COUNTRY REPORT: PAKISTAN

addition to the burden of blackout-related fines imposed by the National Electric Power Regulatory Authority.

In this light, Fitch reported the improvement of Pakistan’s grid network will likely be slow despite plans for upgrades and expansions to existing infrastructure as the government lacks funds.

A cycle of debt

Narayan explained distribution companies have not paid their dues to power generating companies, resulting in power generators’ failing to fully pay their fuel suppliers. This has led to a cycle of revenue recovery difficulties.

“Pakistan’s energy sector has been crippled with circular debt,” he said.

On top of this, the differential tariff system that subsidises electricity tariff for a section of bill-payers, such as the agricultural consumers, and the weak distribution system have likewise left distribution companies in debt.

“This also implied that many industries were being forced to shut down as they had to face high electricity tariffs as part of the differential tariff scheme,” Narayan said.

Narayan said the government should rethink its differential subsidy strategy to ease the burden on distribution companies. Not only will this reduce the circular debt, but it will also ensure that distribution companies are in a position to pay the due debt to power generators, ultimately allowing them to have a higher cost recovery.

Pakistan bailout

Investments should also be directed towards transmission and distribution infrastructure to cut losses and towards renewable energy and storage as a longer-term solution.

Wood Mackenzie estimated that building solar in the market is just 5% more expensive than coal on a levelised cost of energy basis. This is also 40% cheaper compared to gas. Solar power growth was however hampered by the lack of government initiative and high initial capital cost. The country could also tap international support to help fund hydro as its installed capacity currently stands at 10GW, well below the estimated 17GW and 23GW required capacity by 2030 and 2040, respectively.

In the short-to-medium term, he said the market may consider looking for higherquality domestic coal as an alternative to lowquality Thar coal. This is to reduce import dependence and improve energy security whilst also keeping power prices stable.

Isaad likewise expected the market will need to use fuel oil or coal in the near term to address the crisis but raised the need for Pakistan to diversify its energy mix with renewables. “This has to be done first at a policy level and then at a practical level through programs that facilitate the uptake of renewable energy through accessible finance,” she said.

“Grid upgrades are also necessary to remove transmission bottlenecks and ready the grid for the accommodation of renewable energy on a larger scale.”

She noted the country has impressive solar and wind resources and more dispatchable sources, such as hydropower and indigenous coal that could help reduce reliance on imports as well as fill the gap left by natural gas.

Isaad noted getting Pakistan out of this tight spot will also require greater participation from the international community. Aside from financing, there should also be technology transfer through capacity building or direct provision of technology, such as battery storage and grid upgrade.

The government had already reached the IMF for a bailout, but Saibasan said this could only lead to inflation and higher energy prices.

“Pakistan should look for support from international organisations as well as leverage its relationship with US and China to mitigate the current economic scenario, but this would provide only a temporary relief,” Saibasan said.