Energy

Sharif's Pakistan Election Prize: Solving the Energy Crisis


Pakistan has invested heavily in its transportation infrastructure. Much of the population, however, continues to endure regular power outages

Photograph by Eduardo Diaz for Bloomberg Businessweek

Pakistan has invested heavily in its transportation infrastructure. Much of the population, however, continues to endure regular power outages

The Pakistani election is over, and summer’s arrival will present the new government, to be led by Prime Minister-elect Nawaz Sharif, with its first test. As the country starts to bake in temperatures of up to 50C (122F), Pakistanis have drastically increased their use of air conditioners. Electric utilities, coping with supply shortages, have cut off power throughout the day, leaving residents without lights and fans for prolonged periods.

Blackouts have sparked violent street protests in the past and played a major role in the defeat of the ruling Pakistan Peoples Party of President Asif Ali Zardari in the recent election. In the most affected areas, outages can last as long as 18 hours a day. The power deficit hit 6,000 megawatts in high-demand periods last summer. “Sharif’s Muslim League won the election because the previous government failed to deliver on the energy front,” says Zafar Iqbal Sobani, former chief executive officer of Hub Power, the nation’s second-largest private power producer.

Karachi resident Hazoor Ahmed renovates furniture for a living. He loses power at night, shortening his work hours. “We used to get a bedroom set ready for a customer in four days,” he says. “But now it ends up taking 8 to 10 days. Customers just don’t come back.” Before the Zardari government assumed power, ice salesman Abdul Wasit says he sold as many as 75 blocks of ice a day. Now he says the number has dwindled to 40. “Customers complain about the ice we give them,” he says. “It’s not solid enough when it comes from our warehouses, as it’s not kept in the coolers for a sufficient time because of outages.”

Pakistan’s power plants could satisfy the country’s energy needs if they had the money to pay for fuel, mostly oil and gas. The power companies can produce about 14,500 megawatts a day—and the entire energy industry (including dams and nuclear) have 23,500 megawatts of capacity, according to the Pakistan Business Council.

Industry financial troubles, however, sometimes restrict energy production to between 9,000 and 11,000 megawatts—about half what’s needed during hot months. Companies struggle to get customers to pay their utility bills on time, which in turn delays payments to their fuel suppliers—which holds up payments to refiners and energy producers and cripples the entire power system. The country’s overall energy sector is burdened with $5 billion in outstanding debt. “If we resolve the problem of circular debt alone, it can increase independent power production by 2,500 megawatts,” says Abdullah Yusuf, chairman of the Independent Power Producers Advisory Council. Theft by city dwellers who tap into the power lines illegally and government subsidies that distort the true price of electricity add to the problem.

Service interruptions, as well as shortages of natural gas, have slowed down Pakistan’s $210 billion economy, slicing two percentage points off economic growth in the fiscal year that ended in June 2012, according to Pakistan’s Planning Commission. In the past five years, growth averaged 3 percent, less than half the annual pace of the previous five years. The textile industry, which accounts for 54 percent of total exports and employs 38 percent of the manufacturing workforce, is among the hardest hit. “Textile exports can easily go up by 10 to 15 percent if there is no energy crisis,” says Muhammad Yasin Siddik, a regional chairman for the All Pakistan Textile Mills Association.

Solving the energy crisis is among Sharif’s top priorities. On May 20 he told party supporters in Lahore that the energy crisis “has made the people miserable.” He has not yet suggested how he will solve the problem. “Irrational decision-making [regarding energy] by the previous government has done grave damage to the economy and the public exchequer,” says Muhammad Aliuddin Ansari, chief executive officer of food processor and fertilizer producer Engro, in an e-mailed response. “Investor confidence stands shattered, but we remain optimistic because no future government can carry on in this fashion.”

The bottom line: Pakistan’s incoming Prime Minister Nawaz Sharif inherits $5 billion in debt weighing down the power grid.

Anthony is a reporter for Bloomberg News in Islamabad.
Mangi is a reporter for Bloomberg News in Karachi.

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