Power situation today

Prime Minister Shahid Khaqan Abbasi, while inaugurating the country’s fifth nuclear power plant (C-4) reiterated PML-N’s commitment to the country dating from the party’s 2013 manifesto: an end to load shedding though the scheduled achievement date has been periodically amended: from six months during the run up to the 2013 elections when the PML-N was not in power in the Centre, an unrealistic date, to December 2017 or four years and seven months after its tenure began.

The question facing the country today is if this objective would be achieved by: (i) adopting a phased well researched and therefore a well formulated approach to ending load shedding; (ii) improved governance of the sector (with an implicit assumption that the debilitating circular debt would be eliminated); and (iii) electricity tariff would be comparable to that available to regional productive units to enable our industry to effectively compete in the international market in general and the regional market in particular as well as in the domestic market given our large porous borders.

The priority of the PML-N government since day one, when it took over the reins of government, was to focus almost exclusively on increasing generation through the launch of mega projects that required considerable borrowing from multilaterals as well as bilaterals. This approach contradicted the findings of numerous studies, including a third party audit of the controversial rental power projects on the instructions of the Gilani-led cabinet in 2010 by the Asian Development Bank (ADB). This audit noted the wide divergence between the country’s generation capacity around 23000MW (which was less than the managed demand) and actual generation which hovered at less than 10000MW during peak demand summer months. With demand at around 18000MW in the summer, the shortfall has gone up to as high as 6000 to 8000MW reflecting 12 to 15 hours load-shedding in cities and more than 18 hours in rural areas. During the winter, the shortfall is around 2500 to 4000MW, however, the gas shortfall then becomes a major problem.

Those who are baffled at the scale of load-shedding during last year after tall claims of the improvements in the sector – both generation wise and governance – must heed the following observations of the Economic Survey 2016-17: “during July-March 2017 although installed capacity increased to 25.1 million MW from 22.9 million MW during the corresponding period last year however there was a decline in generation as it remained 85,206 GW/h during July-March 2017 compared to 101,970 GW/h during July-March 2016.” The Survey also estimated total generation in 2016-17 at 108,408 GW/h, while installed capacity was 23,718 million MW. In July-March 2012-13 (nine months of the tenure of the PPP-led coalition government) generation was estimated at 104,089 GW/h while installed capacity was 22,812 million MW – an increase of 4 percent in installed capacity (or less than 1000 million MW) and 12 percent in generation.

In April 2017, the country was experiencing massive load-shedding on a scale higher than what was witnessed during the last summer of the tenure of the PPP-led coalition government. Khawaja Asif, the then Water and Power Minister, claimed that unseasonably high temperatures were to blame. Be that as it may, the energy sector was unable to achieve capacity generation for the past four years for various reasons including: (i) the rise in the circular debt that was illegally written off by Ishaq Dar on the second last day of fiscal year 2013 – the objective being to unfairly lay the blame for the resulting rise in the budget deficit on the PPP government; however, sadly the circular debt today is higher than what the PML-N inherited in 2013 and the burden of the interest payable on past as well as additional borrowing is being borne by the public as is the rise in security costs under the umbrella of energy projects of the China Pakistan Economic Corridor; (ii) high cost of production of state operated generation companies (Gencos) due to high level of mismanagement and inefficiency. With 64 percent of generation based on the relatively expensive thermal in 2017 as opposed to the lower 62 percent sourced to thermal in 2016 indicates why the cost of electricity is rising in spite of the decline in the international price of oil and products. Khawaja Asif was asked to comment on consumers paying rates 27 per cent higher than those approved by the regulator Nepra and earning an annual windfall of 228 billion rupees and his response was an eye-wash: “since the matter is now before the court, we will state our position there;” (ii) natural annual fluctuations in hydel power generation sourced to the amount of water in the system which normally declines during winters (with maintenance of canals in December accounting for minimal hydel generation during this period and waiting for the snows to melt to experience a rise in water levels in spring), however between 2017 and 2016, the share of hydel in electricity in generation plummeted by 4 percent – from 34 to 30 percent; (iii) losses/receivables declined as the government embarked on the policy to enhance load shedding where receivables were high. The government claims it has reduced these losses by around 1 percent – an insignificant gain; and (iv) transmission lines are as per the Secretary Water and Power in 2013 were only capable of carrying a load of 15000MW which the PML-N government claims has been increased by 1500MW – a rise insufficient to take account of the projected rise in generation.

New generation as well as import projects were and continue to be inaugurated amidst much fanfare by the PML-N government. Three observations are in order. First and foremost, the LNG deal with Qatar which was cited by the former Petroleum Minister and the incumbent Prime Minister Abbasi as the only way to meet Pakistan’s present and future electricity demand needs to be uploaded on its website in its entirety without any editorial black outs like the Iran Pakistan gas pipeline deal during the PPP led coalition government. In comparison to the Zardari-led PPP government the Sharif and now the Abbasi-led PML-N has clearly been a lot less transparent. Secondly, regulators perform a very critical function in terms of protecting consumer interests and unfortunately the PML-N government has, again unlike the PPP, deliberately compromised their independence by bringing them under the administrative control of the line ministry. And finally, the coal-fired plants may generate electricity but locating them away from the port or the domestic coal-source would fuel health issues and costs may be much greater than the benefit of enhanced electricity.

The decline in the international price of oil during most of the PML-N ongoing tenure allowed the government to lower tariffs and the industrial sector to experience a decline in input costs. However, tariffs remained higher than those prevalent in our neighbouring countries disabling our productive units from effectively competing in the international and domestic markets. The household sector no doubt would indeed respond positively to negligible load shedding, a voter gainer in 2018 elections, however if the productive sectors unable to compete begin to close down, as has been evident in recent years, then with lower employment levels more and more unemployed would be unable to pay their electricity bill. To conclude, there is an emergent need to revisit the power policy and governance.