From one power policy to another
Myopic policy making has done more damage to Pakistan’s energy sector than any other attributable factor
The writer is an electrical engineer currently working with the National Power Parks Management Company
Twenty-four years ago, in March 1994, Pakistan’s first formal power policy was introduced. With 40% of the population having access to electricity in 1994, the installed capacity of Pakistan stood at 10,800MW and the country faced a maximum shortage of 2,000MW depending on weather conditions. Since 60% of this installed capacity was based on hydel power generation, load-shedding during the summer was relatively in check due to availability of water in the rivers.
The power policy “conservatively” estimated an 8% annual increase in electricity demand meaning that a total of 64,000MW would be needed by the year 2018. To date the installed capacity is not even half of this conservatively estimated number, showing a stunted economic growth. As per International Energy Agency’s World Energy Statistics of 2017 Pakistan’s per capita energy consumption is 488kWh against a world average of 3,052kWh/per capita (roughly one-sixth of the world average).
It is baffling how a country gifted with an abundance of natural resources has failed to alleviate this crippling energy crisis despite the passage of about three decades. Why have several democratic governments and a dictatorship since this first power policy failed to deliver the masses from this predicament? Myopia is a condition characterised by close objects looking clear but distant ones seeming blurred (commonly known as short-sightedness).
Myopic policy making has done more damage to Pakistan’s energy sector than any other attributable factor. The aforementioned first power policy of Pakistan introduced by the then incumbent government of the Pakistan Peoples Party dealt such a blow to the energy sector that it is reeling from its effects. In a bid to encourage foreign investment in Build-Own-Operate mode, the policy dished out extremely lucrative incentives to investors, including but not limited to an upfront tariff of US cents 6.5/kWh, GoP sovereign guarantees for payment and 18% internal rate of return. Investors could use any imported fuel of their liking and this was a pass-through cost and subject to escalation.
Further, this entire process was not at all competitive in nature and any investor with any technology or proposed fuel who fell within this tariff range was allowed to become an independent power producer (IPP). Some 3,000MW were added to the national grid due to this power policy. However, the fallout of this power policy became evident when petroleum prices skyrocketed in the international market, rupee depreciated because of political uncertainties and the government ended up paying heavy capacity payments to the IPPs for electricity that was not even being consumed.
Wapda found itself entangled in a plethora of litigations once it tried to coerce the IPPs into accepting downward revised tariffs. Learning from the West, it was then decided to unbundle the power sector into corporate entities serving specific purposes; generation, transmission and distribution. The next power policy initiated this process which has failed to achieve the essence of the scheme, that was to reduce inefficiencies and losses, improve accountability and promote sustainable growth. Even though distribution companies or discos & generation companies or gencos have been carved out of Wapda as corporate entities; corruption, red tape and irregularities are rampant. Attempts at privatising these companies have been futile due to stiff resistance by the unions compounded with a lack of will on the part of the senior management of these organisations. Learning from the multitude of power policies since 1994, the power policy of 2013 is a very comprehensive policy which encompassed more than just ways to attract investment. For the first time transmission, distribution, governance and conservation strategies have been a part of a power policy.
However, without proper implementation in letter and in spirit the policy would be nothing but the musings of an ambitious mind. Further, the power policy of 2015 has tried to coax interest of investors in the hydel potential of Pakistan which largely remains untapped.
Owing to the politically-motivated policies, the energy mix of the country has flipped to 70% being contributed by thermal and only 30% of electricity being generated from hydel. This has increased the country’s petroleum import manifold and has exposed the country to severe petroleum market volatility. An extreme example of this shortsighted policy-making has been the callous use of indigenous natural gas as CNG to power the transport industry. In a desperate attempt to provide any relief to the hard-pressed masses, the last dictatorial regime significantly depleted the precious natural resource by promoting CNG as an alternative fuel. Now there are around 2.5 million CNG fitted cars on the road but little or no CNG for them.
It is about time that populist policies might be dropped in favour of sustainable ones. There is a desperate need to exploit the indigenous resources such as coal (Pakistan has 7th biggest coal reserves in the world) and hydel (45,000MW potential) for meeting the shortfall in base-load demand and renewable resources (solar & wind) need to be utilised for meeting peaking electric load demand. Furthermore, there is a dire need to invest in the human resource development of the energy sector. Competence in energy management and policymaking needs to be improved to promote the formulation of sustainable policies in the future. Unless concrete and earnest steps are taken to address the energy crisis issue in the long run, remedial measures by governments would be synonymous to administering low potency pain killers to a cancer patient.
