Pakistan’s power sector: going up, down or nowhere?

Pakistan’s power sector has come out of its worst financial crisis

Mohammad Younus Dagha December 13, 2016
The writer is Secretary, Ministry of Water and Power

When did we last read positive reviews in the international reports about Pakistan’s power sector? Never. It is now accepted internationally that Pakistan’s power sector has come out of its worst financial crisis, from posting a loss to the national budget of Rs200bn to now a negligible Rs8 bn per annum. In terms of its impact on the national exchequer, the power sector’s performance has brought savings of Rs400 bn in the past two years. On the operations side, the power sector has come a long way from a routine of 12-15 hours of industrial and domestic load-shedding, often unscheduled just a few years back, to now zero load-shedding for industries and a scheduled predictable load-shedding of three hours in urban and four hours in rural areas, as per the new schedule announced in November 2016.

Due to an uncontrollable circular debt, rising at a pace of Rs10-18 billion a month (in a month) during 2007-14, no investors and their bankers were ready to put in their funds in Pakistan’s power sector till 2014. After strenuous efforts, the menace of circular debt has been successfully tackled with better recoveries in distribution companies and better management of generation plants plugging losses from all sides. The reduction in oil prices also helped to an equal extent. The result: an increase in circular debt has been capped since Oct 2014.

Now, there is a beeline of foreign and local investors vying to get a space on our grid. In just one year (2015), more than 12000 MWs of new private sector power projects were facilitated as against only 8756 MWs of private sector power generation in the entire (20 years’) history of IPPs in the country from 1994-2013. This demonstrates that the power ministry has been able to successfully put better monitoring systems for oversight of the power sector entities which has helped reduce the sector’s losses. However, in order to keep this system afloat, such vigilant monitoring and supervision will need to continue, perhaps with greater vigour if new generation is to be smoothly added to the system. In addition, there is also a need to keep the power tariffs realistic and cost-covering. Any artificial lowering of tariffs, will again jeopardise the stability achieved in the power sector, after decades of turbulence.

This tells the story of reduced load-shedding and better financial performance of the power sector, but how would that translate into zero load-shedding as being claimed. We read some worrisome views of few analysts who maintain that the aims for bringing load-shedding (outages) to zero are not supported by the available transmission and distribution capacity. Some other views even question the expected timelines for completion of the new generation projects. These views cannot be ignored especially when they get the support in the reports issued by the regulator which though based on outdated data, still get attention of the power sector analysts.

Power sector projects, like all such large scale undertakings, always have possibilities of changes in the timelines. In order to cater for any such eventuality, against an expected generation shortfall between 7000-8000 MWs estimated for 2017-18, the additional capacity planned to be achieved by March 2018 is around 10,996 MWs. The question is whether there are any projects expected to get delayed and substantially reduce power availability in March 2018? The frank answer — while the possibility of such an eventuality occurring owing to any unforeseen technical problems in any project can never be ruled out, it will be too far-fetched presuming such problems occurring everywhere, putting the entire plan of zero-load-shedding into jeopardy, God forbid.

And there are plans for the years after 2018, as well. There is a healthy pipeline of 30,837 MWs of the new generation projects already in execution, expected to complete by the year 2022. This includes the capacity of 10,996 MWs expected by March 2018, but doesn’t include many projects such as Diamer Basha Dam and others which are also expected to be initiated soon. In these new projects, a large funding came from the CPEC Energy portfolio which solved the problem of Coal (especially Thar Coal) power financing which Pakistan was seeking to replace costlier generation and to improve the energy security.

There is no doubt that the weak and unreliable transmission and distribution system plagued with constraints and bottlenecks has been a major challenge, for successfully inducting new generation. The simulations run in the Ministry of Water and Power showed that there was no chance of transmitting any new generation on the system as it prevailed in 2013. It could not carry more than 15000-16000 MWs. For a generation of more than 25000 MWs, expected in 2018, there were 38% constraints on the NTDC’s 500 KVA and 29% constraints on its 220 KVA transmission network. The work on improving system resilience is going on in all areas of the country, and closely monitored in the Ministry. It has helped reduce these constraints substantially since 2014. This was the reason that all the generated capacity, which went up to 17340 MWs in 2016 summers, was transmitted without major issues. However, the system augmentation work will be completed by the end 2017. It is expected that more than 90% of the system will be constraint free in 2018.

Zero outages for the industry since November 2014 (except during the month of Ramazan) has also helped enhancing GDP growth in 2015-16. The reduced domestic load-shedding has also alleviated the sufferings of the common man to some extent. We need to work hard every hour, all the days in the next eighteen months to ensure that the nation can see the end of the menace of power outages and its remaining adverse effects on the economy and the lives of our people, before the summer of 2018.

The increased generation and removal of system constraints will eliminate outages in most of the country. Futuristic investments will still require to be made into all spheres of power sector, from generation to distribution. The Ministry is committed to keep on working beyond 2018 end load-shedding plan to turn the entire power setup into a modern, efficient and resilient system in line with the aim to enhance energy security of the country.

Published in The Express Tribune, December 14th, 2016.

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Sultan Ahmad | 7 years ago | Reply Being part of Pakistan power sector for past 15 years I can safely say that Ministry of Water & Power has turned around the power sector. Though reduced oil prices and CPEC has greatly helped but the strenuous efforts and excellent planning and implementation by Minsitry should be applauded and credit should be given where due. I have personally observed the great support given by Ministry in achieving the Financial Close of our Gulpur Hydropower Project which was unprecedented and result is that project construction is going very well. And now Korean investors are well advanced in putting an investment of USD 4.5 billion by acquiring 6 renewable projects in Pakistan. While the CPEC is a blessing for Pakistan and should be fully supported but on the other hand other investors should also be provided level playing field by extending similar concessions as are provided to CPEC projects. This action will boost the confidence of international and Korean investors to further invest in Pakistan. Good luck Younus Dagha sahib and team!
Ali | 7 years ago | Reply And what will happen when the cost of oil rises again? Would anyone like to make any predictions?
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