2013-09-17 09:16:25 - Fast Market Research recommends "Pakistan Power Report Q4 2013" from Business Monitor International, now available
Since the Pakistani general election held on May 11 2013, the government has attempted to improve the country's power situation with a variety of measures, including a new five-year energy plan that was released on July 21. Despite political determination increasing, we believe the plans are too ambitious, given that hurdles to privatisation remain substantial as tariff hikes remain difficult to secure. With the unstable political environment and the country's fiscal balances unlikely to improve, the problem of circular debt is likely to persist and continue to cripple the sector.
The Pakistani general election held on May 11 2013 resulted in a coalition government, consisting of coalition leader, the Pakistan Muslim League (Nawaz) [PML(N)],and 19 other independent candidates. There now seems
to be greater political will to improve the energy situation in the country, with the government releasing its latest energy plan (2013-2018). Under it, the power subsidy will be gradually phased out and load-shedding is projected to end in 2017. The plan hinges on agreements with the International Monetary Fund (IMF), World Bank and other private sector lenders, which are due to provide financing on the condition that generation, distribution companies and power plants are privatised. The water and power ministries would also be restructured, while outstanding dues owned by the government and the private sector will be adjusted.
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Even though the government has shown much determination in its latest plan, it still faces the same problems that plagued previous governments. Load-shedding across the country appears to be increasing across provinces, despite official statements that power shortage has fallen to its lowest in five years. The weak power sector continues to arrest the country's economic development, with the government announcing another power tariff increase for industrial and commercial user, slated to take effect on October 1 2013 of not less than 70% to PKR14 per unit from the current PKR5.79. Meanwhile, companies and authorities continue to struggle to arrest the growing number of domestic users stealing power.
The sector continues to battle with huge losses due to poor performance of assets and power theft, which is estimated by officials from the Water and Power Ministry to be close to 45%. Meanwhile, given that the total amount of bills defaulted by both private and public sectors is now at PKR426bn, the government is looking to install pre-paid metering systems to arrest the growth of these unpaid bills. Moreover, there have been efforts to prosecute those who have unpaid bills dating back more than a year. However, it remains to be seen if there is sufficient political will to support these efforts given the divide between provincial and central governments. The latest energy plan will make provincial governments liable for up to 70% of these unpaid bills and deducted from federal transfers if provincial governments fail to recover. Despite the overall dim outlook, more independent foreign firms are entering the market; in particular, several renewable energy firms have taken advantage of the opportunities to meet the energy gap left by conventional generators.
Recent developments in the Pakistani electricity market include:
* Iran began negotiations with Pakistan in November 2012 on an agreement that would see Iran export 1,000MW of electricity. At present, both sides aim to seal the agreement by September 2013. Mjid Namjou, Iranian Minister of Energy, has further expressed keenness to build another power plant on Iran's border, so that his country could boost the total amount of energy available for export by another 2,000 megawatts (MW). Pakistan's neighbour has further pledge to complete the gas pipeline by 2014, a move which could alleviate the fuel shortages faced by certain states. The two countries are looking at alternative forms of payment given Pakistan's weak fiscal balances and the international sanctions on Iran. These include the former paying for electricity with wheat, rice and steel, as well as payment to an Iranian construction firm operating in Pakistan. Progress on the Iran-Pakistan pipeline project remains slow, stalled by domestic and international opposition to the project.
* Construction of the various dams continues to be slowed due to increasing environmental concerns, cost escalation and financing issues. The country has recently unveiled a new energy plan which will involve new agreements with the IMF, World Bank and other private sector lenders. While it remains to be seen if financing will indeed come through, recent improvements in Pakistan-Iran relations have made other countries such as the US wary, and has helped the discussions with international aid agencies. Moreover, the US has agreed to be the biggest financier for the Diamer-Bhasha dam and provide a major share for the upgrading of the Mangla dam. Given the complications in seeking external financing due to political differences, the government is gradually turning to the local private sector enterprises, offering to sell these power projects. One such project is the Neelum-Jhelum hydro-electric project, which has been offered to Pakistani industrialist Mian Muhammad Mansha.
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