Islamic Clerics Enlisted as Pakistan Pushes to Fix Power Sector

(Bloomberg) -- Issue a decree, declare electricity theft un-Islamic and receive 400 electricity units for free every month.

That's a potential offer to Muslim clerics suggested by a Pakistani parliamentary committee that is looking at new incentives and solutions to end the power sector's losses that continue to cripple the nation's finances. Widespread theft, along with a bloated debt and imbalanced payments system, are the major causes of Pakistan's decades-long battle with widespread blackouts.

“We should use moral, religious pressure against thieves,” Nauman Wazir Khattak, a ruling party senator who heads the upper house's sub-committee on power, told Bloomberg.

Prime Minister Imran Khan, who came to power in the midst of Pakistan's latest balance-of-payments crisis after July elections, is rushing to plug government finances and fix a power sector that is overloaded with debt.

The industry survives on subsidies, which are rarely paid on time. Government-mandated tariffs aren't high enough to recover costs, leading to what is locally known as circular debt that has accumulated to about 1.2 trillion rupees ($9 billion).

“It's unsustainable,” said Abid Qaiyum Suleri, an economic adviser to the government and executive director at the Sustainable Development Policy Institute in Islamabad.

Unconventional Remedy

The conventional solution -- raising electricity prices to their recommended levels -- is politically unpopular. Power theft and corruption are also rampant. Khan's administration has pledged to cut the power sector's losses by 140 billion rupees in the current fiscal year.

That's where the Mullahs, or Islamic clerics, come in. Enlisting the influential religious leaders in the Islamic republic of more than 200 million is one of the more creative remedies thought up. Pakistan's utility K-Electric Ltd. was able to increase its recovery of dues by outsourcing bill collection to influential people in troubled areas.

“We should use our platform against social evils,” said Qari Hanif Jalandari, secretary general of Wafaq-ul-Madaris, an organization running the highest number of religious schools in Pakistan. “This is an Islamic duty that we preach and contribute in the society positively.”

After spending billions of rupees of subsidies every year, a weak distribution network means many companies and households are still bereft of electricity.

The power sector, which is largely dependent on imported fuel, uses about 33 percent of the country's total oil consumption. Pakistan's electricity is the costliest in the region. The transmission network -- still in state hands -- is ageing and overburdened. According to government estimates, only as much as 19,500 megawatts of electricity can be transmitted through the available system against a generation capacity of more than 28,000 megawatts.

Power Losses

It's unclear how the federal government would establish a system of free electricity units to the clerics, should the proposal get approved.

With Khan's government seeking the country's 13th International Monetary Fund bailout since the late 1980s, the Washington-based lender may push Pakistan to fix its power system and call for more widespread privatization of the mismanaged state-owned distribution companies.

During Pakistan's last bailout program that ended in September 2016, the IMF had recommended to outsource metering and bill recovery systems, give cash incentives to whistle-blowers and introduce longer power cuts high-loss areas.

Despite Pakistan increasing its power generating capacity with the help of China by about 50 percent over the past five years, its energy sector is still a burden on the economy than being an effective, sustainable engine of growth.

The outdated distribution and transmission infrastructure, the sector's significant dependence on expensive fuels such as furnace oil and uncontrolled power theft result in losses equal to about 17 percent of Pakistan's total annual electricity output, the second highest level in South Asia.

“It's a land mine, a time-bomb for us,” Omar Ayub Khan, Pakistan minister for power said in his first news conference after appointment.

To contact the reporter on this story: Kamran Haider in Islamabad at khaider2@bloomberg.net

To contact the editors responsible for this story: Chris Kay at ckay5@bloomberg.net, Atul Prakash

©2018 Bloomberg L.P.