Political Economy of Power Sector

Political Economy of Power Sector: Policies and Governance

RATIONALE

The dynamics of power sector in Pakistan have become complex. They have gained importance because of its varied dimensions. One of the key aspects is the shortage of power for industrial and domestic use along with its viability to sustain and remain affordable for the consumers.

There is no one particular reason that why Pakistan has reached a stage where power sector poses a serious challenge but it begs questions about working of political economy of the country. Can it be explained as a political issue alone. The economic and governance aspect of this reality is equally important as it impinges directly on the productivity of the country be it industry, agriculture, commerce or other sectors. Alongwith this renewable energy, Pakistan has the potential to offer broader future choices.

Policy Issues and Targets:

The National Power Policy (NPP), formulated by the new government in 2013 identified four major problems in the power sector:

 A yawning supply-demand gap of up to 4,500 – 5,500MW leading to load-shedding of 12-16 hour across the country.

 High expensive generation of electricity (~Rs.12/unit) due to an increased dependence on expensive thermal fuel sources (44% of total generation).

 A terribly inefficient power transmission and distribution system that currently records losses of 23-25% due to poor infrastructure, mismanagement, and theft of electricity.

 Inefficiencies, theft, and high cost of generation are resulting in debilitating levels of subsidies and circular debt.

1 NPP set the following Targets:

 Decreases supply demand gap from 4500 – 5000MW today to 0 by 2017

 Decreases cost of generation from 12c / unit today to ~10/c unit by 2017

 Decreases transmission and distribution losses from ~23-25% to ~16% by 2017

 Increases collection from ~85% to 95% by 2017

 Improve governance by reducing the decision making and processing time at the Ministry, related departments and regulators.1

An urgent framework is required to balance demand and supply and appropriate phasing out of ongoing projects. Otherwise, huge reliance on imported power and large foreign funding will place a heavy burden on balance of payments, and will affect the foreign exchange reserve. In view of recent developments, four policy areas need special attention. First, a comprehensive national power policy is required, that includes issues of gas production, import, allocation and prices. The major problems are; mispricing of gas and excessive implicit subsidy. Secondly, transmission and distribution, technical line losses should be improved and theft should be controlled to reduce the cost of electricity and the burden of direct and indirect subsidies. Third; effective monitoring of implementation of both projects and policies are required either by the ministry or by developing a cabinet committee supported by PM’s Secretariat. Fourth; export revival should be speed-up to offset the greatly enlarge foreign exchange bill and the burden on balance of payments because of heavy imports of LNG, coal, electricity from Central Asia and foreign investment from China.

The primary power resources of oil and gas are now used in generating secondary power resource which is electricity. Due to inefficient power generation, along with archaic transportation and distribution system, Pakistan utilizes much more primary power resources in generating electricity than almost the rest of the world, with few examples of oil and gas rich

1 The Shahid Javed Burki Institute of Public Policy of NetSol: Eighth Annual Report: 2015, Lahore: p. 46-47.

2 countries like Saudi Arabia and Iran. The comparatively higher consumption of primary sources of power in Pakistan is because of inefficiencies in different phases of electricity production, distribution, transmission etc. This fact alone is enough for us to pay full attention to power efficiency programs in various phases of electricity generation, supply and their final utilization by households, industries and agriculture sectors. Moreover, building hydro-electric dams, tapping gas reserves in Baluchistan and coal power plants is needed to be developed on urgent basis. Experts and Engineers argue that hydropower is the cheapest way to solve the country’s power crisis. Pakistan has failed to tap its vast hydropower potential because policy makers view power policy in terms of short term political tenure and put “personal interest over national interest”.2

In 2014, the total power generation reached at 22,104 MW, hydropower (Wapda) increased to 6,902 MW (31 percent), thermal Gencos were at 5,458 MW (25 percent), hydropower from IPPs increased to 195 MW (0.9 percent), thermal IPPs added 8,793 MW (40 percent), while wind power also contributed 106 MW (0.5 percent) in the mix, nuclear power got doubled to 650 MW (2.9 percent), and the line losses were 19.6 percent.

A more prevalent view is that the decision-makers would be proactive in addressing the problem of power.

1.1 Due to poor maintenance, public sector power plants lost nearly one-third of their capacity and nearly 17 per cent of their thermal efficiency due to plant degradation. In addition, hydro power plants were mismanaged. In the past, government did not give priority to the power sector.

1.2 Lack of sustainability is one of the major problems of Pakistan’s power sector, which is now no more profitable for the Transcos (transmission companies) and Discos (Distribution Companies) as well as not affordable for the consumer. Technical losses occur when more power is supplied from a limited capacity system.

2 Pakistan’s power crisis could topple government, warns expert, ZOFEEN T. EBRAHIM, http://www.dawn.com/news/1167563, (accessed 31 October, 2015).

3 1.3 Some of the remedies are an effective management, system of checks and balance in the transmissions and the distribution, starting of new projects and public awareness is the need of the hour to tackle this crisis.

1.4 A change in tariff rate has almost negligible impact on electricity consumption.

Some suggestions may be considered to improve the present’s situation.

1.2.1 In development process to cope with increasing power demands, conservation and power efficiency measures are two parallel paths. “It takes one hour to promote power conservation, but only one sec. to save power.” Power conservation refers to reducing power consumption through using less of power service. Power conservation differs from efficient power use, which refers to using less power for a constant service. Alternative power refers to power that has no undesired consequences such for example fossil fuels or nuclear power.

1.2.2 Alternative power is renewable and is thought to be “free” power resources. They all have a lower carbon emission, compared to conventional power resources. These include Biomass Power, Wind Power, Solar Power, Geothermal Power, Hydroelectric Power sources. Combined with the use of the recycling, the use of clean alternative energies such as the home use of solar power system will help ensure man’s survival.

1.2.3 The Government should increase power sector finance. In addition to new projects efforts should be done to make existing ones efficient. More ever, regarding Power the Government should make higher allocation in the Public Sector Development Program (PSDP). Financial management of electricity is not good. The data is often fudged. The government should make a clear communication strategy to inform the public of efforts which are being made by the Government to mitigate the problem.

1.2.4 An effective management checks and balance in the transmission and distribution system, starting of new projects and public awareness is the need of the hour to tackle this crisis.

1.2.5 If we talk about recently evolved phenomena in modern countries like China and Japan, people installed solar panel in excess of their usage and government encourages them (Domestic power production), to do so . When there is excess of the electricity they sell the same to government. And receive credit in terms of cash or credit in electricity bills when they are

4 deficits in electricity on customer side. “Produce your own electricity and sell the excess to government”.

2. OBJECTIVES

2.1 What are the main causes and contributing factors of Pakistan’s power crisis? Is it a policy faultline or governance issue? 2.2 Should government as a remedy give first priority to power generation projects, efficiency and conservation in power sector? 2.3 What measures are suitable for our peculiar needs to overcome power crisis and how to generate power through different sectors within minimum cost to avoid capacity shortfalls and maintain sustainability?

2.4 How to encourage and ensure exploitation of indigenous resources, which include renewable power resources, human resources, participation of local engineering and manufacturing capabilities?

3. Methodology

A descriptive, critical and analytical methodology would be adopted for this course.

3 The Government publications and data, research work by subject specialists, interviews with experts and reports published by different organizations will be consulting in the preparation of the course.

3.1 Case study discussion and presentations by the participants would be a part of the course.

3.2 Question and answer session will be held after resource person’s presentations for clarifying important issues.

3.3 Presentation by the resource persons both by the public and private sector would be an important part of the course.

4 EVALUATION

4.1 Course evaluation would be done by the participants at the end of the course.