Energy policy is going nowhere

Updated 2014-01-18 10:25:15

“My government is devoting its time and resources to tackling the energy problem,” Prime Minister Nawaz Sharif said in his first address to the nation in August.

By the time he said this, his government had cleared unpaid bills of Rs480bn of all public and private power producers and their fuel suppliers, which, he said, had secured 1,700MW of electricity for the national grid. The National Energy Policy (NEP) was also ready towards end-July.

Almost six months down the road, his government is finding it tough to meet even the reduced power demand in winters, while the gas shortages have left people complaining of the difficulties of cooking food and heating water. At the same time, private power producers are grumbling about fresh unpaid bills.

The ambitious NEP seems to be going nowhere, at least not for the moment. Fatigue and desperation are slowly overtaking the ministers and Punjab Chief Minister Shahbaz Sharif, tasked to reform the collapsing power sector and woo private investors.

Potential investors are waiting for the government to first implement the promised power sector reforms before they invest in new generation projects.

The MoUs signed by the Punjab and federal governments with Chinese companies ‘interested’ in investing in power generation here are so far worthless pieces of paper.

“The so-called energy policy is no more than a ‘concept’ paper and its targets are unlikely to be achieved in five years,” argues a former Pepco boss.

“It is a flawed document authored by those with no experience of or stake in the power sector. No milestones have been set and no execution strategy formulated.”

His comment isn’t off the mark. Apart from having substantially raised the electricity prices for all consumers to reduce power subsidies from 1.8pc to 0.3-0.4pc of GDP, the government is yet to execute other aspects of the ambitious policy that promises an investment of over $25bn in the power sector to end blackouts by 2017 and produce surplus electricity by 2018.

The delay in reforms has increased transmission and distribution losses from 28pc to 29-30pc and added another Rs89bn to the unrecovered bills from July to November 2013. The campaign against

gas and power thieves has fizzled out. The planned import of electricity from Central Asia, Iran and India has been put on the back burner and the energy conservation strategy postponed until summer.

The planned import of LNG from Qatar and gas pipelines from Iran and Turkmenistan remains uncertain. The land for Gadani Power Park, which is to produce 6,600 megawatts of coal-based electricity and bring down the price to $0.10 a unit by 2018, is yet to be acquired.

The government claims it intends to construct Diamer-Bhasha dam from its own pocket and Dasu dam with multilateral assistance, but the work on these or other hydropower projects is unlikely to start soon.

The proposed conversion of four oil-based private power plants is now considered unfeasible, not least because of logistical problems in transporting imported coal from the port. Besides, a new tariff is yet to be announced for them.

Restructuring and reform of public power generation and distribution companies to

prepare them for privatisation is not going anywhere because boards have not been reconstituted; chief executives haven’t been appointed; and decision-making powers haven’t been transferred. The overhaul of the power sector regulator is also yet to take place.

However, credit must be given to the government where it is due. A couple of thousands of megawatts are expected to be added to the national grid once the Neelum-Jhelum, Nandipur and other small thermal and hydropower projects are completed. “The present government is pushing these projects,” says a former Hubco boss.

Many term the growing energy crunch, which saw blackouts of up to 18 hours in urban and 22 hours in rural areas in 2013, as the biggest national security threat. “Electricity is the major hurdle in Pakistan’s economic take-off. Even terrorism isn’t as big,” a businessman argues.

Pakistan is estimated to have lost 10pc of its GDP in the last five years due to power shortages, leading to declining private investment and a growth rate well below South Asia’s average.

Chances are the consumers will suffer long power cuts and higher electricity prices during the next summer. If that happens, street protests and riots cannot be ruled out.

Taking a cue from how the ruling PML-N leadership used protests to rally the public against its predecessor, the opposition, particularly Imran Khan’s PTI, will not shy away from them either to discredit the government.

Power sector payables again mount to Rs 155.64bn

“…It is important to note with annual power consumption hovering around 70 billion units, delay in power tariff raise causes additional burden of around Rs 25-30 billion per month on government and will keep power supply from IPPs at the lower end resulting in electricity outages….”\story_7-9-2013_pg5_3

Power sector payables again mount to Rs 155.64bn

Staff Report

ISLAMABAD: The power sector’s dues against the National Transmission and Distribution Company (NTDC) have galloped to Rs 155.64 billion as planners were slow in announcing increase in power tariff, fixing the power theft and increase the collection of bills.

The government cleared circular debt of power sector up till May 31, 2013 recently. The government increased the power tariff for commercial industrial users whereas domestic tariff would be increased from October 1.

Power sector experts believe rationalisation of tariff as above will bring some relief for the government but the challenge remains how to stop the theft and non-recovery of the bills, which will cause the circular debt to rise again.

The clearance of circular debt by this government was a very bold and right step but wrongly projected as resolution to power crisis, it was only an attempt to keep the power sector afloat whereas the real challenge lies in recovery of bills, tariff rationalisation for both domestic and commercial consumers and stopping the theft and reducing the line losses through upgradation of transmission and distribution system, the experts said.

The analysis of the above outstanding amount tells NTDC has to pay Rs 54 billion to such independent power producers (IPPs), which have to procure the fuel from their own sources and most of them have to pay the long-term debt installment by September 30, 2013.

Such IPPs will have to pay the lenders and if their outstanding are not cleared they have to reduce the production, which will increase the load shedding. Rest of Rs 102 billion are payable within government entities and non-payment to those will not affect the generation of the electricity.

The government should increase the payment of subsidy to meet the payment of outstanding amounting to Rs 54 billion by September 30, 2013 so that chance of decrease in generation may be eliminated.

Power Ministry sources said under new arrangement NTDC has to pay after 30 days of power supply to IPPs operating under 2002-power policy. The IPPs said an accord was signed in this regard and the government of Pakistan has written to National Electric Power Regulatory Authority (NEPRA) in this regard.

The IPPs had also submitted their proposal to NEPRA for approval of the additional cost of working capital. They pointed out that the government would save interest cost (from KIBOR+4.5% to KIBOR+ 2%) if NEPRA approves the additional cost of working capital.

Hasan Raza a senior research analyst at Taurus Securities said, “Procrastination on part of the government has resulted in resurrection of circular debt in recent days. Although the government has raised the power tariffs for industrial consumers, tariff hike for domestic sector is yet to be implemented.”

He said though the government appears committed to see circular debt through, the domestic tariff hike will test the adamance of the government. It is important to note with annual power consumption hovering around 70 billion units, delay in power tariff raise causes additional burden of around Rs 25-30 billion per month on government and will keep power supply from IPPs at the lower end resulting in electricity outages.