Energy sector audit
Indicators beg to suggest that the energy sector is in a dreadful shape
The writer is a senior lecturer at Glasgow Caledonian University, UK
Pakistan’s energy woes appear to be never ending despite the loud claims by the present government. While the installed generation capacity is told to have exceeded 25,000MW against a much lower demand, agonising spells of load-shedding and power breakdowns have become a norm and that is even before the start of proper summer. On the other hand, the circular debt is approaching Rs1,000 billion. These indicators beg to suggest that the energy sector is in a dreadful shape as can also be seen from the recent K-Electric saga that made a mockery of the whole system. Alarmingly, the state of affairs with the whole energy sector — in terms of technical, financial and administrative perspectives — is murky. No one knows exactly what is happening on these fronts.
Energy auditing is a universal practice used to identify and rectify losses and inefficiencies. It is the imperative starting point of any improvement effort in industrial, commercial or residential facilities. It is time to apply this approach to Pakistan’s energy sector. No solution will work unless a clear and comprehensive picture of the entire energy sector is developed through a holistic audit. Putting it simply, a doctor cannot treat a seriously ill patient without a thorough examination.
One of the major issues with the energy sector which has surfaced prominently in recent years is its opacity. There is a lack of data in the first place and whatever is available has serious question marks in terms of accuracy. The issue has gradually intensified over the last couple of decades with the present government having mastered it to such an extent that now there is hardly any project for which reasonable level of reliable information is available. The current office-bearers have become arrogant enough to bluntly refuse to disclose project costs even to parliament in the name of national interest. Reportedly, details are being hidden by design as there is also a growing trend of forging the data and statistics on all fronts, including energy demand and supply, numbers on load-shedding and financial sheets.
A circular debt of Rs1,000 billion, to have accumulated within four years, speaks volumes of the financial and administrative turmoil in the energy sector. More alarming is the fact that circular debt has reached these heights when oil prices are almost half compared to a decade ago when the issue cropped up. Such a gigantic and vicious debt circle is bound to have enormous implications on the national economy both at the macro and micro level. The whole issue of circular debt has been an utter nuisance and a consequence of ill planning as well as naïve political strategies making the power sector hostage.
The state of affairs indicates that things are seriously wrong deep inside the energy sector and the way it is managed. Whatever measures the present government has taken in its four and a half years of rule and the earlier governments, since the inception of the energy crisis in 2006, have failed to deliver. As a matter of fact the energy crisis has only complicated both in terms of intensity and dimensions. There has not been any meaningful effort to address the root causes behind the energy crisis. All we have seen over this period are makeshift and adhoc measures that have only added to the woes. The counterproductive rental power plant initiative by the previous regime with the hallmark example of Karkey project, and almost all of the projects orchestrated by the present office-bearers, including Sahiwal coal power plant, Nandipur power project, QA solar park and LNG import deals and terminals, have attracted huge criticism on technical, economic and strategic fronts. Some of these projects are already in disarray with financial corruption inquiries being underway.
Globally, the viability of energy projects is determined in terms of parameters like capital expenditure (capex), operational expenditure (opex), levelised cost of electricity (LCOE), long-term strategic value and alignment with the national energy security objectives. The viability of most of the energy projects set up since 1990s is not clear on any of these parameters. Reports of financial corruption and wheeling and dealing at the top policy and decision-making levels are not new to the energy sector. Ironically, even in the midst of the ongoing energy crisis, priority is to serve vested interests. The level of moral and administrative bankruptcy has grown to such an extent that the allegations of wrongdoing have clouded the office of the prime minister as well. On top of financial corruption, other irregularities are widely reported such as appointments of cronies to key positions, political arm twisting towards management of power companies, deliberately orchestrated load-shedding in the name of maintenance shutdown and suboptimal running of power plants. Enough with fancy slogans and uncalculated colourful plans by successive regimes, these have failed to deliver. To rescue the energy sector from the existing state of directionlessness, self-implosion and opaqueness a comprehensive audit is the way forward.
A team of committed and capable energy and financial experts thus needs to be constituted with the mandate of carrying out a holistic scan of the entire energy sector. It is extremely important that the team has a guaranteed and at will access to all required resources, including power plants, data bases, accounts and log books of ministries concerned, departments and generation and distribution companies. Detailed examination of circular debt taking into account balance sheets of stakeholders concerned developing correlation with factors like load-shedding, international oil prices, power plants’ operations, fuel mix and power purchase agreements will be helpful. Owing to the fact that 6,000-8,000MW of power plants are almost always dysfunctional, the audit must also examine the installed capacity taking into account type of technology, fuel usage, operational efficiency and age. It must be clear that the leaks and losses — technical, financial and administrative — that are fast sinking the energy sector cannot be comprehensively identified and addressed without such a detailed audit.
