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Pakistan blackouts choke economy as China power plants go unpaid

CPEC-linked Suppliers Await $1.5bn Dues; Industry Disruptions Hinder Exports

A vendor pushes a cart under a battery-powered LED light during a blackout in Karachi, Pakistan, on June 9.   © Getty Images

ISLAMABAD -- Electricity outages are disrupting life and business in Pakistan as the cash-strapped government struggles to compensate Chinese power suppliers, complicating efforts to resuscitate the ailing economy.

Waheed Ahmed, a taxi driver in Rawalpindi, complained that the power goes out for 8 hours a day, making an ongoing heat wave unbearable. Mumtaz Baloch, a government employee living in a rural area of the southwestern province of Balochistan, said the situation there is even worse, with just six hours of electricity per day.

"We are used to living without government-supplied electricity as our forefathers did in ancient times," he said.

The power crunch has echoes of the crisis in another South Asian country, Sri Lanka, which has also suffered hourslong blackouts, contributing to social unrest. Pakistan's government has attempted to ease the shortages by shifting back to a five-day workweek -- reversing a change to a six-day week that was intended to increase productivity. It is also considering shutting down commercial markets at 8 p.m. to conserve energy.

Meanwhile, households that can afford it buy uninterruptible power supply, or UPS, devices that store electricity to use during outages. Prices have soared, however, with a UPS and accompanying battery costing around $300 -- beyond the range of most working-class families.

Umar Nadeem, the head of advisory at Islamabad consulting company Tabadlab, warned that the power cuts will have a direct impact on economic activity and hit lower-income citizens hardest, as they feel the pressure of 13%-plus inflation. "Disruptions in electricity supply and a corresponding drop in income levels will make coping with the rising costs even more difficult," he told Nikkei Asia.

One of the major reasons for the blackouts is that Chinese power producers under the China-Pakistan Economic Corridor (CPEC) initiative have shut down multiple plants because the Pakistani government has failed to pay dues to the tune of 300 billion rupees ($1.5 billion).

Ahmed Naeem Salik, a research fellow at the Institute of Strategic Studies Islamabad, said that current power generation capacity in Pakistan is 41,000 megawatts, while consumption is around 28,000 MW. "We have 13,000 MW of extra electricity capacity, but still there is a lot of load shedding," he said, using industry lingo for supply interruptions. This, he said, "is mainly because we have to pay the loans [to Chinese companies] that we are unable to pay, and hence [Chinese] have stopped power production."

The government is currently working to unlock billions of dollars in International Monetary Fund support. But the IMF reportedly wants it to renegotiate its arrangements with the Chinese power producers before paying the 300 billion rupees. The fund has not publicly given specifics but is thought to want Pakistan to seek a reduction in the power rates it pays.

Facing this pressure and its own financial squeeze, Islamabad is looking for other ways to placate power suppliers.

In the budget unveiled last week -- one that prompted the IMF to call for additional fiscal consolidation measures, according to Reuters -- the government proposed abolishing the sales tax on the import of machinery for power generation projects, mainly ones under the umbrella of CPEC.

A worker scales a high-voltage pylon in Peshawar: Pakistan's power problems are a drag on economic activity.   © Reuters

Like the rest of the country, the coastal town of Gwadar -- considered the heart of CPEC -- is also feeling the impact of the power cuts.

Aslam Bhootani, a member of the National Assembly representing Gwadar, told Nikkei that a 300 MW plant was supposed to power the town. "The Chinese have stopped construction of this power plant after [the government] failed to pay the dues to existing Chinese power producers," he said.

Meanwhile, other Chinese companies operating in Gwadar are complaining about the high cost of using their own generators. An official at Gwadar port told Nikkei on condition of anonymity that Chinese companies have floated the idea of establishing a 50 MW power plant in Gwadar to meet the needs of the port and the Gwadar free zone -- an area created to lure businesses with tax breaks.

But that would not solve the larger power program, which experts say is one of the biggest challenges for the economy.

Salik at the Institute of Strategic Studies said Pakistan's industries are not functioning effectively due to the blackouts. "The goods manufacturing industry in Sialkot, and especially the textile industry in Faisalabad, are severely being affected due to load shedding," he said.

He added that the recent rise in energy prices has led to an increase in production costs, making it harder for Pakistani companies to compete globally. This further hinders exports at a time when the country is dealing with shrinking foreign exchange reserves.

Still, Salik says Pakistan's and Sri Lanka's energy woes are not exactly comparable.

"The energy crisis between Pakistan and Sri Lanka is the same, but the difference is that Sri Lanka was not under the IMF program, which prevented them from borrowing from international institutions, while Pakistan is under it and therefore can request assistance from international donors," he said.

Bhootani, an ally of Prime Minister Shehbaz Sharif, is hopeful the government can bring the crisis under control soon. "I have suggested to the prime minister to import electricity from Iran, which is the quickest solution for overcoming the crisis," he said.