Capacity charges have become a big problem for the country but addressing the power sector’s crisis in Pakistan requires a multifaceted approach and a strong political will.
The first priority should be to negotiate with private power producers to revise the terms of their agreements, especially capacity charges and the rates of return. The government has to emphasize the need for sustainable pricing to ensure the sector’s viability and affordability for consumers. The prime minister has formed a committee in this regard headed by the power minister.
There is a need to reduce guaranteed profit margins for private companies to align them more closely with industry standards and actual market conditions. Efforts should also be made to improve energy efficiency and demand management through professional experts with the help of technology. The committee is likely to be negotiating on these lines. However, there are a number of other issues that need to be resolved, which include implementing programmes to incentivize consumers to reduce usage during peak hours.
The government will also have to work towards encouraging energy efficiency through incentives for businesses and consumers to adopt energy-saving technologies and practices. It may consider giving special concessions to industries during low demand periods to increase production.
The state should invest in grid infrastructure and modernization by upgrading to smart grid technology to better manage electricity distribution and reduce losses. The transmission and distribution infrastructure should be improved to reduce technical losses and enhance reliability.
The option to explore opportunities to export surplus electricity to neighbouring countries or regions facing power shortages does not exist in our region as neighbouring countries are power sufficient.
But the state must attract energy-intensive industries by offering competitive electricity rates — during low demand hours only — leveraging the surplus capacity to drive industrial growth.We must also diversify our energy mix by increasing investment in renewable energy sources such as solar, wind, and hydro to reduce dependence on conventional power producers and lower overall costs. For this purpose, the government must provide incentives for private and public investment in renewable energy projects.
The government must reform electricity subsidies to ensure they are well-targeted and benefit the most vulnerable populations. The multiple single-phase metres that unduly get the subsidy meant for low-end consumers must be done away with from all residences and commercial enterprises.
More importantly, the financial health of public-sector power entities should be improved to reduce dependency on sovereign guarantees and make the sector more resilient. It is essential to strengthen the independence and capacity of the regulatory body to enforce fair pricing and contract compliance. If the government desires a lower tariff, it should deposit the expected subsidy in advance.
Policymakers should simultaneously develop and implement a long-term integrated resource plan that balances supply and demand, considering economic and demographic trends. At the same time they must involve all stakeholders, including private companies, consumers, and civil society, in discussions about the future of the power sector to build consensus on necessary reforms.
While resolving capacity issues will depend on the negotiating skills of government experts, all other issues require the strong political will of the ruling elite. There might be resistance from private power producers and other stakeholders, but they have to be dealt with efficiently.
Initial investment in infrastructure and efficiency programmes require substantial funding. Addressing the power sector crisis in a comprehensive manner can ensure that electricity is both affordable for consumers and sustainable for the country.
