Electricity connectivity with Afghanistan and CASA-1000

Pakistan’s ballooning circular debt is ticking like a time bomb, threatening its very security and sovereignty. Excess installed capacity, inherent capacity charges and imports of expensive coal for power plants are some of the issues at the heart of our power sector. How did we get here? It is indeed a sad story. Can Pakistan leverage its excess electricity in dealing with the three “P” challenges (peace, poverty and power) linked to Afghanistan? Is CASA-1000 feasible at all for Pakistan? Let us explore possible answers to these questions.

Today Pakistan has “surplus” electricity with an installed power generation capacity of nearly 40,000 megawatts (MW). Its maximum transmission capacity is around 26,000 MW. This means a surplus of an average of 10,000 MW of electricity during the summers when demand peaks. The same surplus doubles in winter as the electricity demand eases. Five Chinese power plants with a cumulative capacity of nearly 5,300 MW are ready to go online in near future. This will add to the capacity payments, which have turned out to be an albatross around our neck; its monthly cost has risen to about Rs35 billion, and the accumulated circular debt had risen to Rs2,419 billion (by end of October 2021).

What can Pakistan do with the power capacity that it is unable to utilise? Why not export at least 2000 MW to power-starved Afghanistan the way India did by connecting Nepal, Bhutan, Bangladesh and Myanmar to its national grid? This regional Indian electricity trade is intelligently designed to put energy security in these countries in the hands of New Delhi, thus providing it an important control lever.

Afghanistan, with an installed capacity of 700 MW only, is in dire need of electricity for most of its population. It owes Tajikistan millions of dollars for the electricity it has been buying from central Asian state. Based on a study we conducted in 2017, we can say that Afghanistan offers an extremely lucrative market for Pakistani electricity exports.

The Ghani government had been hoping for the realisation of the Central Asia-South Asia (CASA-1000) Project, which had envisioned 300 MW for Afghanistan and the rest for Pakistan. Scrutiny of CASA-1300 MW found a tarp to make the electricity sector of Pakistan subservient to Afghanistan and Central Asian countries. My technical comments on this project are enclosed herewith.

The CASA-1300MW (take-or-pay project) is a 1,270-kilometre power transmission line that is expected to export excess Kyrgyz and Tajik hydropower to Pakistan through Afghanistan. The project was inked in 2015 and the National Power Regulator (Nepra) approved a tariff of 9.4 US cents for the project. Compared with the current tariff of wind and solar projects, this tariff is 80% higher and unaffordable, a great threat to national energy security.

Intriguingly, the 9.4 cents per unit tariff for hydropower raises big questions about Nepra’s motives as it has been now indirectly forcing Chinese investors to reduce the agreed 8.4 cents per unit for all the Chinese coal-fired power plants.

But even otherwise, this high tariff approved for CASA-1000, coupled with a 1200-kilometre-long risky transmission line, makes it financially unaffordable and logistically impracticable. Thus, if implemented and not utilised, its cost penalty under take-or-pay will be Rs36 billion per year and Rs360 billion over the next 10 years. This will be another addition to circular debt. So, with the current political uncertainty and the unusually high tariff, the CASA project must be shelved in the larger interest of Pakistan.

On the other hand, Pakistan needs to focus on the optimal utilisation of the excess capacity at home. One of the windows available is in Afghanistan, which currently faces serious liquidity challenges.

Pakistan can help Afghanistan by buying off much cheaper Afghan coal and providing it electricity, primarily going for a barter model. Currently, Pakistan imports 16 million tonnes of coal every year from South Africa and Australia for its power plants and the cement industry. The Commerce Ministry should add coal to the list of items being cleared for barter trade with Afghanistan. It can also facilitate imports at a time when international coal prices have soared to their highest level. Cheaper coal imports from Afghanistan can serve as a bailout for Pakistan — which is choking from the noose of circular debt (due to excess installed capacity) and is also paying precious dollars for imports.

Are Pakistan’s policymakers ready to shake off the security-centric mindset and replace it with an energy and economic security lens for a win-win for both countries?

An Act West Policy based on an electricity grid could be the first solid step to a possible extension of the Belt and Road Initiative too.

Published in The Express Tribune, January 4^th, 2022.

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