Electricity bills: Pakistan’s crisis in a crisis

The electricity bills’ crisis in Pakistan could not have come at a worse time. The elected National Assembly was dissolved about three weeks ago and a caretaker government with limited constitutional – and moral – authority to take decisions especially in the realm of the economy, was appointed two weeks ago. The caretaker cabinet may not yet be fully conversant with the complex issues relating to energy prices in the country.

The country is poised for the next election although there is uncertainty about the exact polling date. Since the National Assembly is dissolved, the Constitution requires that the polls be held within 90 days. But the delimitation of constituencies necessitated by the approval of the new population census results may prolong the election schedule by three or four months. Irrespective of the indecisions about the exact polling date, the political environment is quite charged and various political parties may find the spectacle of the public protesting across the country against the electricity tariff increase too tempting to resist jumping in and stoking the flames of agitation.

Former Prime Minister Imran Khan, arguably one of the most popular leaders of the country, is in prison in a case about the non-disclosure of assets, and his restive supporters are impatiently waiting for an opportunity to hit the streets. The protests against inflated electricity bills will provide them with an ideal opportunity to join the protest bandwagon.

The country had signed an agreement with the IMF during Khan’s government in 2019, which strictly committed the Pakistan government to, among other things, pass on the cost of energy to consumers without the government providing an untargeted subsidy. Khan’s government, realizing that its removal through a vote of no confidence was imminent, surprisingly lowered the price of petrol even below the price at which it was being imported in 2022. This might have temporarily pleased the public but it further submerged the country in financial deficit and sabotaged whatever little credibility Pakistan had with the IMF.

The poor governance and tendency to seek cheap popularity among the masses precluded taking hard and timely decisions by various governments.

Ahmed Bilal Mehboob

Subsequently, Pakistan really had a close call with economic default which was avoided at the eleventh hour only after the IMF agreed to sign a standby agreement with Pakistan following repeated personal pleadings by then PM Shehbaz Sharif. The standby agreement further narrows, if not eliminates all together, the space for manoeuvring by the government which in simple terms means it cannot give relief to the public by reducing energy prices through subsidies.

The situation has not arisen all of a sudden. It’s been building up since the early 90’s because of a series of disastrous policy decisions by successive governments. Each government took populist decisions and tried to cover the cost of their irresponsible decisions by resorting to further borrowing. Such policies pushed Pakistan to approach the IMF 22 times for bailout packages.

Pakistan which is endowed with rivers and conducive topography to build large hydro-electric dams to generate economical and clean electricity, has failed to take full advantage of these assets. The last hydro-electric project - Tarbela Dam - was completed on the Indus river some 47 years ago. The hydro-electric projects provide cheap electricity to the country through a nation-wide transmission grid but the country failed to evolve political consensus to initiate another dam despite the fact that the expensive feasibility study funded by the World Bank was completed around 1987 for constructing Kalabagh Dam. Even international lenders were willing to fund the project at the time, but policy makers in Pakistan could not take a timely decision to construct the dam. This resulted in opting for thermal power plants which relied on imported fuel, which became more and more expensive due to the falling value of the Pakistani rupee over time.

Entering into agreements with Independent Power Producers (IPPs) with highly unfavorable terms for the country literally broke the country’s back. Irrespective of actual demand, the IPPs were guaranteed that a certain minimum payment called capacity charges would be made to them and that too in USD. These agreements have now become the proverbial albatross around the country’s neck.

The poor governance and tendency to seek cheap popularity among the masses precluded taking hard and timely decisions by various governments. The system losses kept increasing and the collection of bills from the public and private sector consumers became a challenge. The common-sense solution was to privatize the distribution system but despite the creation of eleven distribution companies, these were never privatized leading to huge accumulating losses.

Apparently, there is no quick fix. Unless the quality of governance improves and the next elected government is able to take tough long-term policy decisions, the public pain, sadly, is not likely to subside.             

- The writer is the president of Pakistan-based think tank, PILDAT; Tweets at @ABMPildat; Youtube: @abmpildat