The first task for Pakistan’s new prime minister is to keep the lights on

LIKE most Pakistanis Mohammad Hussain complains bitterly about the paltry few hours of electricity available each day during the sweltering summer. Life for the 43-year-old labourer, already pretty miserable in the Lahore slum where he lives, is more unbearable without a fan to cool him at night or a pump to guarantee water.

Like many of his countrymen, he has never paid a rupee towards the cost of the dribble of electricity used by his wife and five children, who all live in a one-bedroom flat. Their building is illegally connected to the city’s power grid by a metal hook attached to a nearby electricity line.

Every now and then officials from the Lahore Electric Supply Company (LESCO) launch a “crackdown”. Officials phone ahead, giving everyone ample opportunity to remove their hooks. They then go door-to-door collecting bribes, organised on a careful tariff basis. Households with just a fan pay $5. For slightly beefier “air coolers” the fee is $10 and for the lucky few who can afford air conditioning the cost is $15. These charges are a fraction of LESCO’s official tariff, but none of the money goes into the coffers of a collapsing electricity system anyway.

Not charging consumers for electricity has created a big problem for Pakistan. At the end of 2012 the country’s stock of energy-industry debt was $9.1 billion— about 4% of GDP—according to a report funded by the United States Agency for International Development (USAID) and carried out by the national Planning Commission.

The shortfall in revenue has a knock-on effect along the electricity supply-chain. Without being paid by consumers the distribution companies cannot pay the private electricity generators, who in turn cannot pay their fuel bills, forcing them to shut down or run at low capacity. That creates ever more “load shedding”, the local term for blackouts.

The same USAID–backed report claims power shortages retard economic growth by at least 2% a year. The situation is deteriorating as the debt mountain grows. Riots break out each summer in protest.

Power surge

Freeing consumers and industry from this misery is the priority of Nawaz Sharif, Pakistan’s new prime minister, who was inaugurated on June 5th. He owes his victory to public fury at the failure of the outgoing government of the Pakistan Peoples Party to solve the energy crisis.

If the system is to be fixed it is not just people in the slums who will have to cough up, but the rich and the powerful too, including the industrialists who enthusiastically supported Mr Sharif in last month’s election.

Government departments are also some of the biggest defaulters, owing as much as $2 billion, and the armed forces see little reason to fear being cut off if they do not pay. The finance ministry is often behind on paying its own subsidies into the system. Such cash injections are meant to make electricity more affordable, but they are not targeted at the poor and have soared to levels unaffordable for the government as world energy prices have risen.

The price supposedly charged to consumers for electricity is now nowhere near its cost of production. Mr Sharif hopes to improve the situation immediately by paying off a big chunk of the debt. With more money flowing through the system consumers should feel an instant relief.

“It’s a reset of the system so we can start off on a clean slate,” says Fariel Salahuddin, a power-sector specialist. “It doesn’t mean the debt goes away, it just comes off the books of private-sector entities.” Where such sums will come from is another matter. There has been talk of raising money through the sale of government bonds. Pakistan will also have to begin bail-out negotiations with the IMF soon if it is to avert a balance-of-payments crisis.

Hopes are pinned on multi-billion dollar aid from Saudi Arabia, probably in the form of deferred oil payments. The Saudis have long had cordial relations with Mr Sharif, whom they hosted during part of his time in exile from Pakistan. They provided similar help to the last government Mr Sharif headed in 1998.

“It is like you have a patient who is haemorrhaging: you have to give him a blood infusion to stabilise him,” says Omar Malik from PITCO, an energy consultancy. “But that won’t be sufficient if you don’t stop the bleeding.”

That means finding ways to generate electricity far more cheaply. Currently Pakistan has some of the most expensive energy in the region, not least because half of its power comes from burning gas and oil, most of which are imported. That is eating into the country’s already seriously depleted foreign-exchange reserves, pushing Pakistan even further towards a balance-of-payments crisis.

Coal-burning power stations could be built relatively quickly or existing ones converted, says Mr Malik. But Pakistan has been slow to exploit its own coal resources and most would have to be imported.

The country has huge potential for hydroelectricity, the cheapest form of energy, but dams can take the best part of a decade to build. Perhaps the best Mr Sharif can hope for in the coming years is that the rest of Pakistan might become a little more like Karachi, the southern city where electricity-industry managers have succeeded in keeping the fans and the lights on by cutting off completely any customers who don’t pay. That means regular electricity for the rich. And even less power for slum dwellers like Mr Hussain.