South Asia Investor Review

It is becoming increasingly clear that it is the total absence of financial management, not just insufficient installed generating capacity, that is the crux of the worsening energy problems in Pakistan. Riots have broken out as the Punjab, Pakistan's largest province, finds itself in the midst of the worst ever electricity crisis in the nation's history. The power shortfall has reached almost 9000 megawatts across the country, over half of the total demand of about 17000 MW. Many public and private power producers have shut down their power plants due to the suspension of fuel supply by Pakistan State Oil, the state-owned oil company, according to a report in the Express Tribune . The oil company is demanding payment of Rs. 155 billion in outstanding dues from the power producers before resuming fuel supply. The key players in this "circular debt" trap are the federal and provincial governments as the biggest deadbeats, the power distributors like LESCO and KESC, ...

As Pakistanis discuss major causes and crippling effects of the worst ever power crisis in the nation's history, "load shedding" and "circular debt" are two key phrases that have entered the vocabulary of average people in Pakistan during the last few years. Load Shedding: What do these common phrases mean? Let me start with "load shedding" first. Long and daily power outages are called "load shedding". "Load shedding" is supposedly an attempt to share a limited resource equitably among many consumers. In addition to insufficient installed capacity as the culprit, the dramatic increase in "load shedding" in the last two years is commonly also blamed on growing "circular debt" which results in significant under-utilization of power plants already in place. There is credible data to suggest that the deepening electricity crisis since 2008 has more to do with the independent power producers(IPPs) operating at less...