To perform better: K-Electric’s power generation function could be separated

World has long left integrated utility model of generation, transmission and distribution

ISLAMABAD: It is too painful to see Karachi suffering due to lack of electricity in scorching heat. This is despite the available generation capacity within Karachi that is not being utilised.

This time gas supply is a contention. In earlier periods of heavy load-shedding, running steam power plants was an issue. The National Electric Power Regulatory Authority (Nepra) kept asking K-Electric to run its plants, but it won’t despite notices and fines.

Now, there is the gas supply issue with claims and counter-claims. Another Nepra mission has been sent for investigation. By the time, this article is published, the mission might have left.



For some reason, there is some profit for K-Electric in not producing its own electricity. Apparently, all fuel costs are reimbursed and there should not be an issue. It has not shared the issue with the regulator or the public, so that its real loss in profit could be understood and possibly provided for.

Partly, there might be cash flow issues due to the circular debt. Gas was apparently available without cash which Sui Southern Gas Company (SSGC) refuses to continue, claiming receivables of around Rs87 billion.

SSGC could have curtailed supplies to other sectors, had K-Electric been a cash-paying customer. On merit, K-Electric should get priority over compressed natural gas (CNG) and captive power plants.

Captive power plants have much lower thermal efficiency. It was once proposed and rightly so that if all captive power plants are closed in Karachi, the surplus generated due to higher energy efficiency would solve the gas problem. It should at least be partly valid today.

The irony is that in real terms there is no shortage of gas, in fact there is surplus. The second liquefied natural gas (LNG) terminal is heavily underutilised due to delay in full commissioning of three LNG-based power plants of 3,600 megawatts.

All contracts are take or pay, meaning that one has to pay even if LNG is not utilised or consumed. There is double jeopardy. Capacity payments for LNG terminals are to be made along with full payment for unutilised LNG.

I have mentioned earlier that take or pay contracts in LNG supply from Qatar should be renegotiated to delete the single destination clause, enabling diversion of unutilised LNG to other destinations through the spot market. Under new market conditions, it is possible to do that.

Another solution matching the demand-supply surplus is to build gas storages in depleted fields. It is good to know that the government is considering that option.

Anomaly

Keeping the aforementioned in mind and other issues that will be discussed, it has become apparent that K-Electric cannot run the generation function. I have been recommending for a long time to take the generation function away from K-Electric and let it function as a normal distribution company as others are doing in the country.

As such K-Electric’s business model of integrated utility combining generation, transmission and distribution is an anomaly and is outmoded. World has long left this type of utility organisation except for some cases. There are good reasons for that.

K-Electric has escaped reforms including the separation of functions as a basic tenet that disbanded the monolith of Wapda.

Perhaps, privatisation complications did not let the decision-makers do the same with the then KESC, although K-Electric was asked to keep a separate accounting section for generation. There would be other complications that would develop with the passage of time and are already at a whispering stage. Currently, Karachi gets 600MW which the Power division often threatens to discontinue.

People are asking, why Karachi should not benefit from CPEC and other nationwide investments in the sector. What is the share of Karachi in it and thus of Sindh? Is it advisable to leave the fate of the industrial city of Karachi to the vagaries of one private party?

Let’s face it, the private sector would not be able to attract or make heavy investments required in the utility sector. It would always need government support.

Imagine, what could have been done without CPEC framework. In any case, load-shedding or sharing can be more effective during a country-wide pool than of an isolated city. The network should at least be regional or provincial, in lieu of the partial present one.

Let’s do away with the anomaly without losing further time. Take the generation function away from K-Electric. It may run it independently or sell it, as it may like to do. And this should be done before the sell-off to the Chinese.

Reservations

Karachi has so many socio-economic and political problems. It would not be wise to involve the Chinese in a distribution company which involves close contact with the people.

Recent fight between the police and Chinese workers should be a good indicator. Chinese investors should themselves consider the pros and cons of this deal.



Before ending let me draw the attention of readers to some institutional issues. There are some coordination issues which, one had hoped that with the combined Ministry of Energy, would be better handled. This has not happened.

Except for the Ministry of Energy being handled by the prime minister, nothing seems to have changed. At least some common cell or consultative mechanism could have been established.

The problem is that Nepra has sent its own singular mission. SSGC would not listen to Nepra. A combined Nepra-Ogra mission should have been sent to be effective. It is appropriate to mention here a pending proposal to merge Nepra and Ogra.

Finally, the energy tribunal should have been in place. It is electricity tribunal currently, which should be broadened to cover the entire energy sector as a direct corollary of a unified Ministry of Energy or even otherwise.

As more energy comes in along with more actors, institutional mechanisms would become even more important which should be heeded by the decision-makers.

Finally, there is a free for all in the payable-receivable system due to the circular debt. It can be better managed if some working rules are established.

The writer has retired recently as member energy of the Planning Commission

 

Published in The Express Tribune, April 16^th, 2018.

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