Talking business
The move to wind up Pepco begs the question: “Why now?".
The move to wind up the Pakistan Electric Power Company (Pepco) begs the question: “Why now?” Can it be explained to us why this step was not taken two years ago? What exactly has been the government’s vision for resolving the power crisis that it undoubtedly inherited?
On Thursday, Raja Pervez Ashraf, the minister for water and power, once again reminded the National Assembly that his government did not create the power crisis but in fact inherited it from the previous government.
While true, the fact remains that this is being said two and a half years into his tenure shows the level of seriousness the minister has towards his duties.
Winding up Pepco is part of a roadmap that was conceived almost 20 years ago. The Private Power Policy was supposed to be the first step towards opening up the power sector to private investment. It created a framework to attract private money into power generation, creating the Independent Power Producers (IPPs).
But after that step came numerous others. Transmission and distribution of electricity was also supposed to be unbundled from the Water and Power Development Authority (Wapda) and slowly prepared for privatisation.
Faisalabad Electric Supply Company (Fesco) was supposed to be the first distribution company to enter private hands, accompanied by the Karachi Electric Supply Company (KESC). Wapda’s aging fleet of thermal powerhouses were supposed to be spun off into autonomous corporations, then deprived of government subsidies and made financially viable with the eventual aim of putting them up for sale to private investors who would join the ranks of the IPPs as sellers of electricity to private bulk transporters and distributors.
A brief experiment in this regard was carried out with Kot Addu Power Company (Kapco), which is today one of the most efficient plants operating in the country under an Operation and Maintenance agreement with London-based International Power.
Eventually, a market was supposed to be created in electricity, where multiple private sector generation companies would sell to multiple private sector distribution companies at prices determined through competitive bidding, overseen by a regulator.
In brief spurts, in fits and starts, this vision did roll itself out. The Hub Power Company (Hubco) and the IPPs are testament to this. Even as it attacked the IPPs, Nawaz Sharif’s government in the late 1990s fairly smoothly passed the power sector reform legislation that created National Electric Power Regulatory Authority (Nepra), the tariff setting body and future regulator of the sector, and also provided the legal grounds on which to create the generation and distribution companies, known as Area Electricity Boards back then.
But then came the fateful step of sending in the army to take control of Wapda in order to bring down line losses. Talk about inviting the camel into the tent!
The Musharraf regime, much as it is maligned for not creating a ‘single megawatt’ carried this process further. The most energetic move to diversify our fuel base was made during his regime, with a large-scale Thar coal power generation project coming closer to reality than ever before, or since, and the biggest move into hydroelectric generation the country has ever seen.
Additionally, they sought to reform the Private Power Policy to move away from upfront tariffs towards international competitive bidding in the Power Policy of 2002. Unfortunately, no one stepped forward to bid for power projects in Pakistan, forcing the government to back off from the bidding game and reintroduce upfront tariffs by 2005.
Every power project inaugurated by this government so far has its beginnings in this revision of the Musharraf era power policy.
And then there is KESC. The disastrous privatisation of the entity is material for textbooks now. Just like Enron showed us the pitfalls of too rapidly opening up the power sector without proper regulation, the case of KESC should be used as an example of how not to privatise.
the writer is Editor Business and Economic policy for Express News and Express 24/7
Published in The Express Tribune, October 4th, 2010.
On Thursday, Raja Pervez Ashraf, the minister for water and power, once again reminded the National Assembly that his government did not create the power crisis but in fact inherited it from the previous government.
While true, the fact remains that this is being said two and a half years into his tenure shows the level of seriousness the minister has towards his duties.
Winding up Pepco is part of a roadmap that was conceived almost 20 years ago. The Private Power Policy was supposed to be the first step towards opening up the power sector to private investment. It created a framework to attract private money into power generation, creating the Independent Power Producers (IPPs).
But after that step came numerous others. Transmission and distribution of electricity was also supposed to be unbundled from the Water and Power Development Authority (Wapda) and slowly prepared for privatisation.
Faisalabad Electric Supply Company (Fesco) was supposed to be the first distribution company to enter private hands, accompanied by the Karachi Electric Supply Company (KESC). Wapda’s aging fleet of thermal powerhouses were supposed to be spun off into autonomous corporations, then deprived of government subsidies and made financially viable with the eventual aim of putting them up for sale to private investors who would join the ranks of the IPPs as sellers of electricity to private bulk transporters and distributors.
A brief experiment in this regard was carried out with Kot Addu Power Company (Kapco), which is today one of the most efficient plants operating in the country under an Operation and Maintenance agreement with London-based International Power.
Eventually, a market was supposed to be created in electricity, where multiple private sector generation companies would sell to multiple private sector distribution companies at prices determined through competitive bidding, overseen by a regulator.
In brief spurts, in fits and starts, this vision did roll itself out. The Hub Power Company (Hubco) and the IPPs are testament to this. Even as it attacked the IPPs, Nawaz Sharif’s government in the late 1990s fairly smoothly passed the power sector reform legislation that created National Electric Power Regulatory Authority (Nepra), the tariff setting body and future regulator of the sector, and also provided the legal grounds on which to create the generation and distribution companies, known as Area Electricity Boards back then.
But then came the fateful step of sending in the army to take control of Wapda in order to bring down line losses. Talk about inviting the camel into the tent!
The Musharraf regime, much as it is maligned for not creating a ‘single megawatt’ carried this process further. The most energetic move to diversify our fuel base was made during his regime, with a large-scale Thar coal power generation project coming closer to reality than ever before, or since, and the biggest move into hydroelectric generation the country has ever seen.
Additionally, they sought to reform the Private Power Policy to move away from upfront tariffs towards international competitive bidding in the Power Policy of 2002. Unfortunately, no one stepped forward to bid for power projects in Pakistan, forcing the government to back off from the bidding game and reintroduce upfront tariffs by 2005.
Every power project inaugurated by this government so far has its beginnings in this revision of the Musharraf era power policy.
And then there is KESC. The disastrous privatisation of the entity is material for textbooks now. Just like Enron showed us the pitfalls of too rapidly opening up the power sector without proper regulation, the case of KESC should be used as an example of how not to privatise.
the writer is Editor Business and Economic policy for Express News and Express 24/7
Published in The Express Tribune, October 4th, 2010.