In the recent past, we have observed an alarming trend. Whenever there is an electricity crisis or discussion on circular debt some interest groups try to blame it on Chinese companies. Anti-CPEC and China-Pakistan forces also came forward and started to strengthen their hands. However, they do not present any data or facts to support their allegations against Chinese companies. They do not tell the true story and actual causes of problems. They also hide how Chinese companies helped Pakistan to avert economic disaster by investing in Pakistan. They also conceal facts about the opportunity cost of No-CPEC energy projects. They only try to confuse Pakistani people and create a bad image of Chinese companies.
The same trend is emerging again during the present energy crisis. There is no doubt that Pakistan is going through one of the worst electricity crises of its history. Unfortunately, some interest groups are trying to blame Chinese companies for the crisis, which is not true at all. The data analysis shows that the crisis’s real cause is Power Policy 1994 (revised in 2002). There can be many reasons for the crisis, but Power Policy 1994 is the leading contributor to the problem. It is consensus among experts that the policy is playing havoc with Pakistan. The policy has shaken the whole economic and social structure of the country.
Power Policy 1994 is not only the mother of problems in the energy sector, but it also impacted the country’s industry, economy, and social fabric. It has introduced numerous challenges, which are now haunting Pakistan. First, the policy promoted fossil fuel-based production of electricity. It was a wrong decision, which is haunting Pakistan badly. It is common knowledge that Pakistan has to import fossil fuels to meet the domestic demand. With the installation of fossil fuel-based power plants, the import of fossil fuels increased sharply. It led to a dramatic increase in the import bill of Pakistan. Now, it is a massive burden on national financial resources.
Circular debt is sucking precious financial resources and compelling Pakistan to beg for financial help from IMF and our friends.
Besides, it is also a significant contributor to the depletion of foreign reserves. Pakistan has to spend a decent chunk of foreign reserves on the import of fossil fuels. Moreover, the volatility of prices in the international market further complicates the situation. These factors negatively impact the exchange rate of Pakistan, which is another contributor to the depreciation of Pakistani currency.
Second, the Power Policy 1994 discouraged the hydropower sector. After the launch of the policy, the focus shifted from hydropower and dam building. It impacted Pakistan on two fronts. On one hand, Pakistan could not build storage capacity, which was required to meet agriculture, domestic and industrial demand. Agriculture is the biggest victim of this policy, which has played a significant role in turning Pakistan into a net food-importing country. On the other hand, electricity prices started to increase and still are increasing. Higher electricity prices are equally impacting households, industry, agriculture, business, and social life. The industrial cost of production has increased many folds, which has dramatically impacted the competitiveness of the Pakistani industry. Lower competitiveness is leading to lower exports, which is a significant challenge for Pakistan right now.
On the domestic front, higher prices of electricity are a burden on the budget of the common man. He cannot pay higher prices without compromising on the basic needs of life like food, education of children, health, etc. In addition to that it is also contributing to higher inflation, which has disturbed the whole society. Now prices have crossed the endurance capacity of people and they cannot pay electricity bills. A nationwide has been started, which has compelled the government to think over the prices. Third, the incentives offered in Power Policy 1994 are highly biased in favour of investors at the cost of national interests. The policy is all about protecting the interests of investors. Besides, the policy has a very weak check and balance system, rather than no check and balance. The investors have been given the authority to declare about their production capacity and no one can question them. The investors do not allow heat tests to find the actual production capacity. Moreover, Pakistan is bound to pay them according to their capacity without measuring the production capacity. It has resulted in a circular debt problem in Pakistan, which is choking the whole economic and social system of the country. The problem is becoming more complex with every passing day. It is so big problem that the government is unable to manage it, let alone solve the problem. The circular debt and expensive production system are compelling successive governments to increase electricity prices. Despite increasing prices, circular debt keeps on inflating, and the government cannot control it. It is increasing daily. Circular debt is sucking precious financial resources and compelling Pakistan to beg for financial help from IMF and our friends.
Fourth, it discouraged industrialization, instead, it sabotaged the industrialization process in Pakistan. Power policy 1994 proved a double-edged sword for the industry. On one hand, the higher electricity prices devasted the industry, irrespective of the size of the industry, small medium, or big. It has greatly affected the competitiveness of the Pakistani industry. The export sector slumped sharply, and Pakistan lost precious foreign revenue.
On the other hand, the lucrative incentives for IPPs discourage investment in the industry. Industrialists find it more profitable to invest in IPPs, rather than industry. These two factors kick-started the de-industrialization process, which is still going on. Higher prices are a constant irritant for the industry. The signing of a standby agreement with the IMF has further complicated the situation, and industrialist feels helpless.
In conclusion, despite, such devastating impacts, no government tried to change the power policy of 1994. One wonders what logic is to keep Power Policy 1994 unchanged. Many people believe that the ruling elite of Pakistan does not want to change it. Why? The unwillingness is rooted in the personal gains of the ruling elite of Pakistan. They not only mint personal benefits but also oblige their cronies, promoters, and financers. However, they fool the people by creating lame excuses or false stories. For example, these days, they are trying to divert attention by blaming the Chinese companies without realizing how badly this false propaganda can impact Pakistan.
Lastly, Pakistan must revise and refine its power policy and try to find sustainable and beneficial solutions for the country. Otherwise, Pakistan will continue to suffer
The writer is COO Zalmi Foundation