By Mehreen Zahra-Malik and Maria Golovnina
ISLAMABAD (Reuters) - Pakistan's new energy minister promised on Thursday to fix the country's ailing energy sector in three years, laying out an ambitious plan to tackle crippling power shortages that have devastated the economy and sparked violent protests.
Blackouts lasting more than half a day in some areas have infuriated many Pakistanis in this nuclear-armed nation of 180 million people, prompting the new prime minister, Nawaz Sharif, to declare tackling the crisis one of his top priorities.
Khawaja Asif, minister for water and power, told Reuters his team would reduce Pakistan's reliance on expensive oil imports, build new power plants and pay off a chain of debt choking one of the most inefficient energy sectors in the world.
As part of the new plan, Asif said Pakistan would announce significant cuts to subsidized tariffs for powerful industries in the next few days and boost investment to upgrade ageing transmission lines and power generation facilities.
"The whole thing is a nightmare," said Asif, describing the current state of his sector.
"We are going for a surgery. There will be a lot of pain. A lot of discomfort. But once the patient is up and about, running, then he will say that the pain was worthwhile."
Asif, seen as a pro-market technocrat, served as petroleum minister in 2008 and was chairman of the privatization commission in a previous Sharif cabinet in the 1990s.
His plan, due to be unveiled next week, is set to be Pakistan's boldest attempt in over a decade to tackle persistent power cuts that have stunted economic growth in a country already plagued by sectarian violence, poverty and corruption.
But critics have questioned just how far Sharif will be prepared to go to overhaul an important sector criss-crossed by decades-long alliances, industry loyalties and lobby groups watching each other's backs.
Asif said his first step was to plug a 500 billion rupee ($5 billion) financing hole, known as 'circular debt' - a vicious cycle of unpaid bills running through the entire power-generation chain - and to reduce the length of power cuts.
"The elimination of load shedding (power cuts) completely will take place in three years, God willing," he said.
Pakistan's state power companies are notoriously inefficient. Many influential families refuse to pay their bills while the poor often cannot afford to pay.
The government sells power below the cost of production but pays subsidies late or not at all. Plants cannot afford fuel.
As a result, Pakistan has lost an estimated 5 billion rupees in the last five years, a loss it can ill-afford as it struggles to revive its moribund economy and reduce its budget deficit.
The government had already paid $3 billion of the circular debt in its first 40 days in office and plans to pay off the rest by the first week of August, Asif said.
"At the moment we need to get rid of this debt situation," he said. "If we don't do that, it will start piling up again."
In the longer term, he said Pakistan would move from relying on expensive imported oil to hydroelectric, coal and gas-based power to reduce the costs of generation.
"Our goal is to change the energy mix of our country," Asif said. "New generation capacity should be based on cheaper fuel."
For this, at least 10 hydroelectric power plants are in the pipeline, which Asif predicts will come online by 2016.
New projects also include a Chinese-financed wind power plant near the second city of Karachi, solar energy projects in Sharif's home province of Punjab and plans to import liquefied natural gas via a new terminal from 2014.
"Generation can be taken over by the private sector and distribution should be also done by the private sector. The government should gradually get out of this business."
"We will increase the tariff in the coming days," Asif said. "Bigger consumers, they will have ... no subsidy. But we will protect the domestic consumers," he said, referring to individual households.
(Editing by Gareth Jones)