Incomplete policies and timid reforms cannot fully address the underlying causes of circular debt, which jeopardizes the financial situation of the sector and the country, said a report by Independent Evaluation on the Asian Development Bank (ADB)’s contribution to the Pakistan’s energy sector.
The report titled Pakistan: ADB’s Support to Pakistan Energy Sector (2005-2017) found that Pakistan has seen significant improvement in power supply reliability as a consequence of ADB support in expansion of power transmission and distribution systems, as well as increasing generation capacity.
However, according to the report, upcoming power generation may overload the transmission and distribution systems and may threaten the financial sustainability of the energy sector. ‘Power sector’s state-owned companies do not have sufficient incentives to improve their financial and operating performance, while IPP operations have been adversely affected by delayed payments from the of-taker. Inter- and interagency coordination is poor, while political economy factors that support the status quo and resist reforms and transparency, have slowed down improvements in the power sector’.
The report disclosed that ADB’s analytical and capacity building support to improve the performance of the power sector entities has not been sufficient, and policy-based load programs have failed to trigger substantial reforms to date to contain circular debt.
Pakistan has been one of ADB’s largest borrowers in the energy sector in terms of Board approvals, with $7.76 billion approved in 2005-2017.
Pakistan has been one of ADB’s largest borrowers in the energy sector in terms of Board approvals, with $7.76 billion approved in 2005-2017
The sustainable development of Pakistan’s power system requires the sector’s circular debt (i.e., cash shortfalls across the power supply chain) to be addressed. The sector needs to become more efficient and financially sustainable, while the power supply needs to be more reliable and accessible to more people, while increasing the share of renewable energies, it added.
Support for sector reform and clean energy fell short of achieving its intended outcomes. The overall performance of ADB’s assistance is less than successful. All sub-sectors are rated less likely sustainable in view of the circular debt situation and the high financial risks across all sub-sectors.
Regarding results, the power system’s reliability and efficiency have increased, but only limited progress has been made in addressing the underlying causes of circular debt and in strengthening the financial sustainability of the power sector. However, without ADB support, the situation of the power sector in Pakistan would likely be more precarious.
An Independent Evaluation recommends that ADB should support: improved governance in the power sector, through mechanisms that remain in effect through political changes; efforts in addressing the accumulation of circular debt by targeting its underlying causes; long-term planning and improved management systems in transmission and distribution; clean energy and conservation through investments and enhanced policies and regulations.
Operationally, ADB should provide advisory services towards developing a competitive electricity market; promote sovereign investments for lowering the cost of base-load power generation and integrated energy planning; support implementation of an action plan for DISCO commercialization, including efficient infrastructures, energy accounting through advanced metering, theft reduction through aerial bundled conductors (ABC), and commercialization analysis; and strengthen ADB’s internal monitoring and reporting system, it added.
Published in Daily Times, February 13th 2019.