Published in The Express Tribune, May 9th, 2018.
The power policy “conservatively” estimated an 8% annual increase in electricity demand meaning that a total of 64,000MW would be needed by the year 2018. To date the installed capacity is not even half of this conservatively estimated number, showing a stunted economic growth. As per International Energy Agency’s World Energy Statistics of 2017 Pakistan’s per capita energy consumption is 488kWh against a world average of 3,052kWh/per capita (roughly one-sixth of the world average).
It is baffling how a country gifted with an abundance of natural resources has failed to alleviate this crippling energy crisis despite the passage of about three decades. Why have several democratic governments and a dictatorship since this first power policy failed to deliver the masses from this predicament? Myopia is a condition characterised by close objects looking clear but distant ones seeming blurred (commonly known as short-sightedness).
Myopic policy making has done more damage to Pakistan’s energy sector than any other attributable factor. The aforementioned first power policy of Pakistan introduced by the then incumbent government of the Pakistan Peoples Party dealt such a blow to the energy sector that it is reeling from its effects. In a bid to encourage foreign investment in Build-Own-Operate mode, the policy dished out extremely lucrative incentives to investors, including but not limited to an upfront tariff of US cents 6.5/kWh, GoP sovereign guarantees for payment and 18% internal rate of return. Investors could use any imported fuel of their liking and this was a pass-through cost and subject to escalation.
Further, this entire process was not at all competitive in nature and any investor with any technology or proposed fuel who fell within this tariff range was allowed to become an independent power producer (IPP). Some 3,000MW were added to the national grid due to this power policy. However, the fallout of this power policy became evident when petroleum prices skyrocketed in the international market, rupee depreciated because of political uncertainties and the government ended up paying heavy capacity payments to the IPPs for electricity that was not even being consumed.
Wapda found itself entangled in a plethora of litigations once it tried to coerce the IPPs into accepting downward revised tariffs. Learning from the West, it was then decided to unbundle the power sector into corporate entities serving specific purposes; generation, transmission and distribution. The next power policy initiated this process which has failed to achieve the essence of the scheme, that was to reduce inefficiencies and losses, improve accountability and promote sustainable growth. Even though distribution companies or discos & generation companies or gencos have been carved out of Wapda as corporate entities; corruption, red tape and irregularities are rampant. Attempts at privatising these companies have been futile due to stiff resistance by the unions compounded with a lack of will on the part of the senior management of these organisations. Learning from the multitude of power policies since 1994, the power policy of 2013 is a very comprehensive policy which encompassed more than just ways to attract investment. For the first time transmission, distribution, governance and conservation strategies have been a part of a power policy.
However, without proper implementation in letter and in spirit the policy would be nothing but the musings of an ambitious mind. Further, the power policy of 2015 has tried to coax interest of investors in the hydel potential of Pakistan which largely remains untapped.
Owing to the politically-motivated policies, the energy mix of the country has flipped to 70% being contributed by thermal and only 30% of electricity being generated from hydel. This has increased the country’s petroleum import manifold and has exposed the country to severe petroleum market volatility. An extreme example of this shortsighted policy-making has been the callous use of indigenous natural gas as CNG to power the transport industry. In a desperate attempt to provide any relief to the hard-pressed masses, the last dictatorial regime significantly depleted the precious natural resource by promoting CNG as an alternative fuel. Now there are around 2.5 million CNG fitted cars on the road but little or no CNG for them.
It is about time that populist policies might be dropped in favour of sustainable ones. There is a desperate need to exploit the indigenous resources such as coal (Pakistan has 7th biggest coal reserves in the world) and hydel (45,000MW potential) for meeting the shortfall in base-load demand and renewable resources (solar & wind) need to be utilised for meeting peaking electric load demand. Furthermore, there is a dire need to invest in the human resource development of the energy sector. Competence in energy management and policymaking needs to be improved to promote the formulation of sustainable policies in the future. Unless concrete and earnest steps are taken to address the energy crisis issue in the long run, remedial measures by governments would be synonymous to administering low potency pain killers to a cancer patient.
Published in The Express Tribune, May 9th, 2018.