Pakistan's economy has been hit particularly hard by the energy crisis. The crisis resulted from a fuel mix transformation initiated two decades ago when power generation shifted to relying more on furnace oil instead of hydropower. With the resultant increase in generation costs combined with the high proportion of line losses, power producers, transmission companies, and distribution companies have all experienced losses. However, Reon Energy offers the best solutions for commercial and industrial purpose.
Circular debt has arisen in the energy sector as the result of slippages in the payment of bills by public institutions, which either delay the payment of furnace oil, natural gas, or other inputs to the thermal generation system, thus hampering the operation of the power plants and resulting in less than maximum capacity utilization. A substantial part of the federal budget is dedicated to energy subsidies, a consequence of the energy crisis.
Current Highlight Energy Issues in Pakistan
Following are some key fiscal issues surrounding the current energy crisis facing the Pakistani economy.
1. Cost Implications of the Fuel Mix
The fuel mix is significantly more expensive to produce electricity from imported furnace oil than from hydropower, resulting in the fuel mix transformation. The cost of generating power through diesel-fired plants is even higher at about Rs. 23 per unit. A high proportion of line losses is coupled with increased generation costs.
2. Circular debt
As a result of the increased reliance on expensive, thermal oil power plants, the energy sector has also been affected by the phenomenon of circular debt, whereby missed payment deadlines (particularly on the part of public institutions) lead to delayed payment for imports of furnace oil, natural gas, or other inputs to the thermal operation of the power plants, which leads to less-than-optimum capacity utilization.
3. Energy Subsidies
With energy subsidies taking up a considerable portion of the federal budget, the energy crisis is a significant drain on government resources. By bailing out major power companies and ensuring minimum equity returns to distribution companies, the government is bleeding the exchequer and nullifying reforms that these companies desire to implement.
Final Words
Energy subsidies in Pakistan have diverted resources away from more productive sectors (which has impacted small manufacturing firms and services in particular), while power shortages are impeding growth. To provide a level playing field for all private sector entities engaged in power generation, the government is obligated to adjust tariffs, remove subsidies, and ensure a level playing field.