The timing could not have been any worse. Panama Papers, Dawn Leaks, civil-military tensions, a not-so-secret secret trip of a friend from India, and a reinvigorated opposition. All of these events rattled the ruling party at a time when temperatures, quite literally, soared across much of the Islamic Republic. It was as if the heavens themselves had conspired against Nawaz Sharif and his government.
As the mercury soars this summer, Nawaz Sharif finds himself in a tenuous situation. Gone are the days and months of business as usual when the ruling party was quite comfortable of its electoral chances in 2018. A Joint Investigation Team looking into the prime minister and his family’s wealth has started its work, macroeconomic indicators are weakening and the ceaseless load shedding that much of Pakistan has already started to experience is making the electorate wonder about change.
We must give credit where credit is due: there has been a tremendous amount of money, time, and effort invested in bolstering the supply-side of the electricity equation in Pakistan. Nawaz has consistently taken an interest in power generation. New power plants are set to come online in 2018 and production capacity, repeat, capacity, is expected to outstrip demand in the coming months.
Nawaz roared to power in 2013 vowing to eliminate chronic power shortages within a few months. As the sheen wore off, the government and its surrogates changed tack, arguing that the crisis would be resolved within a couple of years. With a sleight of hand, the position shifted yet again and 2018 became the buzzword.
Our Chinese brothers were coming to the rescue and the over $50 billion China-Pakistan Economic Corridor would be the end all be all. Much like the Houbara bustard, the Nawaz government was on its way to driving electricity shortages towards extinction.
Capacity, however, does not equal production. And this is where things have not changed for the better. Let’s go back to 2013 when the original sin was committed by the ruling party. The then newly elected government promised to institute tough structural reforms as it wiped off circular debt, arguing that it was the first in a series of steps to rejuvenate Pakistan’s fortunes. The circular debt of Rs480 billion was cleared with the issuance of Pakistan Investment Bonds. This provided temporary relief as average electricity generation crossed the 14,000MW barrier as Independent Power Producers (IPPs) added 1,700MW to the grid.
The next logical step would have been to institute tough and much-needed reforms in the power sector. Reforms, however, are easier said than done and this is where the government dropped the ball. Focused on CPEC and the construction of new power plants, it faltered and the circular debt surged to Rs180 billion by early 2014. Despite the low cost of energy in the international market the payables in the power sector have continued to mount with the total circular debt in the system ballooning to almost Rs400 billion by March of this year.
Fast-forward to 2017 and the rising mercury has already led peak demand to cross 21,000MW. With supply choked by circular debt, the gap has crossed 5,000MW, leading to a supply gap of seven and a half hours per day across Pakistan.
There are other, more complicated issues that the government will have to tackle sooner rather than later. They include bolstering the transmission capacity of the grid to efficiently transmit all the new power to the final consumer, reducing theft and transmission and distribution losses, and coming up with an effective strategy to rein in circular debt.
Then there is the issue of Nepra, the country’s power regulator. It has been reported that a meeting of the Council of Common Interests has agreed to approve amendments to the Nepra Act. If implemented, this would make Nepra a toothless institution and allow the government to pass through all types of costs to the final consumer in a bid to add to the country’s narrow revenue base.
Having failed to push through the necessary reforms, the government now finds itself in a bind. On the one hand additional production capacity in 2018 will narrow the gap. Structural issues in the power sector, including mounting circular debt, will continue to limit how much power can be delivered to consumers.
The political opposition will soon recognize that the soft underbelly of the Nawaz government is load shedding. Panama Papers, civil-military tensions, and other issues are a mere sideshow compared to the profound failure of this government to exorcise rolling blackouts.
With elections nearing, it is too late to implement the tough reforms that are needed in the power sector. That leaves the ruling party no choice but to kick the can down the road by clearing the debt through further issuance of bonds before the end of its term in 2018. This is the only arrow in the government’s quiver.
With the debt’s chokehold removed, IPPs will begin producing electricity again, leading to a dramatically lower electricity shortfall in the summer of 2018—peak campaigning season in Pakistan. Sharif would have delivered his promise to eliminate load shedding and secure another term as prime minister, albeit at the expense of macroeconomic stability.
