ISLAMABAD: The Asian Development Bank (ADB) has agreed to assist Pakistan in formulation of a new energy policy for the medium-term covering 2018-23, it was learnt on Wednesday.

In this regard, ADB has approved ‘knowledge and support’ technical assistance worth $5 million to carry out key energy sector analyses and an assessment of the progress made during 2010-16, the findings of which will provide options for the policy for the next six years.

The new ADB assistance had been recommended by the Integrated Energy Sector Recovery Report of the ‘Friends of Democratic Pakistan’ (FODP) to analyse lessons learned from the changing global realities, and propose recommendations as inputs for a new energy policy for the medium-term covering 2018-2023 period.

ADB is the lead and anchor development partner of the government in the energy sector with an ongoing portfolio of $2.8 billion in investments in energy generation, transmission, distribution, energy efficiency, renewable energy development, and analytical and advisory assistance.

The technical assistance, worth $5 million, is consistent with ADB’’s country partnership strategy for Pakistan, 2015-19 and is included in ADB’s current country operations business plan, 2018-20 for Pakistan.

A reliable and sustainable energy sector is essential to Pakistan’s economic growth and sustainability. Economic growth improved between fiscal years 2010 and 2016, but was still lower than in the preceding decade. A major hurdle in achieving further growth is the intense energy shortage.

An ADB report says although Pakistan has abundant renewable and sizable conventional energy resources, public and private investment in energy infrastructure has not been sufficient to meet demand. Electricity supply must be further improved by stepping up efficiency, and operation and maintenance of generation, transmission, and distribution networks.

Although electricity outages have declined and become more predictable since 2010, the 5-gigawatt demand-supply gap combined with the stressed transmission and distribution system continues to result in significant load shedding - 10 hours per day in rural areas and 5 hours in urban areas. The national electrification rate remains low at around 67 per cent, and is even lower (57pc) in rural areas.

Some improvements in sector efficiency, low fuel prices since 2014, and introduction of surcharges have contributed to managing financial challenges in the sector. However, continued reliance on imported fuel-based generation and high consumer receivables, accentuated by insufficient tariffs, has resulted in a persistent circular debt, the report says.

The power subsector relies heavily on government support direct subsidies amounted to about 1.5pc of Gross Domestic Product (GDP) in fiscal year 2016. Costs that cannot be recovered from consumers or the government accumulate on books of the public electricity distribution companies. The distribution companies in turn fail to pay fully for goods and services they receive, especially electricity, thus spreading the shortfall throughout the supply chain.

Commonly called the circular debt, these accumulated arrears amounted to about 4pc of GDP in fiscal year 2013. Actions are required to remove two main distortions that are long-standing gap between the cost of service and revenues gained either from tariffs or subsidies; and the unusually high cost of providing that service. At the same time, inequities caused by poorly targeted subsidies must be rectified to ensure that the sector develops in a socially and environmentally sustainable way, report says.

In 2009, the FODP, recognising the impact of persistent energy shortages on the economy and livelihoods, solicited the preparation of a sustainable and integrated energy plan for Pakistan.

The government and ADB led the effort by creating the Pakistan Energy Sector Task Force to prepare an energy sector recovery report with a comprehensive road map for mobilising international assistance and a recommended action plan to solve energy security problems.

The governments of the US, Japan, and Germany, among other development partners, formed the core team with the chairs and finalised the report in October 2010, which was presented to the ministerial meeting of the FODP comprising 24 countries and institutions.

The recommendations of the report were subsequently fed into the Petroleum Exploration and Production Policy 2012 and the National Power Policy 2013.

Published in Dawn, August 31st, 2017