Chinese help for Pakistan grid adds to Imran Khan’s economic liabilities

Companies and households loose electricity due to weak distribution network

Islamabad.

In Pakistan’s Tharpakar desert, Chinese and Pakistani workers toil in the blistering heat to complete the construction of a massive open pit coal mine and an adjacent 660 megawatt power plant four months before schedule. The roadblocks will come soon after.

When Engro Corp., one of Pakistan’s largest conglomerates, which is partnering with China, begins generating electricity from the plant in December it will hit a distribution and transmission network that is essentially “bankrupt,” according to Shamsuddin Shaikh, the chief executive officer of Engro’s energy arm.

“The system has already collapsed, really the system is just existing because the government every few months will churn out some money, dole out some money and the system keeps on working,” Shaikh said in an interview. “Lots of overhauling is required. Distribution needs to be improved, the theft needs to be removed from the system.”

Pakistan, which is facing a financial crisis and may need a bailout, has added half of its power generating capacity in the past five years with Chinese help but a weak distribution network means companies and households are still bereft of electricity.

Prime Minister Imran Khan faced immediate complaints after he was elected premier by lawmakers last month when the nation’s largest city Karachi was hit by an all-night blackout.

Residents in the metropolis of more than 15 million took to Twitter to vent anger at the local distribution company K-Electric Ltd. and mock Khan’s promise of a “naya” or new Pakistan.

Circular Debt

Widespread theft, along with a bloated debt and imbalanced payments system, are the major causes of Pakistan’s electricity challenge.

Government-mandated tariffs aren’t high enough to recover costs and subsidies are rarely paid on time, leading to what is known locally as circular debt that has accumulated to about 1.2 trillion rupees ($9.7 billion), according to the finance ministry.

“It’s not possible for anybody to give that money, they have to improve the system,” said Shaikh. “They need to privatize the distribution system, they just cannot go on like this.”

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