Published in The Express Tribune, May 5th, 2018.
Energy auditing is a universal practice used to identify and rectify losses and inefficiencies. It is the imperative starting point of any improvement effort in industrial, commercial or residential facilities. It is time to apply this approach to Pakistan’s energy sector. No solution will work unless a clear and comprehensive picture of the entire energy sector is developed through a holistic audit. Putting it simply, a doctor cannot treat a seriously ill patient without a thorough examination.
One of the major issues with the energy sector which has surfaced prominently in recent years is its opacity. There is a lack of data in the first place and whatever is available has serious question marks in terms of accuracy. The issue has gradually intensified over the last couple of decades with the present government having mastered it to such an extent that now there is hardly any project for which reasonable level of reliable information is available. The current office-bearers have become arrogant enough to bluntly refuse to disclose project costs even to parliament in the name of national interest. Reportedly, details are being hidden by design as there is also a growing trend of forging the data and statistics on all fronts, including energy demand and supply, numbers on load-shedding and financial sheets.
A circular debt of Rs1,000 billion, to have accumulated within four years, speaks volumes of the financial and administrative turmoil in the energy sector. More alarming is the fact that circular debt has reached these heights when oil prices are almost half compared to a decade ago when the issue cropped up. Such a gigantic and vicious debt circle is bound to have enormous implications on the national economy both at the macro and micro level. The whole issue of circular debt has been an utter nuisance and a consequence of ill planning as well as naïve political strategies making the power sector hostage.
The state of affairs indicates that things are seriously wrong deep inside the energy sector and the way it is managed. Whatever measures the present government has taken in its four and a half years of rule and the earlier governments, since the inception of the energy crisis in 2006, have failed to deliver. As a matter of fact the energy crisis has only complicated both in terms of intensity and dimensions. There has not been any meaningful effort to address the root causes behind the energy crisis. All we have seen over this period are makeshift and adhoc measures that have only added to the woes. The counterproductive rental power plant initiative by the previous regime with the hallmark example of Karkey project, and almost all of the projects orchestrated by the present office-bearers, including Sahiwal coal power plant, Nandipur power project, QA solar park and LNG import deals and terminals, have attracted huge criticism on technical, economic and strategic fronts. Some of these projects are already in disarray with financial corruption inquiries being underway.
Globally, the viability of energy projects is determined in terms of parameters like capital expenditure (capex), operational expenditure (opex), levelised cost of electricity (LCOE), long-term strategic value and alignment with the national energy security objectives. The viability of most of the energy projects set up since 1990s is not clear on any of these parameters. Reports of financial corruption and wheeling and dealing at the top policy and decision-making levels are not new to the energy sector. Ironically, even in the midst of the ongoing energy crisis, priority is to serve vested interests. The level of moral and administrative bankruptcy has grown to such an extent that the allegations of wrongdoing have clouded the office of the prime minister as well. On top of financial corruption, other irregularities are widely reported such as appointments of cronies to key positions, political arm twisting towards management of power companies, deliberately orchestrated load-shedding in the name of maintenance shutdown and suboptimal running of power plants. Enough with fancy slogans and uncalculated colourful plans by successive regimes, these have failed to deliver. To rescue the energy sector from the existing state of directionlessness, self-implosion and opaqueness a comprehensive audit is the way forward.
A team of committed and capable energy and financial experts thus needs to be constituted with the mandate of carrying out a holistic scan of the entire energy sector. It is extremely important that the team has a guaranteed and at will access to all required resources, including power plants, data bases, accounts and log books of ministries concerned, departments and generation and distribution companies. Detailed examination of circular debt taking into account balance sheets of stakeholders concerned developing correlation with factors like load-shedding, international oil prices, power plants’ operations, fuel mix and power purchase agreements will be helpful. Owing to the fact that 6,000-8,000MW of power plants are almost always dysfunctional, the audit must also examine the installed capacity taking into account type of technology, fuel usage, operational efficiency and age. It must be clear that the leaks and losses — technical, financial and administrative — that are fast sinking the energy sector cannot be comprehensively identified and addressed without such a detailed audit.
Published in The Express Tribune, May 5th, 2018.