Special editorial feature

The Challenges
and Way Forward for
the Power Sector

By Peerzada Faizan | August 2020

Pakistan’s power sector has been marred by decades old challenges, the most critical ones being circular debt which is touching the Rs 2 trillion mark, the highest technical and commercial losses in the region, non-availability of electricity to a quarter of the country’s population, an inefficient energy mix, and lack of a competitive market.

The inability of successive governments to overcome these challenges is at the one end causing huge losses to the national kitty and, on the other, the public is facing the brunt of all these inefficiencies in the form of higher electricity tariffs. The average electricity tariff had already gone up by over 40% from roughly Rs 12 per unit in 2017 to over Rs 17 per unit by the end of last year and there are talks underway to further increase it to cover system losses and capacity charges.

Part of the challenges that the power sector is going through can be linked with poor governance and weak institutional quality of the National Electric Power Regulatory Authority (NEPRA), which results in an overall institutional inability to carry out the desired functions effectively. The regulatory body lacks professional expertise to oversee and manage the power sector and uphold an equitable pricing regime.

Replicating the US model where the President brings in his own teams of technical advisors from all fields to deliver on government targets, the PTI government has strengthened technical competence in ministries by inducting qualified professionals from relevant fields. Accordingly, the Establishment Division has identified 15 ministries and divisions for creation of posts of technical advisors, including the power division. It will be a good idea if the PTI government also strengthens the technical competence of regulatory bodies, including NEPRA, in the same manner.

The latest Global Competitiveness Report ranks Pakistan at 115th among 137 economies in the reliability of electricity supply, whereas Bangladesh is at 101st position and India at 80th. According to a World Bank Group report published in 2018 titled ‘In the Dark’, power distortions cost Pakistan’s economy much more than previously estimated: $18 billion in fiscal year 2015 — that is 6.5 percent of the country’s economy.

A recent report claims that the independent power producers (IPPs) have caused losses of over Rs4 trillion to the national exchequer. The part highlighting required reforms remained largely ignored which suggested that government intervention in the power sector must be curtailed, the energy ministry must be revamped and focus should be shifted towards transmission and distribution.

The onus is now on the PTI government to implement the reforms before it completes its term and set aside the argument that they have inherited the power crisis. Another way the cash-starved government may find useful is to collaborate with private sector organizations in the region to upgrade public power plants, improve the aging power supply network and make smaller and smarter transmission and distribution networks which are easier to manage. This will also foster competition and end the monopoly enjoyed by the state-owned companies in the power sector value chain and the privatized K-Electric, which is struggling to meet the growing power demand of the country’s largest city. This is hampering the economy of the country, besides generating negative public sentiments on the issue.

The unforgivable and biggest blunders in the power sector have been the non-seriousness and damage caused by not paying due attention to Thar coal and the bigger dams. These two are technically the biggest gifts of the Almighty to Pakistan but intra-provincial politics and negative internationally-vested interests have wasted forty years of deliberations on Thar coal and the dams. Even politics and international consultants were mobilized that Thar coal and the bigger dams were not viable but this was proved wrong recently when two plants started making electricity from Thar coal and showed positive results.

Governments in quest of immediate results did not invest in the dams which could have significantly reduced the power tariff, and also would have saved the country from floods, providing water for irrigation to produce more agri-based food for the growing population of Pakistan. The Thar coal project has recently started to produce power but again some negative sentiments are being built by internationally-vested interests that are actually the enemies of Pakistan as well as some local politics involving negative comments.

25 IPPs project to add 12,464MW to national grid by 2028

As many as 25 projects of Independent Power Producers (IPPs) are in various stages of development which on completion will provide 12,464MW electricity to the national grid system.

These projects were facilitated by Private Power Infrastructure Board (PPIB) and would start coming into operation from 2020 to 2028. The 1263MW RLNG project being set up near Trimmu Barrage, Jhang would be ready by 2020. Similarly, five projects having accumulative capacity of 2047MW would come on line by 2021. The projects include two 330MW units each, Thar coal power plants, 660MW Thar coal power plant, 7.08MW Riali-II hydropower and 720 Karot Hydropower.

Moreover, four projects with total 2160MW capacity would be ready by 2022 based on 330MW Thar coal, 1320MW Thar coal, 870MW Suki Kinari hydropower and 300MW imported coal power plant. Similarly, 1980MW are to be added to the system through IPPs in 2023, 2,124MW in 2024, 1,172MW in 2026 and 1,710MW in 2028.

The projects include 700MW Azad Pattan hydropower, 1,124MW Kohala hydropower, 300MW Ashkot hydropower, 640MW Mahl hydropower, 450MW Athmuqam hydropower, 82MW Turtonas-Uzghor hydropower, 163MW Grange Power Limited, etc.

The Private Power and Infrastructure Board (PPIB) was created in 1994 as a “One-Window Facilitator” on behalf of the Government of Pakistan to promote private investments in power sector. In 2012, PPIB was made a statutory organization through Private Power and Infrastructure Board Act 2012. The role of PPIB has been further expanded by allowing it to facilitate public sector power and related infrastructure projects in IPP mode, for which PPIB’s Act was amended in November 2015. PPIB approves IPPs, issues LOIs and LOSs (including Tripartite LOSs), approves Feasibility Studies, executes Implementation Agreements (IAs) and provides GoP guarantees.

Source: IEA Clean Coal Centre, UK

Pakistan, through a conspiracy, has been drained for its energy, water and agriculture needs by not utilizing Thar coal and dams and has wasted 40 precious years and billions of dollars in its economy in useless debate. It is high time that sanity prevailed and high speed progress were made on Thar coal as well as hydropower. The Government should also make better policies for renewable energy like wind and solar.

Additionally, it is high time that policy-makers focused on revamping and building a new infrastructure for transmission and distribution lines. Unrealistic tariffs and policies are not encouraging Discos to invest the desired effort required for distribution networks. More importantly, the business houses have been more prone to investing in IPPs, some of which were shamelessly given a tariff of 17% US dollar-based IRR.

The infrastructure in big cities like Karachi, Lahore, Peshawar, Quetta, Hyderabad, Faisalabad, Gujranwala, Sialkot etc. is being exhausted, particularly in Karachi and is in a very bad shape. Depleted drainage, illegal encroachments and other related issues have now become life-threatening matters.

Power and water are the two biggest inputs in the economy. Industry runs on power, and food for the people come from agriculture (where water is used both for hydel needs and irrigation). These are technically national security issues that must be considered with sanity. Importing costly oil or coal for power for such a debt-heavy economy will become irreversible. Positive and fast-paced progress is needed for Thar coal, such as tightening the losses made by the IPPs, making of dams, favourable policies for renewables and fast-track investments and policies for transmission and distribution network across the country.