Daily Times

The state of Pakistan’s energy sector is a primary constraint on the country’s economic development. In a way, the story of the energy sector is symptomatic of virtually all sectors of the economy. There is overwhelming evidence of coordinated policy formulation. The problem is not a disagreement on the objectives; it is a disagreement on how the objectives can be achieved.

There is a mostly ad-hoc process, which responds to crisis situations instead of preventing crises through a long-term vision. Most analysts agree that the absence of coordinated planning and policy formulation is a fundamental drawback. A review of the energy sector objectives in various five-year plan cycles reveals that the objectives are well thought out and clearly stated. This is in stark contrast with what has been actually occurring in the sector.

The so-called circular debt has paralysed many energy-related enterprises and severely curtailed power supplies despite ample installed capacity. The concept of Integrated Energy Planning and Policy Formulation was introduced in Pakistan in the 1980s. It could not be sustained due to the disintegration of policy institutions. The problem of circular debt is a prime example of prolonged neglect for which short-term bailout solutions seem to have become the norm. There is a common misconception that Pakistan has insufficient installed capacity. The following figures speak for themselves. Economic Survey 2017-18 states that capacity to generate electricity surged to 29,573 MW in February 2018. The peak demand in June 2018 was assessed to be 23,055 MW. However, due to the issues mentioned above, the system is able to meet less than 70 per cent of the peak demand.

Comparative analysis shows that energy crisis in Pakistan is more of an administrative issue that an economic one. Historically, the objective of Pakistan’s energy policy has been to develop this sector to support an expanding economy. The country started power sector reforms in 1994 challenging the decades-old power structure in which governments monopolised electricity generation, transmission and distribution. The 1994 energy policy brought a decisive shift. The power policy of 2002 encouraged exploitation of indigenous resources. The power generation policy of 2015 for the first time recognized the need to transform the power sector into a modern, efficient and resilient system in line with the aim to enhance energy security.

The broad energy sector objectives stipulated in Pakistan’s five-year plans are thus well conceived and coherent. The problem is not about where Pakistan needs to go. It is about how to get there. This vision is in stark contrast to what is actually occurring in the sector. This can be attributed in part to persistent shortfalls in implementation. Perhaps the policymakers are less sure of the mechanisms needed to achieve the objectives.

Over the last three to four decades, policymakers and analysts in an increasing number of countries have advocated an integrated approach to the energy sector planning and policy formulation. In many developing countries, including Pakistan, energy planning is carried out and policies are formulated largely on an ad hoc, crisis-driven, sub-sector basis. In a negative policy environment, a positive initiative tends to generate a negative effect. Examples of the negative impacts of positive initiatives abound. A critical one is “missing fundamental” in Pakistan’s energy sector i.e. coordinated planning and policy formulation without which, numerous well-meaning and well-conceived initiatives have failed to take root, and decision making has been reduced to shooting in the dark. Introduced globally in the 1970s, the IEP is a means of integrating energy sector plans and policies with national objectives while ensuring close coordination. Tried and tested the world over, the IEP develops indigenous capacity to optimise the sustainable exploitation and utilization of energy within existing resource constraints in the short, medium, and long term.

The broad energy sector objectives stipulated in Pakistan’s five-year plans are thus well conceived and coherent. The problem is not about where Pakistan needs to go. It is about how to get there

The IEP was introduced in Pakistan in the 1980s. It could not be sustained due to the increasing fragmentation of policy-level institutions. The need to revitalize the IEP was realized in 2007 during a significant conference on Pakistan’s energy sector (Fuelling the Future: Meeting Pakistan’s Energy Needs in the 21st Century) at the Woodrow Wilson Centre in Washington, DC. In 2009, an Energy Experts Group was formed by the Ministry of Finance and the IEP Framework: 2009-2022 drafted.

The Senate Forum for Policy Research organized a discussion with an expert of Energy Planning, Former Director Operations at World Bank Ziad Alahdad in January 2016 and recommended that the Ministry of Energy implement the IEP and formulate energy policies in consultation with all stakeholders. Several steps were taken in this regard between 2009 and 2016. The government of Pakistan is now closely working with the USAID and the US Department of Energy to implement the framework.

The IEP develops a coherent set of energy policies in key areas such as: the energy requirements to fuel national growth while meeting environmental targets; the optimum mix of fuels; conservation measures; measures to diversify and increase energy security by reducing dependence on foreign sources; meeting the energy needs of the poor; saving foreign exchange; reducing the trade deficit; and raising sufficient revenues to finance continued sector development. In a nutshell, the IEP harmonizes the policies and plans of the energy sector to meet national socio-economic objectives, while ensuring close coordination and consistency between each of the energy sub-sectors. It is part and parcel of the overall economic planning process with which it is closely coordinated.

The concept of integration in the IEP does not endorse the revival of centrally planned economies, nor does it result in a more obstructive bureaucracy. On the contrary, the IEP facilitates coordination and enhances the speed and quality of decision-making. The accompanying institutional structure streamlines and considerably reduces bureaucracy and red tape, not only in terms of process, but also by reducing the number of ministries and their staff.

The government has established a separate “IEP Secretariat” to accelerate the pace of the IEP through coordination between all stakeholders. The pace could be rapid because the steps to start the IEP in Pakistan have already been taken in 1980s. However, this time the IEP needs to be introduced comprehensively, together with the supporting institutional framework, on a phased basis to minimize administrative disruption.

Institutional restructuring can be phased in, starting with the energy wing with access to top policy levels. The plans should cover concomitant administrative changes in existing ministries and agencies to consolidate energy-related responsibilities and functions in the new Ministry of Energy. While maintaining the independence of the regulating agencies, their functions should be reviewed to facilitate a coordinated approach.

Administratively, the possibility of housing them under one roof should be examined. To signal political and administrative will, it would be expedient to publicly announce the structure and responsibilities of the newly formed Ministry of Energy. The formation of the new ministry is an important and welcome initiative indicating an awareness of the current structure’s inadequacy and the need to bring about a more integrated framework to facilitate informed decision-making. But, the status quo is no longer acceptable.

This will need to be followed by further consolidation within the new ministry of other energy-related policy-level bodies to facilitate the IEP process, and thereby to generate sound policies to revitalize the energy sector as an engine of growth and economic prosperity for the population at large.

In parallel, a similar exercise needs to be designed and implemented for the fragmented energy regulatory bodies, which are hindered by conflicting mandates and responsibilities. These institutions need to be brought under one roof independent of the ministry, and the terms of reference of each of these bodies need to be revisited to eliminate the overlaps. A word of caution is necessary here; the hydropower sub-sector of energy is still under the Ministry of Water Resources. It cannot be dealt with separately from the rest of the power sub-sectors and the energy sector as a whole if a sustained capacity to produce a coherent integrated energy policy is the goal.

Policymakers should beyond defining where Pakistan needs to be to how to get there. Every crisis presents an opportunity. Given the high level of both domestic and international attention to Pakistan’s energy problems, now is the time for action, to build on the momentum of recent initiatives to consolidate the sector. Starting with the skills available in Pakistan and with the political will to launch the structural changes, the IEP could be put in place relatively quickly, paving the way for the recovery of the energy sector and thereby for the economy as a whole.

The writer is an Associate Professor in COMSATS. He can be reached at engr_aqbazmi@hotmail.com