Bridging the Electricity Demand-Supply Gap in Pakistan: The Role of Circular Debt and Transmission Losses

Abstract

The study examines the energy situation in the country and identifies the primary issues contributing to the ongoing energy crisis. The analysis reveals two critical factors responsible for the crisis: circular debt and transmission and distribution losses. Addressing these two problems could significantly reduce the gap between electricity demand and supply. It is estimated that resolving these issues could add approximately 3,885 MW of electricity to the national grid, thereby reducing load shedding, which currently ranges from 6 to 8 hours in urban areas and 10 to 12 hours in rural areas. Circular debt, a major impediment in the energy sector, arises from the inability of power producers to pay their debts to fuel suppliers and other stakeholders, leading to a financial bottleneck that hampers electricity generation. The study suggests that eliminating circular debt through financial restructuring and improved payment mechanisms can restore the financial health of the power sector, ensuring a steady flow of resources necessary for uninterrupted electricity production. Transmission and distribution losses, the second critical issue, involve the loss of electrical energy during transmission from power plants to consumers due to outdated infrastructure, technical inefficiencies, and theft. The study highlights the need for substantial investments in modernizing the grid infrastructure, implementing advanced metering systems, and enforcing stricter regulations to curb energy theft. By addressing these losses, the efficiency of the electricity supply chain can be greatly enhanced, ensuring more reliable power delivery to end-users. In addition to resolving these issues, the study advocates for the utilization of alternative energy resources, such as coal, to meet the country's electricity needs. The integration of coal into the energy mix could provide a stable and abundant source of power, capable of supporting both household and industrial sectors. This diversification not only enhances energy security but also moves the country towards self-sufficiency in electricity production. The study further explores the potential for generating surplus electricity, which can be exported to neighboring countries, thereby earning valuable foreign reserves. By expanding the energy export market, the country can boost its economic stability and strengthen its position in the regional energy market. Overall, the findings of this study underscore the urgent need for comprehensive reforms in the energy sector. Policymakers must prioritize the resolution of circular debt and transmission and distribution losses to bridge the electricity demand-supply gap. Simultaneously, investing in alternative energy sources and improving grid infrastructure are essential steps towards achieving energy self-sufficiency and economic growth.