The chronic energy crisis appears insurmountable, with rising tariffs, ballooning circular debt, and no respite to either in sight.
The Planning Commission, however, believes otherwise. The crisis, the commission says in a long-term plan to the water and power ministry, is the result of a gradual shift in Pakistan’s power generation mix over decades. Its resolution, therefore, requires vision, and time.
The commission insists in the plan that in order to make power affordable again, Pakistan needs to reverse the trend in its power-generation mix, and shift to hydel and coal-based generation in the long-term. For the short-term, however, the commission recommends focusing on improving tariff collection, and cutting down on line losses.
Changing the energy mix
Pakistan’s power tariff cannot rise perpetually since it is eroding affordability and the competitiveness of the country’s industry and businesses, the commission says.
Power costs have increased owing to a gradual, but tectonic shift from hydel to thermal power generation, the report says. The share of hydel in the country’s overall generation capacity, at present, is 30%, compared to 70% in the 1980s. Furthermore, in the past few years, thermal generation has shifted from cheaper natural gas to more expensive furnace oil. To reverse this trend, “substantial reductions in generation costs need to be achieved over the long term,” the report says.
To reduce generation costs, the report proposes feeding steam-fired plants with coal, instead of furnace oil in the medium-term, and moving to hydel and coal-based generation in the long-term.
Who foots the bill?
What will this trend reversal cost and who will foot the bill?
Capacity additions of around 11,000 megawatts envisaged in the draft of the 10th Five Year Plan require an investment of around $21 billion, of which $8 billion would be generated from the power sector, says the report.
It adds, though, that there is a significant lack of investment compared to the projected requirements.
Locally, domestic banks have limited financing to meet the requirement of power sector while investors’ low perception about Pakistan is a constraint in foreign, private investments.
The financial woes are aggravated by the large circular debt, and lower-than-cost power tariffs, the report adds.
The government needs to outline a comprehensive plan with sources of funding, schedules and enforcement strategies to reflect realistic targets, the commission suggests.
It recommends prioritising investments in large, multi-unit hydel and coal projects that have low per unit generation cost and high capacity.
The commission also urges revitalising the privatisation programme and ensuring timely commissioning of 7,600 megawatts through independent power projects by 2017.
In the meanwhile, the report says, the government needs to focus on improving bill collection and reducing line losses.
At present, the government pays Rs30 billion per month due to line losses and poor recovery of bills. The circular debt stands at Rs370 billion while an estimated Rs350 billion have been provided in power subsidy during the ongoing financial year 2011-12.
According to the plan, the commission recommends outsourcing tariff collection for high-loss feeders and introducing pre-paid smart metering.
If bills are paid and smart meters installed, load shedding will be reduced, says the report.
It adds that bill payment should be incentivised by distribution companies by reducing load shedding in areas where line losses are lower, and bill recovery ratio is higher.
The report also proposes promulgating anti-theft law to improve recovery of bills.
The commission also proposes adjusting electricity bills of provinces and defence installations at source with the federal government.
Also, since line losses are directly proportional to grid length, the commission recommends an additional 5% discount, over standard contracts, to private power producers feeding into the national grid in remote areas.
Published in The Express Tribune, January 16th, 2012.