Viable, cheap power must for economic uplift

Viable, cheap power must for economic uplift

Viable, cheap power must for economic uplift
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KARACHI: Pakistan needs viable and inexpensive electricity for socioeconomic development, but the situation is contrary, as the power regulatory authority on the dictation of the International Monetary Fund (IMF) has increased the tariff several times in the last few months, creating financial problems for the residential and industrial units alike.

Pakistan Apparel Forum Chairman Javed Bilwani said that the costs had increased significantly in the last couple of years, which has not only trimmed the earnings but also made it difficult to compete with the regional peers.

“The export-oriented industries can’t afford power and gas outages. Production cannot be stopped, so we have to make alternative arrangements, which requires additional cost and energy,” Bilwani added.

“We are paying taxes but there are no facilities,” he said, adding that the textile sector exports were increasing, as there was an abundance of orders.

“A momentum has been built, and it is high time that the government supports the textile sector through ensuring uninterrupted supply of utilities at affordable prices.”

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The exporters were faced with certain other challenges such as shortage of export containers and unavailability of vessels.

“These problems are manageable but the rising fuel costs due to insufficient supplies quite adversely impact the business,” he added.

After the Executive Board’s approval of the sixth tranche of $1 billion of the $6 billion Extended Fund Facility for Pakistan, the IMF said that restructuring the energy sector requires sustaining reform efforts and Pakistan should increase electricity and gas tariffs to align them with the cost recovery.

The fund in its staff report released after the meeting noted that the regular implementation of tariff adjustments is critical to lend credibility to the newly-independent energy regulator, halt the accumulation of arrears and implement the Circular Debt Management Plan.

It also said the Pakistan authorities have agreed to abolish subsidies and exemptions, introduce more fairness and also reduce the budget costs.

Pakistan’s energy sector is in a perilous state owing to mismanagement and inefficiencies for decades, which resulted in unwarranted arrears or the circular debt, which is affecting the entire power chain and weighs heavily on the financial sector, budget and the economy.

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Since the start of the IMF programme, the circular debt of the power sector reached 4.8 per cent of GDP in 2021 because of delays in regular tariff adjustments, high costs and operational losses of the power distribution companies.

In fact, the economic growth is directly linked with the availability of safe, secure, reliable and cheaper supply of fuel and electricity but the authorities are only taking measures to appease the lender.

The existing energy mix of the country is heavily dependent on the thermal power plants, mainly operating on imported fuel. The import of fuel for electric power generation not only causes depletion of the precious foreign exchange reserves but jacking up the deficit, i.e., weakening the local currency and pushing up inflation.

Indeed, there are other factors too but the authorities should take measures to curb inefficiency and mismanagement in their system.

Businessmen are finding it difficult to manage the rising electricity costs and supply shortages.

Businessmen Panel Chairman Mian Anjum Nisar said that there was no doubt that oil prices have been on the rise in the international market but the government instead of passing on this surge to the public, could reduce the number of taxes on the petroleum products, as the fuel was the engine of growth.

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“If fuel would be heavily taxed, the entire economy would suffer unprecedentedly,” he said, adding that petrol and high-speed diesel are the two major products that generate most of the revenues for the government because of their massive and yet growing consumption in the country.

“The economy is already in a precarious situation, this constant back and forth will only increase volatility, when we ought to be heading for stability. The cost of doing business and the cost of production have shot up to a record level. The cost of borrowing was huge and capital financing has become more expensive,” Nisar added.

For Shams Burney, a leading transporter, the government is inflicting blow after blow.

“Electricity and fuel prices have shot up to record levels and these hikes are reflected in the rising prices of daily use items,” he said.

“When fuel prices increase, everything goes up and not in the same proportion. When the government raises petrol prices by Rs5/litre the impact will be north of Rs15/litre for the traders because the transporters do not increase the fares in the same proportion.”

Burney said: “Higher fuel and electricity prices inflate the cost of production and the sale price, which would impact the demand.”

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Experts say the government’s decision to impose 5 per cent to 10 per cent advance income tax on electricity bills are discouraging the consumers and they are shifting towards renewable energy such as solar power.

The electricity costs are already the highest in the region. At present, taxes make up a third of the total electricity cost paid by the customers, which will further increase the cost. Such measures would deter growth and people will suffer more.

However, to achieve economic growth, the government should ensure uninterrupted and affordable energy supply and encourage investment.

The country has become the victim of poor energy management owing to inefficient use of the energy resources for decades, resulting in the energy-crisis like situation.

The mismanagement has often hindered manufacturing and the services sector and disrupted power supplies in communities and households across the country.

Several studies have shown high renewable energy potential in Pakistan. A USAID report endorsed Pakistan’s energy potential and said that it can potentially produce 100,000MW from solar energy alone. Despite the potential, the country remains power starved when it comes to adequately powering lights for its homes, machinery for its factories, and stoves for its kitchens.

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The data of the Water and Power Ministry and the Economic Surveys over the last five years show that Pakistan has been facing an average shortfall in the range of 4,000MW to 5,000MW.

This acute energy crisis is the result of flawed energy policies pursued for decades, the high cost of generation, and aging and inadequate transmission, among other causes.

The successive governments remained unable to make a real attempt to diversify the energy supplies and to shift dependence from expensive and imported oil towards potentially cheaper and cleaner resources.

Acknowledging the renewable energy resources, the Pakistan Tehreek-e-Insaf (PTI) government has started making efforts to exploit the real potential and give a go-ahead to the construction of 1,000MW Quaid-e-Azam Solar Park.

Pakistan needs more such measures to ensure multipronged energy productivity and conservation. By doing this, not only will energy security be enhanced but the environment would also be improved.

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