Uzair Younus is an analyst at Albright Stonebridge Group and can be reached at uzairmyounus@gmail.com
As the mercury soars this summer, Nawaz Sharif finds himself in a tenuous situation. Gone are the days and months of business as usual when the ruling party was quite comfortable of its electoral chances in 2018. A Joint Investigation Team looking into the prime minister and his family’s wealth has started its work, macroeconomic indicators are weakening and the ceaseless load shedding that much of Pakistan has already started to experience is making the electorate wonder about change.
The political opposition will soon recognize that the soft underbelly of the Nawaz government is load shedding. With elections nearing, it is too late to implement tough power sector reforms. That leaves the ruling party no choice but to clear debt through further issuance of bonds before the end of its term in 2018
We must give credit where credit is due: there has been a tremendous amount of money, time, and effort invested in bolstering the supply-side of the electricity equation in Pakistan. Nawaz has consistently taken an interest in power generation. New power plants are set to come online in 2018 and production capacity, repeat, capacity, is expected to outstrip demand in the coming months.
Nawaz roared to power in 2013 vowing to eliminate chronic power shortages within a few months. As the sheen wore off, the government and its surrogates changed tack, arguing that the crisis would be resolved within a couple of years. With a sleight of hand, the position shifted yet again and 2018 became the buzzword.
Our Chinese brothers were coming to the rescue and the over $50 billion China-Pakistan Economic Corridor would be the end all be all. Much like the Houbara bustard, the Nawaz government was on its way to driving electricity shortages towards extinction.
Capacity, however, does not equal production. And this is where things have not changed for the better. Let’s go back to 2013 when the original sin was committed by the ruling party. The then newly elected government promised to institute tough structural reforms as it wiped off circular debt, arguing that it was the first in a series of steps to rejuvenate Pakistan’s fortunes. The circular debt of Rs480 billion was cleared with the issuance of Pakistan Investment Bonds. This provided temporary relief as average electricity generation crossed the 14,000MW barrier as Independent Power Producers (IPPs) added 1,700MW to the grid.
Despite the low cost of energy in the international market the payables in the power sector have continued to mount with the total circular debt in the system ballooning to almost Rs400 billion by March of this year
The next logical step would have been to institute tough and much-needed reforms in the power sector. Reforms, however, are easier said than done and this is where the government dropped the ball. Focused on CPEC and the construction of new power plants, it faltered and the circular debt surged to Rs180 billion by early 2014. Despite the low cost of energy in the international market the payables in the power sector have continued to mount with the total circular debt in the system ballooning to almost Rs400 billion by March of this year.
Fast-forward to 2017 and the rising mercury has already led peak demand to cross 21,000MW. With supply choked by circular debt, the gap has crossed 5,000MW, leading to a supply gap of seven and a half hours per day across Pakistan.
There are other, more complicated issues that the government will have to tackle sooner rather than later. They include bolstering the transmission capacity of the grid to efficiently transmit all the new power to the final consumer, reducing theft and transmission and distribution losses, and coming up with an effective strategy to rein in circular debt.
Then there is the issue of Nepra, the country’s power regulator. It has been reported that a meeting of the Council of Common Interests has agreed to approve amendments to the Nepra Act. If implemented, this would make Nepra a toothless institution and allow the government to pass through all types of costs to the final consumer in a bid to add to the country’s narrow revenue base.
Having failed to push through the necessary reforms, the government now finds itself in a bind. On the one hand additional production capacity in 2018 will narrow the gap. Structural issues in the power sector, including mounting circular debt, will continue to limit how much power can be delivered to consumers.
The political opposition will soon recognize that the soft underbelly of the Nawaz government is load shedding. Panama Papers, civil-military tensions, and other issues are a mere sideshow compared to the profound failure of this government to exorcise rolling blackouts.
With elections nearing, it is too late to implement the tough reforms that are needed in the power sector. That leaves the ruling party no choice but to kick the can down the road by clearing the debt through further issuance of bonds before the end of its term in 2018. This is the only arrow in the government’s quiver.
With the debt’s chokehold removed, IPPs will begin producing electricity again, leading to a dramatically lower electricity shortfall in the summer of 2018—peak campaigning season in Pakistan. Sharif would have delivered his promise to eliminate load shedding and secure another term as prime minister, albeit at the expense of macroeconomic stability.
Uzair Younus is an analyst at Albright Stonebridge Group and can be reached at uzairmyounus@gmail.com