ISLAMABAD:
The top economic decision making body of the country has finally made an operational decision in the effort to tackle the deteriorating energy crisis – and a major one at that.
The cash-strapped government decided on Tuesday to hand over management of power generation companies to the private sector for a period of ten years – a move that may result in additional availability of 1,243 megawatts of electricity and savings of Rs82 billion this year alone.
The Economic Coordination Committee of the Cabinet approved a broad framework for signing operational and maintenance contracts with the private sector for a period of ten years, said Finance Secretary Dr Waqar Masood.
The move is meant to regain lost capacity of these power plants that would not only ensure additional power supply but also reduce the burden of subsidies on the exchequer.
Run, but don’t fire
“The government has neither the resources nor the capacity to upgrade these plants, and has therefore decided to sign contracts with the private sector, which is well-equipped for the task,” said Masood while briefing the media about the ECC decisions.
(Read: Energy crisis will be over ‘soon’)
He said the contractors would be asked to invest in these power plants but they would not have the power to fire the existing workforce.
A public energy expert, however, said the generation companies’ problems would not be resolved unless retrenchment powers are granted to the contractors.
Half the problem is the workforce, he said, adding that the nature of these contracts is not clear and the government may end up signing contracts like it did in the case of Karachi Electric Supply Company.
(Read: Energy crisis — a solution)
Fuel-guzzling plants
There are four power generation companies running ten thermal power plants at an average efficiency of less than 18%, said Masood.
While the total installed generation capacity of these plants is 4,829 megawatts, and the dependable capacity is 3,580 megawatts, these plants are generating between 1,400 and 2,000 megawatts at present, he said.
Inefficient management, unavailability of fuel and depreciation over time are the main factors behind minimal production, he said, adding that some of these plants have been shut down for various reasons.
According to estimates, if the private sector can manage to enhance efficiency up to 33%, an additional 1,243 megawatts of electricity would be available besides annual savings of Rs82 billion, he said.
These fuel-guzzling plants are one of the reasons behind increased cost of power generation in the country, he added.
The ECC, however, could not arrive at a decision on issues such as the rate of return to the contractors and amount required to upgrade these plants.
The body has constituted a committee with the water and power minister as head to decide on all these issues within a month, Masood said.
Gas Development Levy on LPG
The ECC also approved the Liquefied Petroleum Gas (LPG) Policy 2011, aiming to enhance LPG imports, ensure smooth domestic supply and bring stability in prices.
Under the new policy, the ECC has decided to impose a gas development levy (GDL) of approximately Rs10.3 per kilogram on domestic LPG producers.
The decision will not have negative implications for LPG consumers since it is meant to capture windfall profits of LPG producers, said Masood. Currently, even the locally-produced LPG is sold at the price of the imported one.
The levy would fetch an addition Rs3 billion in income for the government, he added.
According to the new policy, the Oil and Gas Regulatory Authority would issue provisional licenses to LPG marketing companies initially for a year and revoke them if the license holders fail to demonstrate a commitment of at least five metric tonnes of supply per day, for a period of three consecutive years. Currently, 85 companies have marketing licenses but most of them have failed to secure supply from producers.
Removing trade barriers
The ECC also took important decisions regarding the country’s trade and tariff regime but failed to approve the recommendations forwarded to them in an independent study.
The body in principle decided that all non-tariff barriers, particularly licenses for import and export, will be eliminated and imposition of specific duties on imports would be discouraged. It further agreed that imports tariffs would be low and uniform.
Published in The Express Tribune, August 24th, 2011.
COMMENTS (13)
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The arguement in favor of privatization of power sector always seems so compelling to me. History however has a far diferrent tale to tell, with the privatization of this vital sector in latin america, india and even the US (enron) leading to the creation of far greater problems rather than becoming a solution to existing ones.
Besides, the current plan will only solve (a very small) part of the problem. The real issue is that of circular debt. How will the pvt sector fare any better when most govt institutions continue to remain defaulters.
Other than that, the article states that this move would reduce the burden of subsidies on the exchequer. Such subsidies (unless targeted) can never help ANYONE and will ultimately remain what it is: a burden on society. The only aparent purpose these subsidies are serving is that of political mileage. Hence scrap them altogether instead of creating another mess, espeacially since the govt does not plan to give pvt operators the right to fire excessive/redundant workforce!
Private sector can not operate effectively in a corrupt environment. Government needs to consider ways to reduce regulation and improve credibility.
Private sector must stand together to say not to corruption.
One of the foremost problems of the organizations run by the government is the fact that they have far too many unqualified employees, poor management and political interference and corruption. Bravo to the government for wanting the private sector to take over their mess BUT how do they expect the situation to improve if they cannot replace incompetent manpower with more competent persons and remove the corrupt or political appointees who are responsible for the losses? I believe that the government must prioritize its goals focusing on security, power management to industry to ensure economic growth (jobs). At the same time it must develop confidence building through sincere improvements in water supply both urban and agricultural, speedy justice, basic health and real education. Otherwise money is being squandered without any benefit and anti democracy and government sentiments will continue to increase. Examples of results of frustration are visible all around us.
There are few things that the govt should actually run -- water, power, defense being high on the list. I suspect this is just a move to shift blame - govt is obviously incompetent and rather than fix that problem they want to shift the responsibility so they can shift the blame. No doubt they will make some money in the process.
What does government get out of this privitization? Kick backs in return for cheap asset sale.
@ Biryani,
To attract foreign investment is difficult than making a biryani, and if those IPPs were not introducted by BB and functional right now, may our new generation have only listened the name of electricity but not seen it actually.
BB privatized power sector n introduced rental power plants.... we are still suffering from that fatal decision in form of massive loadshedding as not a single private plant is producing electricity to its potential.... yet we find the in capable govt. making the same mistake...
corruption at its peak
What is the performance of KESC after privatization and will be performance of other electricity generating companies when they will be privatized?
Every body in Karachi knows very well that majority of shares of KESC were purchased by the sitting President Mr. Asif Ali Zardari in the name of his real sister Ms. Faryal Talpur at the time of privatization of KESC in Karachi and therefore whether KESC provide electricity to Karachiites or not, it makes no difference as the voice of people cannot reach beyond the high-rise walls of the Presidency.
Mr. President: Have you earned so much money during the last four years that you have decided to run all the power plants of the country by the private sectors? Will all these be again in the name of Ms. Faryal Talpur or rest of your family members? Kindly explain your position. And what would be the fate of an ordinary citizen of Pakistan?
Will he get electricity or not and what rate? Or the coming generations will live in the dark and will presume that the stone age is back and there will be no light at the end of the tunnel?
This could be a good move towards saving the govt. owned thermal power stations, which are loosing their capacity and efficiency drastically.
Well handing every thing to the private sector is the key i guess , Maybe atleast we get 24 hrs expensive electricity but then again kesc is a perfect example.