development, which is considered important due to the poor project management and operational capabilities of DISCOs. Likewise, the policy lays good principles to tackle theft, corruption, and mismanagement; however, it again needs professional management and improved process to counter them.
- Alternative and Renewable Energy Policy 2020 (ARE 2020)
After facing the brunt of rising energy prices in global markets and depreciating rupee, the government shifted its focus towards deploying renewable energy sources to meet the growing needs. ARE 2020 is part of the chain of policies to address the growing energy crisis, which aims to bring the portion of renewable energy in the national energy mix to 20% and 30% by 2025 and 2030, respectively. It offers generous tax facilities for investors, induction of power plants through open competitive bidding for lowest tariffs and technology transfer to boast local manufacturing of renewable energy equipment (i.e., solar panels, turbines). Moreover, the bidding process will be based on two- to three-year forward energy requirements and adopts the principle of take-and-pay to pay only for energy that is used without allowing capacity payments. However, the policy falls short on sufficiently incentivizing renewables, lacks long-term targets serving as a vision for the market and industry, and does not address key barriers, such as the high cost of new technologies.
Way Forward to Pakistan’s Energy Crisis
- Investing in renewable energy sources
As the world is moving towards green energy, Pakistan must develop its renewable energy production plants, particularly solar plants and wind farms. Cooperating with countries, like China, and multilateral agencies, like the World Bank and USAID, providing technical and financial backing can help a lot in this regard. Solar and wind farm initiatives taken in the China Pakistan Economic Corridor (CPEC) are going in the right direction to make Pakistan an energy-secure country. Additionally, the initiative taken by the Punjab government for provision of free solar panels to eligible families is commendable as it will not only reduce energy burden on the national grid, but also give a sigh of relief to deserving families from the mounting electricity tariffs.
- Initiating Institutional and Political Reforms:
Pakistan needs to decentralize the energy sector to increase its efficiency, curb excessive political interference, boast competition, and implement innovative practices. The country needs to staff the Oil and Gas Regulatory Authority (OGRA) and the National Electric Power Regulatory Authority (NEPRA) with professionals. Moreover, there is an urgent need to privatize distribution companies (DISCOs) as nearly all of them are incurring losses due to poor governance and recovery mechanisms, causing investors to refrain from investing in them.
- Reducing Transportation and Distribution (T&D) losses:
The country needs to overcome its technical losses owing to infrastructural issues. It should use high voltage transmission lines, improve connectivity between transmission lines, enhance control, and implement phase balancing and distributed generation to address the distribution losses. Addressing non-technical losses, such as those arising from theft, faulty meters, and unpaid tariffs, the government needs to employ advanced metering, necessary energy audits, and consistent supervision of the T&D system.
- Diminishing Circular Debt:
The government should make all-out efforts to curb the rising circular debt dilemma. There is a need to reform the governance of distribution companies as their poor recovery mechanism contributes significantly to the growing circular debt dilemma in the country. Moreover, there is a need to switch contracts to the “Take-or-Pay” principle, which will end capacity payments and contribute a lot to circular debt. Fortunately, this plan is on the current PMLN government’s agenda, where they are hoping to switch the contracts of IPPs created under the 2002 Power Policy to “Take and Pay” agreement.
- Boosting Nuclear Energy Share in Energy Mix:
Pakistan, being a nuclear energy state, must increase its share of nuclear energy, which is cheap and reliable, in gross energy production. It should establish nuclear plants to supplement the national grid and address the demand for electricity effectively. The recent start of the construction of Chasma Unit-5 (C-5), having the potential to contribute 1300 MWs to the national grid by 2030, is laudable as it brings Pakistan Atomic Energy Commission (PAEC) one step nearer to its goal of producing 8,800MWs cheap and clean nuclear energy by 2030.
- Promoting energy-efficient practices and appliances:
Pakistan should promote energy-efficient practices and switch to energy-efficient appliances in the residential, commercial, and industrial sectors. This will decrease the excess demand on the national grid, helping ease the country’s energy dilemma.
Conclusion
In a nutshell, Pakistan must take the issue of energy crisis seriously as it has unleashed severe ramifications in different sectors, particularly the economy. Though devising a policy is a step to solve the issue, only its effective implementation can assure the mitigation of the problem. Steps like investing in renewable energy, also supported by ARE 2019 and 2020, and initiating institutional and political reforms are need of the hour to achieve sustainable economic growth.
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