(Thread on #ElectricityCrisis: 1/n) The more I look at data, the more it seems that electricity crisis in #Pakistan is less to do with excess capacity and more to do with nature of contracts & governance. A recent webinar by @PIDEpk & a presentation by @EngroCorp makes it clear.
(2/n) A chart from @EngroCorp's presentation shows that #Pakistan is producing just enough to meet its peak demand as of 2020. But this is going to change in coming years. Under low growth scenario, there will be an excess capacity of about 3,500 MW in coming years. 
(3/n) Can the govt do something to create an additional demand for surplus electricity? There is between 4,000 to 5,000 MW of installed captive power generation capacity. If govt could incentivise industries to switch from captive power to grid, surplus capacity can be absorbed.
(4/n) You might be thinking this will solve the problem. Unfortunately not! It turns out that even if we can absorb the surplus capacity, capacity charges per unit of electricity will only decrease by about Rs 0.7. In other word, price per unit will not decrease by much.
(5/n) Where then is the problem? First, in the nature of contracts. Though there was no surplus capacity vis-a-vis peak demand, capacity charge per unit increased frm Rs 2.7 to 4.6 btw 2016-19 (see prev fig). Capacity charge per unit is now expected to increase to Rs 8.3 in 2025.
(6/n) Some of increase in capacity charge (CC) is due to rupee depreciation. But % increase in CC is more than rate of depreciation during this period, pointing to other reasons. Govt is currently working on renegotiating IPP contracts. Good luck to them! dawn.com/news/1561850
(7/n) Second problem is to do with distribution losses. But, surprisingly, biggest component of distribution losses (in circular debt) is not losses in transmission network but recoveries of electricity bills. Until June-18, non-payment of bills made up 44% of total circular debt
(8/n) The second biggest contributor was the government itself, accounting for 21% of the circular debt as of June-18. The problem is only going to get worse. Distribution losses r expected to add another Rs1.2-1.5 trillion to circular debt by 2025 if nothing is done about this.
(9/n) But there is hope. 87% of total payment defaults are associated with QESCO, PESCO, SEPCO and HESCO. If the govt could focus on just these four Discos and help address issues affecting their recoveries, it can go a long way in averting the crisis standing at our doorstep.
(10/n) Or else, lets get ready for ever increasing electricity tariffs which were already the highest in region as of 2018 (see fig). At present, the electricity prices are already touching Rs18 per unit and are expected to reach Rs24 in coming months. tribune.com.pk/story/2169541/…
(n/n) There is only a limit to which prices can be increased as a way out of this mess. At some point more and more people will find it worthwhile to start defaulting on their bills and, wherever possible, switch to off-grid sources. This will only exacerbate the problem!
P.S. here is a bit more discussion on the way forward! The medium term objective should be to move towards creating electricity market. There is a lot to learn from Vietnam's experience. See more on this below:
