IPR INSTITUTE FOR POLICY REFORMSREFORMS REPORT
April 2015
Putting Power Back on Track:Track: A Sustainable Resolution to the Energy Crisis
Ashraf M. Hayat
Summary
DespiteDespite repeated commitmentscommitments expressed by governments to resolve the About The Author country'scountry’s energy crisis there hashas beenbeen nono improvementimprovement inin powerpower supply.supply. Ashraf M. Hayat is a former civil servant Successive governmentsgovernments have have not not comecome to to gripsgrips withwith the sector'ssector’s deepdeep and Executive Director IPR and Executive Director IPR structural, policy,policy, and governancegovernance challenges. TheyThey alsoalso havehave notnot taken the seeminglyseemingly simpler route of administrative measures to reducereduce lineline losses in DISCOs andand ease cash flowflow inin thethe sector.sector.
This is the contextcontext ofof this IPRIPR ReportReport whosewhose objectivesobjectives are asas follows:follows:
• Recommend waysways toto enhanceenhance powerpower supply supply in in the the shortshort termterm
• Propose policiespolicies and and plansplans thatthat wouldwould place the power sector on a sustainable pathpath ofof growth
About IPR While thethe report recommends severalseveral shortshort and medium term measures Institute forfor PolicyPolicy Reforms isis anan to enhanceenhance power supplysupply inin the country,country, it determinesdetermines thatthat probityprobity independent and non-partisannon-partisan thinkthink tank establishedestablished under SectionSection 4242 and rectituderectitude inin governmentgovernment decision makingmaking isis key to having a viableviable of thethe CompaniesCompanies Ordinance.Ordinance. IPRIPR power sector. Weak governance leadsleads toto high project cost, revenue lossloss places premium on practical solutions. Its missionmission is to workwork forfor stabilitystability and in thethe system,system, andand capturecapture ofof statestate decision-making decision-making by interest groups.groups. prosperity of Pakistan and for globalglobal Governance improvementimprovement isis oneone ofof thethe key issues in resolving the powerpower peace and security.security. IPRIPR operationsoperations are supported by guarantees from the crisis. corporate sector. Cost of electricelectric shortage shortage isis high. high. NEPRA estimatesestimates annualannual loss at between 2 to 3 percentpercent ofof GDP. Another studystudy estimates it atat aa highhigh 5% 5% ofof GDP.GDP. Moodys has has warnedwarned that powerpower shortageshortage willwill affectaffect Pakistan'sPakistan’s creditcredit worthiness. The power crisiscrisis alsoalso isis aa potential source ofof instabilityinstability thatthat can exacerbate latent discontent.
The electric power sectorsector sufferssuffers fromfrom aa largelarge numbernumber of issues.issues. InIn additionaddition to weak governance, itsits incentive structure isis flawed,flawed, public public investment investment is skewed,skewed, andand investmentinvestment cannotcannot recoverrecover cost,cost, requiringrequiring subsidysubsidy forfor Copyright: consumers and fiscal incentivesincentives forfor investors.investors. DespiteDespite publicpublic statements,statements, No partpart ofof thisthis publicationpublication may be government does not give energyenergy sectorsector thethe prioritypriority it deserves. reproduced or transmitted in any form or by anyany meansmeans withoutwithout permissionpermission There is aa historyhistory ofof powerpower shortage, though in termsterms ofof hourshours ofof loadload in writing from the Institute for Policy in writing from the Institute for Policy shedding, the intensity of the present crisis is unprecedented. It began in Reforms shedding, the intensity of the present crisis is unprecedented. It began in 2007 when world energyenergy pricesprices increasedincreased manifolds. ItsIts genesis lies with the powerpower policypolicy of 1994.1994. ThisThis policy effectivelyeffectively shifted shifted thethe mainmain source of powerpower supplysupply fromfrom hydropowerhydropower to to thermalthermal energy with Board of Directors concomitant reliancereliance onon imported fuel. Increase in energyenergy priceprice
Mr.Mr. Humayun Akhtar Khan, Chairman in the lastlast twotwo decadesdecades meant higherhigher costcost per unit (energy(energy prices Dr. Hafiz A.A. Pasha,Pasha, ManagingManaging DirectorDirector have declined 50% inin recentrecent months).months). PricePrice increaseincrease hadhad aa telling Mr. Haroon Akhtar Khan effect onon the sustainability ofof thethe sector.sector. TheThe mainmain objectiveobjective ofof Dr. Khalida Ghaus 1994 policy waswas toto attract privateprivate investment.investment. Currently,Currently, 36%36% Mr. Ashraf M. Hayat of generationgeneration isis inin thethe private sector, butbut it came at a highhigh costcost for the economyeconomy withwith the governmentgovernment providingproviding large-scalelarge-scale fiscalfiscal incentives andand guarantees.guarantees. In addition, it resulted inin high reliance on imported energy. Despite current low prices,prices, thethe countrycountry cannotcannot afford the extent to which it depends on imported energy if it is to meet current and future demands. Apart from initiallyinitially attractingattracting private investment, thethe 19941994 policypolicy did not achieve its declareddeclared objectives ofof resolvingresolving powerpower shortage, adding overover 50,00050,000 MWMW capacity, or improving accessaccess toto electricity. BecauseBecause ofof itit and Board of Advisors continued weak policy, tarifftariff andand power shortageshortage both increased. Lt. Gen (R) Sikander Afzal Dr. ManzoorManzoorAhmad Ahmad Already weak, governance worsened during the decadedecade ofof 1990s Mr. Munawar Baseer and has hardly improved.improved. It manifests itselfitself in high line losses andand Ms. Roshan Bharucha under recoveryrecovery of billed amount.amount. Weak governance also reflects inin Mr. Shakil Durrani poorly conceivedconceived policy policy and and in in capturecapture ofof statestate decision making Mr. Hussain Haroon by interest groups.groups. SinceSince the 1990s,1990s, public power generationgeneration has Dr. Iqrarlqrar Ahmad Khan suffered from aa lacklack of of attention attention and and transmission transmission andand distributiondistribution Mr. Tasneem Noorani systems have remained weak.weak. HighHigh distributiondistribution losseslosses depriveddeprived Mr. Tariq Parvez the powerpower supply system of cash flows andand diddid notnot allow allow capitalcapital Mr. Salman Raja formation forfor investmentinvestment inin the system.system. SkewedSkewed priorities in Dr. Atta-ur-Rehman Dr. Atta-ur-Rehman public investment meant growing allocation forfor roadsroads and not Dr. Abid Suleri enough for the power sector. Mr. Abdullah Yousaf Mr. Moeed Yousaf Government’sGovernment's policypolicy response response has has beenbeen inadequate. While the whole power supplysupply chainchain needs reforms, GOP'sGOP’s focus isis entirely on generation and,and, untiluntil recently, onon increaseincrease inin tariff.tariff. ItIt has focused onon ambitiousambitious foreignforeign investmentinvestment toto increase generation. IPR agrees with government'sgovernment’s effortsefforts toto increaseincrease thethe share ofof coal inin total power generation. Government thoughthough mustmust ensure transparency in implementationimplementation andand on thethe feasibilityfeasibility ofof newnew projects or else they will have the same deleterious effect on the http://ipr.org.pk sector as the earlier private projects. https://www.facebook.com/InstituteforP The policy toto increaseincrease tarifftariff has made electricity unaffordable for olicyReforms https://twitter.com/IPR_Pakistan low –— middle middle income income consumers, consumers, affects affects business business competitiveness,competitiveness,
4- Shami Road, and hashas incentivizedincentivized poorpoor governance.governance. The elasticity of revenue Lahore Cantt, gains to each unit of tariff increase is 0.6. Pakistan Similarly, thethe approach to circular debt lackslacks depth.depth. CircularCircular debt is is an an outcome outcome of of governance governance and and policy policy flaws. flaws. One-time One-time payments cannot make it go go away without fixing its its causes. causes. In In 2013, governmentgovernment mademade aa one-time paymentpayment toto settlesettle it, hoping unreasonably, that thethe problemproblem wouldwould disappear. Since then,then, it has growngrown again. In fact, the problemproblem reared in full force inin January 20152015 in the shape ofof the petrol crisis. The source of circularcircular debtdebt lieslies inin Government’sGovernment's currentcurrent tarifftariff and subsidy policy. It encourages distortions andand allows allows inefficiencies.inefficiencies. By By absorbingabsorbing allall systemsystem deficits,deficits, it it does does nothing nothing to improve DISCO performance.performance. OnOn thethe oneone hand,hand, circular debt clogsclogs cash flow resultingresulting in in production production below capacity,capacity, andand onon thethe other,other, because ofof capacitycapacity guarantees, guarantees, governmentgovernment mustmust ultimatelyultimately pay the amount due with mark-up forfor power that waswas never produced.
Government’sGovernment's responseresponse toto thethe recent decline inin fuel input cost is revealing.revealing. This could have been an opportunity to fix thethe tarifftariff policy.policy. MoreMore recently,recently, in aa travesty ofof rationalrational judgment,judgment, itit isis reportedreported toto havehave instructed NEPRANEPRA to include an additional 5555 billionbillion rupees intointo consumerconsumer tariffs toto accountaccount for the cost of inefficienciesinefficiencies'.1. ItIt is not clear if NEPRA would followfollow the the instructions.instructions. • IPR recommends thatthat in additionaddition toto newnew generation projects,projects, government can increase powerpower supply by taking immediate actionaction asas follows:follows: • Pay the outstanding tarifftariff differentialdifferential subsidysubsidy andand continuecontinue toto timely liquidate this obligationobligation • To settlesettle the issue of circularcircular debt,debt, taketake administrative measures toto reducereduce line losses, under recovery ofof bills,bills, and and chargecharge applicableapplicable tariffs.tariffs. ItIt should also reducereduce tarifftariff slabs. • Government must increase gasgas allocationallocation to the powerpower sector • Reform thethe tariff and subsidysubsidy policypolicy • It shouldshould immediatelyimmediately divertdivert publicpublic fundsfunds from from roadsroads for for earlyearly completion completion ofof on-going hydrohydro andand thermal powerpower projectsprojects prioritizing allocationallocation to impact projects for early power generationgeneration In the mediummedium term, forfor sustainable developmentdevelopment ofof the power sector, itit must:must: • Plan basebase loadload generationgeneration basedbased onon cost/KWhcost/KWh (prioritize(prioritize hydrohydro andand coal)coal) andand solar/windsolar/wind forfor offoff grid. Adopt aa least cost approach to sequence projects
• Focus on indigenization, despite present declinedecline inin energyenergy prices:prices: expandexpand hydropower,hydropower, developdevelop Thar resources, explore shaleshale potential,potential, and increase solar and wind generation. It should have a special policy forfor small-scalesmall-scale hydrohydro productionproduction inin thethe privateprivate sector:
o It shouldshould createcreate aa dedicateddedicated window window forfor financingfinancing of of privateprivate power power
o Create a privateprivate energyenergy supportsupport fundfund withwith Rs.Rs. 157157 BB SpecialSpecial DevelopmentDevelopment Fund (from the Kingdom of SaudiSaudi Arabia)Arabia) asas seed
• Seek international support for the fund. In addition to traditional multilateral sources, tap into China’sChina's Asian Infrastructure InvestmentInvestment Bank,Bank, WBWB GlobalGlobal Infrastructure Facility,Facility, GG 2020 GlobalGlobal Infrastructure Hub,Hub, andand riskrisk mitigationmitigation throughthrough MIGAMIGA • Begin inin earnestearnest an energyenergy conservation programme A Table isis attached.attached. Table of Recommendations
I. Short-term reliefrelief
Activity Responsibility Implication Improve governance in government owned 1 GOP generation, transmission, and distribution GOP I Reduce line losses by 50% PEPCO, DISCOs Reduce under recoveryrecovery of billed II amount amount --do-- III Charge applicable tarifftariff ratesrates Improve cash flow, reducereduce circularcircular debtdebt IV Create holdingholding companycompany for DISCOs GOP to increase generation, and allowallow capital V Set up Summary Courts GOP formation, and increase capital formation GOP Consider technology forfor trackingtracking VI PEPCO, esp. power use DISCOs GOP Stipulate timetime oror amountamount ceilingsceilings for VII PEPCO, esp. disconnection of supply DISCOs
Reduce tariff slabs and increaseincrease peakpeak off-off- 2 GOP,GOP, NEPRANEPRA peak difference
I Reduce tarifftariff slabs GOP, NEPRA Reduce DISCO losses II Increase peak off-peakoff-peak differentialdifferential --do-- Conserve energyenergy andand manage demand i. Reduce unit cost and total powerpower cost 3 Increase gasgas allocationallocation forfor power GOP ii. Reduce subsidysubsidy andand circularcircular debt i. Increase generation MOF,, 4 Retire circular debt and pay TDS in time GOP' ii. preclude invoking of guaranteesguarantees by GOP IPPs Subsidy policy must incentivize efficiencyefficiency MOF, 5 and make DISCOsDISCOs accountable for live Increase generation NEPRA losses. 6 Provide duty drawback to exportexport industryindustry GOP Increase exports
II. Short to medium-term
1 Public Investment Quick additionaddition to generation capacity Divert PSDP to power from other Rehab reduces capital cost I GOP sectors Lower unit cost from hydro Hydro helps with indigenization Invest in prioritized GENCOs andand in GOP, PEPCO, II hydropower WAPDA Increase Investment in Transmission and GOP, PEPCO, NTDC, 2 Distribution DISCO Realize benefits from from completed completed I Prioritize transmission projects projects, Build reliability II Prioritize distribution projects --do-- 3 Address structuralstructural issues GOP/NEPRA/NTDC I Begin competitive trading ofof power NTDC / NEPRA Increase efficiencyefficiency inin generationgeneration II Resolve NTDC-IPPsNTDC-IPPs disputesdisputes Ministry / NEPRA Improve environment III Privatize GENCOs Ministry Increase efficiencyefficiency Give onon leaselease oror privatizeprivatize loss making IV Ministry Increase efficiency,efficiency, reducereduce losseslosses DISCOsDISCOS Strengthen NEPRANEPRA capacitycapacity before 4. Ministry Effective managementmanagement of sector privatization III.III Sustainable development of the sector in the medium term Planning 1 Demand EstimateEstimate Commission, Logical development of sector M/O W&P Plan base load generation on the 2 I basis of cost/KWh (prioritize(prioritize hydro Ministry of Water and coal) and alternative forfor offoff grid Sustainable developmentdevelopment and Power Least Cost Generation approach to II sequence projects GOP,GOP 3 Indigenization Increase reliable fuelfuel supply, reduce cost GOSGOSH GOP, I Expand hydropower capacity WAPDA Develop TharThar resources Establish reliable estimate of reserves GOS, Thar Coal II Reduce import dependence Develop infrastructureinfrastructure Development Board Concession managementmanagement GOP, III Explore shale oil and gas Reduce import dependence M/OPetroleum GOP, • Increase accessaccess to electricity, M/O W&P, IV Increase solar and wind especially for off-grid consumersconsumers Alternate Energy • Reduce import dependence Development Board Special policy forfor smallsmall privateprivate hydro V PPIB power projects 4 Energy Efficiency andand ConservationConservation I Raise awareness II Parliament to pass law Government to issue rules for III • transport andand buildingbuilding • Manage demand • Increase affordability and Government to begun rating of IV competitiveness appliances • Improve environment V Have some incentive for consumers Increase difference between peakpeak and VI off-peak tarifftariff 5 Financing ofof power sector Create a private energy support fund GOP, Assist financial close close ofof privateprivate projectsprojects I with Rs. 157 B from SDFSDF asas initialinitial MOF to meet with investment gap Prepare a plan for private GOP, II Ensure least costcost participation in power M/O W&P GOP, Seek international support for the External finance to to helphelp meetmeet III MOFMOF,, fund investment needs EAD WORKING GROUP
• Lead:
Ashraf M. Hayat Executive Director, Institute for Policy Reforms
• Members:
Mr. Humayun Akhtar Khan Chairman of the Board, Institute for Policy Reforms
Dr. Hafiz A.A. PashaPasha Managing Director, Institute for Policy Reforms
Mr. Haroon Akhtar Khan Member Board of Directors, Institute for Policy Reforms
Mr. Shakil Durrani Member Board of Advisers, Institute for Policy Reforms
M. Abdullah Yusuf Member Board of Advisers, Institute for Policy Reforms
Munawwar Baseer Member Board of Advisers, Institute for Policy Reforms
Contents
• Chapter 1 Introduction 1
1.1 Report Objectives 3
1.2 Economic Cost of Power Shortage 4
• Chapter 2 Structure of the Electric Power Sector 8
2.1 Installed Capacity and Energy Mix 8
2.2 Consumption Pattern 15
2.3 Circular Debt 18
• Chapter 3 Slippery Slope 19
3.1 The Fetish for Generation: The Private Power Policy 1994 20
3.2 Underinvestment in Hydropower, GENCOs, and T&D 25
3.2.1 Hydropower Projects 25
3.2.2 GENCOs 26
3.2.3 Transmission and Distribution 28
3.3 Keeping Fuel Cost Low 29
3.4 Tariff and Subsidy Policy: A CircularCircular Debt beyond Control 31
3.5 Competitive market for trading of electricity 34
3.6 Unraveled Structure 34
3.7 Affordability and Competitiveness 34
3.8 Disputes between Power Purchaser and Power Producers 36 Cont’dCont'd
3.9 IndigenizationIndigenization 36
3.10 FinanceFinance for for Energy Energy Development Development and and PowerPower SupplySupply 36
3.11 PoliticsPolitics over over Governance Governance 37
3.12 Is IsDISCO DISCO Privatization Privatization a a Solution?Solution? 38
• Chapter 4 Governance and Regulation 39
4.1 Indicators 41
• Chapter 5 RecommendationsRecommendations 47
5.1 Developing a Context: Decisions that Must Guide the Energy Plan 47
II Relief from the Crisis in the Short Term 49
III I Short to Medium Term Recommendations 53
IIIIII Sustainable Development of the Sector in the Medium Term 55
• End Notes 62
Figures, Boxes, andand TablesTables
• Figures
1. Share of Hydro and Thermal Power Production 9
2. Share of Gas and Furnace Oil in Thermal Power Production 10
3. Pakistan'sPakistan’s Primary Energy Deficit 10
4. Generation by Type 12
5. Growth of the Economy and Electrical Generation 2010-2013 15 Cont’dCont'd
6. Percentage Share in Total Consumption 15
7. Too Many Tariff Categories 51
• Boxes
1. The Case of China’sChina's Coal Fired Power Plants 11
2. Power Policy 1994 21
3. Not the Killer App You Thought it Was 24
4. Increasing Productivity 30
5. Why Privatize? 46
• Tables
1. Cost of Power Outages 4
2. Loss in Output by Values 5
3. Loss as Percentage of Total Annual Output 6
4. Labour Hours Loss per Day by Industry 6
5. Delays in Supply Orders 7
6. Installed Capacity and Generation Trend 9
7. Gap Between Supply and Demand during Peak Hours 12
8. Share in Electric Power Generation 13
9. Cost of Generation per Unit 14
10. Growth in GDP and Power Consumption 14 Cont’dCont'd
11. No of Connections with Usage 16
12. Loss by Distribution Companies 2012-13 17
13. Growth in Circular Debt 18
14. Growth in Electric Generation in GWh 22
15. Average Tariff Changes 22
16. Skewed Priorities 27
17. Declining GENCO Efficiency LevelsLevels 27
18. Household Expenditure on Electricity by Quintiles 35
19. Competitiveness 35
19A. Incremental Change in Power Supply vis a vis Performance 37
20. Performance of Power Supply Chain 42
21. Loss from Application of Low Tariff 44
22. Proposed Projects for Early Completion from PSDP 53
23. Prioritized Transmission Projects 54
24. Number of Overloaded Feeders 55
25. Estimate of Capacity to Meet National Power Demand 56
26. Profile ofof PowerPower ProductionProduction andand FuelFuel SourceSource 57
27. Forecast of Fuel Cost S/MMBtu 57
28. Table of Recommendations 60 11 Introduction
Putting PowerPower BackBack onon Track:Track: A SustainableSustainable ResolutionResolution to thethe EnergyEnergy CrisisCrisis
Introduction
If good intentiintentionsons were thethe same as fulfillment,fulfillment, Pakistan's Pakistan’s energy energy crisis crisis would would not not have have occurred. occurred. In 2007, a senior Pakistan governmentgovernment officerofficer declareddeclared thatthat Pakistan Pakistan would would be be "a “a new new energy energy hubhub for the region."region.”2 In the samesame document, anotheranother senior officer saidsaid that inin thethe nearnear termterm gasgas importsimports from Central Asia and thethe GulfGulf wouldwould help bridge the country'scountry’s fuelfuel supplysupply gapgap whilewhile itit developsdevelops the largelarge coalcoal deposits in Sindh3. Later, he estimatedestimated investmentinvestment needsneeds in the sectorsector to amount to fifty fivefive billion billion dollars dollars until until 2015 20154. Investment since thenthen has notnot touchedtouched ten percent of thatthat rosy forecast though good intentionsintentions have flourished. AA newlynewly electedelected governmentgovernment in 20082008 statedstated thatthat load shedding would endend DecemberDecember 2009.2009. WeWe all all know know what what happened. happened. TheThe energy energy crisis crisis in in Pakistan Pakistan does notnot exist for wantwant of goodgood intentions. intentions. ItIt existsexists despitedespite it.
The crisis does notnot continue forfor wantwant ofof internationalinternational supportsupport either.either. For decades, PakistanPakistan has had multilateral andand bilateralbilateral donordonor support.support. Pakistan'sPakistan’s 19941994 policypolicy had substantial inputsinputs fromfrom international institutionsinstitutions andand financialfinancial support support from from them them and and many many bilateral bilateral agencies. agencies. In In 2006, 2006, during a visit to Pakistan, thethe USUS PresidentPresident announced announced aa USA-PakistanUSA-Pakistan EnergyEnergy WorkingWorking Groups.Group5. A number of meetingsmeetings were held.held. InIn 2010,2010, thethe sectorsector becamebecame a a key key component component in in the the bilateral bilateral PakistanPakistan US strategic dialogue. InIn 2010 also,also, thethe Friends of Democratic Pakistan Pakistan setset up a TaskTask ForceForce onon Energy6. Electric power hashas received majormajor pledgespledges inin thethe CountryCountry Strategy documentsdocuments ofof the WorldWorld
1 Bank and the Asian Development BankBank'.7. There is reason to reflect ifif suchsuch supportsupport hashas helpedhelped createcreate aa coordinated andand integratedintegrated strategy consistent with the country'scountry’s institutional capacitycapacity to formulate policy andand implementimplement programmes.programmes. It It isis mootmoot tootoo ifif externalexternal supportsupport waswas alwaysalways inin lineline with the sector'ssector’s long-term sustainability.sustainability.
Nor does thethe crisis exist for wantwant of analysesanalyses andand knowing whatwhat areare the issues affecting the sector. All manner of studies exist that givegive shortshort andand long-termlong-term solutions,solutions, estimateestimate investmentinvestment needs,needs, give viewsviews onon fuelfuel mixmix asas wellwell asas onon fuelfuel supplysupply sources,sources, provideprovide guidanceguidance onon loadload management management andand on energy conservation. ForecastsForecasts of supplysupply andand demand with sensitivity toto GDPGDP growth, pricing issues, proven and potential energyenergy reserves, and thethe logisticslogistics ofof moving themthem havehave beenbeen cutcut and sliced in every wayway possible.possible. ThereThere isis sufficientsufficient amountamount ofof knowledgeknowledge about the extentextent ofof arrearsarrears andand receivables fromfrom governmentgovernment thatthat clog thethe system,system, popularlypopularly knownknown asas thethe circular debt, as well as what power distribution companiescompanies fail to recover from theirtheir customers.
It waswas clearclear asas farfar backback asas 2004 2004 thatthat power power shortage shortage would would occur occur fromfrom 20072007 ifif nothingnothing werewere done.done. High GDP growth ratesrates coupled withwith stalled investment showed whenwhen thethe supply and demanddemand curves would intersect. The crisis received stimulus fromfrom the unexpectedunexpected surgesurge in in the the price price of of oil.oil. An international financialfinancial crisis crisis followed followed andand affected affected investmentinvestment decisions. decisions. AllAll thisthis occurredoccurred inin aa yearyear when general elections werewere toto taketake placeplace inin PakistanPakistan and the government not ready to pass the cost of highhigh energyenergy toto thethe consumers.
GoP Planning Commission'sCommission’s Medium-Term Development FrameworkFramework 2005-2010, forecastforecast shortageshortage to begin during the planplan periods.period8. There has beenbeen aa profusionprofusion ofof studies since.since. Presciently,Presciently, inin 2006,2006, a well-knownwell-known USUS thinkthink tanktank studied the sectorsector inin aa documentdocument andand conferenceconference titled 'Fueling‘Fueling the Future’Future'°.9. The Friends of DemocraticDemocratic Pakistan Pakistan EnergyEnergy SectorSector TaskTask ForceForce issued issued the the Integrated Integrated EnergyEnergy Sector Recovery ReportReport andand PlanPlan in 20102010'100. In 2011, thethe PlanningPlanning Commission issuedissued thethe IntegratedIntegrated Energy Model, and and inin 20132013 itit studiedstudied thethe causes and structure ofof the circularcircular debt".debt11 . AlsoAlso inin 2011,2011, Pakistan’sPakistan's NationalNational TransmissionTransmission and DispatchDispatch CompanyCompany prepared the NationalNational PowerPower SystemSystem Expansion PlanPlan 2011-2030 Report.Report. There There areare aa series ofof studiesstudies byby thethe PlanningPlanning Commission's Commission’s Pakistan InstituteInstitute of of Development Development Economics Economics on the many aspects of the energy sector and by manymany other public and private academic institutions.institutions.
Meanwhile, therethere has been little reliefrelief forfor the consumersconsumers ofof power inin the country. Since the crisis began in 2007, power tariffstariffs havehave increasedincreased withwith no visiblevisible changechange inin thethe quantity and qualityquality ofof energy service for consumersconsumers (see(see TableTable 15). 15). IPR IPR analysis analysis shows shows that that the the energy energy crisis crisis continues continues partlypartly because of thethe intractability of of the problem,problem, butbut alsoalso becausebecause ofof inability of successive governmentsgovernments to reform and come toto gripsgrips with the complex interplayinterplay among policies, resourceresource allocation,allocation, regulatoryregulatory and governance issuesissues thatthat affectaffect the sector.sector. The plethora of studies and adviceadvice from within and outside the countrycountry (in(in thethe casecase ofof donors,donors, theythey sometimessometimes comecome asas conditionsconditions forfor disbursement)disbursement) seems to have stymied decision-making. GoP'sGoP’s policy ecosystemecosystem hashas createdcreated a patchworkpatchwork of responses,responses, without addressing systemic issues.issues. Governments havehave yetyet to show leadership and capacitycapacity to identify issues, develop andand implementimplement aa coordinated strategy,strategy, prioritizeprioritize action,action, andand manage the sector in a sustainablesustainable way.way. TheThe enormousenormous tasktask beforebefore thethe governmentgovernment isis toto developdevelop policiespolicies and incentives, reform regulations andand governance,governance, andand allocateallocate resourcesresources effectivelyeffectively toto bringbring thethe sector back on track.track.
The energy crisis did not happen because of thethe rise inin oiloil pricesprices alone.alone. The price increase and
2 the ensuingensuing chain ofof events that ledled toto thethe energyenergy crisiscrisis inin Pakistan,Pakistan, from from 2007,2007, showedshowed the deepdeep policy andand governancegovernance fissures fissures that existedexisted already.already. ThereThere waswas also also the the challenge challenge of of managingmanaging aa politically sensitivesensitive issue. Endemic high line losses and a shift inin thethe 1990s1990s toto dependencedependence onon costly fuel required continuous increaseincrease inin tariff as oiloil pricesprices roserose internationally.internationally. InabilityInability toto recoverrecover costs choked thethe powerpower supplysupply system,system, onon thethe oneone hand,hand, andand discourageddiscouraged investments,investments, on thethe other. Successive governmentsgovernments avoidedavoided the the difficultdifficult structural issuesissues thatthat hobbled hobbled thethe sector. sector. The The single single dimensional responseresponse toto increaseincrease tariff,tariff, oftenoften onon thethe promptings of internationalinternational donors, has not shown results.results.
1.1 Objectives
The two-fold objectivesobjectives of of this this IPRIPR reportreport are:are:
• To analyzeanalyze andand recommend waysways toto enhanceenhance powerpower supplysupply in in thethe shortshort termterm
• To examineexamine structuralstructural issuesissues ofof the powerpower sector and propose policies andand plansplans that wouldwould place it on a sustainable pathpath of of development development soso thatthat it it becomes becomes a a vehicle vehicle for for economiceconomic growth.
In order toto do so, thisthis report willwill review:
o Holistically, thethe issuesissues thatthat impair powerpower supply
o The system widewide policypolicy environment ofof thethe powerpower sector and howhow theythey incentivizeincentivize behaviour
o Measures to increase energy supply within present system capacity in generation and transmission
o The fuel mix alternativesalternatives and theirtheir effecteffect onon costs and power supply
o Management and technicaltechnical structurestructure for for possible possible systemsystem efficienciesefficiencies andand sectorsector viabilityviability
o Ways for eliminationelimination of circularcircular debtdebt toto lubricatelubricate the power supply chain
How isis thisthis report different fromfrom myriad others?others? IPRIPR findsfinds two two clear clear differences: differences:
• The Report’sReport's analyses rely on IPR experts with practical experienceexperience of thethe energy sector and of policymakingpolicymaking and and implementation implementation atat seniorsenior governmentgovernment levels.levels. IPR alsoalso hashas thethe expertise to viewview solutions to thisthis crisiscrisis inin the the perspective perspective of of economic economic conditionsconditions andand governancegovernance structure. In In essence, essence, this this report report combines combines available data and and analyses, analyses, and and findings findings of of existing literature withwith thethe experienceexperience of experts. It doesdoes not looklook at idealideal solutions,solutions, but practical, operational, and achievableachievable ones.
• The report takestakes a a systemic systemic view view of of electric power supply with a view to findingfinding anan exitexit fromfrom thethe current impasse in the near term.term. ItIt alsoalso takestakes aa holisticholistic look atat the long-term sustainabilitysustainability of thethe sector. In doing so, it does not propose textbook solutions,solutions, butbut realistically, optimizes among conflicting needsneeds ofof consumers,consumers, producers,producers, andand retailersretailers of of electricelectric power.power. ItIt keeps keeps in mind,mind, also,also, thethe institutionalinstitutional capacity capacity ofof policypolicy andand decisiondecision makers,makers, andand ofof on-groundon-ground executives. ItIt does not have a formulaicformulaic approach ‘to'to privatize this oror unbundle-centralizeunbundle-centralize that’.that'. ItsIts recommendationsrecommendations relyrely onon what thethe decisiondecision and delivery mechanisms can bear.
3 IPR acknowledges government’sgovernment's effortsefforts toto addressaddress the issue ofof power supply.supply. OurOur purpose is to help the government in its efforteffort to revive the energy sector. This report analyzes issues affectingaffecting electric power atat each stage of the supplysupply chain, provides data aboutabout powerpower shortage and itsits implication,implication, and reviews present financialfinancial viability viability (or (or otherwise) otherwise) of of thethe power power sector.sector. ItIt analyzes analyzes also also the the policy, policy, regulatory, andand governance mechanism mechanism that that supportsupport oror limitlimit thethe sector’ssector's potentialpotential toto serveserve asas a catalyst forfor economiceconomic growth.
Pakistan’sPakistan's powerpower sector has never been without challenges. SupplySupply hashas oftenoften trailedtrailed demand and a large part ofof the country'scountry’s population has hadhad nono accessaccess to electricity.electricity. TheThe presentpresent crisis is aa differentdifferent take onon a long enduring challenge. ItIt began in 2007, andand ledled toto unprecedentedunprecedented shortagesshortages thatthat affectaffect economic growth. growth. In In additionaddition toto thethe inconvenience to to citizens,citizens, its its newnew incarnationincarnation hashas touched a broad area ofof economic activity activity in in mostmost parts parts ofof thethe country. Today,Today, it it isis aa critical issue for the country'scountry’s economic revival revival and and stability. stability. ItIt hashas alreadyalready sparkedsparked protests and isis known to exacerbate latent discontent'discontent122.
1.2 Economic Cost of Power Shortage
Power shortage comes atat high economic cost.cost. Lack Lack of of energy energy supply supply has has limited limited the the industry’s industry's abilityability to operate to capacity, has inconveniencedinconvenienced citizens,citizens, andand stymiedstymied growthgrowth altogether.altogether. TheThe literatureliterature refers to energy shortageshortage variouslyvariously asas ‘thethe largestlargest singlesingle draindrain onon Pakistan'sPakistan’s economy'economy’ and as a 'key‘key impediment to growth'.growth’.
Estimates ofof loss on GDP growthgrowth vary.vary. NEPRANEPRA estimatesestimates ‘thethe powerpower sector is responsibleresponsible for 2 to 3% inin annual GDP"GDP’133. Citing sources, a LahoreLahore JournalJournal ofof EconomicsEconomics articlearticle estimates 37%37% loss in industrial output'''.output14. NEPRANEPRA estimatesestimates aa lossloss inin industrialindustrial output output of of 210210 billionbillion rupees (but(but doesdoes not say for which period)1615.
Table 1 Cost of Power Outages Billion Rupees
Methodology Cost Remarks
Simple Value Added Approach 1,600 7% ofof GDPGDP Estimate Estimate based on high cost per KWh
Adjusted Value Added Approach 463 A conservative estimateestimate
Difference between projected GDP with no load 1,000 The study considers thisthis a credible estimateestimate shedding and actualactual GDP GDP (2011-12)(2011-12)
Consumer Surplus ApproachApproach (2011-12)(2011-12) 1,000
Source: Institute Institute of of Public Public Policy; Policy; Beaconhouse Beaconhouse National University Load Shedding Part1Partl PagePage 24-2624-26
A study by the Institute of of PublicPublic Policy,Policy, Beaconhouse NationalNational University, Lahore, gives a range ofof cost to the economyeconomy from powerpower outagesoutages'166. It bases loss estimates on three approaches. Resultantly, loss to GDP from powerpower outagesoutages rangerange from aa low estimateestimate of 463 billion rupeesrupees toto a highhigh ofof 1.61.6
4 trillion rupees. Their rangerange ofof loss estimatesestimates are in Table 1below.lbelow. The IPPIPP study considers its medium estimate ofof one trillion rupeesrupees forfor fiscalfiscal 2012-13 2012-13 asas realistic.realistic. This This amount amount is is about about 5% 5% of of GDP. GDP.
Another study estimates thethe effecteffect ofof power shortageshortage onon industrialindustrial output. InIn 2011,2011, PIDE surveyed and analyzed evidence inin ‘selected'selected industrialindustrial cities of Pakistan’Pakistan"177. Three hundred andand thirty ninenine firms werewere surveyedsurveyed inin ninenine industryindustry groups. groups. Tables Tables 2 2to to 5 5summarize summarize the the survey's survey’s findings. findings. PIDE PIDE conducted the survey in 2008 and 2009 toto determinedetermine the effect of electricityelectricity shortageshortage alongalong aa numbernumber of indicators.indicators.
Loss in Output by Value
Table 2 gives the aggregate loss in billion rupeesrupees for allall nine surveyed industries in Pakistan. Because ofof theirtheir size in the economy, foodfood and and beverages, beverages, and and textiles textiles toptop thethe listlist of industryindustry with the highest loss in output. TheThe surveysurvey showsshows that lossloss toto outputoutput increasesincreases wherewhere the firmfirm operates operates on eight hours shifts and load shedding takestakes place throughoutthroughout thethe year. This isis thethe high estimate of 820 Billion Rupees.Rupees. LossesLosses declinedecline when when firmsfirms operateoperate onon twelve-hourtwelve-hour shiftsshifts andand loadload sheddingshedding takes placeplace duringduring sixsix monthsmonths only. only. ThisThis isis thethe lowlow estimate of of 270270 Billion Rupees. Most firmsfirms thoughthough suffer round the year load shedding.
Table 2 Loss in Output by Value
Billion Rupees
High Estimate Low Estimate Comments
Load managementmanagement and a predictable load Total for thethe nine 820 270 shedding schedule in consultation with indusindus-- industries try reduces impact
Food & BeveragesBeverages 264 87
Textiles 227 75
Source: PIDE PIDE Islamabad, Islamabad, The The Cost Cost of of UnservedUnserved Energy,Energy, PIDEPIDE workingworking paper 75,2011
Loss as Percentage of Total AnnualAnnual OutputOutput
Table 3 gives thethe value of thethe loss fromfrom powerpower shortage shortage asas aa percentagepercentage of annualannual output. Ceramic, Wood and and Furniture,Furniture, and Plastic are those industries whosewhose absolute loss values areare not high, but have the highest percentage loss as compared toto totaltotal annualannual output of the industry. Losses in the export industries ofof textile andand leatherleather were were 22% 22% andand 26%26% respectively.
5 Table 3 Loss as Percentage ofof TotalTotal Annual Output Percentage
Industry High Estimate Low Estimate
Ceramic andand Pottery 55 22
Wood and and FurnitureFurniture 49 16
Rubber and Plastic 46 15
Food andand Beverages 44 14
Machinery 43 14
Leather and Products 26 9
Textiles 22 7
Source: PIDE PIDE Islamabad, Islamabad, The The Cost Cost of of UnservedUnserved Energy,Energy, PIDEPIDE workingworking paper 75,2011
Labour Hours Lost pperer Day byby IndustryIndustry
Table 4 gives the labor hours lostlost perper dayday becausebecause ofof loadload shedding.shedding. AmongAmong export industries, 54%54% of allall textile firms andand 39% 39% ofof leather andand leather leather goods goods firmsfirms suffer suffer losses losses of of three three labour labour hours hours or or more per day. Among thethe ninenine surveyedsurveyed industries, ceramicceramic suffered the mostmost atat 64%64% of total firms. Losses affected alsoalso demanddemand for labourlabour..
Table 4 Labour Hours Loss per Day by Industry % of firms surveyesurveyed
% ofof firmsfirms overover 33 Industry 3 to 5 Hours 5 to 8 Hours Above 8 Hours hours/day
Average for ninenine industriesindustries 27 20 5 52
Food & BeveragesBeverages 20 28 8 56
Textiles 17 32 5 54
Leather and Products 35 0 4 39
Wood and and FurnitureFurniture 37 21 5 63
Rubber and Plastic 41 14 5 60
Pottery and Ceramic 38 13 13 64
Source: PIDE PIDE Islamabad, Islamabad, The The Cost Cost of of UnservedUnserved Energy,Energy, PIDEPIDE working paper 75,2011
Delays inin SupplySupply Orders
Of all firms surveyed, surveyed, onon anan average average 69% 69% of of thethe firms firms had had to todelay delay supply supply orders. orders. Among Among export- export-
6 oriented industries, supply supply orders orders were were delayed delayed in in 68% 68% of textiletextile firms andand 62%62% ofof leatherleather andand leather goods firms.
Tables in this section have been adapted fromfrom a PIDE Working Paper18.
Literature on on the the subject subject is is clear. clear. Electric Electric power power insecurity insecurity affects affects firm firm productivity, productivity, increases increases production cost, andand investment decisions.decisions. One study examinedexamined thethe effecteffect onon firm productivity productivity from from blackouts in the Peoples'Peoples’ RepublicRepublic of China. The study surveyed 32,000 energy intensive firms in in China during the yearsyears 19991999 toto 2004.It2004.It foundfound that firmsfirms re-allocated re-allocated resources resources among among factorsfactors andand moved toto buyingbuying oror outsourcingoutsourcing intermediateintermediate goods.goods.
This significantly increased increased production production cost. cost. Costs Costs rose rose by by upup toto 20%20% primarilyprimarily becausebecause ofof outsourcingoutsourcing inputs119°.. AnotherAnother studystudy findsfinds thatthat the the effect effect maymay bebe marginalmarginal andand inconclusiveinconclusive20.Electricity insecurityinsecurity increases poverty also and affectsaffects low-income families families in in areas areas suchsuch asas foodfood insecurity insecurity andand healthhealth21. Overall, this issue is important forfor any government to address fully.
Table 5 Delays in Supply Orders
Industry Percentage of Firms
Nine Industry AverageAverage 69
Food andand Beverages 58
Textiles 68
Leather and Products 62
Wood and and FurnitureFurniture 72
Chemical 64
Rubber and Plastic 68
Ceramic andand Pottery 71
Iron and Metal 71
Machinery 82
Source: PIDE PIDE Islamabad, Islamabad, The The Cost Cost of of UnservedUnserved Energy,Energy, PIDEPIDE working paper 75,2011
This paper now reviewsreviews thethe presentpresent structure ofof the electric supply sector andand major trends.trends.
7 2 Structure of the Electric Power Sector
Structure of the Electric Power Sector
A rereviewview ofof the the structurestructure and trend ofof Pakistan'sPakistan’s electricelectric powerpower sector since the crisis began in 2007 makes a few facts evident:
• Despite continuous attentionattention at thethe highesthighest level,level, thethe structure,structure, capacity, capacity, and and efficiency efficiency of of the power sector has not changed since the crisis began
• Cost of powerpower generation generation isis highhigh andand has increased continuouslycontinuously sincesince 20072007 (except for recentrecent decline) becausebecause of reliancereliance onon thermalthermal power production (which began in the 1990s)
• Within thermal power,power, generation from furnace oil hashas increased at thethe expenseexpense ofof gas with concomitantly high production cost
• The country has not done enough to increase domestic energy supply. It continues to rely on imports. AllocationAllocation of domesticdomestic energyenergy hashas been inefficient
• Public investmentinvestment in hydropower generationgeneration andand inin improvingimproving transmission transmission andand distributiondistribution efficiencies hashas beenbeen belowbelow requirementrequirement
• Public investment to increase efficiency of of state state owned owned power powergeneration generation units has units been hasbeen inadequate
• Government has notnot focusedfocused sufficiently to to improve improve governancegovernance andand efficiency efficiency in in generation, generation, transmission, andand distributiondistribution of of electric electric power power oror inin recoveryrecovery ofof bills
• Deep policy andand incentives flaws havehave skewedskewed generationgeneration andand consumption consumption ofof energyenergy andand electric power, whichwhich successivesuccessive governmentsgovernments havehave notnot addressedaddressed
2.1 Installed Capacity and Energy Mix
Electric power generationgeneration capacity hashas been slow toto increaseincrease sincesince thethe currentcurrent crisis began in 2007. Average perper annum increase between 2007 and 2013 isis less than 2%2%22. Table 6 below summarizessummarizes installed capacity and annual powerpower generation in the country.
Generation capacity increased in the decadedecade ofof 1990s1990s largely because of the IPP policy. Most ofof the increaseincrease waswas inin thermalthermal power. power. WhileWhile capacitycapacity grewgrew byby 126%126% during thethe decade,decade, electricityelectricity generation grew at aa lowerlower raterate of of 74%.74%.
8 Table 6 Installed Capacity and Generation Trend MVV/GWh/KVVhMW/GWh/KWh
1990 2000 2007 2010 2013
Total2323 7,727 17,458 20,232 21,614 23,664 Hydro 3,477 4,826 6,555 6,555 6,826 Thermal - 12,169 13,215 14,597 16,000
Nuclear - 462 462 462 787 Generation GWhGWh 36,348 63,400 90,802 100,582 98.894 Energy Consumed GWhGWh 30,540 46,854 72,199 73,561 75,926 Energy/Capita KVVh KWh2244 277 357 470 450 ?? Distribution LossesLosses %% 20.7 24.29 19.44 18 17 Source: Database Database of of Energy Energy Information Information Administration, Administration, US US Government, Government, NEPRANEPRA State ofof Industry ReportReport 2013,2013, Pakistan EconomicEconomic Survey, Ministry of Finance,Finance, Chapter on Energy.
Generation increase flowedflowed overover toto thethe next next decade decade when when capacity capacity increased increased by by 16% 16% only only while while energy energy production grew by 43%. DistributionDistribution losses increased significantly duringduring the the decade decade of of 1990s. 1990s. More More research would determinedetermine thethe reasons, but this likelylikely happenedhappened becausebecause of a large jump in tariffs (see(see Table 7), andand possible declinedecline inin governance.governance. Also, Also, investment investment in in transmission transmission andand distributiondistribution did not keep pace with investment in generation. Distribution losses declined inin thethe next decade, but remain high.
For a primary energyenergy deficit country,country, Pakistan'sPakistan’s electric electric power power sectorsector isis structuredstructured to to flounder. flounder. Because Because of thermalthermal power'spower’s share in generation, reliance on imported fossil fuelfuel isis high.high. ThisThis changechange inin structurestructure began in thethe middlemiddle nineteennineteen ninetiesnineties whenwhen privateprivate powerpower productionproduction increased. In 1990,1990, share ofof hydropower in total powerpower production was 45%. Its share declineddeclined toto 25%by25%by 2000. See FigurFiguree 1.
Figure 1 Figure 1 A Share of hydro and thermal power power production Share of hydro and thermal power power production year 1990 year 2000
Year 1990 Year 2000
2.9 ■ Hydro ■ Oil ■ Gas
20.6 ■ Nuclear ■ Coal
Source: WorldWorld BankBank Indicators,Indicators, Pakistan,Pakistan, EnergyEnergy Production,Production, Source: WorldWorld BankBank Indicators,Indicators, Pakistan,Pakistan, EnergyEnergy Production,Production, and UseUse http://www.tradingeconomics.com/pakistan/energy-pro-http://www.tradingeconomics.com/pakistan/energy-pro- and UseUse http://www.tradingeconomics.com/pakistan/energy-pro-http://www.tradingeconomics.com/pakistan/energy-pro- duction-kt-of-oil-equivalent-wb-data.html duction-kt-of-oil-equivalent-wb-data.html
9
consumption of primaryprimary energy in Pakistan isis 4040 MTOEMTOE (2011-12(2011-12 data)data)25. WithWith increaseincrease inin thethe shareshare ofof thermal power,power, dependence on imported energy has increased. In 2013,2013, Pakistan importedimported 85%85% ofof its oil and oil product needs26. Production cost isis resultantly high.high. DiversionDiversion ofof gasgas fromfrom electric power toto otherother uses further increasesincreases costcost and putsputs pressurepressure on on foreignforeign exchange.exchange. Counter intuitively, since the crisis began, there isis aa shiftshift inin fuelfuel supplysupply forfor powerpower generation fromfrom gasgas toto furnacefurnace oiloil (Figure 2).
Figure 2 Share of Gas and Furnace Oil in Thermal PowerPower Generation % ofof TotalTotal
70 61%61 6600 57% 5500 4040 39% 43% 3300 Gas% 2200 FC% 1010 0 2008-09 200809 2009-102009-10 2010-11 2011-12 2012-13
Source: IPR Research
The above ADPADP ReportReport statesstates that ifif nothing is done to increase indigenous energy sources, the deficitdeficit will will continue to rise. InIn 2008-09,2008-09, Pakistan'sPakistan’s oiloil importimport waswas 18.518.5 millionmillion tonstons oiloil equivalentequivalent ofof energyenergy (TOE)(TOE) and coalcoal imports ofof 3 MTOE27.Total cost of importimport was USD 10 Billion.Billion. TheThe ReportReport projectsprojects thethe deficit toto climb to 56 MTOEs by 20162016 (Figure(Figure 3)28. RegardlessRegardless of thethe accuracy of forecast,forecast, thethe trendtrend in deficit isis clear,clear, especially ifif thethe governmentgovernment maintainsmaintains its single dimension strategy of meeting thethe supply gap through higher thermal production.production. Clearly, thisthis is an unsustainable modelmodel for Pakistan toto follow.follow. PakistanPakistan has underinvested in hydropower, its traditional sourcesource of electric power.power. Its allocation of naturalnatural gas among electric power, fertilizer,fertilizer, vehicle use,use, andand domestic consumption,consumption, isis inefficient.inefficient. ItsIts efforteffort toto taptap intointo new new domestic energy sources lingers.
Figure 3 Pakistan’sPakistan's Primary Energy Deficit
60 50 40 Coal 30 ■ Oil 20 ■ 10 =IF Gas 0 2008-09 2015-16
Source:Source: Integrated EnergyEnergy RecoveryRecovery Report and Plan 2010,2010, page 2
10 Box 1 The curious case of China'sChina’s coal fired powerpower plantsplants
As a policy,policy, IPR supports introduction of coal inin the generationgeneration mix. Its lowlow price,price, decliningdeclining of late, merit early inclusion. ItIt is important though to learn from the past. China'sChina’s coalcoal fired plantplant is is a acase case in in point. point. The The arrangement lackslacks transparency. Ideally,Ideally, private power investment opportunities must run through the process of public offeroffer and and bidding,bidding, even even if if other other bidders bidders were were hard hard toto attract.attract. From NEPRA'sNEPRA’s tariff determination, we observe thethe unusual practicepractice of ROE during construction, whichwhich whenwhen includedincluded takes takes guaranteedguaranteed returnreturn on investment toto between 25 andand 27%. ThatThat isis whywhy transparency transparency isis important.important. AtAt currentcurrent tariffs,tariffs, thethe country must have the means toto paypay anan annualannual bill bill of of 4.774.77 billionbillion USD. IPR estimates that reduced reduced coalcoal priceprice willwill lower tariff by 2 cents/KWh. EvenEven ifif pricesprices dodo notnot riserise again,again, the annual remittanceremittance will will bebe aa high high 3,614 3,614 MillionMillion USD.IPRUSD.IPR has the numbers.
Assumptions
Capacity: 220 MW Cost: 331 Million $ by NEPRA, 374374 MillionMillion $$ byby IPR,IPR, ExchangeExchange Rate: 102.5 Rs/$ ROE: 27%, Cost of debtdebt financing 7% 7% Tariff estimate by IPR varies from NEPRA determinationdetermination because of changechange inin exchangeexchange rate rate andand higher mark- up.
Tariffs in Cents perper KWhKWh IPR atat pastpast coal NEPRA At current prices price Energy purchase price 5.10 4.87 2.87 Fuel component 4.66 4.43* 2.43 Other costs 0.44 0.44 0.44 Capacity Purchase Price 3.65 4.50 4.50 Amortization 1.81 2.09* 2.09 RoE 1.16 1.73* 1.73 Fixed O&M ++ OthersOthers 0.68 0.68 0.68 Upfront tariff C/KWhC/KWh 8.75 9.37 7.37 Tariff Rs/KWh 8.58 9.60 7.55 Internal transporttransport of of Coal Coal C/KWhC/KWh 2.00 2.00 2.00 Punjab plants 10.75 11.37 9.37 Tariff Rs/KWh 10.44 11.65 9.60
Import billbill forfor coal: 4.77 billionbillion $$ annuallyannually based onon 6,6006,600 MW generatinggenerating 57.857.8 GWh Fuel= 57816 x 4.43/100 = 2,561 Amortization= 57,816 x2.09/100 = 1,208 RoE = 57,816 x 1.73/100 = 1000 Total USD/annum: 4,7704,770 Million
At present coal price: Fuel = 57,816 xx 2.43 == 1,405 Total USD/annum 3,614 Million
The above does notnot includeinclude environmental costs
11 As costcost recoveryrecovery has has been been an an issue issue in in Pakistan, Pakistan, each unitunit consumed requiresrequires government subsidy. Coupled with distribution losses,losses, underunder recoveryrecovery of bills, andand inefficiencies, circularcircular debtdebt increased andand thethe systemsystem of power productionproduction and and distributiondistribution waswas strained.strained. The country’scountry's currentcurrent electric powerpower structurestructure has limited the economy'seconomy’s abilityability toto respondrespond toto thethe crisis.
Peak hour gapgap betweenbetween supplysupply andand demanddemand continuescontinues toto defydefy allall effortsefforts (Table(Table 7).
Table 7 Gap betweenbetween supply and demand during peak hours MW
2009 2010 2011 2012 2013 2014*
Generation capability 16040 15144 15430 14483 15823 24087 Demand during peak hours 20314 21029 21086 21536 21605 28745 Gap 4274 5885 5656 7053 5782 4658
Source: NEPRA State of the Industry Report Report 2013, 2013, TablesTables 2626 && 2727 Page 8282 *2014 Projected I
Since the crisis began in 20072007 the profileprofile of of powerpower generationgeneration hashas remained remained unchanged unchanged largely. largely. Power Power generation capacity too has not changed much.
Figure 4 Generation by type
70000
60000
50000 Thermal 40000 Hydro
30000 Nuclear
Wind 20000
10000
0 2009-09 2009-10 2010-11 2011-12 2012-13
Until the 1990s,1990s, WAPDAWAPDA waswas anan integrated powerpower organization, with generation, transmission, and distribution all overover Pakistan,Pakistan, exceptexcept Karachi.Karachi. SinceSince privateprivate powerpower productionproduction began,began, electricelectric powerpower production takes place among public and private sectors.sectors. GovernmentGovernment generationgeneration companies companies (GENCOs)(GENCOs) comprise 20% ofof installed installed capacitycapacity andand 13% ofof generation.generation. MostMost statestate owned thermal powerpower producers operate under thethe umbrellaumbrella of of government'sgovernment’s PakistanPakistan Electric Electric Power Power Company Company (PEPCO).(PEPCO). PEPCO is also
12 the holdingholding company forfor allall DISCOs (except(except K K Electric) Electric) the the retail retail endend ofof thethe power supply chain.chain. It also transmits powerpower from generationgeneration toto distributiondistribution throughthrough the subsidiary National Transmission and Despatch Company (NTDC) and and buysbuys powerpower for for transmission transmission toto distributiondistribution companies through CPPAs (Central Power Purchase Agreements).
Private producersproducers ofof thermal power power (IPPs)(IPPs) havehave 36%36% share ofof installedinstalled capacity capacity and and 41% 41% ofof production. A small group of captivecaptive andand special producersproducers of thermalthermal power has an installed capacitycapacity ofof about 1%. Their production is dedicated for specific purposepurpose andand dodo notnot alwaysalways addadd toto thethe nationalnational grid.grid.
The installedinstalled capacitycapacity ofof hydropowerhydropower is 29%,29%, which, in 2013,2013, generatedgenerated 30%30% ofof totaltotal production.production. Hydropower generationgeneration is mostly state owned.owned. Nuclear power contributes 4%4% to total powerpower production with an installedinstalled capacitycapacity ofof 787787 MW. TheThe emergingemerging windwind powerpower generationgeneration isis yetyet tootoo smallsmall toto makemake an impact though with high potentialpotential
Table 8 Share in Electric Power Generation
Installed Capacity Generation 2013 Type % ShareShare % ShareShare 2013 MW C4rGWh Wh
Thermal 16,000 67.6 64,274 64.9
GENCOs 4,720 19.9 13,235 13.4
IPPs 8,575 36.2 41,177 41.6
CPP/SPPs 324 1.3 1,255 1.3
K-Electric 2,381 10.0 8,567 8.7
Hydro 6,826 28.8 30,032 30.4
WAPDA 6,612 27.9 29,326 29.6
IPPs 214 0.9 706 0.7
Nuclear 787 3.3 4,181 4.2
Wind 50 0.2 32
Import 375 0.3
Total 23,663 98,894
Source: NEPRA SOI 2013
Because of higherhigher shareshare in generation, on surface, IPPs appearappear toto bebe efficientefficient producers producers compared compared toto GENCOs. IPPIPP plants areare newernewer thanthan GENCOs GENCOs and and can can produce produce more more (please (please see see GENCO GENCO efficiencyefficiency discussion in chapter 3,3, Table 17). Table 9 showsshows thatthat for each fuel source, theirtheir cost of generationgeneration is higher than thatthat of of GENCOs. GENCOs. ThisThis doesdoes notnot implyimply that the the average average cost cost of of productionproduction byby GENCOs is lower thanthan thatthat of of IPPs.IPPs. ThatThat depends depends on on fuel fuel mix mix betweenbetween gas,gas, RFO,RFO, andand HSDHSD andand lossloss inin efficiencyefficiency (NEPRA alsoalso recountsrecounts governance issues).
13 Table 9 Cost of Generation per Unit
2012-13 Rs./KWhRsJKWh
Thermal IPPs Gas 6.67 Oil 20.93
Thermal GENCOs Gas 5.95 Oil 18.06 Coal 3.46
KESC Gas 4.42 Oil 17.26
Hydro 1.5
Nuclear 1.35
Import from IranIran 9.8
Source: NEPRA State of Industry ReportReport 2013,2013, Table 13 Page 62 for GENCOs, Table 1616 PagesPages 66 andand 67, weighted average for IPPS, Table 15 Page 65 for K-Electric (derived),(derived), hydrohydro costcost fromfrom NTDC’s NTDC's National National Power Power System System Expansion Expansion Plan,Plan, ChapterChapter 9, Page 14. 2011
With demand suppressed becausebecause ofof supply constraints, consumptionconsumption is aa functionfunction ofof production.production. Earlier studies studies determine determine growth growth in in energy energy use use by by a a coefficient coefficient of of 1.25 1.25 to each to eachpercent percent of GDP of GDP increase. Yet the comparison inin Table 1010 showsshows almostalmost nono relationship.relationship. ThisThis perhapsperhaps indicates firm level decisionsdecisions toto findfind solutionssolutions throughthrough outsourcingoutsourcing inputs oror reliancereliance onon alternatealternate energy energy sources. sources. Part ofof the lacklack ofof pattern maymay bebe becausebecause ofof line losses, where power is consumed, butbut not counted.
Table 10 Growth in GDP and Power Consumption
2008-09 2009-10 2010-11 2011-12 2012-13
Electricity ConsumptionConsumption GWhGWh 74,674 78,768 81,760 81,436 80,295
Electricity Consumption -2.90 5.48 3.80 -0.40 -1.40 Growth RateRate %%29 GDP growth raterate %% 0.4 2.6 3.7 4.4 3.6
Source: NEPRA StateState of Industry Report, Tables and Economic SurveySurvey ofof PakistanPakistan
The contents of this reportreport relyrely onon governmentgovernment published data. SometimesSometimes numbers do not add up. For example,example, Pakistan'sPakistan’s GDPGDP growthgrowth duringduring thethe fivefive years years 2008-09 2008-09 to to 2012-13 2012-13 hashas increased increased by a cumulative 15%, butbut power generationgeneration hashas increased by as little asas 4%4% over the same period.period. Pakistan’sPakistan's GDPGDP at factorfactor costcost in 2008-092008-09 waswas 8.68.6 trilliontrillion rupees.rupees. ItIt increased to 9.9 trillion rupees for fiscal 2012-132012-13 anan increaseincrease ofof 15%.15%. DuringDuring the samesame period,period, electricityelectricity generationgeneration increasedincreased from from 94,647 GWhGWh inin 2008-092008-09 toto 98,89498,894 GWh GWh in in 2012-13 2012-13 an an increase increase of of 4.5%. 4.5%. IfIf thethe elasticity between power consumptionconsumption andand GDPGDP growthgrowth raterate is 1.25 the numbersnumbers aboveabove showshow the oppositeopposite picture.
14 Even if elasticity is a unity, therethere isis 10.5% 10.5% lessless productionproduction of power thanthan the GDPGDP increaseincrease wouldwould suggest. One of aa number of explanationsexplanations that comecome to mind is line losses i.e. power thatthat goesgoes into the economy,economy, butbut is not counted. Part ofof thisthis gapgap couldcould bebe fromfrom increaseincrease inin offoff grid, self-generation power capacitycapacity though though it it isis unlikelyunlikely that that thatthat alone is the reason. It maymay alsoalso indicate that somesome assumptions usedused byby government for GDPGDP estimatesestimates are not supported by facts. Inevitably, Figure 5 shows anan unstable relationship betweenbetween GDPGDP growth rates andand growthgrowth inin powerpower production.
Figure 5 Growth of the Economy & Electrical Generation 2010-20132010-2013
6.00 5.5.0000 4.00 3.00 2.00 % GrowthGrowth in Consumption 1.00 GDP GrowthGrowth 0.00 I 2011 12 -1.00 _ 2010 2011 2012 20120133 -2.00 -3.00
Source: NEPRA NEPRA StateState of of thethe Industry Industry Report Report 2013, 2013, Table Table 29, 29, PagePage 8787 forfor electricity generation data,data, Economic Economic Survey of Pakistan 2012- 13, Table 1.1, Statistical Appendices,Appendices, Ministry ofof Finance for GDP
2.2 ConsumptionConsumption Pattern
Consumption by economic groupsgroups forfor the the yearyear 20132013 showsshows a a structural structural bias inin favourfavour ofof domestic use over the economicallyeconomically moremore efficientefficient industrial, agriculture,agriculture, oror commercialcommercial use.use. FigureFigure 66 givesgives thethe weighted distribution of of consumption byby economic groups.groups. TableTable 1111 givesgives the the distribution distribution by numbernumber of connections.connections. OneOne developmentdevelopment ofof concernconcern isis thethe declinedecline inin per-connectionper-connection powerpower useuse inin thethe PEPCO system.
Figure 6 Percentage share in total consumption weighted
15 Table 11 No of Connections with usage
Number of Consumption % ofof totaltotal KWh/Connection KWh/Connection Connections Rs/KWhRs/KWh Group connections 2008-09 2012-13 2013
Domestic 18,712,907 85.5 1750 1621 11.22
Industrial 296,842 1.4 63,3611 62,781 12.30
Agriculture 301,115 1.4 33,650 25,067 11.29
Commercial 2,550,781 11.7 1,835 1,738 12.30
Public lighting 8.927 0.04 45,313 44,271 13.44
Bulk Supply 4,233 -- 816,970 622,921 13.26
Others 795 -- 55,635 1,264,311
Total 21,875,600 100 3,227 2,971 11.15
Source: NEPRA NEPRA StateState of of thethe IndustryIndustry Report Report 2013 2013 TablesTables 58 and 62
Performance of distributiondistribution companies has not helped the crisis. Money receivedreceived fromfrom sales sales sustainssustains the electric power supplysupply chainchain andand bringsbrings returnreturn on investment in generation, transmission, and distribution. An important causecause ofof financial un-sustainability un-sustainability is is DISCO DISCO performance. performance. SoSo far,far, thisthis issue has refusedrefused toto gogo away. As Table 66 showsshows lineline losseslosses (difference(difference between between units units purchased,purchased, butbut not billed) alreadyalready high in 1990 increasedincreased duringduring that decade.decade. It declineddeclined somewhat in the decadedecade of 2000s, butbut remains high. There are otherother reasonsreasons tootoo thatthat contributecontribute toto DISCODISCO losses.losses. TheirTheir revenue suffers alsoalso from under recoveryrecovery of billedbilled amount.amount. Recovery ratesrates atat QESCO andand SEPCO areare particularly low.low. The difference among DISCOs forfor ratesrates charged from consumers, and especially for domestic users,users, is another sourcesource ofof revenue loss. K-Electric and TESCO chargecharge domestic usersusers an average of 11.22 andand 11.47 Rs/KWh respectively,respectively, whilewhile GEPCO,GEPCO, FESCO,FESCO, andand MEPCOMEPCO chargecharge almostalmost three rupeesrupees lessless perper unit.unit. WithWith salessales measuredmeasured inin billionsbillions ofof units, the lossloss of one rupeerupee perper unit sold is in billions. TableTable 1212 givesgives absoluteabsolute andand percentagepercentage lineline losses.losses. ItIt providesprovides alsoalso datadata on shortshort recovery from billedbilled amount.amount.
Financial loss atat the distribution stage has threethree components:components:
• Units sold are far below units purchased.Commonly referred to as line losses, theaverage for DISCOs isis 21.72%.21.72%. This This is is significantlysignificantly moremore than whatwhat technicaltechnical causes causes would would justify.justify.
• In addition toto above,above, billed amount do not all getget recoveredrecovered (the difference between amount billed and amount received).received). TheThe averageaverage forfor DISCOsDISCOs isis 10.4%10.4% (the inverse number ofof 89.6%89.6% in Col 7). ThisThis increases thethe combinedcombined lossloss toto 32.12%32.12% forfor fiscalfiscal 2012-13 2012-13
• Further toto above,above, average rates thatthat DISCOsDISCOs apply to the billedbilled amountamount forfor each unit ofof electricity varyvary greatly among them. While K Electric charged an average average of of 12.98 12.98 Rs/ Rs/ KWh inin 2012-13, DISCOsDISCOs charge charge muchmuch less.less. TheThe ratesrates range betweenbetween 9.449.44 forfor QESCOQESCO to
16 12.14 Rs/KWh. TheThe consumerconsumer basebase isis not the same forfor allall DISCOs.DISCOs. However, the differencedifference in consumptionconsumption patternpattern does not justify the widewide variance. FESCO, oneone ofof thethe betterbetter run DISCOs in terms of line losses and bill recovery, cannotcannot have a consumer profile tootoo differentdifferent from K Electric andand yet thethe differencedifference in averageaverage raterate is is Rs Rs 1.85/KWh. 1.85/KWh. FESCOFESCO sellssells 8,5868,586 GWh ofof power.power. This This raterate differential could bebe toto hide line losses or to benefit endend consumer consumer by charging rates in a lowerlower slab.
Table 12 Loss by Distribution Companies 2012-13
Total Total Units Total Units Total Amount Amount Rs./KWhRs /KVVh Purchased Units lost Received % Rs./KWhRs./KVVh • Billed DomesDomes-- GWh Sold GWh Million Recovery Average Million tic T GWh % Rs Rs
3,730,3, 730, PESCO 10,814 7,162 71,749 60,752 84.7 10.02 8.65 33.22%
349 TESCO 1,643 1,294 15,024 17,944 119.4 11.61 11.47 21.49%
810 IESCO 8,573 7,763 84,125 79,447 94.4 10.83 9.13 9.45%
713 GEPCO 6,633 5,920 63,705 62,588 98.2 10.76 8.28 10.75%
22,173, 173 LESCO 16,458 14,285 163,866 160,341 97.8 11.47 9.79 13.21%
10361,036, FESCO 9,622 8,586 95,606 94,711 99.1 11.13 8.62 10.76%
4,7474, 747 MEPCO 14,660 9,913 107,932 99,035 91.8 10.88 8.07 32.38%
13261,326, HESCO 4,850 3,524 33,944 27,560 81.2 9.63 6.00 27.33%
17801,780, SEPCO 4,506 2,726 33,023 17,673 53.5 12.11 10.42 39.5%
869 QESCO 4,681 3,812 36,007 11,461 31.8 9.44 9.14 18.5718.57% %
Total 17,533 82,440 64,535 704,981 631,512 89.6 10.92 10.60 DISCO 21.72%
4,8824, 882 KESCKE SC 15,824 10,942 142,063 120.560 84.9 12.98 11.22 30.85%
22,41522,415 Total 98,264 75,927 847,044 752,072 88.8 11.15 10.71 22.81%
Source: NEPRA NEPRA StateState of of IndustryIndustry Report Report 2013, 2013, TablesTables 59,59, 60,60, and 6161 Pages128 to 133
Overall, the PEPCOPEPCO systemsystem despatchesdespatches 82,44082,440 GWhGWh to DISCOsDISCOs (not including K Electric). At the distribution stage,stage, totaltotal loss loss incurredincurred is is the the sum sum of of aboveabove three components.components. TheThe total forfor the DISCODISCO system isis 21.72%21.72% line loss and 10.4%10.4% less recovery.
17 2.3 Circular Debt
A majormajor constraintconstraint to a sustainable powerpower sector is the circular debt.debt. ItIt isis nownow endemic to thethe supply chain of power. CircularCircular debt breaks flowflow ofof funds amongamong partsparts ofof thethe powerpower sector,sector, wherewhere eacheach stagestage owes moneymoney toto thethe oneone immediatelyimmediately upstream upstream resultingresulting in the end with the inabilityinability toto buybuy fuelfuel for power generation.generation. CircularCircular debt has grown as price of oiloil stayedstayed highhigh (until(until recent decline) andand as issues affectingaffecting each stage ofof the sector gained intensity andand became became everever moremore complex.complex.
Circular debt, at present,present, hovers hovers over over 300300 billionbillion RupeesRupees andand maymay bebe touchingtouching 400400 billion30..Circular Circular debt is caused by a combination of factorsfactors andand hashas kept rising for several years. It hashas becomebecome one of thethe causes for thethe power sector’ssector's diminished performance31. Circular debt grew rapidlyrapidly duringduring thethe years that oil oil pricesprices increased.increased. Its Its growth growth would would likely likely slowslow withwith decliningdeclining pricesprices inin worldworld oil prices. They would notnot gogo way way altogether altogether though though as as therethere areare otherother factors that contribute,contribute, whichwhich need to be addressed byby government. NEPRA gives aa breakdownbreakdown ofof thethe circularcircular debtdebt for recentrecent years32:
Table 13 Growth in Circular Debt Billion Rs
Primary Cause 2008 2012
Brought forward from previous year 145 538
Non-collection 53 101
Delay in determination and notificationnotification of of tarifftariff -- 72
Fuel price adjustment -- 33
Difference betweenbetween DISCOsDISCOs claimsclaims andand disbursementdisbursement (36) 106
DISCOs lineline losseslosses higherhigher thanthan NEPRA permittedpermitted -- 23
Total circular debt 161 872
18 33 Slippery SlopeSlope
Slippery Slope: How policy and incentives affect the electric powerpower sectorsector
In June 2013,2013, thethe governmentgovernment estimatedestimated anan increase increase of of 1700 1700 MWMW inin powerpower supply, resulting fromfrom settling, in most part, the outstanding circularcircular debt. IPR is not troubled thatthat government'sgovernment’s estimateestimate was significantly aboveabove whatwhat itit should should have have been. been. Supply Supply may may have have spiked, spiked, by by 700700 MWMW atat best,best, andand inevitably slipped again. The worrying factfact isis thatthat government considered thatthat a one-timeone-time reduction of circularcircular debt would alone remove thethe choking pointspoints thatthat affectaffect supply. The underlying cause ofof circular debt is the inabilityinability ofof the powerpower sector to recover its cost. WithoutWithout removing rootroot causes,causes, thethe circular debt was set to climb up again. It is currently overover 300 billion rupees.rupees. Some sourcessources estimateestimate it to be as high asas 500500 billion.billion.33
A number of issuesissues encumber the power supply chain. These are embeddedembedded in the policypolicy framework, in government'sgovernment’s approach to resolving thethe crisis, andand the governance andand regulatory framework.
Whereas issues exist with thethe entireentire power power supplysupply chain,chain, repeatedlyrepeatedly governmentsgovernments havehave focusedfocused on generation alone. Transmission and distribution issuesissues equallyequally affectaffect powerpower supply, but suffersuffer forfor want of attention. InIn fact,fact, distribution'sdistribution’s rolerole inin collectingcollecting revenue at thethe pointpoint ofof serviceservice delivery is what lubricates the systemsystem andand makesmakes investmentinvestment possible.possible. Revenue leakageleakage atat the distributiondistribution stage contributes toto thethe un-sustainabilityun-sustainability of of thethe sector. sector. ThisThis chapterchapter looks looks atat how how policypolicy affects the power sectorsector andand incentivizes behaviour. It reviews:
• Government’sGovernment's policy to to attract attract privateprivate investment and itsits deleteriousdeleterious effecteffect
• Priorities in public investment: Hydropower, GENCOs,GENCOs, andand TransmissionTransmission andand Distribution
• Policy onon allocationallocation of domesticdomestic gasgas toto thethe power sector
• Weak state institutionsinstitutions reflected reflected in in policy policy formulation formulation and and implementation, implementation, lack lack of of capacity capacity to manage the transition fromfrom governmentgovernment toto privateprivate powerpower production
• Distortions in the tarifftariff policypolicy and inin targetingtargeting of of subsidy:subsidy: ThisThis alongalong withwith poorpoor governancegovernance (at DISCOs andand by government)government) createscreates thethe circularcircular debt and a source of supplysupply constraintsconstraints
19 3.1 The fetishfetish forfor generation:generation: the privateprivate power policy 1994
An apparent magicalmagical potencypotency of increased generation has capturedcaptured thethe imaginationimagination ofof decisiondecision makers. It manifestsmanifests itselfitself in thethe manymany powerpower policies announcedannounced inin thethe lastlast two decadesdecades thatthat are almost all about generation ofof power. TodayToday too,too, all all current current solutionssolutions dealdeal withwith generationgeneration including the presentpresent panaceapanacea ofof Chinese power plants.plants. OfOf late,late, PakistanPakistan has heldheld aa numbernumber ofof investorsinvestors conference aimedaimed toto attractattract generation generation capacity. capacity. Investment in electric electric power power does does not flow flow to to Pakistan becausebecause ofof the securitysecurity situationsituation andand particularly particularly because because of of concern concern forfor costcost recovery,recovery, despite the current attractiveattractive powerpower policy.policy. WhileWhile attractingattracting investmentinvestment is important, it is equally necessary that governmentgovernment addressaddress the the causes causes of of cost cost recovery.recovery. These are manifold and include most issues discussed inin thisthis paper. Government isis notnot veryvery wise wise to to persist persist with with a a tried tried strategy strategy thatthat hashas not worked. InIn fact,fact, thethe strategystrategy has caused great harm toto thethe powerpower sector.
GoP mademade a major policy shiftshift in 1994, when it announced aa policypolicy for private powerpower production34. The policy waswas veryvery successfulsuccessful in in attractingattracting large-scalelarge-scale investments.investments. As As a a result,result, Pakistan was electric surplus for several years (though power breakdowns did not entirely stop).
The policy alsoalso changed Pakistan’sPakistan's electricelectric powerpower landscape.landscape. BecauseBecause ofof thethe policy,policy, costcost ofof powerpower increased exponentially.
In essence, the policy putput investorsinvestors inin aa cocoon that that eliminatedeliminated riskrisk andand guaranteedguaranteed returns eveneven when no electricity waswas produced.produced. ItIt diddid soso byby ensuring ensuring aa captivecaptive marketmarket andand giving certaintycertainty about supply and cost of fuel. TariffTariff ratesrates includedincluded repaymentrepayment ofof thethe project'sproject’s debtdebt obligationsobligations andand a guaranteed highhigh raterate ofof returnreturn on on equity.equity. TheThe consumerconsumer (failing(failing which the state) inin effecteffect assumed debt obligations andand return onon equity.equity. TheThe policypolicy exemptedexempted power producers fromfrom allall taxestaxes and allowed themthem to choosechoose fuel source, technology, andand project location. SuchSuch aa policy was hardly going toto fail. The combined effecteffect ofof these these andand choice ofof fuel fuel and and technologytechnology was was toto makemake thethe sector unsustainable.
Assurance of returns, mademade thethe investor investor immune immune to to their their production production cost. cost. They They could could choose the most expensive fuel and yet be profitable. Similarly, Similarly, they they could could have have inefficient inefficient technology technology and and invest invest on on a less than economiceconomic scale with no concern for thethe bottom line. The country continues to suffer from the consequencesconsequences ofof thethe 19941994 powerpower policypolicy (See(See BoxBox 2).
The objectives ofof the1994the1994 powerpower policy policy were were to to eliminate eliminate shortage shortage (estimated(estimated then at 20002000 MW)MW) andand to increase access to electricity in the country.country. ItIt estimatedestimated additional additional capacity capacity need need of of 54,00054,000 MWMW by 2018. Today, thethe policy meetsmeets none of these lofty goals.
Compared to a shortage of 2000 MWMW in in 1996, 1996, estimated estimated peakpeak timetime gapgap betweenbetween supplysupply andand demand today is over 4,500 MWMW (Table(Table 7) 7) and and hashas remainedremained atat around 5,0005,000 for most recent years. TheThe National Power Policy 20132013 refersrefers toto aa ‘yawning'yawning supply-demandsupply-demand gapsgaps …... leading to gaps of up to 4,500-5,000 MW'MW’35. AccessAccess toto electricity hashas not improvedimproved in thethe countrycountry (US(US government'sgovernment’s EIAEIA estimates moremore than thirtythirty percent percent population population without without electricity electricity access) access) whilewhile itsits provisionprovision to those with access has worsened with long hours of loadload management.management.
20 Box 2 PowerPower PolicyPolicy 1994: 1994: Created More Problems Than itit Solved
If the aim ofof the 19941994 Power Policy waswas toto ensureensure reliablereliable supply of electricelectric power,power, its its implementationimplementation hadhad thethe opposite effect. RatherRather than rid thethe countrycountry ofof power shortage, it transformed the the sector sector to to increaseincrease cost cost ofof power. (The 2002 policy addressesaddresses some of thethe issues). The policy providedprovided investors:investors: • The choice ofof fuel fuel source, source, technology, technology, and and site site ofof the the generation generation plantplant • Assured returns through: ➢ A long-term commitment by thethe state owned utility to purchase power.power. Tariff had twotwo components. .■ Capacity Price: Monthly payments to cover fixed andand maintenancemaintenance cost, cost, insurance insurance expense, expense, debt servicing, and a guaranteed ROE.ROE. TheThe purposepurpose ofof capacity price was to keep the 'profit‘profit insulated againstagainst variationsvariations in in the the quantum quantum of of energy energy purchased purchased by by WAPDA' WAPDA’36. .■ Energy Price was for thethe actualactual energy purchased with the price of fuelfuel aa ‘pass'pass through’through' item ➢ Tariff indexed to the USD exchangeexchange raterate ➢ A favourable debt-equity ratioratio that requiredrequired 20%20% equity only (though many projects brought in higher equity) ➢ The Private SectorSector EnergyEnergy DevelopmentDevelopment FundFund helpedhelped withwith financial financial close close of of project project ➢ Fiscal incentives included exemptionexemption fromfrom all all taxes:taxes: corporatecorporate tax,tax, importimport dutiesduties and surcharge, repatriation of of equityequity andand profits,profits, foreign foreign lenders lenders to to the the project project were were exempt exempt from from tax tax on on income income • Risks were minimized throughthrough a set of agreementsagreements guaranteed by the government: ➢ A long-term powerpower purchasepurchase agreementagreement (15-30(15-30 years) years) and and aa fuelfuel supplysupply arrangementarrangement (guaranteed by governmentgovernment ifif the sellerseller waswas statestate owned).owned). TheseThese agreementsagreements were under anan umbrellaumbrella Implementation Agreement signed with the government. ➢ Protection against force majeure,majeure, against change in tax rates, andand guaranteedguaranteed foreign foreign exchangeexchange for remittance ➢ WAPDA/KESC were were to to buy buy the the power power from from the the plant plant and and provideprovide thethe costcost forfor its its transmissiontransmission The policy allowedallowed cost cost plus plus returns, returns, at at guaranteedguaranteed rates for up to thirty yearsyears andand backed backed byby sovereignsovereign guarantee. ThisThis meantmeant the the investor investor could could choose choose anyany fuel fuel source source or or technology technology withoutwithout costcost oror efficiency efficiency considerations. By buildingbuilding debtdebt servicing intointo capacity payment, the statestate ownedowned utilityutility (WAPDA (WAPDA and KESC) essentiallyessentially assumed debt obligations. Capacity payment also guaranteed fixedfixed cost cost recovery recovery andand return onon equityequity whetherwhether oror notnot thethe generatinggenerating company company producedproduced electricity. These provisions meantmeant that:that: ➢ Over the life of thethe project, thethe government paidpaid farfar moremore inin realreal and nominal terms for private power thanthan if the investments werewere mademade inin WAPDAWAPDA runrun generatinggenerating plants. ThisThis is because of the cumulative effect of paymentpayment ofof interest interest on debt,debt, ROE,ROE, andand equityequity investmentinvestment37. ➢ Lack of concernconcern forfor sourcesource of of fuel fuel for for energy energy generation generation meant meant ever-enhancedever-enhanced fuelfuel andand generation cost for power. ➢ Lack of concernconcern forfor efficiencyefficiency of plant meantmeant that mostmost plantsplants were were on on an an uneconomical uneconomical scalescale andand were not planned to generate thethe maximummaximum possiblepossible power fromfrom aa givengiven investmentinvestment (as(as returnsreturns were guaranteed). Investment relied on single single cycle cycle turbines as as opposed opposed to the the more more efficient efficient combined cycle turbinesturbines38.
Additional capacitycapacity isis nowhere closeclose toto thethe targeted 54,00054,000 MW. PrivatePrivate power capacity inin the country is 8,978 MW. However,However, price price of of electricity electricity and and extent extent ofof shortageshortage havehave bothboth increasedincreased atat the samesame time.time. LiberalLiberal incentivesincentives attracted considerableconsiderable investment though additional generation
21 nowhere met expectations. AsAs the TableTable belowbelow shows, despite incentives the newnew policypolicy did not even help equal the scalescale atat whichwhich generationgeneration hadhad increasedincreased inin thethe previous previous decade decade (of(of thethe 1980s)1980s) when government was the sole investor in the powerpower sector.
Table 14 Growth in electric generationgeneration inin GWh GWh
1980 1990 2000 2010
GWh 14,512 36,348 63,400 89,732
%age growth over previous period 150 74 42
Absolute increase in GWh 21,836 27,052 26,633
Source: EnergyEnergy InformationInformation Administration,Administration, USUS Government,Government, ElectricityElectricity Production in Billion KWhKWh"39 (Data does not agree with NEPRA andand GOP numbersnumbers for powerpower productionproduction but but consistentconsistent inin methodmethod andand agrees with WB datadata))
On the other hand,hand, tariffstariffs increasedincreased considerably.considerably. 'Between‘Between 1990 andand 2010,2010, tariffstariffs inin rupeerupee terms have climbed up approximately 530% for thethe median domestic consumer'consumer’40. Because of subsequentsubsequent increase inin tarifftariff sincesince 2010,2010, thethe samesame numbernumber in in 2014 2014 isis 1680%. 1680%. SeeSee Table 15.
Table 15 Average Tariff Changes Rs/KWh
Nominal
CAGR %*%* 1991 2000 2005 2008 2013* 08-13
Domestic 0.63 2.33 3.19 4.39 11.22 14 21
Commercial 2.17 7.03 7.24 8.73 18.12 10 16
Industry 1.06 4.16 4.45 5.69 12.30 12 17
Agriculture 0.43 2.31 3.11 4.08 11.29 16 23
Real
Domestic 1.39 2.33 2.50 2.65 4
Commercial 4.81 7.03 5.68 5.26 0.5
Industry 2.35 4.16 3.49 3.43 2
Agriculture 0.95 2.31 2.44 2.46 6
*2013 tarifftariff rates are basedbased onon weighted average of actual charged Source: PIDE PIDE Monograph Monograph Series,Series, MaAfia Malik, Malik, Power Power Crisis Crisis in in Pakistan: Pakistan: A CrisisA Crisis in in Governance, Governance, 2012, 2012, and and NEPRA NEPRA SOI SOI Report Report 2013 2013
The policy leftleft key organizations bruisedbruised fromfrom itsits effects. effects. In In 2001-02, 2001-02, WAPDAWAPDA paid RsRs 57.85 Billion as capacity chargescharges alonealone (USD(USD 11 Billion)Billion)41. As capacitycapacity chargecharge isis fixed, thisthis alsoalso includedincluded paymentpayment for electricity thatthat WAPDAWAPDA diddid notnot buybuy andand thethe power companiescompanies diddid notnot generate.generate. Variable charge for electricityelectricity purchasedpurchased waswas additional.additional. ThisThis waswas oftenoften thethe casecase duringduring thethe firstfirst tenten yearsyears sincesince thethe policy camecame intointo effecteffect whenwhen capacitycapacity waswas in excess of demand.demand. Payment ofof USD 1 Billion eacheach year
22 as capacity charges weakenedweakened WAPDAWAPDA financially.financially. ThisThis moneymoney couldcould havehave funded severalseveral hundredhundred MWs ofof newnew hydropowerhydropower projects projects each each year.year. AtAt thethe samesame time, WAPDA all, all, but but stalledstalled its 'access‘access to electricity’electricity' programme.
SDPI’sSDPI's above studystudy alsoalso questionsquestions transparencytransparency in approval of IPPIPP projects andand namesnames a number of persons in high high positions positions who who influenced influenced decisions decisions in inthe thenthe andthen immediately and immediately succeeding succeeding governments42.
Initial coddlingcoddling of investorsinvestors isis justifiedjustified inin timestimes whenwhen powerpower shortageshortage isis extreme.extreme. WhereWhere Pakistan'sPakistan’s policy makersmakers fellfell shortshort waswas notnot toto treattreat thethe policypolicy as a firstfirst step step and and progressively progressively move move to to a amore more market drivendriven approach.approach. ItIt failedfailed alsoalso becausebecause ofof a lack of concernconcern withwith sustainabilitysustainability (fuel mix and technology) andand fromfrom reportedreported conflictconflict of interest.interest. DuringDuring those years,years, PakistanPakistan alsoalso diddid notnot pursuepursue hydropower projectsprojects sufficiently,sufficiently, itsits traditional traditional source source of power of (exceptpower (except for Ghazi for Barotha). Ghazi TheBarotha). The decade ofof thethe ninetiesnineties saw a shift inin hydro'shydro’s shareshare inin totaltotal generation generation from from 45% 45% inin 19901990 toto 25%25% in 2,000.
The power policypolicy of of 2002 2002 introduced introduced three three tariff tariff determinationdetermination methods. These were upfrontupfront tariff, cost plus, andcompetitive bidding.bidding. It alsoalso provides for anan electricity market.market.
23 Box 3 Not the killer app you thought it was:was: The National Power Policy 20132013
Despite the ills it hashas leftleft behind,behind, nono oneone wouldwould dispute that thethe 19941994 powerpower policy hashas had an impactimpact on Pakistan’sPakistan's powerpower sector.sector. The 1994 policy’spolicy's mostmost lastinglasting andand pernicious effect isis thatthat it has forever defined thethe framework for powerpower reforms.reforms. TheThe NationalNational PowerPower PolicyPolicy 2013 2013 is is a a casecase inin point.point. AsAs aa twentytwenty firstfirst centurycentury reincarnation ofof the 19941994 power policy, its its solutionssolutions areare nono differentdifferent fromfrom thethe problemsproblems itit setssets toto addressaddress in the first place. place.
The visionaries of 2013 taketake off fromfrom wherewhere thethe 1994 policy,policy, and and itsits variationsvariations of 19981998 andand 2002, left.left. PrivatePrivate investment isis thethe panaceapanacea for for powerpower shortage.shortage. Government'sGovernment’s job job isis to 'make‘make policy whilewhile privateprivate sectorsector invests’invests' it evangelizes when allall aroundaround there isis evidenceevidence toto thethe contrary.
1994 created an impact because it conceptualizes conceptualizes andand lists the measures measures necessary necessary for for success. success. It defines defines objectives, providesprovides anan implementationimplementation structure, detailsdetails tariff tariff policy policy andand fiscalfiscal incentives. incentives. An An investor investor could could look atat that documentdocument and getget aa fairfair ideaidea ofof what toto expectexpect from thethe investmentinvestment and more importantly what to do next.
2013 does nono suchsuch thing.thing. InIn its preamble, it gives away its real intentionintention ofof remaining a policypolicy on paper. It begins with the claim that 'This‘This boldbold strategy willwill set PakistanPakistan on on a a trajectory trajectory of of rapidrapid economic economic growth and social development’.development'. With With equal equal pride pride it it statesstates thatthat 'This‘This document does notnot elaborateelaborate on issuesissues surroundingsurrounding operational strategy, nor does it lay out detailed implementation plans’plans' ensuring that thethe policypolicy will gather dust forever. InIn the more than one year since its announcement, it must have accumulated quiet a pile. In fairness to the document, it touches all thethe areas that impedeimpede powerpower supply, but fails toto thinkthink through just how the policypolicy wouldwould becomebecome operational operational andand whenwhen itsits implementation wouldwould begin.
In the Policy,Policy, contradictionscontradictions abound.abound. FaithFaith inin marketsmarkets is paramount. AtAt the samesame time,time, thoughthough governmentgovernment will ensure that allall gasgas goes goes toto powerpower alone. The policy hashas no links with other government policies or plans. Some plans of even thethe Water and PowerPower MinistryMinistry gogo unnoticed. It doesdoes not connectconnect with NTDC'sNTDC’s National Power Enhancement Plan oror government'sgovernment’s environmentalenvironmental policy.policy. The The 2013 2013 policy policy 'will‘will overrideoverride allall policiespolicies and end subsidy'subsidy’ it says.
In fact, in aa numbernumber ofof ways,ways, soon after it camecame into force, thethe government wentwent aheadahead and did exactly the opposite of whatwhat the policy counsels.counsels. ItIt increasedincreased gas supply for fertilizerfertilizer at the expenseexpense ofof power, has held no one accountable for line loss of electricityelectricity or of gas,gas, andand has made no effort for energy conservation. The policy gives governmentgovernment aa rolerole inin infrastructure,infrastructure, but the PSDP takes no heed. There are many other instances of the left hand not knowing whatwhat thethe right hand does.does.
Long onon rhetoricrhetoric and short on action, the policy achieves for thethe power sectorsector whatwhat governments have done in recent years: an emphasis on words, butbut with no results.results.
24 3.2 Underinvestment inin Hydropower, GENCOs,GENCOs, and T&D
3.2.1 HydropowerHydropower Projects
While the nation isis consumedconsumed byby thethe lossloss andand inconvenience inconvenience fromfrom powerpower shortage,shortage, government'sgovernment’s PSDP allocations dodo notnot show similar urgency. GOP’sGOP's blaséblase approach to public investment in power allows continuitycontinuity of thethe distortions embedded in the sectorsector byby thethe powerpower policypolicy 1994. Public investment shouldshould havehave correctedcorrected issuesissues ofof fuel mix andand efficiencies in production,production, transmission, andand distribution. In the event,event, it hashas maintainedmaintained benign benign neglect.neglect. LetLet us seesee how it invests.
WAPDA has has aa pipelinepipeline ofof twenty twenty hydropower hydropower generation generation projectsprojects underunder execution (including(including studies)studies) with a combinedcombined generation capacitycapacity ofof 24,70024,700 MWMW43. Estimated costcost for these projects is about 3.5 trillion rupees. Of this amount, estimated foreignforeign assistance isis 1.61.6 trillion rupees oror 42%.42%. PlanningPlanning Commission’sCommission's PSDPPSDP 2014-152014-15 shows shows that that seven of twenty projects (worth 7346 MW, not counting 4,500 DiamerDiamer BhashaBhasha that isis alsoalso aa water water storage storage dam dam project) project) were were approved approved forfor executionexecution fivefive years or more ago. ExpenditureExpenditure on all twenty projects up to June 20142014 was 211 billion rupeesrupees leaving a throw forward of over 3.23.2 trilliontrillion rupeesrupees (the balance amount needed to complete the projects not taking inin toto accountaccount costcost overruns).overruns). WithWith anan allocation allocation ofof 8181 billionbillion rupeesrupees forfor fiscalfiscal 2014-15 2014-15 for for these twenty projects,projects, the balancebalance workwork willwill take aa fancifulfanciful fortyforty years toto complete.complete. Admittedly, thethe picture is skewed becausebecause of DiamerDiamer BhashaBhasha Dam and Bunji Hydropower thatthat costcost 900 billion and 1.5 trillion rupees respectively, but these also have been allocated funds each year.
Three aspects of the government'sgovernment’s budget for power sectorsector raiseraise questions:
• Rather thanthan prioritizeprioritize andand accordingly accordingly allocateallocate the limitedlimited availableavailable funds,funds, eacheach oneone of the twenty projects receives somesome funding.funding. InIn fact,fact, BhashaBhasha thatthat hashas littlelittle chancechance ofof completingcompleting anytime soon has thirty percentpercent ofof totaltotal budgetbudget forfor hydropowerhydropower projects, most of it for land acquisition. Half of Diamer Bhasha'sBhasha’s estimatedestimated cost cost ofof 1212 billionbillion USDUSD isis forfor civilcivil works for water storage and training. OnOn thatthat scale, scale, DiamerDiamer BhashaBhasha cannotcannot bebe implementedimplemented without donor support. So far, there isis nono evidenceevidence ofof financing from from eithereither the the ADB ADB or or the the WB. WB. TheThe money couldcould bebe betterbetter invested to bring a smallersmaller hydrohydro oror aa GENCOGENCO projectproject toto completion.
• As the powerpower sector cannot recoverrecover cost, NTDC andand DISCOs dodo notnot generategenerate resources to spend onon developmentdevelopment and systemsystem upup gradation.gradation. Consequently, Consequently, T&DT&D developmentdevelopment lags needs. It is important thatthat government government steps steps in in to to fill fill the the investment investment gap. gap. Much Much of of thethe PSDP PSDP provisions forfor thethe powerpower sector sector are are PEPCOPEPCO funds funds".44. OfOf a totaltotal PSDPPSDP rupeerupee amountamount ofof 166166 billion rupees for the power sector, GOP fundsfunds are less than 3030 billion,billion, aboutabout 18%.18%. Out ofof T&D’sT&D's 8787 billionbillion rupeesrupees allocationallocation for 2014-15,2014-15, GOPGOP funds funds areare lessless thanthan 15 billion45. We knowknow too thatthat actual releasesreleases wouldwould bebe much less.
• If peak demand shortage requiresrequires anan additional additional 5,000 5,000 MW MW capacitycapacity (refer(refer Table 7), why hashas government a project portfolio ofof 24,70024,700 MW? MW? Rather Rather than than spreadspread thinthin limited resources on twenty projects,projects, governmentgovernment wouldwould dodo well to prioritize projectsprojects thatthat yield yield 5,000 5,000 toto 7,0007,000 MWMW quickly andand ensure their earlyearly completion.completion. Each year government may phase in new projects to account for growth inin demand. In fact,fact, thethe governmentgovernment hashas addedadded sevenseven newnew projectsprojects in this year'syear’s budgetbudget withwith aa combinedcombined cost ofof 1.51.5 trillion,trillion, butbut itit hashas made no change inin the budget allocation fromfrom whatwhat itit was lastlast year.
25 • The government'sgovernment’s development budgetbudget doesdoes notnot reflectreflect the the repeated repeated statements statements of noble of noble intent aboutabout resolvingresolving thethe powerpower crisis.crisis. Overall,Overall, federalfederal developmentdevelopment budgetbudget 2014-152014-15 is 525 billion rupeesrupees a slight declinedecline from last year'syear’s 542542 billion,billion, but anan increaseincrease of of 25%25% fromfrom actual release. This year too, actual release would likely bebe lessless thanthan budget. Within this year'syear’s budget, the highesthighest allocationallocation goesgoes not to the power sector, but to highways. National Highway Authority’sAuthority's allocation for the year is 111111 billion rupees overover twenty-one percent ofof the total PSDP.PSDP. TheThe powerpower sector, at 63.663.6 billion has a share ofof 12% onlyonly inin thethe totaltotal budget. Rupee allocation for highways increased byby 138% from 3232 billionbillion toto overover 7676 billionbillion (the(the restrest is foreignforeign aid).aid). AllocationAllocation forfor powerpower hashas growngrown by 23%23% (primarily because of investment in transmissiontransmission lineslines toto dispatchdispatch powerpower from coal projectsprojects beingbeing setset upup with the helphelp ofof China). If fund releases follow the the patternpattern of the past (more(more for roads and lessless forfor others), iniquity between the twotwo sectorssectors wouldwould likelylikely increase.increase. AlreadyAlready thethe developmentdevelopment budgetbudget envelope is considerably belowbelow requirement.requirement. In addition, muchmuch ofof budgeted allocations go to politically prioritizedprioritized projects, and fund releases are belowbelow budget. On toptop ofof all all that, that, releasesreleases skew further thethe amountamount spentspent onon development development inin favourfavour ofof politicalpolitical priorities. Planning Commission’sCommission's IntegratedIntegrated Energy Model of 20112011 assessesassesses capacity increase of about 4,0004,000 MW annuallyannually to meet shortage and growthgrowth needsneeds betweenbetween 20112011 and 2030.2030. Depending on thethe fuel mix, thisthis would meanmean an increase of about 16,000 GWhGWh ofof generation generation annually. annually. PresentPresent rate ofof increase isis nowherenowhere nearnear thethe target.target.
Of thethe projectsprojects inin thethe executionexecution pipeline,pipeline, thethe averageaverage completioncompletion periodperiod ofof 15 15 years years hardly hardly demonstrates demonstrates commitment. Neelum Jhelum HydroHydro PowerPower ProjectProject (969(969 MW) isis aa case in point. The project began some ten years ago.ago. Its costcost waswas revisedrevised inin 2013.2013. WithWith expenditureexpenditure inin excessexcess ofof 125125 billion rupees, it still hashas aa throwthrow forwardforward ofof almost 150 billion rupees.rupees. InadequateInadequate budget and slowslow releases have brought the project to a virtual halt.halt. ThisThis wouldwould likely lead to further cost increase.
3.2.2 GENCOsGENCOs
GENCO performanceperformance hashas declined significantly.significantly. IssuesIssues thatthat affect affect GENCOs GENCOs include: include:
• Reduction inin installedinstalled generation capacity
• Fall in operating efficiencyefficiency
• High outages and low availabilityavailability ratio
• Supply of inferiorinferior qualityquality fuels asas well asas incorrect records ofof quantitiesquantities
Ageing equipmentequipment and O&MO&M backlog havehave reducedreduced GENCOGENCO capacity.capacity. FromFrom anan installed capacity of 4,720 MW (source(source NEPRA),NEPRA), GENCOsGENCOs producedproduced 19,44319,443 GWhGWh electricityelectricity inin fiscal 2008-09. 2008-09. TheirTheir output forfor 2012-132012-13 fellfell toto 13,23513,235 GWh.GWh. AccordingAccording to WAPDA, GENCOsGENCOs installed installed capacity is 4,829 MW, itsits de-rated capacity capacity is is 3,580, 3,580, and and maximum maximum available available in in 2013-14 2013-14 was was 3,250 3,250 MW MW (67% (67% of of installed capacity,capacity, IPPsIPPs availableavailable capacity capacity was was 61%). 61%). ForFor mostmost GENCOs,GENCOs, operatingoperating efficiencyefficiency levels levels are wellwell belowbelow design efficiencyefficiency (see(see TableTable 17) 17)46.With good planningplanning andand execution, it is possiblepossible to bring back the slack reasonably quickly.quickly. Governments though havehave shownshown inabilityinability toto dodo so.
26 Table 16 Skewed Priorities Rs. Billion
Balance amount, if whole Spent until Allocation Years to corn-com- Total Cost budget released by June June 2014 2014-15 plete 2015
Total Power 4,955 564 200.58 4,190 21
Hydro 3,459 212 81.4 3,165.6 15
GENCOs 561.6 111.6 23.4 426.6 18
Transmission 737.4 120 58.7 558.7 9.5
Distribution 202.5 120.3 36.9 45.3 1.5
Source: GOP, GOP, PlanningPlanning Commission Commission, PSDP PSDP 2014-15 2014-15 andand according according toto NTDC'sNTDC’s National Power System Expansion Plan 2010-20302010-2030 and Planning Commission'sCommission’s Integrated EnergyEnergy ModelModel
Table 17 Declining GENCO EfficiencyEfficiency LevelsLevels
Capacity Design Efficiency 2013 EfficiencyEfficiency Availability GENCO UnitsUnits MW % % %
GENCO I 144 32.14 30 37
TPS Jamshoro 630 33.28 26.6 21.6
TPS Jamshoro 250 37.7 32.7 35.7
TPS Guddu Units 1&21&2 110 37.5 25.4 N/A
TPS Guddu Unit 3 210 37.5 27.2 N/A
TPS Guddu Unit 4 210 37.5 27.2 N/A
First CCPP 300 44.36 32.69
Second CCPP 300 44.36 37.58 53 to 70 Third CCPP 415 48.2 36.32
GENCO III 210 36.77 NA 38 TPS Muzaffargarh 720 34 29 38
NGPS Multan 195 33 22 3
GTPS FaisalabadFaisalabad 244 30 30 2.6
SPS Faisalabad 66 32 26.35 19.4
Source: NEPRA NEPRA StateState of of IndustryIndustry Report Report 2013,2013, PagesPages 14-1514-15
Where they have taken action,action, asas inin thethe Nandipur Nandipur Power Power PlantPlant (GENCO (GENCO III),III), governancegovernance failure resulted in highhigh costcost and timetime overruns.overruns. UntilUntil 3030 JuneJune 2014,2014, GovernmentGovernment hashas spentspent overover 5656 billionbillion rupees on Nandipur withwith nono addition toto power generation so far.
27 For years, GENCO rehabilitationrehabilitation was at aa standstillstandstill pending pending privatization privatization of of WAPDA's WAPDA’s unbundled thermal units.units. ShortShort ofof privatization,privatization, governmentgovernment put investmentsinvestments onon hold.hold. In thethe event,event, GENCOs'GENCOs’ equipment becamebecame obsolete and theirtheir efficiencyefficiency declined. declined.
This policy seemsseems to have changed,changed, in principle.principle. GovernmentGovernment nownow has aa portfolioportfolio ofof 561561 BillionBillion Rupees for nine GENCOGENCO rehabilitation projects.projects. As with hydropower,hydropower, here too, government may prioritize and focusfocus on selected projects for early completion. TheThe ninenine projects with a capacitycapacity ofof 5,600 MW havehave aa throwthrow forward of 450 billionbillion RsRs oror eightyeighty percent of total cost. Average completion time for these projects is 18 years. For one,one, allocation for thethe year is too low forfor thethe investment to have any effect. In addition, GENCO projectsprojects alsoalso seemseem toto bebe ladenladen byby costcost increase. increase. ItIt isis importantimportant to increase allocation andand to have a ranking ofof projects between hydrohydro andand thermalthermal in the publicpublic sector and allocate prioritized funding so that somesome projects begin toto contributecontribute to thethe grid early.
3.2.3 TransmissionTransmission andand DistributionDistribution
With decision makersmakers focused onon increaseincrease in power generation, T&D oftenoften hashas played catch up. NEPRA notesnotes thatthat 'transmission‘transmission sector sector provedproved toto be the bottleneck at thethe timetime of of induction ofof almost every new generationgeneration facility’facility'47. NEPRANEPRA emphasizesemphasizes expansionexpansion andand upup grading grading transmissiontransmission capacity.capacity. According toto NEPRA,NEPRA, new new hydro hydro capacity capacity in in remote remote areas areas (Dasu)(Dasu) andand longlong distancedistance transmissiontransmission ofof coal power (Gadani(Gadani toto Lahore),Lahore), requirerequire Extra HighHigh VoltageVoltage lines (or perhaps highhigh voltagevoltage DCDC lines) and commensuratecommensurate grid stations.stations. WhileWhile governmentgovernment focuses onon generation,generation, a constraint onon powerpower supply is transmission capacity.capacity. AccordingAccording SBPSBP AnnualAnnual Report 2013-14, thethe transmissiontransmission system cannot reliably handle moremore than 12,50012,500 MWMW of generationgeneration capacity. SBPSBP considersconsiders transmissiontransmission a greater constraintconstraint on on powerpower supplysupply thanthan generation generation (though (though NEPRA NEPRA does does notnot clearlyclearly observeobserve so)so)484s..
Below targettarget performance of powerpower transmissiontransmission and highhigh lineline losseslosses areare evidenceevidence of endemic under-under- investment in TT & D. PlanningPlanning is an issue. A number of lineslines andand circuitscircuits asas well asas transformerstransformers are either overloadedoverloaded or underutilizedunderutilized°.49. TransmissionTransmission lineslines tripping,tripping, bothboth plannedplanned andand forced,forced, have increased. For 500 kV lineslines onon thethe PEPCO system, forced outagesoutages increasedincreased fromfrom aa totaltotal durationduration of 1,789 minutesminutes in fiscal 2008-09 2008-09 toto 91,81991,819 inin 2012-132012-13 anan increaseincrease ofof 5151 times.times. PlannedPlanned outages outages too increased 67 times from 2,278 minutesminutes in 2008-092008-09 to 152,515 minutesminutes50. Government'sGovernment’s effort atat power generationgeneration maymay stallstall because ofof belowbelow par par transmission transmission arrangements.arrangements.
Turning to distribution, governmentallocationgovernmentallocation suggests that DISCODISCO projects have an encouragingencouraging average completion periodperiod ofof one one and and a a halfhalf years.years. ThisThis isis misleadingmisleading asas aa number of projectsprojects thatthat began ten yearsyears oror soso agoago have significant cost cost overruns.overruns. ThatThat leaves leaves a anegative negative throw throw forward forward for for these projectsprojects and bringsbrings downdown averageaverage completioncompletion period. Total allocallocationation forfor transmissiontransmission and distribution areare wellwell belowbelow estimated needsneeds ofof NTDC’sNTDC's NationalNational Power ExpansionExpansion Plan.Plan.
28 3.3 KeepingKeeping fuel cost low:low: allocation of gas forfor the power sector
The National Power Policy 20132013 stipulates stipulates that governmentgovernment willwill "Divert“Divert gas to the power sector andand ensure firm supply supply toto thethe power power plants."plants.”51 TheThe Policy'sPolicy’s strategy forfor affordableaffordable power also suggests conversion of oiloil plantsplants to gasgas andand reducing gas for CNG andand UFG52. AsAs itit turnedturned out,out, thethe governmentgovernment did not follow itsits own Policy forfor gasgas allocation.
Before thethe Policy camecame intointo effect,effect, the the ECCECC alsoalso decided,decided, in in January January 2013, toto prioritize gas supply for the power sector.sector. In In middle middle 2013 2013 however, however, governmentgovernment changed its direction. This is when an upsurge in gasgas allocationallocation forfor fertilizer occurred.occurred. The power sector received 10%10% lessless gasgas inin thethe first nine months ofof fiscal ofof 2013-142013-14 comparedcompared to the samesame periodperiod previousprevious fiscalfiscal year. year. By By contrast, contrast, gas gas supply to the fertilizer industryindustry increasedincreased byby 26%26%53. Given thatthat feedstockfeedstock for fertilizerfertilizer has aa lowerlower price, volume increaseincrease may be higher.
In the middlemiddle of a power crisis,crisis, supplysupply ofof gasgas fellfell further. further. InIn fact,fact, thisthis has been the trendtrend forfor somesome years (see Figure 2). This change in fuel mix stymied power generation.generation.
The government must havehave aa goodgood reason toto dodo so though the logiclogic of itit is lost on IPR.IPR. ThereThere are two views on useuse of gasgas betweenbetween fertilizerfertilizer and power. Planning Commission'sCommission’s Integrated EnergyEnergy ModelModel estimates high economiceconomic lossloss fromfrom diversion diversion of of gas gas supply supply to to power. power. It It states states thatthat lessless fertilizerfertilizer affects agriculture productionproduction and lowerslowers GDP54.
IPR takes a differentdifferent position. FertilizerFertilizer isis tradabletradable andand can be imported. IPRIPR estimatesestimates thatthat the economic costcost ofof shifting shifting gas gas supplysupply fromfrom powerpower to to fertilizer fertilizer farfar exceedsexceeds thethe benefitsbenefits resultingresulting from from profitability of of the the fertilizer fertilizer industry industry and its and contribution its contribution to agriculture. to agriculture. Just the savings Just fromthe savings from foreign exchangeexchange spentspent on import of furnacefurnace oiloil comparedcompared withwith importimport ofof fertilizer fertilizer showsshows thatthat it costs over 50% moremore to to import import the the equivalentequivalent fuelfuel forfor generation generation plantsplants thanthan it would to import fertilizer. That thisthis addsadds toto thethe cost cost of of powerpower toto consumersconsumers andand thethe consequentconsequent effecteffect on productivity is an added burden onon thethe economy.economy.
Supply of gasgas toto powerpower generationgeneration companies isis aa key reciperecipe toto helphelp utilizeutilize their capacity more fully. Government would do well toto revisit its policypolicy of re-allocation of gasgas supply from the power sector to fertilizer production. Our analysis shows that anan increaseincrease inin gasgas supplysupply byby 400400 mmcfdmmcfd will resultresult in over 2000 MWMW incrementalincremental capacitycapacity utilizationutilization (an(an additionaladditional 10% shareshare in total gasgas produced).produced). It willwill alsoalso helphelp reducereduce averageaverage productionproduction cost.cost. PowerPower generationgeneration fromfrom gasgas costscosts Rs.Rs. 66 toto 7/KWh7/KWh and Rs. 15 to 18/ KWh fromfrom furnacefurnace oil.oil. WithinWithin thethe sector,sector, preferencepreference in allocation to efficient unitsunits (based on merit order) would yield higherhigher benefits.
While onon the subjectsubject of fuel cost and itsits consequentconsequent effecteffect on tariffs,tariffs, oneone otherother developmentdevelopment is relevant. World oiloil priceprice hashas declineddeclined byby aboutabout fiftyfifty percent.percent. CorrespondingCorresponding fallfall inin inputinput priceprice hashas occurred. TheThe PakistanPakistan PM PM announced announced tariff tariff reduction reduction of of Rs.2.32/KWh.Rs.2.32/KWh. Later, NEPRA assessed a reduction of Rs. 2.92/KWh2.92/KWh as as fuelfuel adjustment. adjustment. Soon after,after, government increased GSTGST on furnace oil. The government had thethe choicechoice to pass thethe benefitbenefit from from low low oil oil price price to to consumers consumers or or to to consolidate consolidate the sector.sector. In the event,event, itit diddid neither.neither. ItIt initiallyinitially triedtried to to gain gain political political capitalcapital byby reducingreducing tariff
29 and later increasedincreased salessales taxtax atat furnace furnace oil oil to to reduce reduce overall overall fiscalfiscal deficit deficit but but increase increase electricity electricity generation cost.cost. ThisThis isis poorpoor policy.policy.
Box 4 Increasing productivity: More powerpower fromfrom thethe presentpresent investmentinvestment
It is possible to increase thermal powerpower generation withinwithin thethe presentpresent capacity. capacity. Actual Actual power power producedproduced inin fis-fis- cal 2012-2013 isis 64,184 64,184 GWh GWh for for all all thermal thermal units units in in the the country. country. Peak Peak thermalthermal productionproduction capacitycapacity inin thethe lastlast five yearsyears waswas 88,40488,404 GWh.GWh. WeWe arrivearrive atat thisthis numbernumber by by looking looking atat peak peak production production achieved achieved by by each each GENCO GENCO and IPP inin anyany ofof the lastlast fivefive years. years. Potential Potential increase increase is is the the difference difference between between 88,404 88,404 GWh GWh (the(the achievable achievable capacity) andand actual power generatedgenerated in a particular fiscalfiscal year. year. This This under under performance performance ofof thermalthermal units units of of 37.7% isis becausebecause of allall ofof the the issuesissues facedfaced byby thethe powerpower sector:sector: circularcircular debt, fuel availability, O&MO&M backlog as well asas policy, structural, structural, and organizational issues.
Peak And Actual Output In 2012-13 Thermal Plants
Peak Gener-Gener- Actual Output ation (GWh) % DifferenceDifference (GWh) 2012-13
GENCOs in PEPCO 21354 13149 62.4
Others operating under GENCOsGENCOs 120 96 25.0
IPPs connectedconnected with PEPCO 50701 41215 23.0
Thermal KESC Own 13976 8567 63.1
Thermal connected with KESC 1538 1116 37.8
Thermal others ConnectedConnected with KESC 835 137 ∞co
Total Thermal 88404 64184 37.7
Potential increase 24220
Peak Output & ActualActual Output In 2012-13 GWh
Fuel Source Peak Output Actual Output Difference % ChangeChange Gas 40051 27857 12194 43.8 Furnace Oil 33186 27357 5829 17.6 Dual 15167 8970 6197 40.9
Total 88404 64184 24220 37.7
The loss of capacitycapacity utilizationutilization isis particularlyparticularly high for plants producing on gas. Furnace oil based plants pro-pro- duced 17.6% belowbelow capacity.capacity. GasGas basedbased plantsplants produced almost 44%44% below capacity.
30 33.4.4 TariffTariff and Subsidy: AA CircularCircular Debt beyond ControlControl
The issue with power tariffs is on two counts. Inability to recover cost preventsprevents new investmentinvestment in all parts ofof the power supply chain. Subsidy creates aa slewslew of newnew issues.issues. LetLet usus view itit sequentially.sequentially.
Government’sGovernment's National Power Policy 20132013 estimatesestimates cost of powerpower generationgeneration at Rs 12 per KWh.KWh.55 Quoting NEPRA, thethe document estimates thethe cost cost ofof delivery to end consumer at 14.7014.70 Rs per KWh. The Policy alsoalso estimatesestimates total costcost of delivery to endend consumerconsumer at 15.6056. TheThe latterlatter amount includes line losses. Taking the lowerlower estimate ofof 16% lineline losses,losses, thethe Policy estimatesestimates ‘power'power theft’theft' alone to cost the exchequer 140 billion Rs57.
Cost recovery isis anan issue.issue. Investment will remain shyshy withoutwithout fullfull recoveryrecovery of cost. ItIt increases also financial burden burden on ongovernment government budget. budget. An inbuilt An inbuilt recovery recovery deficit exists deficit in existsthe tariff in thestructure tariff structure even when we do notnot includeinclude lineline andand other losses that occuroccur beyondbeyond NEPRA'sNEPRA’s liberal allowances for these. Taking generation costcost alonealone at 1212 Rs./KWhRs./KWh as mentioned in the policy,policy, average sales price based on aggregate unitsunits soldsold isis 11.1511.15 Rs./KWhRs./KWh (refer Tablel2)Table12) leavingleaving aa deficitdeficit of of 85 85 paisa/KWh paisa/KWh below production. Relying on the Policy'sPolicy’s cost to end consumerconsumer (of(of 14.70 Rs/KWh) thethe unrecovered amount isis 3.553.55 Rs.Rs. /KWh./KWh.
The lower than costcost tariff areare onon twotwo accounts.accounts. BecauseBecause of increase in costs, government wishes to make power affordable for low-income consumers.consumers. SubsidySubsidy waswas allowed forfor lifeline consumers. In addition, there is indicationindication that somesome DISCOsDISCOs often applyapply tarifftariff that areare belowbelow applicable rates. Refer to TableTable 1212 again,again, averageaverage tarifftariff ratesrates for domestic, andand allall consumersconsumers varyvary aa greatgreat deal among DISCOs. ThisThis isis usuallyusually not possible. VarianceVariance isis highhigh at almost Rs. 3/KWh (between(between thethe highhigh and low charge)charge) forfor domesticdomestic usersusers and overover 3.50 Rs. /KWh forfor allall users.users.
Tariff differences amongamong typestypes ofof consumersconsumers makemake thethe above practicepractice anan easy tool toto use.use. The many tariff stagesstages amongamong domesticdomestic consumers andand peak andand off-peakoff-peak tariffstariffs (a(a goodgood ideaidea essentially)essentially) incentivizes thisthis practice.practice. Changing the domesticdomestic useruser categorycategory makesmakes appreciableappreciable differencedifference in amount billed.
In aa travestytravesty ofof rationalrational tarifftariff policy,policy, governmentgovernment is reported to havehave askedasked NEPRANEPRA to build an additional 5555 billion rupees intointo consumerconsumer tariffstariffs to to account account for for thethe cost cost of of inefficienciesinefficiencies58. If carriedcarried out as reported, itit willwill penalize thosethose whowho pay their billsbills inin fullfull to the benefit of of thosethose whowho circumvent.circumvent. As the next paragraph shows, shows, itit maymay notnot eveneven achieveachieve thethe objectiveobjective of increasedincreased revenues.
Consistent increase in power tariff sets in play diminishing returns. AnalysisAnalysis ofof data byby IPR shows that revenuerevenue elasticityelasticity isis 0.60.6 to each Rupee increaseincrease inin tariff.tariff. AsAs demanddemand inin PakistanPakistan is suppressed because of shortageshortage of power,power, thisthis clearly results fromfrom poorpoor governance.
Subsidy has caused an escapeescape forfor all manner ofof inefficiencies.inefficiencies. ForFor example,example, withwith time,time, thethe numbernumber of lifeline consumers increased. There is no no GOP GOP confirmed confirmed number number for forlifeline lifeline consumers consumers from from among thethe more thanthan eighteen million domestic users.users. TheirTheir numbernumber isis estimatedestimated to bebe farfar greatergreater than theirtheir shareshare would would justify.justify. Informally,Informally, they areare estimatedestimated toto bebe 1212 toto 14 14 million million (about(about 70%70% of domestic users).users). InterviewsInterviews withwith practitionerspractitioners confirmconfirm that thisthis subsidy subsidy is is a asource source of of revenue revenue leakage for DISCOs andand affects thethe bottom line.
31 IPR agrees that affordability affordability is is an an issue issue for for low-income low-income consumers. The subsidy policy thoughthough needs overhaul. One study estimates thatthat in in 2011, 2011, aboutabout 29%29% ofof total subsidysubsidy went toto thethe richestrichest 20%20% ofof consumers59. The The studystudy concludes concludes thatthat justjust '10 ‘10 percent percent of of consumersconsumers paypay moremore thanthan costcost recoveryrecovery level’level' tariff.tariff. It questionsquestions ifif subsidysubsidy isis thethe bestbest way way toto helphelp low-incomelow-income consumers.
Subsidy and its misuse,misuse, inadequateinadequate recovery,recovery, and lineline losseslosses contributecontribute toto circularcircular debt,debt, which,which, because it remains unsettled, createscreates impedimentsimpediments inin powerpower supply.
"Circular“Circular Debt is the amount ofof cash shortfall within thethe CentralCentral Power Power Purchasing Purchasing Agency Agency (CPPA),(CPPA), which it cannot pay to power supply companies"companies”60.It arisesarises fromfrom aa combinationcombination ofof factors:
• Delay in payment of Tariff Differential Subsidy by government
• Operational efficiency belowbelow performanceperformance standards setset byby NEPRANEPRA whilewhile determiningdetermining tarifftariff at allall stagesstages ofof thethe power power supplysupply chainchain (government (government determinesdetermines TDSTDS basedbased onon differencedifference between NEPRA andand GOP rates)rates)
• Under-recovery ofof billsbills byby DISCOsDISCOs (this (this does does not not add add toto thethe circularcircular debt, but limits DISCODISCO ability to pay for powerpower purchasedpurchased andand increases upstream receivables)receivables)
• Delayed determinationdetermination and notificationnotification of of tariffstariffs
An inherent flaw flaw in in tariff tariff policy policy is that is NEPRA that determinesNEPRA determines tariff and tariff government and government notifies at notifies a ata different rate. NEPRANEPRA determines tarifftariff forfor eacheach DISCO.DISCO. Government notifies a auniform uniform consumer consumer end tariff (for each category) forfor thethe wholewhole countrycountry normallynormally atat a rate belowbelow NEPRA rate.rate. Two issuesissues arise, oneone because ofof GOP the other becausebecause ofof performance ofof companies.
Government doesdoes notnot maintainmaintain aa regular rate forfor TDS disbursements. The delay createscreates a break in the payment chainchain andand affectsaffects performanceperformance at allall stages.stages. AtAt timestimes governmentgovernment also under providesprovides in the budget.
NEPRA’sNEPRA's tarifftariff determination,determination, amongamong otherother parameters,parameters, also setssets individualindividual performanceperformance standardsstandards for production, production, transmission, and distribution distribution companies. companies. These These consider consider efficiency efficiency levels levels and and other indicatorsindicators forfor eacheach generationgeneration companycompany andand lineline lossloss forfor eacheach DISCO.DISCO. Inevitably, companiescompanies slip in meeting performance criteria.criteria. Loss onon thisthis account isis in addition to the subsidy.subsidy. While the government delays payment of the additional amount, thethe systemsystem beginsbegins toto clog.clog.
A set of policy issuesissues arisearise from government’sgovernment's subsidysubsidy policy:policy:
• Takes away attention fromfrom thethe realreal fix fix needed: needed: The The need need for for subsidy subsidy arises arises from from high high cost cost of of production, whichwhich isis aa productproduct ofof thethe fuelfuel mixmix andand thethe guaranteesguarantees to producers. At present, more than one-third ofof the country'scountry’s generationgeneration comes comes fromfrom high priced furnace oil. Since thethe plants began operation, oil price hadhad increased byby thirtythirty to forty times (although currently declining). TheThe circularcircular debtdebt debate debate takes takes awayaway attention attention fromfrom thethe mainmain issueissue thatthat encumbers the powerpower sector.
• Dependence onon subsidysubsidy:: As a corollary corollary of the foregoing, foregoing, Government cannot reduce reduce fiscal fiscal burden of subsidy. ItIt has attemptedattempted toto dodo soso alsoalso throughthrough continuouscontinuous tariff increase.increase. This
32 seems to bebe counterproductive.counterproductive. ‘Theft'Theft ofof electricity electricity increases increases withwith anyany increaseincrease inin tariffs’tariffs'61 This reflects notnot onlyonly inin lineline losses,losses, butbut also also increasingly increasingly in in under-recovery under-recovery ofof billsbills andand chargingcharging a lowerlower than applicableapplicable rate.rate. Affordability Affordability forfor consumerconsumer is nownow aa bigbig issue.issue. AccordingAccording to NEPRA, ‘domestic'domestic tariff tariff inin PakistanPakistan are touching the tariffstariffs inin developeddeveloped countries’countries'62. High tariffs affect business competitivenesscompetitiveness Table 19.
• Questionable mechanism: Government's Government’s subsidy policy policy does not not incentivize incentivize efficiency efficiency or or operation on full capacity:
o Performance standardsstandards of power producers and distributors:distributors: GOPGOP assumesassumes subsidysubsidy obligations based on thethe differencedifference betweenbetween thethe notifiednotified raterate andand NEPRANEPRA determineddetermined rate.rate. NEPRA determinesdetermines tariffstariffs based onon performanceperformance standardsstandards of producersproducers andand distributors.distributors. These vary among distributors. ForFor example,example, permissiblepermissible line line loss loss forfor PESCOPESCO is 28% andand 12% forfor LESCO.LESCO. GOP, GOP, on on the the other other hand, hand, adoptsadopts aa simplesimple approachapproach toto assumeassume aggregateaggregate liability arising fromfrom difference betweenbetween notifiednotified andand determineddetermined rates.rates. The The subsidy subsidy does does nothing to pressure companiescompanies towardstowards higherhigher efficiency. efficiency.
o Government assumesassumes liability beyond tariff differential:differential: ThoughThough GOP'sGOP’s obligationobligation is to pay subsidy for the differencedifference betweenbetween notifiednotified andand determineddetermined rates,rates, inin practice practice itit assumes all paymentpayment liabilityliability ofof DISCOsDISCOs including thosethose that dodo notnot occuroccur from delay in TDS payment. Circular debt paymentspayments buildbuild upup receivablesreceivables ofof generating companiescompanies that thenthen areare unable unable to to meetmeet operationaloperational costs costs (including(including fuel purchase) and thus produce below capacity.capacity. DISCOsDISCOs inability inability to to paypay arisesarises not merelymerely becausebecause of delays in TDS.TDS. Weak DISCO managementmanagement does not recover fully thethe billed amount from sales. DISCOsDISCOs also perform below thethe lineline lossloss standardsstandards setset byby NEPRA.NEPRA. Their ineffectiveness to recover amounts billed or to bill for thethe full quantity of electricity soldsold ensuresensures thatthat debt piles up. In aa travestytravesty ofof judgment,judgment, governmentgovernment assumes also the liability for the amountamount in addition to the TDS.TDS. This is the powerpower industry equivalent of ‘tootoo big toto fail’fail' andand an equally arguable approach. BecauseBecause government delays TDS payment, production drops and all focusfocus is to settle the circularcircular debt.debt. InIn doingdoing so,so, allall DISCODISCO liability is counted as government debt including those not arising fromfrom tariff difference.difference.
o Government pays subsidy with mark upup forfor electricity notnot produced:produced: At a time of shortageshortage of power, circularcircular debtdebt impairs IPP’sIPP's ability to generategenerate electricity.electricity. Yet IPPs havehave government guaranteesguarantees for capacity payment. On the one hand, generatinggenerating companies'companies’ production declines because ofof the the circular circular debtdebt and, and, onon the the other, other, remarkably, remarkably, governmentgovernment must pay private powerpower producers forfor power not produced. ItIt pays the subsidy component along with mark up for delayed payment. The ironyirony ofof thisthis situationsituation must not be lost. Circular debt occurs because of lacklack ofof liquidity liquidity in in thethe system.system. ThisThis resultsresults in less power generation than potentialpotential withwith itsits negativenegative effecteffect onon thethe economy.economy. Yet ultimately, the government pays and does so withwith markupmarkup including for powerpower notnot produced.produced. Something is hugely amiss with the wayway we managemanage the sector.
Government must clarify its subsidy policy andand setset criteriacriteria for it.it. Let NEPRA determinedetermine tariffstariffs and let it then determinedetermine subsidysubsidy too.too.
33 3.5 CompetitiveCompetitive Market for TradingTrading ofof ElectricityElectricity
An important componentcomponent ofof the 19941994 power policy reformsreforms waswas introductionintroduction of aa market forfor sale ofof electric power generated.generated. In its implementation,implementation, thisthis aspect aspect of of policy policy was lost in favorfavor of upfront tariff and capacitycapacity charges. It isis importantimportant now now thatthat NTDC NTDC sourcesource powerpower initially fromfrom base load plants suchsuch asas statestate owned owned hydro,hydro, nuclear,nuclear, andand GENCOs. GENCOs. ForFor suppliessupplies beyondbeyond those providedprovided by above plants,plants, NTDC maymay purchasepurchase power on thethe basis of bidsbids fromfrom IPPs.IPPs. TheThe implementationimplementation agreements with IPPs providedprovided long termterm guaranteed returns basedbased onon upfrontupfront tariffs.tariffs. However,However, upon creation of aa regulator NEPRA, generation license issued to IPPs providedprovided for a competitive market inin electricity.electricity. TheThe 20022002 powerpower policypolicy also specifically providedprovided forfor competitivecompetitive trading.trading. Government and regulator bothboth havehave notnot implementedimplemented thisthis provision. provision. ItIt isis keykey toto creatingcreating efficiencyefficiency in power generationgeneration and inin reducingreducing cost.cost. NEPRA maymay beginbegin tradetrade in electricity forthwith.forthwith. 3.6 UnraveledUnraveled structurestructure
The power policypolicy 1994 1994 had had donor donor support. support. ItIt calledcalled alsoalso forfor restructuring restructuring of thethe power industry.industry. One restructuring conditioncondition was toto 'unbundle'‘unbundle’ WAPDA,WAPDA, thethe integrated powerpower producer, transmission, and distributiondistribution organization.organization. Privatization of the separatedseparated unitsunits waswas to to occur occur afterafter WAPDA's WAPDA’s unbundling. Two separateseparate developments harmedharmed thethe sector.sector. PrivatizationPrivatization ofof thethe unitsunits did not take place (except KESC,KESC, whichwhich waswas notnot partpart of WAPDA). As As of of date, date, government government has has not not sharedshared plansplans to privatizeprivatize these, despitedespite increasingincreasing awarenessawareness thatthat DISCODISCO performanceperformance isis key to solvingsolving the power conundrum.conundrum. Pressure fromfrom workers'workers’ unionsunions couldcould be one reasonreason63. Much of thethe WAPDAWAPDA ownedowned generation, and all of itsits transmissiontransmission and distribution remains inin thethe publicpublic sector.
Second, structures,structures, policies, andand checkschecks andand balancesbalances thatthat existedexisted in aa veryvery visiblevisible organization,organization, unraveled. Whereas WAPDA performanceperformance was was alwaysalways underunder high-level review, its unbundledunbundled units wentwent belowbelow the radar.radar. ReportingReporting lineslines ofof DISCOs,DISCOs, at thethe governmentgovernment level,level, becamebecame unclear. Performance of individualindividual unitsunits did not merit thethe attentionattention that that WAPDA WAPDA did. did. Besides Besides WAPDAWAPDA had institutional knowledgeknowledge and a reserve ofof competentcompetent andand qualityquality expertsexperts to supportsupport its activities. The synergies ended, as did the esteem of working inin aa respected organization. PerformancePerformance standardsstandards fell.
Unbundling stopped midstream. It waswas perhaps tootoo ambitious to hope for aa marketmarket for purchasepurchase and sale of electricity. GivenGiven thethe guaranteesguarantees to producers despite surplus power,power, it was hardly possiblepossible for aa market to develop. RatherRather thanthan reforming thethe sector,sector, itsits restructuringrestructuring ended up in distortions (and perhaps in rent seeking).seeking). 3.7 AffordabilityAffordability and CompetitivenessCompetitiveness
Table 15 showsshows thatthat tariff rates havehave increasedincreased consistently inin the last twentytwenty years.years. TheyThey have grown especially since 2008. Yet recovery ofof costcost ofof power power supply supply is is stillstill notnot possible.possible. NorNor hashas power supply normalized.
Government, therefore,therefore, providesprovides subsidy.subsidy. Table 18 below, recordsrecords thethe share of of expenditure expenditure on on electricity bills by aa householdhousehold asas a proportion of itsits incomeincome and and totaltotal expenditureexpenditure other than onon foodfood and clothing. As aa percentpercent of income,income, households households in in the the middle middle quintiles quintiles havehave thethe highesthighest share.share. One wonders if this is how it oughtought toto be.be. LowLow and middle-income consumersconsumers paypay aa highhigh shareshare of theirtheir
34 expense for electricityelectricity isis indicativeindicative ofof the the inherentinherent inequity. The inequity is skewed particularly for above lifeline consumersconsumers who useuse 300 to 500 KWh perper month.month. The issue of affordability also likely creates incentivesincentives forfor revenue leakage. EvidenceEvidence of thisthis is visible inin aa numbernumber of ways.ways. IPRIPR estimatesestimates that 4%4% of increaseincrease isis lostlost atat the distribution stage.stage. TheThe issueissue ofof affordability also createscreates incentives for revenue leakage. Evidence ofof thisthis isis visiblevisible inin aa numbernumber of ways.ways. IPRIPR estimatesestimates that 40%40% of thethe increase is lostlost atat the distribution stage.
In percentagepercentage terms, there isis anan increaseincrease inin unpaidunpaid billsbills forfor domesticdomestic consumers inin thethe last twotwo years. Recovery ofof billed billed amounts amounts fromfrom private private commercialcommercial and and industrial industrial consumersconsumers hashas increased rapidly in recent years.years. FromFrom tenten billionbillion rupeesrupees inin 2008,2008, itit increasedincreased toto 6363 billionbillion in 201364.
Table 18 Household Expenditure on Electricity by Quintiles (Rs/Month)
1 2 3 4 5 Average
Pakistan 426 602 769 952 1,605 947
Urban 677 835 1,038 1,303 1,987 1,433
Rural 386 537 656 826 1,063 690
% of Income 3.2 3.6 3.9 3.9 3.7 3.7
% of consumptionconsumption 3.2 3.7 4.1 4.4 4.6 4.0
High tariffs also affect businessbusiness competitiveness. A comparisoncomparison of of the the tariffs tariffs that that ourour businessesbusinesses pay with those in other countries ofof the region is instructive (Table(Table 19). PakistaniPakistani consumersconsumers of all types clearly paypay moremore thanthan what their counterparts paypay in thethe region.region. This This isis especially especially soso when taxes and levies are added. Tariff raterate and unreliable power supply placeplace ourour businessesbusinesses atat aa disadvantagedisadvantage in the international market.
Table 19 Competitiveness Pakistan Rupees/KWhRupees/KWh
Pakistan Bangladesh India
Households 4 to 15 4 to 12.5
Commercial 14-18 (16-21*) 11 to 13
Industrial 14-18 (16-21) 7.5 11.5
Mumbai Reliance 4.5 to 17.5
Mumbai Tata 1.5 to 9.7
Gujrat 5.2 to 7.7
Haryana 5 to 10
*Figures in brackets with tax and levy Source:Source: IPRIPR research
35 3.8 Disputes betweenbetween powerpower purchaserpurchaser andand powerpower producersproducers
Several IPPs are presentlypresently inin disputedispute with with NTDC. NTDC. MostMost of these disputes arise fromfrom non-payment of IPPs receivables. Outstanding circularcircular debtdebt hashas reducedreduced powerpower generation as it limits ability of IPPsIPPs to purchase fuel.fuel. IPPsIPPs demanddemand fromfrom NTDCNTDC capacitycapacity paymentpayment whereaswhereas NTDCNTDC imposesimposes liquidated damages for non-supply ofof power.power. Government Government must must stepstep inin toto resolve thesethese disputes and improveimprove the environment in the power supplysupply chain.chain. ItIt isis importantimportant thatthat these disputesdisputes dodo not escalate and necessitate arbitration oror courtcourt cases.
3.9 IndigenizationIndigenization
Figure 2 shows the un-sustainability of of Pakistan'sPakistan’s policy policy of of reliancereliance on on importedimported fossil fossil fuelfuel forfor power generation. The country'scountry’s economic capacitycapacity and and balancebalance ofof payment payment wouldwould just just notnot permitpermit such a skewed generation profile. ThisThis leavesleaves aa vulnerablevulnerable energyenergy sector.sector. ThoughThough stillstill aa contingentcontingent resource,resource, Pakistan isis notnot withoutwithout substantialsubstantial energy energy potential.potential. Thar'sThar’s lignite lignite could could potentiallypotentially keepkeep usus self-self- sufficient forfor decadesdecades65. The Geological SurveySurvey ofof Pakistan Pakistan discovereddiscovered itit inin 1992.1992. SinceSince then,then, severalseveral studies byby international firmsfirms confirm confirm GSP GSP findings findings66. There has beenbeen no further progressprogress though,though, either with respect to infrastructure developmentdevelopment or with extraction.
Pakistan hashas oneone ofof thethe largestlargest potentialpotential forfor shaleshale oiloil andand shaleshale gasgas in in the the world. world. According According to US government’sgovernment's Energy InformationInformation Administration,Administration, thethe world hashas an abundance of shale energy resources67. Pakistan hashas thethe ninthninth highest highest potential potential inin the the world world forfor shaleshale oiloil atat 99 billionbillion barrels. The report estimates Pakistan'sPakistan’s shaleshale gasgas potentialpotential atat 105 105 trilliontrillion cft.cft. ExtractionExtraction ofof shale energy is technically challenging withwith a long learninglearning curve.curve. WithWith thethe helphelp ofof anan outsideoutside agency,agency, Pakistan Pakistan hashas made progress inin developingdeveloping aa policypolicy framework. AA policy on ShaleShale is expected soon.
Pakistan’sPakistan's riverriver system system offers offers aa spatespate ofof hydropower opportunity. Yet despitedespite acuteacute shortages, hydro capacity is 13% ofof knownknown potential.potential. Hydropower projectsprojects areare big onon capitalcapital and usually complexcomplex to execute. MostMost potentialpotential sitessites lielie inin highhigh mountains.mountains. TheThe terrainterrain is testing and land acquisition is an endemic issue. Yet once built,built, they provide long-term supply at low operational cost.
World energyenergy priceprice isis in decline. This must notnot dissuadedissuade governmentgovernment fromfrom pursuingpursuing indigenousindigenous exploration thoughthough itsits record even whenwhen pricesprices werewere atat unprecedented highhigh levels isis notnot salutary.salutary. Exploration ofof energyenergy isis aa strategic issue for the countrycountry toto bebe viewedviewed over the long term. Energy price changes over a couple of yearsyears mustmust not affect such decisions. Prices have changed quickly in the pastpast andand remainremain mostlymostly volatile.volatile. Regardless,Regardless, Pakistan’sPakistan's externalexternal financesfinances dictate dictate the the need need for for domestic development of primaryprimary energy even when prices are low.low.
3.10 Finance forfor energy developmentdevelopment andand powerpower supply
One reason for success of thethe 1994 private powerpower policy waswas government’sgovernment's ‘Private'Private Sector Energy Development Fund’.Fund'. The fund contributed toto financialfinancial close close of of projectsprojects andand helpedhelped reducereduce financingfinancing risk. With no DFI in thethe countrycountry toto facilitatefacilitate large-scalelarge-scale projectproject financing,financing, governmentgovernment mustmust stepstep in toto setset upup aa fund.fund. TheThe fundfund mustmust operateoperate onon marketmarket principles principles andand payablepayable byby privateprivate projectproject
36 sponsors. Government mustmust also increase public investmentinvestment in infrastructure, especiallyespecially toto accessaccess and transport Thar'sThar’s prospects.prospects.
3.11 PoliticsPolitics over Governance
An immediate power management issue is distribution ofof electricity on a regional basis. NTDC hashas reoriented nationwidenationwide transmissiontransmission of of power power byby basingbasing itit on on recoveryrecovery ofof DISCOs. There are a couple of issuesissues with this approach.approach. ThereThere isis littlelittle economiceconomic analysis available to support suchsuch aa decision,decision, which should be based on greatestgreatest economiceconomic benefits from from useuse of of power. power. ByBy redirectingredirecting supplysupply to to three citiescities inin aa singlesingle province,province, thethe governmentgovernment opens itself to criticismcriticism with respect to equityequity and fairness.fairness. InIn addition,addition, byby comparingcomparing absoluteabsolute performance,performance, this distribution methodmethod does not incentivize DISCOs thatthat have reducedreduced lineline losses or recovery ofof bills bills albeit albeit their their overalloverall numbersnumbers areare below others.others. It seems that politicalpolitical considerationsconsiderations prevailprevail overover soundsound decision-making.decision-making.
Since the nineteen nineties,nineties, governmentgovernment hashas adopted adopted a a policy policy forfor the electric power sector thatthat is too complex forfor the the country’scountry's weakweak institutionsinstitutions to manage.manage. Government fellfell shortshort inin thethe entire delivery cycle. ItIt could notnot conceptualize a a policypolicy that that assessedassessed needsneeds andand matched these withwith solutions.solutions. Government needed to find aa sustainablesustainable response response to to energy energy needs. needs. It It came came upup withwith anan expansive expansive one. one. The policy frameworkframework waswas generousgenerous andand all embracing and diddid notnot keepkeep inin mindmind economiceconomic capacity or the country’scountry's institutional constraints.constraints. Implementation Implementation was was predictably predictably weakweak withwith concernsconcerns about transparency. SinceSince then, attemptsattempts atat reforms reforms have have notnot brokenbroken outout ofof the frameworkframework established by the 19941994 policy. ‘Band-Aids’'Band-Aids' cannotcannot passpass for reforms and soso we now have
Table 19 A Incremental change in power supply vis a vis performance
Allocation of Power %Change inin lineline Utility %%Change Change in in recovery recovery %age +1-+/- loss
IESCO 0.1 -4.0
GEPCO 15 0 -2.0
LESCO 12 0.2 0
FESCO 13 0.2 1.0
MEPCO -5 0.4 -4.0
PESCO -0.2 1.0
HESCO 3 -0.8 -2.0
SEPCO -2 -0.9 5.0
QESCO 6 1.8 10
KESC -3 No Information No Information an approach that doesdoes not seesee a holisticholistic picture. What we need is a nuanced response toto setset right the great damagedamage done.done. WhatWhat wewe seesee is a trigger-happytrigger-happy oneone forfor generation andand aa lacklack ofof response on governance and subsidy.
37 3.12 Is DISCODISCO privatizationprivatization aa solution?solution?
IPR is of thethe viewview that that privatizationprivatization helpshelps improveimprove governance and serviceservice delivery. Private efficiencyefficiency and innovation thoughthough comecome withwith competition.competition. KESCKESC is a casecase in point.point. AA DISCO'sDISCO’s virtual monopolymonopoly over a given area affects performance.
One of these relates toto NTDC'sNTDC’s contractcontract withwith K-Electric K-Electric (formerly(formerly KESC)KESC) forfor salesale ofof powerpower (News(News reports suggest that thethe contract contract may may not not be be renewed). renewed). ThisThis contractcontract allowed allowed K-ElectricK-Electric to import power fromfrom anan alreadyalready distresseddistressed systemsystem whilewhile itit keptkept idle capacitycapacity thatthat remains untapped. This arrangement suitssuits K-Electric,K-Electric, asas powerpower importedimported from NTDC isis cheapercheaper thanthan power generated by its GENCOs.GENCOs. Allowing K-ElectricK-Electric to to opt opt for for this this lowlow cost cost option option deprives deprives the the country’scountry's transmissiontransmission system from power thatthat could have been generated by plants inin KarachiKarachi city.city. ThisThis isis clearlyclearly aa casecase of placing the interest ofof a particular companycompany above that of thethe whole powerpower sector. sector. It It is is surprising surprising thatthat K-Electric’sK-Electric's profit havehave improvedimproved consistentlyconsistently while while they they suffer suffer over over 30% 30% inin lineline losseslosses68.In fairness to K Electric, governmentgovernment hashas notnot allocatedallocated itit thethe natural gasgas forfor powerpower generation committed to it under the privatizationprivatization arrangementarrangement See See Box Box 55 (Page(Page 48).48).
38 4 Governance and Regulation
Is it Possible toto reform?reform? Governance andand RegulationRegulation
The previous chapter suggests that aa dysfunctional dysfunctional policypolicy environmentenvironment lieslies behindbehind powerpower sectorsector troubles. Governance ofof the the sectorsector has has notnot beenbeen exemplaryexemplary either either and and isis anan equal,equal, ifif notnot aa greater contributor to its flaws.flaws. The The list list of of governancegovernance failingsfailings isis longlong andand hashas beenbeen touchedtouched uponupon inin variousvarious discussions in precedingpreceding chapterschapters about policy and and structure.structure. These impedeimpede sustainablesustainable development of thethe sector.
In fact, policy flawsflaws tootoo resultresult fromfrom aa lacklack ofof governancegovernance capacity.capacity. Clearly,Clearly, thethe leadershipleadership of of successivesuccessive governments has not comecome to gripsgrips with the complexity ofof the the sector.sector. PartialPartial efforts takentaken from time to time to fixfix itit may may have have worsened worsened thethe situation. situation. This This paper paper has has detailed detailed already already the the egregious egregious fallout from efforts to increase generation throughthrough thethe 19941994 powerpower policy.policy. Likewise, thethe subsidysubsidy policy supportssupports affordability,affordability, but but itit hashas weakened the sector. Delayed subsidysubsidy paymentpayment breaksbreaks the cash flow fromfrom DISCOsDISCOs throughthrough powerpower producersproducers toto inputinput suppliers. suppliers. Power Power generation generation falls falls below below potential. ItsIts targetingtargeting too too is is an an issue. issue. In In 2011 2011 just just 29% 29% of of subsidysubsidy benefitedbenefited low-income low-income consumers.consumers. Over 20% wentwent toto consumersconsumers inin thethe highest income quintile. A large number of consumers trytry to fall into the lifeline lifeline category category when they should be paying a higher higher tariff. tariff. In In addition, addition, cash cash flow flow shortfall from DISCOs belowbelow standard standard performanceperformance isis taggedtagged toto thethe circular debt and isis passedpassed offoff as government'sgovernment’s liability.
Governance affects all parts ofof the powerpower supplysupply chainchain fromfrom NEPRANEPRA autonomyautonomy toto efficiencyefficiency ofof statestate run units.units. GovernanceGovernance and regulation must contributecontribute to aa sustainable,sustainable, affordable,affordable, and reliablereliable electric supply system. This has not happened. Attempts byby governmentsgovernments toto passpass thethe crisiscrisis offoff as one of generationgeneration capacity alone does notnot helphelp dealdeal withwith itit effectively. While governancegovernance andand regulatoryregulatory structures areare inin place,place, theythey lacklack contentcontent and substance.substance. TheThe executive andand the regulator have both failed to create a sector that cancan reliablyreliably supplysupply powerpower to firms and and households. households.
‘Best`Best practices’practices' fromfrom oneone countrycountry dodo notnot necessarilynecessarily workwork inin another.another. Reforms mustmust bebe inin line with norms, practices, and governancegovernance capacity of a country. No sector can be immuneimmune to the governance quality around it. Textbook ideasideas onon privatization privatization andand settingsetting upup regulatoryregulatory structures dodo not always work. Capture ofof policy makingmaking by interestedinterested partiesparties isis common. common. LackLack ofof autonomy and capacitycapacity ofof regulator is the norm.
39 In its reviewreview of the IPP programme,programme, the WorldWorld Bank accepts that thethe scalescale ofof privateprivate involvementinvolvement should alignalign withwith thethe country’scountry's institutionalinstitutional capacitycapacity'.69 .It It is is unlikelyunlikely ifif Pakistan'sPakistan’s governancegovernance ability was a secret at thethe timetime thethe policy policy waswas beingbeing formed.
An even bigger concernconcern is is thatthat despite such an assessment, policy makersmakers continue toto pursuepursue the chimera of privateprivate power inin Pakistan.Pakistan. Fascination with foreign private investment continues and may likely havehave thethe same result as in 1994.1994.
In order to determine what needsneeds toto bebe done, it is important toto proceedproceed ground up. Having seenseen the structure ofof the sector,sector, thethe policypolicy framework and its effect onon thethe sector,sector, thisthis paper reviews the way the sector is governed.
Let us break downdown the electricelectric power governance structurestructure toto seesee whowho does what:
• WAPDA: plans, plans, builds, builds, and and operates operates hydropowerhydropower plants plants to to disperse disperse it it toto thethe grid through PEPCO.
• K Electric: integratedintegrated power producer,producer, transmitter,transmitter, andand retailerretailer of of powerpower for Karachi city
• IPPs: produce power to sell throughthrough PEPCO or K Electric
o PEPCO: isis a holding company. Its Its originaloriginal mandatemandate waswas toto manage the transition ofof unbundling and privatizingprivatizing WAPDA,WAPDA, butbut increasinglyincreasingly hashas become aa permanentpermanent fixture. It is aa holdingholding company and responsible for:
o Operation and performanceperformance ofof state ownedowned powerpower producersproducers (GENCOs)(GENCOs)
o Power transmissiontransmission through the National TransmissionTransmission andand DispatchDispatch CompanyCompany
o Managing power purchasepurchase fromfrom allall supplierssuppliers ofof powerpower to to the the nationalnational gridgrid throughthrough the Central PowerPower Purchase AgreementAgreement (CPPA)(CPPA)
o Dispatch and distributiondistribution of of powerpower through ninenine companiescompanies (DISCOs)(DISCOs)
• Ensuring anan effectiveeffective electric power sector
• Private Power and Infrastructure BoardBoard (PPIB): facilitationfacilitation of private participation in the power sector sector'70
• Ministry for Water andand Power:Power: responsibleresponsible forfor overalloverall performanceperformance of the powerpower sectorsector in PakistanPakistan DirectlyDirectly supervisessupervises statestate ownedowned production,production, transmission,transmission, and distributiondistribution of electric power.power. ItIt makesmakes policies forfor the the powerpower sectorsector and and executesexecutes itit throughthrough itsits many organizations: PPIBPPIB forfor private powerpower companies, WAPDA, PEPCO PEPCO and and its its many many subsidiaries. subsidiaries. It isis responsibleresponsible also for development ofof alternatealternate power (wind,(wind, solar, solar, and and others).others). ItIt runsruns a demand management strategystrategy throughthrough thethe energy energy efficiency efficiency programme programme andand by by limiting limiting power useuse through control of works forfor businessesbusinesses andand load sharing during hours whenwhen demand exceeds supply.
40 Indicators of powerpower sectorsector performanceperformance show show that that allall partsparts of the power delivery sectorsector performperform below standards.standards. 4.1 IndicatorsIndicators
• Distribution
o Line losses: difference betweenbetween energyenergy boughtbought and energy billed
o Under recovery of bills:bills: differencedifference betweenbetween amountamount billedbilled andand amount recovered
o Application ofof lowerlower than than applicableapplicable rates:rates: allowing domesticdomestic consumersconsumers toto slipslip toto ratesrates for below lifelinelifeline consumers,consumers, shiftshift peakpeak use to off peakpeak usageusage
o Over billing: billbill higherhigher unitsunits to users thanthan actually actually consumed consumed becausebecause ofof shortageshortage ofof meter readers andand toto artificiallyartificially comply comply withwith government government pressurepressure to to reduce reduce line line losses losses and under recoveryrecovery
o Distribution interruptions measuredmeasured byby frequency andand hours of interruptionsinterruptions in supply for otherother load managementmanagement
o Maintenance andand investmentinvestment backlog backlog responsibleresponsible forfor aboveabove
• Transmission
o Transmission loss
o Power dispersaldispersal capacity andand reliability
• Thermal Power Generation
o Input costcost and availability
o Heat rate // PlantPlant efficiency efficiency
o Production cost
• Government’sGovernment's abilityability toto addressaddress structural andand policypolicy issues in the powerpower sector to address the power crisis
• NEPRA: independentindependent regulator ofof the electricelectric powerpower sector, is responsible for:
o Granting license
o Tariff determinationdetermination
o Setting performance standardsstandards which areare builtbuilt intointo tarifftariff ratesrates
o Oversight ofof industryindustry structurestructure
o Optimizing among competingcompeting interests interests of consumers,consumers, producers, producers, and and sector sector sustainability sustainability
A table will betterbetter capture performance:
41 Table 20 Performance of Power Supply Chain
Distribution Performance Responsibility
This is an endemicendemic problem.problem. DifferenceDifference between units ofof elec-elec- tricity purchased andand units soldsold representsrepresents lineline loss.loss. TheThe National Power Policy 2013 estimatesestimates rupee lossloss ofof 140140 bil-bil- lion fromfrom whatwhat itit refersrefers toto asas theft.theft. IPR estimatesestimates are higher, between 195 billion to 250 billion Rs (see Table 12 based on NEPRA data).data). Line losses increasedincreased greatly in the decadesdecades of 1990s, came downdown inin thethe last decade (2000 to 2010) andand has DISCO 71 Line losseslosses" stabilized at aa highhigh level.level. NEPRANEPRA figurefigure for for percentage percentage line line loss in 2012-132012-13 is 21.2521.25 forfor DISCOsDISCOs72. It hashas increasedincreased fromfrom Management and staff 16.66% inin 2008-09 thoughthough belowbelow the the recentrecent peak of 22.27 in 2011-1273. There is no datadata on the extent ofof lossloss attributedattributed to technical and non-technical reasonsreasons (the(the latterlatter is the result ofof management), butbut experts assume that overover halfhalf ofof distribu-distribu- tion losses resultresult from DISCO mismanagementmismanagement".74.
Consumers often do notnot paypay thethe amount billed. This loss is in addition to line loss. Over time, the unrecovered amountamount has increased in absolute and in percentage terms. On the PEPCO system, the lossloss inin 2012-132012-13 was over 73 billion rupees, which increased toto overover 9898 billionbillion inin 2013-14.2013-14. Loss from lessless recovery was 10% in 2012-13, which became 11% in 2013-1476. PEPCO DISCO 75 Under recoveryrecovery of of bills76 bills billed amount inin 2013-142013-14 was 903 billion. Increase ofof one perper-- centage point equals overover 9 billion rupees. Overall, amount ofof Management and staff uncollected billsbills increasedincreased from 3434 billion rupeesrupees in 2007 to 101 billion RsRs inin 2012. PrivatePrivate users showed thethe highest in-in- crease from 8 billion Rs in 2007 to 55 billion in 2012. DISCOs showed reluctancereluctance to disconnect theirtheir power supply77.
Table 12 shows considerable variancevariance amongamong per per unitunit rates DISCO billed to consumers. For total units showedshowed byby DISCOsDISCOs the variance was Rs 3.54/KWh betweenbetween the the highhigh andand low rate. Management and staff Among domesticdomestic users,users, averageaverage rate differencedifference is Rs.Rs. 3.15/3.15/ However, therethere is now Lower thanthan applicable KWh (not including TESCO, aa new DISCO). TakingTaking thethe high a political economyeconomy of rates rate asas reference,reference, amounts lost on thisthis accountaccount areare substantialsubstantial line losses,losses, lessless recov-recov- (see Table21).Table2l). This needs more research, but clearly weakens ery, and lower thanthan claims of some ‘well-run’'well-run' DISCOs. applicable. This is not possible without top level influence
News reports allege that inin AugustAugust 2014,2014, consumersconsumers werewere charged 40 to 70 billion more than due fromfrom them. ReportsReports suggested that DISCOsDISCOs did so under government pressure to increase revenuerevenue byby reducingreducing lineline losses.losses. DISCOsDISCOs respond-respond- ed by overbilling.overbilling. A government studystudy attributes consumerconsumer discontent to tariff increaseincrease (27%),(27%), erosion of one tariff slab (50%), andand toto increaseincrease in useuse ofof electricity.electricity. Government also GoP and DISCO manman-- Over-billing ascribes lack of metermeter readers to high estimated billing.billing. The agement and staff study states thatthat DISCOs DISCOs attemptattempt to to hide hide line line losses losses byby over-over- billing ruralrural feeders. The amountsamounts areare reversedlater. There is no information yet of paymentpayment to the consumers of thethe over billed amount.amount. AtAt worse,worse, consumers have been deprived collectively ofof a a largelarge sumsum of manymany billion rupees.rupees. At best, if their moneymoney is returned, they they provided provided freefree financefinance to to DISCOs. DISCOs.
42 Reliability Indicators78
Government claims improvement. InIn thethe peakpeak demanddemand monthsmonths of summer, load shedding waswas eighteight to ten hours. GOPGOP esti-esti- GOP policy and gover-gover- mates do not includeinclude outagesoutages inin SEPCOSEPCO andand QESCO.QESCO. Their Load Shedding79 nance at each stage ofof inclusion will increaseincrease load-shedding hours.hours. the supply chain NEPRA
SAIFI (Frequency ofof in-in- All DISCOs except IESCO below NEPRANEPRA standardstandard often by terruptions perper consum-consum- many multiples. DISCOs, inability to er per year) recover cost leaves no fiscal spacespace toto investinvest SAIDI (Duration of All DISCOs perform below NEPRA standard.standard. PESCO was in system improve-improve- interruptions perper cus-cus- worst with over 29,000 minutesminutes ofof interruptionsinterruptions per customer ment tomer)
Transmission
Investment and mainte-mainte- NEPRA requiresrequires NTDC to build system efficiencies efficiencies and and up- up- NTDC, GOP nance deficit grade infrastructure
Generation
Unrealized potential, unplannedunplanned investments,investments, engineeringengineering Hydro capacity WAPDA, GOP challenges, high transmission cost
Less than 64%64% of installed capacity is available for use. High GOP Thermal capacity avail-avail- receivables reduce working capital. GENCOGENCO inefficiencies andand able for use governance are concerns880 °.. GENCOs/IPPs
Production High input costcost becausebecause ofof fuel mix GOP
IPPs
Plant efficiencyefficiency GENCOs Low: O&MO&M backlog, backlog, aged aged equipment,equipment, poor practicpractic-- PEPCO, GOP es in fuel quantityquantity and quality
Government'sGovernment’s weak management andand policypolicy for the sector: • Generation Capacity • T & D Losses • Managing the circular debt • Tariff and subsidy • New technology • SustainableSustainable fuel mix
Note: System Average InterruptionsInterruptions Frequency Index, SAIFI and System Average InterruptionsInterruptions Duration Index,Index, SAIDISAIDI81.
The above demonstratesdemonstrates thatthat the powerpower sector'ssector’s performance isis poorpoor atat everyevery stagestage andand in many areas. AA single dimensional approach of expandingexpanding generationgeneration capacitycapacity isis inadequate.inadequate. In fact, it may well add to the sector'ssector’s woes, asas eacheach additionaladditional unit ofof power requiresrequires government subsidy.
43 Table 21 Loss from Application of LowLow Tariff
PESCO TESCO IESCO GEPCO LESCO FESCO MEPCO HESCO SEPCO QESCO KE
Units Sold GWh 7,162 1,294 7,763 5,920 14,285 8,586 9,913 3,524 2,726 3,812 10,942
Amount 71,749 15,024 84,125 63,705 163,866 95,606 107,932 33,944 33,023 36,007 142,063 Billed
Diff. btwbtw ref.ref. raterate & 2.96 1.37 2.15 2.22 1.51 1.85 2.10 3.35 0.87 3.54 0 billed rate/KWh
Presumptive Loss 21.199 1,773 16,690 13,142 21,570 15,884 20,817 11,805 2,371 13,494 0 44 Million Rs
% Loss 29.5 11.8 19.8 20.6 13.1 16.6 19.3 34.7 7.1 37.4 0 (from billedbilled amount)amount)
Source: IPRIPR research 4.2 LoadLoad shedding
This term is a euphemismeuphemism forfor power outages thatthat areare planned.planned. ThereThere isis oneone identifiableidentifiable reason reason for for load sheddingshedding without which therethere is no sustainable solutionsolution toto thethe energyenergy crisis.crisis. GovernmentGovernment policypolicy makes the powerpower sector unviable. WeakWeak governance compounds the effect ofof thisthis policypolicy atat allall stagesstages of thethe supplysupply chain,chain, particularlyparticularly in DISCOs. ThisThis structuralstructural lacklack ofof sustainability ofof the powerpower sector precludes new privateprivate investment and requiresrequires continuedcontinued subsidysubsidy forfor public investment. It willwill keep power supplysupply stressedstressed inin Pakistan.Pakistan.
To aa certain extent, this situationsituation isis thethe result result of of the the quick quick fix fix approach approach to to implementation implementation of of thethe private sectorsector powerpower policy ofof thethe 1990s.1990s. WhileWhile that that policypolicy was was part part ofof structural structural reforms ofof the power sector, whose objectiveobjective waswas toto ensureensure reliablereliable power supply,supply, thethe implementation remained focusedfocused at thethe stagestage ofof privateprivate powerpower production.production. This entailed extra-ordinary comfort andand guarantees to the power producers.producers. AssuredAssured guaranteesguarantees of returnsreturns required increase in power tariff that couldcould not be charged fully to the consumers. At the same time,time, WAPDAWAPDA hadhad toto guarantee purchasepurchase ofof power,power, which putput endless strains on a so far profitable organization.organization. WhatWhat thisthis arrangementarrangement ensuredensured was was profitability ofof powerpower producersproducers withoutwithout recognizingrecognizing the needneed for sustainability atat thethe downstream downstream stages. The need is for the total powerpower supply systemsystem toto bebe sustainablesustainable not one stagestage of it.it. InIn the event, the burdenburden onon thethe consumerconsumer became unsustainable, whichwhich inin turnturn led to highhigh lineline losseslosses and unpaid utilityutility bills.bills. TheThe governmentgovernment too found itit difficultdifficult to meetmeet its partpart ofof thethe bargainbargain with with inadequate provisionsprovisions forfor TDS andand utility paymentspayments toto DISCOsDISCOs by government consumers.
As demanddemand increased,increased, and investment shied,shied, gap between supply and demand widened. Load sheddingshedding is inherent inin thethe policypolicy structure.structure. AA reviewreview ofof the frequencyfrequency andand duration ofof power interruptionsinterruptions shows that inin aa numbernumber ofof DISCOsDISCOs power interruptioninterruption hashas worsenedworsened whilewhile in some they have been volatile. The two DISCOsDISCOS where where interruptions interruptions havehave declineddeclined areare LES LESCO CO andand FESCO. Overall, IESCO consistently was the best performingperforming DISCO inin termsterms of powerpower interruptions.interruptions. Despite privatization and induction of new management, K-Electric'sK-Electric’s performance has worsened considerably.
To recount, thethe stress onon liquidityliquidity runsruns throughthrough thethe power power supplysupply chainchain withwith under-performingunder-performing generation equipment, skewedskewed policy forfor allocationallocation of of fuel fuel inputs, inputs, under under investment investment inin transmission,transmission, variation between assessed and notified tariff,tariff, incorrectincorrect TDSTDS measures,measures, andand weakweak managementmanagement andand governance of DISCOs.DISCOs. TheThe circularcircular debtdebt isis thethe cumulative outcome of flawedflawed policiespolicies throughout thethe power supplysupply chain and load shedding its mostmost visiblevisible form.
Any set of recommendationsrecommendations will basebase itselfitself onon thethe aboveabove recapitulationrecapitulation of issuesissues in the power sector. The above review ofof itsits performanceperformance pointspoints toto aa systemic failure. Policy cannotcannot bebe anan abstraction or based on whimsical ideas. They mustmust relate toto factsfacts onon thethe ground.ground. RecommendationsRecommendations cannot be simple solutions suchsuch asas paying off thethe circular debt without addressing its genesis or increasing generation capacity with no thought to its consequence.consequence. Once paidpaid off,off, circular circular debt debt hashas thethe habit of rearing its headhead again.again. PolicyPolicy and recommendationsrecommendations must consider their fall out andand effecteffect onon various players in thethe powerpower sector:sector: producers, consumers, implementing agencies.
45 Box 5 Why Privatize?Privatize?
In 2005, KESC clearlyclearly neededneeded restructuring.restructuring. TheThe largestlargest citycity ofof the countrycountry andand itsits most most productive productive economiceconomic unit was hostage to the utility'sutility’s mismanagement.mismanagement. Some Some indicators indicators would would helphelp usus see see howhow broke KESC was. In 2006, its SAIDI andand SAIFI were high.high. The companycompany waswas billionsbillions inin redred whenwhen federalfederal governmentgovernment bailedbailed it out. This should not have happened to a monopoly thatthat has one of thethe country’scountry's most dynamic regions as its captive buyer of power.power. MismanagementMismanagement hadhad beenbeen takentaken toto anan extreme.extreme. ButBut has privatization helped?
The answer at bestbest isis mixedmixed andand anan emphatic emphatic no no if if we we consideredconsidered NEPRANEPRA guidelines. Since privatizationprivatization in 2005, the now renamed K-Electric'sK-Electric’s power interruptionsinterruptions improvedimproved forfor a while and have declineddeclined since. Over a five-year period,period, itsits frequencyfrequency ofof interruptionsinterruptions has has increased increased from from zero zero in in 2008-09 2008-09 to to over over 31 31 in in 2012-13. 2012-13. For For the samesame period,period, duration ofof interruption hashas worsenedworsened fromfrom a 10741074 minutes toto almostalmost 18001800 minutes. TheThe corresponding numbers forfor GEPCO, FESCO, and IESCO are far better, LESCOLESCO is worse. NEPRA’sNEPRA's StateState of thethe Industry ReportReport 20132013 declares K-Electric asas anan exampleexample ofof an an unsuccessful unsuccessful privatization. privatization. It It demonstrates demonstrates thatthat K-Electric misses four outout ofof seven seven NEPRA NEPRA standards. standards. PrivatizationPrivatization has notnot helpedhelped improveimprove line losses. These were 27.6% in 2012-13 comparedcompared to 13.5% forfor LESCOLESCO andand 11%11% eacheach forfor FESCOFESCO andand GEPCO.GEPCO. LineLine losseslosses have declined though from the level they were at thethe timetime ofof privatization.privatization. RecoveryRecovery ratio onon billedbilled electricityelectricity too was far belowbelow those of public sector DISCOs in Punjab. BetweenBetween 2011-122011-12 and 2012-13,2012-13, K-Electric'sK-Electric’s recovery rate declineddeclined fromfrom 89%89% to 85%. RecoveryRecovery rates rates forfor GEPCOGEPCO andand FESCOFESCO waswas 98%98% each.each. ItIt missedmissed alsoalso its load shedding target.target.
While all indicators seem weak, K-Electric'sK-Electric’s bottom lineline hashas seen a healthy boost.boost. In 2011-12,2011-12, the company'scompany’s net incomeincome was 2.7 billion rupees,rupees, which moremore thanthan doubled inin 2012-13 toto 6.76.7 billionbillion rupees.rupees. WhileWhile IPR wants to see all companies profit fromfrom theirtheir operations,operations, it it would would likelike toto seesee thisthis resultresult from from good good managementmanagement practices and effective operations.operations. TheThe profitprofit increase increase cannot cannot be beattributed attributed solely solely to good to practices good practices as a asa number of public sector utilities perform better on on all all indicators. indicators. NEPRA NEPRA alludes that K-Electric's K-Electric’s profits profits are builtbuilt aroundaround aa numbernumber of of inefficiencies.inefficiencies. AtAt aa time time of of extreme extreme power power shortage,shortage, itit keeps keeps idle idle generating generating capacity while buying 640640 MWMW from from the the national national gridgrid (the(the contractcontract isis upup forfor renegotiation).renegotiation). ItIt suits K-Electric because the averageaverage costcost ofof imported power is well below thethe cost of producing itit from its plants. NEPRANEPRA also finds thatthat K-Electric K-Electric hashas limited limited the the number number of of new new connections connections resultingresulting inin a amore more than than 7% 7% decline decline inin new customers over thethe previous year.year. Perhaps it doesdoes so by not investing sufficiently inin transmissiontransmission andand distribution systems. NEPRA guidelines provideprovide forfor an an automaticautomatic triggertrigger wherebywhereby utilitiesutilities share the benefitbenefit of increasedincreased profits withwith theirtheir customers customers through through reduced reduced tariffs. tariffs. K-Electric K-Electric has has not not done done so so yet.yet.
The government mustmust share somesome of the blame.blame. ItIt waswas necessarynecessary toto unbundleunbundle KESCKESC beforebefore privatization among its generating, transmitting, andand distributing distributing components. components. Government'sGovernment’s gasgas supplysupply toto K-ElectricK-Electric is below thatthat agreed at the time of privatization.privatization. Regardless, the utility must improveimprove on all indicatorsindicators and bring its performance at parpar withwith publicpublic sectorsector utilities. AsAs a private companycompany it must provideprovide higher quality service to a productive and dynamic clientele
46 55 Recommendations
RecommendationsRecommendations
If policy makersmakers werewere waitingwaiting forfor goodgood fortune fortune to to come come their their way, way, it it hashas arrivedarrived inin the shapeshape ofof low energyenergy prices.prices. FacedFaced withwith thethe choice betweenbetween reducingreducing subsidysubsidy and and passingpassing thethe benefit toto thethe consumer, they did neither. To gain political capital, GOP initiallyinitially announced tarifftariff reduction and later signaledsignaled thatthat energy energy reformsreforms isis subsidiarysubsidiary toto balancingbalancing books.books.
Consumers expectexpect immediateimmediate exitexit fromfrom a a crisiscrisis thatthat has debilitateddebilitated thethe economyeconomy and, in summer months, destabilizes thethe country.country. ThatThat saidsaid it is importantimportant thatthat ourour concernconcern forfor short-termshort-term reliefrelief must not come atat the expense of optimumoptimum long-termlong-term sustainability.sustainability. EachEach measure,measure, whether for the short or long term, must bearbear inin mindmind thethe overarching overarching objectiveobjective of sustainability. ManyMany past policypolicy changes may have contributed to the crisis.
This is because for years policy makersmakers have prioritized the immediateimmediate overover thethe viable.viable. TheThe complexcomplex character ofof the sectorsector callscalls forfor aa holisticholistic approachapproach thatthat would would forecastforecast demand,demand, andand movemove downdown stream towards towards meeting meeting it it by by reducing reducing inefficiencies, inefficiencies, improving improving profitability, profitability, and sustainable and sustainable investment. 5.1 DevelopDevelop aa context:context: DecisionsDecisions thatthat mustmust guide the energy plan
For a doable plan to emerge, some questions beg answers and somesome tradeoffs need to be identified. The energy sector hashas two constants:constants: a)a) energy marketsmarkets remain volatile and unpredictable for the best experts, andand b)b) capitalcapital needsneeds areare high. high. The The recommendations recommendations belowbelow will balance among the following:
• Short vs.vs. long-termlong-term solutions: A virtual nationalnational emergencyemergency must notnot allowallow immediateimmediate considerations toto trumptrump sound growth ofof thethe sector. ThisThis is especially likelylikely inin anan area that hashas becomebecome politicallypolitically sensitive. Short-term measuresmeasures mustmust followfollow rigorous planning. Within the plan, those measures that are are possible possible immediatelyimmediately maymay become nearnear term. There are sufficientsufficient numbersnumbers of of thingsthings to to do do forthwith forthwith to to provide provide relief. relief. TheseThese includeinclude higherhigher gasgas allocation for power or reduction in DISCODISCO loss.loss. Measures,Measures, withwith long-termlong-term implications,implications, taken inin hastehaste couldcould affectaffect the sector adversely.
• Public vs private Investment: This This decision decision cannotcannot bebe basedbased onon ideologyideology or belief.belief. LetLet thethe pastpast be our guide. Investments needs are highhigh andand wellwell beyondbeyond the country'scountry’s means.means. WhetherWhether public oror private, foreign capitalcapital mustmust fill somesome ofof thethe gap.gap. ForFor aa highhigh credit credit risk risk country, country,
47 foreign privateprivate capitalcapital mustmust come atat aa priceprice andand needsneeds guarantees.guarantees. Government guaranteesguarantees for private enterprise takestakes awayaway somesome ofof thethe valuevalue ofof privateprivate investment.investment. TheThe decisiondecision onon the public privateprivate dividedivide mustmust bearbear inin mindmind thatthat a) Pakistan'sPakistan’s historyhistory shows thatthat private energy is costlier than publicpublic energy, and b) in a weak governance environment, it is easy for interest groupsgroups toto capturecapture statestate decisions.decisions. WhetherWhether publicpublic or private, Pakistan’sPakistan's casecase showsshows that qualityquality ofof governancegovernance decides sustainabilitysustainability ofof thethe powerpower sector.sector. In In thethe past,past, private power resultedresulted in high prices with highhigh deficit.deficit. WhileWhile thethe blameblame forfor thatthat lies lies with with flawed flawed government policy andand decision-making, therethere is no indication yet that thosethose flawsflaws would would go go away soon. Governance qualityquality affects per unit costcost ofof power, whether sourcedsourced from public or private producers. The 1994 policypolicy shows shows that that incentives incentives to to attract attract investmentinvestment made the sector unsustainable. There are are similar similar concerns concerns too too about about coal-fired coal-fired plants plants from from China. China. Similarly, cost escalationescalation ofof Nandipur Nandipur power power project project and and the the uncertainty uncertainty that that surroundssurrounds its executions puts to question the inherentinherent economies economies of rehabilitating oror rebuildingrebuilding GENCOs.GENCOs. The question here is if ourour governancegovernance qualityquality allowsallows aa sustainable sustainable power sectorsector asas itit increasesincreases capital cost and tariff perper KWh.KWh.
• The ideal vs.vs. thethe optimum:optimum: PlannersPlanners are ambitious. The InternationalInternational EnergyEnergy AgencyAgency reportsreports that worldworld energyenergy investmentinvestment inin 20132013 waswas 1.61.6 trilliontrillion dollars,dollars, whichwhich wouldwould increase to 2 trillion dollarsdollars yearlyyearly by by 2035.2035. Add the estimated 550 550 billion billion USDUSD neededneeded forfor energyenergy efficiency,efficiency, total annual investmentinvestment needs needs would would reachreach overover 2.52.5 trillion USDUSD82. NTDC'sNTDC’s NationalNational Power System Expansion PlanPlan 2011-2030 estimates estimates Pakistan’sPakistan's investment needs for the twenty-twenty- year periodperiod to bebe overover 680680 billion USD in nominal dollars and 263263 billionbillion at 20102010 prices.prices. Annual needs vary,vary, butbut PakistanPakistan will will find find it it hard hard to to source source the the average average of ofover over 13 13 billion billion USD USD over the twenty-yeartwenty-year period.period. NTDC'sNTDC’s plan followsfollows a robust methodologymethodology thoughthough we must temper expectation withwith reality.reality. InIn the five yearsyears sincesince thethe plan,plan, thethe country country hashas not not seen seen investment reach anywhere near thethe aboveabove estimates.estimates. AnyAny investment plan mustmust provideprovide for the risk thatthat availableavailable capitalcapital could could fallfall shortshort ofof needs.needs. IEA'sIEA’s WorldWorld Energy Investment Outlook 2014 citescites the example of India. Despite doublingdoubling generation capacitycapacity sincesince 2013,2013, India sufferssuffers fromfrom electric power deficit.deficit. TheThe documentdocument estimatesestimates thatthat if if India India reduces reduces T&D T&D losses from thethe present 27%27% toto 15%,15%, a mere 5% tarifftariff increase wouldwould allow full recovery andand would perhapsperhaps attractattract required investment.
In meeting demand, it is importantimportant toto decidedecide between the optimum and the ideal.ideal. Any plan must triangulate among among the the goals goals ofof affordability, reliability, and sustainabilitysustainability of of energyenergy supply.supply. TheThe soonsoon to commence LNG LNG terminal terminal is is aa casecase inin point.point. BuiltBuilt withwith capacity guarantee,guarantee, Petroleum ministry finds oneone ofof itsits usesuses toto fill fill energy energy demand demand for for transport. transport. If Ifused used for for generation, generation, the the cost cost for for power power would be nono differentdifferent fromfrom generationgeneration by oil. Similarly,Similarly, thethe economy mustmust assessassess optimum domestic use of energy.energy. In 2010-11, 18.6%18.6% of of natural natural gasgas wentwent to meetmeet household needs. In fiscal 2013-142013-14 (July(July February) this share increasedincreased toto 23.2%.23.2%. Households alsoalso shareshare inin thethe 7%7% that that goesgoes toto the the transporttransport sector as CNG.CNG. A mix ofof demanddemand managementmanagement throughthrough efficiencyefficiency andand conservation conservation (including (including CNG CNG pricing) will directdirect energyenergy useuse to the more productive sectors of powerpower andand industry.industry.
We needneed decisionsdecisions also also on on carbon carbon neutrality neutrality (Pakistan(Pakistan is belowbelow its its commitments commitments soso far, far, but but standards standards will becomebecome stringent. stringent. ChinaChina andand USUS havehave agreedagreed onon limitslimits bilaterallybilaterally andand thethe environmentenvironment summit this yearyear maymay imposeimpose newnew restrictions).restrictions). On thethe subjectsubject ofof emissions,emissions, Pakistan'sPakistan’s reliancereliance onon coalcoal
48 as energyenergy sourcesource is negligiblenegligible and far belowbelow world average. Pakistan hashas considerableconsiderable space to increase coal-fuelled powerpower despitedespite limitslimits imposedimposed byby highhigh environmentenvironment cost. IPRIPR prefers reliance on indigenous sourcesource ratherrather than on imports. WithWith respectrespect toto renewables,renewables, wind and solar, we must look atat the feasible over thethe ideal in new technology withinwithin Pakistan’sPakistan's capacity.capacity. IEA'sIEA’s World EnergyEnergy Outlook forecastsforecasts renewablesrenewables toto ‘become'become the the numbernumber oneone sourcesource of of energy’ energy' in in the the world. world."83 PakistanPakistan must prepare itselfitself forfor increasingincreasing theirtheir use, use, especially especially for for offoff grid access.
• Imported vs. domestic energy supplysupply:: Three domestic sourcessources havehave potential:potential:
o Thar coal:coal: So far, Thar coalcoal isis aa victimvictim ofof policypolicy direction and federal-provincefederal-province rivalry. Possessive ofof itsits rightsrights over Thar coal, SindhSindh government hashas done little to exploit the resource that couldcould possiblypossibly bring the countrycountry outout ofof its highhigh importimport dependence.dependence. SomeSome concerns meritmerit attention:attention: especiallyespecially that that presentpresent estimatesestimates turnturn out to be higher than what is proven andand that Pakistan hashas limitedlimited technicaltechnical andand managerialmanagerial abilityability toto exploitexploit it fully.fully. There is no higher cost though than toto letlet itit remainremain below below ground,ground, whichwhich the government seems to be content with doing.
o Renewables, includingincluding hydro:hydro: Potential Potential forfor hydropower hydropower is is high, high, but but it it hashas not merited the attentionattention itit deserves. deserves. HydropowerHydropower is aa greatgreat domesticdomestic resource,resource, whichwhich cancan reducereduce imports considerably. ItIt comes withwith high capital cost for civil worksworks andand transmission, and increasingly, with engineering challenges. Government'sGovernment’s recent focusfocus on hydrohydro raisesraises hopes for earlyearly realizationrealization and could lendlend thethe power sectorsector sustainabilitysustainability in the medium term. Generation fromfrom other renewables,renewables, solarsolar andand wind,wind, havehave begun.begun. NEPRANEPRA has done well to approveapprove upfrontupfront tariff for a number of projects.projects. TheyThey havehave yetyet toto assumeassume any major share in generation.
o Shale and tight oiloil and gas: Pakistan'sPakistan’s highhigh shaleshale potentialpotential cancan helphelp thethe countrycountry sourcesource domestically aa majormajor partpart ofof its its energyenergy needs. needs. Investment Investment andand technicaltechnical requirementsrequirements areare large. Government must notnot allowallow current declinedecline inin energyenergy pricesprices toto delay incentives for shale exploration. Recommendations
This paper recommends measures thatthat will will help help achieve achieve thethe objectives objectives below:below:
I. Relief fromfrom thethe crisiscrisis inin thethe short-termshort-term
II. Short to medium term
III. Sustainable developmentdevelopment of thethe sector inin thethe medium term
I.I. Relief fromfrom the crisiscrisis in thethe shortshort-term— term
To provideprovide immediateimmediate reliefrelief toto citizens,citizens, governmentgovernment mustmust begin to realize potential supplysupply possiblepossible from presentpresent capacitycapacity ofof the power sector. NEPRA estimatesestimates shortageshortage of of aboutabout 5,0005,000 MW inin capacitycapacity8484.. The measures belowbelow would addadd substantialsubstantial capacitycapacity veryvery quickly:
49 • Improve governancegovernance inin governmentgovernment ownedowned generation, generation, transmission, transmission, andand distribution:distribution:
o A low hanginghanging fruitfruit is to use administrative meansmeans to to reducereduce lineline losses, losses, improveimprove DISCODISCO profitability, andand increase increase cash cash flow flow to to the the power power supply supply chain. chain. Line Line loss loss occurs occurs for for two two reasons: governance andand technical. Given thethe time and extent ofof the practice, line losses have assumed aa politicalpolitical economy andand lobbylobby thatthat includes interest groupsgroups amongamong service users and and officials officials of of DISCOs DISCOs and government.and government. Because Because of its effectof its on effectproduction on ofproduction of electricity, the costcost toto thethe economyeconomy from DISCO losseslosses farfar exceeds thethe financial loss loss to to DISCOs. With government resolve, it is possible to reduce line losses by aboutabout fifty percentpercent in the nearnear term.term. ThisThis requiresrequires political political willwill andand isis entirelyentirely withinwithin governmentgovernment control.control. IPR estimates that aa five five percentage percentage point point decrease decrease in in line line loss loss would would generate generate Rs. Rs. 55 55 billion annually for DISCOs andand K ElectricElectric consequentlyconsequently reducereduce circularcircular debt obligations by an equivalent amount.amount. AA doabledoable 7-percentage pointpoint wouldwould yield 77 billion rupeesrupees85.To improve governance thethe government maymay taketake followingfollowing action:
.■ Address issuesissues ofof organizationorganization and and structure structure byby restoringrestoring staturestature to the distribution sector. This isis aa trilliontrillion rupeesrupees segment, withwith greatgreat diversity. ItIt must not be handled in thethe presentpresent fragmentedfragmented way.way. GovernmentGovernment mustmust createcreate aa holdingholding companycompany with dedicated professionals to manage performance of the ten DISCOs.DISCOs.
.■ Government maymay setset up Summary Courts for handling cases of line losseslosses and pilferage of electricity.
.■ End-to-end use of technologytechnology willwill enable enable trackingtracking andand reducing line and bill recovery losses. The gainsgains from lossloss reductionreduction itselfitself willwill allowallow capitalcapital formationformation forfor investmentinvestment in technology andand T&D efficiency.efficiency. ItIt will will allowallow alsoalso toto billbill peakpeak andand off-peak off-peak usage.usage.
.■ Given thatthat non-payment ofof bills is a major issue, government or NEPRA mustmust declare a maximum period for non-paymentnon-payment or aa maximummaximum amount. DISCOs must disconnect supply as soon as the consumer breaches the ceiling.ceiling.
o Similarly, reduce amount ofof receivables of amountamount billed, butbut payment not received. For fiscal 2013-14,2013-14, underunder recoveredrecovered amountamount by by DISCOs DISCOs (not(not includingincluding KK Electric)Electric) isis Rs.Rs. 98 98 billion (118 billionbillion includingincluding estimateestimate for K Electric).Electric). EstimateEstimate of incremental cashcash flowsflows on this account is Rs. 50 billion annually.annually.
o IPR estimates thatthat DISCOsDISCOs loselose anan amountamount ofof Rs.Rs. 130130 BillionBillion annually by applying a rate forfor useuse ofof powerpower lowerlower thanthan applicable applicable rate.rate. Some Some DISCOs DISCOs negotiatenegotiate recoveryrecovery with non-paying consumersconsumers on on thethe billedbilled amount.amount. ThisThis isis aa fall out fromfrom the practicepractice of overbilling ofof consumers.consumers. AsAs consumersconsumers havehave nono faithfaith in DISCO billing process, they hedge by negotiating. Inevitably, DISCOs settlesettle for anan amount below thethe billed amount. This practice occurs in several DISCOs.DISCOs. This too could yield aboutabout Rs 20 billion rupees per annum.
The increase in cash flow andand moremore importantly in the documentationdocumentation wouldwould addadd substantialsubstantial capacitycapacity to generation by reducing circular debt.
50 • Reduce tarifftariff slabs and increaseincrease peakpeak off-peakoff-peak difference:
o Reduce tariff slabs: Loss onon thisthis account is borne byby datadata obtained from Ministry of WaterWater and Power. Their document shows concentrationconcentration ofof use use atat thethe upper end ofof each slab. Proliferation ofof slabsslabs isis an incentiveincentive to shiftingshifting tarifftariff chargecharge toto aa lowerlower categorycategory (see(see Figure 7 below). IPRIPR proposesproposes reducing reducing slabs slabs in in a a wayway that that itit would bebe revenuerevenue neutralneutral or have a positive effect on revenue.
o Increase tariff differencedifference between peak and off-peakoff-peak tariff:tariff: ThisThis willwill helphelp withwith managingmanaging demand and conserving energy. CurrentCurrent tariff incentive has not helped shift demand from peak to off peak hours. WeWe recommend efforts to do so to help overcome bothboth generationgeneration and transmission constraints. PerhapsPerhaps thethe one-thirdone-third tarifftariff incentiveincentive isis notnot enough.enough. IPR proposes aa fiftyfifty percentpercent differencedifference in tariff for industrial usersusers byby increasingincreasing peakpeak ratesrates and reducing off-peak rates.rates.
o Government’sGovernment's announcement of of tarifftariff relief relief (by (by almostalmost Rs.Rs. 33 perper KWh)KWh) is a 25% reductionreduction from present level. This will reduce incentive for losses,losses, butbut also may increase demand and could increase load shedding.
Figure 7
Too manymany tariff categories 20 18 16 14 12 10 8 6 4 2 0
0-50 0-100 101-300 301-700„its cs 6c>4 \k5 e Bulk Supply < 5KW Industrial TOUcs)Commercial Peak < 5 KW N-qoAgriculture tubewell Indusrial 25-500 KW Bulk Supply TOU Peak
Source: State of Industry Report,Report, NEPRA
• Increase gas allocationallocation for power generationgeneration
51 Gas allocation for power dropped in 2013-14 from 2012-13 byby 1010 %.%. This This trend trend beganbegan in 2008, when 61% ofof thermalthermal power relied on gas and 39%39% relied on oil. By 2013,2013, thisthis changed to 43% forfor gasgas andand 57% forfor oil.oil. TheThe costcost ofof powerpower produced produced fromfrom gasgas isis Rs.6Rs.6 toto 7/7/ KWhKWh asas againstagainst Rs.Rs. 1515 toto 18/KWh18/KWh for power produced from oil.oil. IncreaseIncrease inin powerpower generationgeneration from gas reduces cost of power.power. IPR IPR estimates estimates that availabilityavailability of of anan additional additional 400-mmcfd 400-mmcfd gasgas for for powerpower (10%(10% of totaltotal production) would increaseincrease production capacity by 2,000MW. IncreaseIncrease of gasgas supply for power by 14% will reduce cost by 55 paisa perper KWhKWh and overalloverall costcost savingsaving ofof 55 billion Rs86.
Within the power power sector, it is is important important to to follow follow the merit merit order order of of plant plant efficiency. efficiency. Each Each year year NEPRA issuesissues aa meritmerit order for plants.plants.
The trend forfor shiftingshifting gasgas fromfrom powerpower to other usesuses beganbegan inin fiscalfiscal 2004-05 2004-05 when when the the power power sector sector received 507 Bcft. It declined since to 337 Bcft in 2010-1187. Fiscal 2013-14 sawsaw furtherfurther declinedecline of gasgas allocation for power. Power sector received 27.5% ofof domesticdomestic gasgas producedproduced forfor thethe periodperiod July-July- April 2012-13. ThisThis declined to 26% forfor thethe corresponding year-to-year periodperiod inin fiscalfiscal 2013-14. 2013-14. Allocation Allocation for fertilizer increased fromfrom 15% toto 19%19% duringduring thethe same period88. The National PowerPower PolicyPolicy 2013, stipulates thatthat all all gas gas would would go go toto thethe powerpower sector. IPR is of thethe viewview thatthat a ten to fifteen percentagepercentage points increase for power would bringbring inin significant generationgeneration capacity capacity toto reducereduce loadload sheddingshedding inin off peakpeak months.months.
• Retire circular debt
Each year, government provides in the federal budget between 250 and 300 million rupeesrupees toto settlesettle power sectorsector subsidy.subsidy. CircularCircular debtdebt isis the amountamount ofof unpaidunpaid subsidysubsidy asas wellwell asas below below NEPRANEPRA standard performanceperformance byby DISCOsDISCOs and GENCOs. It is possible to eliminateeliminate circular debt by:
o Reducing cost of electricityelectricity (fuel mix aandnd generation efficiency)efficiency) o Improving governance (less(less lossloss by DISCOs and GENCOs)GENCOs) o Timely payment of subsidy
IPR recommends relyingrelying onon thethe firstfirst twotwo toto reduce reduce circularcircular debt.debt. Reduced Reduced costcost (as(as inin higherhigher gas gas allocation) will reduce subsidy, improved governance will cut downdown DISCO loss. However, until government takestakes care of thethe above, itit isis necessarynecessary thatthat they settle thethe budgetedbudgeted subsidysubsidy on time and not allowallow it toto buildbuild up.up. InIn thethe event, event, itit clogs clogs thethe system, system, andand reduces reduces availability availability ofof power.power. Government also pays for power notnot producedproduced andand mark-upmark-up on it.
IPR recommends alsoalso gradualgradual removalremoval ofof allall subsidies to consumers whowho maymay pay the billedbilled amount. Government may prepare aa planplan toto supportsupport low-income low-income consumers through aa specialspecial social protection scheme. ThisThis willwill improveimprove targeting targeting ofof subsidysubsidy andand dodo awayaway withwith breakbreak inin payments to power producers.
There is a danger that somesome IPPsIPPs maymay invokeinvoke sovereign guarantees. ThereThere isis nono confirmed estimateestimate of circular debt though most estimates placeplace it atat 300300 billionbillion rupees.rupees. IPRIPR recommendsrecommends immediate retirement of of 110110 billionbillion rupeesrupees followedfollowed by 20 billion Rs monthly.
• Provide dutyduty drawback toto exportexport industryindustry
Despite recent reduction, high cost of electricityelectricity placesplaces ourour businesses businesses atat aa competitivecompetitive disadvantage.disadvantage.
52 Table 19 shows thatthat Pakistani businessesbusinesses paypay significantlysignificantly more more for for use use of of powerpower thanthan competitors competitors in the regionregion do.do. These do notnot reflectreflect recentrecent reductionreduction in in power power tariff.tariff. As As energyenergy pricesprices havehave declineddeclined world over, otherother countries too willwill reducereduce tarifftariff commensuratecommensurate with their dependencedependence onon fossilfossil fuel. Our businesses will continue to face relativerelative disadvantage.disadvantage.
IPR recommends providing a duty drawback scheme for our export businesses to compensate forfor loss in competitiveness. Government may take upup withwith WTOWTO to define itit asas a alike like tradable tradable commodity. commodity.
II. Short to mediummedium-te— termrm
• Public investmentinvestment
o IInn thethe PSDP,PSDP, divertdivert resourcesresources fromfrom otherother sectors,sectors, especiallyespecially highways,highways, to increaseincrease generation and transmission capacity
o Invest in GENCOsGENCOs rehabilitation oror replacement andand in hydropower.hydropower. InIn the casecase ofof GENCOs, prioritizeprioritize thothosese withwith useableuseable cooling water, water, fuelfuel supplysupply infrastructure,infrastructure, and electric switcswitchyards.hyards. At thethe same time, they will havehave transmissiontransmission linkage.
Below isis aa prioritized list ofof Hydropower and GENCOs investment for early completion.completion. The grey filled projectsprojects mustmust completecomplete earlyearly toto givegive 1,9251,925 MWMW withinwithin aa few months.months. Tarbela,Tarbela, NeelumNeelum JhelumJhelum and Mangla refurbishment wouldwould take twotwo toto three yearsyears toto yieldyield anotheranother 2689 2689 MW.MW.
Table 22 Proposed projects for early completion from PSDP
Capacity Throw forward 1.7.20141.7.2014 Project MW Billion Rs
Hydropower (storage and run off the river)
Neelum Jhelum 969 149.5
Refurbishment ofof Mangla Power 310 51.3
Tarbela Fourth Extension 1,410 68.5
Kheyal Khawar Hydro Power 122 3.1
Golan Gol 106 18.5
GENCOs CombinedCombined Cycle
Guddu 747 8.1
Chicho ki Mallian 525 31.2
1.8 Nandipur 425 (does notnot includeinclude recentrecent revision)
4,614 332
Allocation 2014-15 104.3 (including self-financing)
Source: IPR IPR recommendation recommendation basedbased onon informationinformation inin PSDPPSDP 2014-152014-15
53 • Increase Investment in Transmission and Distribution
o Transmission capacity constrains additional power generation. Various estimates place a limit onon overall transmission capacity capacity at at between between 1200 1200 to to 1500 1500 MW MW ofof power.power. Yet some feeders for some DISCOs,DISCOs, forfor exampleexample LESCO, LESCO, are are under under used.used. ItIt is possible to increase supply to thesethese DISCOs. Transmission must reliably deliver generated power. Expansion of transmission network and augmentation of grid stations wouldwould reduce constraints on delivery of present generationgeneration andand provideprovide forfor expectedexpected addition to capacity.capacity. IPRIPR recommends prioritizedprioritized implementationimplementation of transmissiontransmission projects to complete in two to three yearsyears forfor thethe following:following:
Table 23 Prioritized transmission projects
Transmission project throw forward Location/Generation unit MW Rs Billion
Guddu 747 7.8 Neelum Jhelum 969 20.6 Tarbela Fourth Extension 1,410 Gadani Imported Coal 300 (From Gadani to Lahore and to 6,600 (estimated) (Need to study possible cost reduction by connecting it Faisalabad) to grid at Mattiari oror Jamshoro-Moro)Jamshoro-Moro) Faisalabad 500500 KV 1,500 11 Chashma 440 2.8 Four new projects with JBIC: RYK, Chishtian,Chishtian, Gujrat,Gujrat, and 4.2 Shammar 50 kv 3rd circuit Jamshoro-Mo-Jamshoro-Mo- 35.3 ro-RYK 3.3 Augmentation ofof NTDC system 0.9 Total 386
Allocation 59
Source: IPR IPR recommendation recommendation basedbased onon informationinformation inin PSDPPSDP 2014-152014-15
The 59 billion rupees allocation forfor transmissiontransmission assumesassumes that NTDC NTDC will finance 56 56 of ofthe 61the 61 transmission projectsprojects inin thethe PSDP PSDP or or 75%75% ofof total allocation for transmission. Recall,Recall, oneone of thethe key issues impeding power supplysupply isis restrictedrestricted cash flow. ThereThere isis littlelittle capitalcapital formationformation inin lossloss makingmaking units. PEPCO'sPEPCO’s ability to self-finance isis inherentlyinherently limited.limited. GovernmentGovernment mustmust stepstep inin with with public public investment byby reducing spending in other sectors.
o Distribution: With increase in frequencyfrequency and duration ofof unplannedunplanned powerpower breakdownbreakdown (refer discussion on SAIFISAIFI andand SAIDI),SAIDI), it it is is important important toto improveimprove the the distributiondistribution system.system. The 11 KV feedersfeeders seemseem toto bebe affected affected especially. especially. Government Government may may prioritize prioritize thesethese inin thethe PSDP. Table 24 below shows overloaded feeders.
54 Table 24 Number of Overloaded FeedersFeeders
DISCO 132 KV 66 KV 33 KV 11 KV PESCO 17 - - 41 TESCO 2 2 - - IESCO 11 - - 30 GEPCO 31 6 - 15 LESCO - - - - FESCO 2 - - 383 MEPCO 10 - - 130 HESCO - - - - QESCO - - - - Total 73 8 - 629
Source: NEPRA NEPRA State ofof Industry ReportReport 2013
• Begin aa privatizationprivatization programme for government ownedowned entitiesentities oror managemanage themthem on marketmarket principles:
o Government entitiesentities in thethe powerpower sectorsector havehave sufferedsuffered fromfrom inaction.inaction. GENCOsGENCOs have suffered in particular. GovernmentGovernment may eithereither commitcommit resourcesresources for rehabilitationrehabilitation ofof GENCOs andand delegatedelegate decisiondecision making making toto their their managementmanagement or privatizeprivatize them.
o It isis importantimportant toto strengthenstrengthen NEPRA NEPRA capacity capacity beforebefore governmentgovernment privatizesprivatizes DISCOsDISCOs or gives them out on lease. III. SustainableSustainable development development of of the the sector sector in in the the medium medium termterm
The present crisiscrisis isis notnot aa transienttransient case case of of demand demand exceeding exceeding supply.supply. ItIt resultsresults from from deepdeep policy,policy, governance, and structural flaws. flaws. A Anumber number of of issues issues affect affect power power supply.supply. AA planplan forfor improvement mustmust look, amongamong others,others, atat the energy and fuelfuel mix, participationparticipation ofof public andand private sectors,sectors, efficienciesefficiencies of generation. It must dealdeal withwith fuelfuel supplysupply arrangements,arrangements, especiallyespecially increaseincrease inin indigenousindigenous fuelfuel supply, import of energy,energy, logisticslogistics (at(at portport andand pipeline capacity), andand refining capacity.capacity. GovernmentGovernment must also optimize among power tarifftariff levels, creatingcreating fiscal spacespace forfor reinvestmentreinvestment inin thethe sector, sector, and inin endingending subsidy.subsidy. It mustmust correctcorrect PSDPPSDP allocationallocation to realizerealize thethe country'scountry’s hydrohydro potential,potential, improve GENCO and T&DT&D efficiencies.efficiencies.
Reduction inin world oiloil pricesprices hashas allowedallowed government government to to provide provide relief relief to to users. users. The The resultant resultant tariff decrease may reduce some of thethe incentive for line losses.
• Demand EstimateEstimate
o It is important toto beginbegin with a reliable estimateestimate ofof power needs for thethe nextnext twentytwenty years. GDP growthgrowth estimatesestimates areare not much help as inin recentrecent yearsyears therethere is is no no convergence convergence between growth and demand. History could bebe aa guideguide thoughthough withwith suppressed demand and high losseslosses it isis hardhard toto rely rely too too muchmuch onon pastpast consumption consumption increaseincrease (consumption(consumption
55 grew by a simple simple average average of of 2.7% 2.7% per annum annum between between 2008-09 2008-09 and and 2012-13 2012-13 89). HighHigh line loss suggests that electricityelectricity inputsinputs the the economy economy thoughthough isis notnot counted.counted. SomeSome of thethe demand estimates are:
.■ NTDC’sNTDC's fivefive year year forecast forecast for demand,for demand, which NEPRAwhich endorses, NEPRA endorses, places capacity places capacity needs at 26,75526,755 MW forfor 20182018 (actual(actual availableavailable capacity as opposed toto installed).Theyinstalled).They estimate 20132013 availableavailable capacitycapacity toto bebe 18, 827. This means a 42% increaseincrease in capacity over five yearsyears oror 8.5%8.5% annuallyannually90 .
.■ NTDC’sNTDC's NationalNational Power ExpansionExpansion Plan, 2011, provides aa long-term perspectiveperspective andand forecasts aa similar increase in demand. With 2009-10 as as thethe basebase year,year, itit estimates demand toto growgrow from 106,569 GWh to over 737,000737,000 GWhGWh inin 2034-352034-35 atat anan increase of 8.05% annuallyannually91. TheyThey estimateestimate average annual GDP GDP growthgrowth atat 5.2%.5.2%. AllAll benchmarksbenchmarks show an elasticity ofof 1.6 is high.
.■ Planning Commission'sCommission’s PakistanPakistan Integrated EnergyEnergy ModelModel estimates aa fourfoldfourfold increase in generation byby 2030 to reachreach 410,000410,000 GWhGWh requiring requiring anan additionaladditional capacitycapacity of 82,000 MW92.
.■ A governmentgovernment sponsored private sectorsector energyenergy committeecommittee estimatesestimates generationgeneration capacity needs ofof 50,000 MW byby thethe year 202293.
.■ The country has always fallen shortshort of pastpast ambitiousambitious demanddemand targetstargets for generation capacity. ItIt is important toto investinvest inin T&DT&D andand notnot focusfocus onon generationgeneration alone.alone. With an elasticity ofof 1.2 to averageaverage annual GDPGDP growth of 5%,5%, IPR IPR estimates estimates thethe country’scountry's capacity needs toto bebe asas follows:follows:
Table 25 Estimate of Capacity to Meet National Power Demand
Year 2014 2020 2025 2030
MW 23,000 32,500 43,500 58,500
• A least cost generation approach
o Have a base load planplan contingent on cost ofof power. power. The The plan plan will will prioritize prioritize hydro hydro generation, generation, gas fuelled, and coal power inin that order.order. DemandDemand inin excessexcess ofof normal maymay bebe sourcedsourced from fossil fuelfuel (RFO(RFO and and HSD).HSD). Government Government may may also also increase increase shareshare ofof alternativealternative fuel based on solar and wind.wind. Solar and windwind powerpower are important particularlyparticularly forfor offoff grid supply for localized developmentdevelopment and and toto provideprovide accessaccess to to populationpopulation that that are outside the coveragecoverage area. WorldWorld priceprice ofof photovoltaic cellscells hashas fallen byby 80%80% since 2008, and estimates areare thatthat the ‘the best best utility-scale utility-scale solar solar projects projects can can now now produce produce electricityelectricity for less than $0.10$0.10 per kilowatt-hour'kilowatt-hour’94. For the foreseeable futurefuture though hydrohydro and coalcoal should have the majormajor shareshare inin powerpower supply.supply. Other thanthan thosethose underunder implementation,implementation, IPRIPR proposes thatthat all new thermal plantsplants bebe inin privateprivate sector sector andand new new hydropowerhydropower may be in public andand private sector.
56 To maintainmaintain sustainability, PakistanPakistan must must aim aim to to change change its its production production profile profile as as follows: follows:
Table 26 Profile ofof PowerPower ProductionProduction andand FuelFuel SourceSource
Fossil Hydro Thermal Gas Coal Alternative Nuclear fuel
2015 28.8 67.6 < 1 < 1 3
2025 35 50 (20) (15) (15) 10 5
Add capacity 9,000 8,000 (8,000) 3,000 1,500 MW ■ Note: Production from gas, coal, andand fossilfossil fuel fuel are are givengiven in in brackets brackets asas theythey areare subset of thermal. Breakup between gas and fuelfuel not givengiven for 2015 as it is contingent onon gas allocationallocation forfor power by government Additional capacity is based onon demand ofof 43,500 MW estimated for 2025. Additional capacity takes in to account projects underunder implementation
o Sequencing thethe projects: UnderUnder short to medium-term recommendations, we havehave takentaken GOP GENCO andand hydropower projectsprojects onon whichwhich governmentgovernment hashas committed significant resources. Within thisthis group,group, wewe choosechoose the economical options,options, inin termsterms of capexcapex andand per unit priceprice (see(see TableTable 2727 for forecast of fuel cost/MMBtu).cost/MMEtu). ThisThis is NTDC’sNTDC's approach,approach, whose recommendations get lost in government'sgovernment’s planning process.process. GovernmentGovernment maymay followfollow thisthis approach for medium to long-term expansionexpansion inin privateprivate and public sectors.
Table 27 Forecast of Fuel CostCost S/MMBtuS/MMBtu
2010 Projection Fuel Price 2015 2020 2025 2030
Crude Oil 13.75 16.46 18.85 20.05 21.51
Imported Gas 9.26 10.60 11.87 12.51 13.29
Imported LNG 7.96 13.23 13.98 14.68 16.84
HSFO 12.48 12.57 14.41 15.32 16.44
LSFO 13.72 13.84 15.85 16.85 18.07
Diesel 19.84 21.68 24.78 26.31 28.20
Imported Coal 4.83 6.19 6.91 6.36 5.88
Thar Coal 3.99 3.99 3.99 3.99 3.99
Thar Syngas 2.86 2.86 2.86 2.86 2.86
Nuclear 0.23 0.36 0.27 0.27 0.27
Source: Adapted from NTDC NationalNational PowerPower SystemSystem ExpansionExpansion PlanPlan basedbased onon datadata from EIA,EIA, PakistanPakistan Energy Yearbook, andand InterInter State Gas Systems
57 The fuel datadata may appear outdated in view ofof currentcurrent energyenergy priceprice trends, trends, butbut theythey remainremain relevantrelevant to exercise choice basedbased onon relativerelative prices. o Planning CommissionCommission or PPIBPPIB do notnot havehave retirementretirement plan forfor existing equipment. MoreMore than fifty fifty percent percent of worldof world generation generation investment investment is replacement. is replacement. Government Government must must prepare a Hydro,Hydro, GENCO,GENCO, andand IPPs rehabilitationrehabilitation andand replacementreplacement scheduleschedule years before theythey needneed itit to ensureensure continued supply withoutwithout breakages.
• Competitive TradingTrading in Electricity
NTDC maymay beginbegin toto source powerpower fromfrom IPPsIPPs on the basis ofof competitive bidding in timelines ofof two to four weeks. NTDCNTDC maymay initiallyinitially purchasepurchase power from basebase load plantsplants (hydro,(hydro, nuclear, GENCOs)GENCOs) and use aa processprocess of bidding for remainingremaining supplies.
• Dispute Resolution
Government or NEPRA maymay immediatelyimmediately make efforts to resolveresolve disputesdisputes between NTDC andand IPPs.IPPs.
• Indigenization
If present domesticdomestic production patternpattern continues,continues, importimport needsneeds willwill increaseincrease exponentiallyexponentially (Figure 3). IPRIPR estimatesestimates that thethe coal-fired coal-fired plant plant from from China China alone alone would would need need annually annually 1.4 1.4 billion billion USDUSD atat current lowlow prices (Box 1).1). EvenEven withwith decliningdeclining prices,prices, Pakistan Pakistan cannot afford such high dependence on imported energy. Present governmentgovernment policies, policies, lookinglooking forfor quick fixes, willwill enhanceenhance dependence dependence on imports:
o Develop hydropowerhydropower potentialpotential (see(see discussiondiscussion underunder generation)
o Develop ThartoTharto builddomestic coalcoal capacity:capacity: ThisThis wouldwould helphelp reliablereliable fuel supply. The lignite resources atat Thar needneed three interventionsinterventions byby thethe provincialprovincial government:government:
.■ Drilling of explorationexploration wellswells toto reliablyreliably estimateestimate provenproven reservesreserves andand their location
.■ Infrastructure toto accessaccess resourceresource locations:locations: reliable roadroad access,access, power supply, and drainage of brinebrine asas presentpresent infrastructureinfrastructure is limited
.■ High level leadership for developmentdevelopment ofof thethe resourceresource and toto ensureensure concession concession management
o Explore shaleshale production: Potential Potential forfor shaleshale gasgas and oil is high.high. GovernmentGovernment must announce soon aa policy onon shaleshale andand a frameworkframework to encourage investment. Given its long learninglearning curve and high investment needs,needs, E&PE&P companies needneed supportsupport to realize shale potential. CurrentCurrent low low energyenergy priceprice mustmust not not allow allow complacency.complacency.
o Build Wind andand Solar: NEPRA hashas donedone wellwell toto approveapprove upfrontupfront tarifftariff rates.rates. Wind and solar is especially useful toto meetmeet off-gridoff-grid local needs.
o Government maymay announceannounce specialspecial policypolicy for for small small hydro hydro plants plants inin thethe private sector.sector. This could help local off gridgrid needs.
• Energy efficiency andand conservationconservation
58 o Embark on a strong conservation awareness programme
o Parliament mustmust passpass immediately immediately PakistanPakistan Energy Energy Efficiency Efficiency and and Conservation Conservation Bill. Bill.
o Update transport andand buildingbuilding laws and regulations
o Begin energyenergy ratingrating for appliances
o Create incentives for consumers as somesome of above require them toto commitcommit resourcesresources before realizing the benefits from from conservationconservation
o Increase tarifftariff differentialdifferential betweenbetween peakpeak and and off-peak off-peak powerpower useuse (refer(refer above)above) • Financing plan
Financial close ofof privateprivate oror PPPPPP projectsprojects isis aa majormajor hurdlehurdle in adding new capacity. PakistanPakistan may establish an EnergyEnergy SupportSupport FundFund toto pumppump primeprime energyenergy investment.investment. Government'sGovernment’s PDFPDF ofof 157 billion rupeesrupees should bebe thethe initial source. This may be promoted withwith donorsdonors andand funds,funds, afterafter an announcement of a programme (policies existexist already)already) forfor increasingincreasing privateprivate generationgeneration andand other investment. GovernmentGovernment maymay accessaccess followingfollowing sources:
o Multilateral and bilateral lending institutionsinstitutions
o China’sChina's Asian InfrastructureInfrastructure Investment Bank
o WB GlobalGlobal Infrastructure Infrastructure Facility
o G 20 GlobalGlobal Infrastructure Infrastructure Hub
o Risk mitigation through MIGAMIGA While sourcingsourcing privateprivate or PPPPPP investment government must ensureensure thethe following: following:
o Observe private power policy provisionsprovisions ofof transparency transparency
o Not provide incentivesincentives that that makemake the sectorsector unsustainableunsustainable and preferprefer thesethese forfor indigenization and for renewables
o Prioritize lowlow unit costcost power
59 Table 28 Table of Recommendations
I. Short-term reliefrelief
Activity Responsibility Implication Improve governance in government owned 1 GOP generation, transmission, and distribution GOP I Reduce line losses by 50% PEPCO, esp. Improve cash flow, reduce circular DISCOs Improve cash flow, reduce circular debt to increase generation, and allow Reduce under recoveryrecovery of billed II capital formation, and increase capital amount --do-- formation III Charge applicable tarifftariff ratesrates
Reduce tariff slabs and increaseincrease peakpeak off-off- 2 GOP,GOP, NEPRANEPRA peak difference
I Reduce tarifftariff slabs GOP, NEPRA Reduce DISCO losses
II Increase peak off-peakoff-peak differential --do-- Conserve energyenergy andand manage demand iii. Reduce unit cost and total power 3 Increase gasgas allocationallocation forfor power GOP cost iv. Reduce subsidysubsidy andand circularcircular debt
iii. Increase generation MOF,, 4 Retire circular debt and pay TDS in time GOP' iv. preclude invoking of guaranteesguarantees by GOP IPPs
Subsidy policy must incentivize efficien-efficien- MOF, 5 cy and make DISCOs accountable for live NEPRA Increase generation NEPRA losses.
6 Provide duty drawback to exportexport industryindustry GOP Increase exports
II. Short to medium-term
1 Public Investment Quick additionaddition to generation capacity Divert PSDP to power from other Rehab reduces capital cost I GOP sectors Lower unit cost from hydro Hydro helps with indigenization Invest in prioritized GENCOs andand in GOP, PEPCO, II hydropower WAPDA Increase Investment in Transmission and GOP, PEPCO, 2 Distribution NTDC, DISCO Realize benefits from from completed completed proj- proj- I Prioritize transmission projects ects, Build reliability II Prioritize distribution projects --do-- I Begin competitive trading ofof power NTDC / NEPRA Increase efficiencyefficiency inin generationgeneration 3 II Resolve NTDC-IPPsNTDC-IPPs disputesdisputes Ministry / NEPRA Improve environment
60 III. Sustainable development of the sector in the medium term
Planning Commis-Commis- 1 Demand EstimateEstimate sion, Ministry ofof Logical development of sector Water and Power
Plan base load generation on the basis 2 I of cost/KWh (prioritize(prioritize hydro and coal) and alternative for off grid Ministry of Water and alternative for off grid Sustainable developmentdevelopment and Power Least Cost Generation approach to II sequence projects GOP, Increase reliable fuel supply, reduce 3 Indigenization GOS cost GOP, I Expand hydropower capacity WAPDA Develop TharThar resources Establish reliable estimate of reserves GOS, Thar Coal De-De- IIll Reduce import dependence Develop infrastructureinfrastructure velopment Board Concession managementmanagement GOP, III Explore shale oil and gas M/O Reduce import dependence Petroleum GOP, • Increase accessaccess to electricity, M/O W&P, especially for off-grid consumconsum-- IV Increase solar and wind Alternate Energy ers Development Board • Reduce import dependence Special policy forfor smallsmall privateprivate hydro V PPIB power projects 4 Energy Efficiency andand ConservationConservation I Raise awareness II Parliament to pass law Government toto issueissue rulesrules forfor transtrans- III • Manage demand port and building • Increase affordabilityaffordability andand com-com- Government to begun rating ofof appli-appli- IV petitiveness ances • Improve environment V Have some incentive for consumers Increase difference betweenbetween peakpeak and VI off-peak tarifftariff 5 Financing ofof power sector Create a private energy support fund GOP, Assist financial close close ofof privateprivate projectsprojects I with Rs. 157 B fromfrom SDFSDF asas initialinitial MOF to meet with investment gap
Prepare a plan for private participa-participa- GOP, II Ensure least cost titontionon inin powerpower M/O W&P
GOP, Seek international support for the External finance to to helphelp meetmeet invest- invest- III MOFMOF, fund ment needs EAD
61 1'Dawn,Dawn, Consumers to bear RsRs 5555 bnbn extraextra costcost forfor powerpower sectorsector inefficiency,inefficiency, KhaleeqKiani,KhaleeqKiani, 2424 JanuaryJanuary 2015,http://www.dawn.com/news/11590542015,http://www.dawn.com/news/1159054
2Fueling thethe Future: MeetingMeeting Pakistan’sPakistan's Energy Needs in the 21st21st Century,Century, EditedEdited by:by: RobertRobert M.M. Hathaway, Bhumika Muchhala, Michael Kugelman,Kugelman, PagePage 66 thisthis bravado is not significantsignificant only only forfor itsits naiveté.naivete. ItsIts innocent innocent optimismoptimism isis perhapsperhaps thethe reasonreason whywhy duringduring thisthis periodperiod nothingnothing waswas done.
3Ibid, page 7
'Meeting4Meeting the EnergyEnergy NeedsNeeds ofof a GrowingGrowing Economy, presentation presentation mademade toto thethe Institution ofof ElectricalElectrical and ElectronicElectronic EngineersEngineers Pakistan,Pakistan, byby AdviserAdviser toto thethe Prime Minister of Pakistan on Energy, June 2007, http://www.slideshare.net/ieeepkhi/presentation-by-mukhtar-ahmed-presentation?utmhttp://www.slideshare.net/ieeepkhi/presentation-by-mukhtar-ahmed-presentation?utm_source= source= slideshow02&utmslideshow02&utm_medium=ssemail&utm_campaign=share_slideshow medium=ssemail&utm campaign=share slideshow
°Joint5Joint Statement Pakistan UnitedUnited StatesStates StrategicStrategic Partnership,Partnership, Islamabad, Islamabad, 4 4 MarchMarch 20062006
°Friends6Friends of Democratic Pakistan,Pakistan, Energy Sector Task Force, ADB andand Ministry of Water and Power,Power, Integrated EnergyEnergy SectorSector RecoveryRecovery Report and Plan, OctoberOctober 2010
'Benchmark:7Benchmark: ADBADB to earmark $2$2 billionbillion loan for energy sector, Express Tribune, Islamabad, 2222 OctoberOctober 2014
°Planning8Planning Commission, Medium Term Development Framework (Ninth FiveFive Year Plan) 2005-20102005-2010
9Woodrow Wilson Wilson International International Centre for Scholars, Asia Program, FUELING THE FUTURE: Meeting Pakistan’sPakistan's EnergyEnergy NeedsNeeds inin thethe 21st21st Century, Century, Edited Edited by: by: Robert Robert M.Hathaway, M.Hathaway, BhumikaMuchhala, BhumikaMuchhala, Michael Kugelman, March 2007
10'°FriendsFriends of Democratic Pakistan,Pakistan, Energy Sector Task Force,Force, ADB andand Ministry of Water and Power,Power, Integrated EnergyEnergy SectorSector RecoveryRecovery Report and Plan, OctoberOctober 2010
"Planning11Planning CommissionCommission GoP and UnitedUnited StatesStates Agency Agency forfor InternationalInternational Development Development (USAID),(USAID), The Causes and Impacts ofof Power SectorSector CircularCircular DebtDebt inin PakistanPakistan March 2013
1212REPORT Pakistan’sPakistan's EnergyEnergy CrunchCrunch FuelsFuels LittleLittle But Outrage, Keith Johnson, 23 JanuaryJanuary 2015,2015, httpshttps://foreignpolicy.com/2015/01/23/pakistans-energy-crunch-fuels-little-but-outrage-sharif-protests- ://foreignpolicy. co m/2015/01/23/pakistans - energy- crunch-fuels -little-but-outrage- sharif- protests - khan/?utm_content=buffer33fd8&utm_medium=social&utm_source=twitter.com&utm_campaign=bufferkhan/?utm content=buffer33fd8&utm medium=social&utm source=twitter.com&utm campaign=buffer
13NEPRA SOI 2013, Page 4
"The14The LahoreLahore JournalJournal of of Economics,Economics, September 2012, Pakistan’sPakistan's PowerPower Crisis: How did we get here?,here?, Kamal A. MunirMunir andand Salman Khalid, page 81, citingciting anotheranother study by Siddiqui, Jalil,Jalil, Nasir, Malik, and Khalid, 2011
15NEPRA SOI 2013, Page 4
1616Load Shedding Report,Report, PartPart 1, Introduction and AnalysisAnalysis ofof Secondary Data,Data, Pages 24-26, InstituteInstitute ofof Public Policy, BeaconhouseBeaconhouse NationalNational University,University, Lahore
"Pakistan17Pakistan Institute Institute of of Development Development Economics, Economics, Islamabad, Islamabad, The The Cost Cost of of UnservedUnserved Energy:Energy: EvidenceEvidence from Selected IndustrialIndustrial Cities of Pakistan, RehanaRehana Siddiqui,Siddiqui, HafizHafiz HanzlaJalil, HanzlaJalil, Muhammad Muhammad Nasir, Nasir, Wasim Wasim
62 Shahid MalikMalik (QAU),(QAU), andand Mahmood Khalid,Khalid, PIDE Working PapersPapers 75, 2011
18Ibid pages 5,9, and 15
1919NATIONAL BUREAUBUREAU OFOF ECONOMIC ECONOMIC RESEARCH, RESEARCH, Cambridge, Cambridge, MA,MA, USA, USA, Costly Costly blackouts? blackouts? Measuring Measuring productivity and environmental effects of electricityelectricity shortages,shortages, PagePage 19, KarenKaren Fisher-Vanden, Erin T. Mansur, Qiong (Juliana)(Juliana) Wang, JanuaryJanuary 20122012
"Overseas20Overseas DevelopmentDevelopment Institute, London,London, How does electricity insecurityinsecurity affect inin low and middlemiddle income countries?,countries?, AndrewAndrew Scott,Scott, EmilyEmily Darko,Darko, AlbertoAlberto Lemma,Lemma, andand Juan-PabloJuan-Pablo Rud, July 20142014
21Joint CenterCenter forfor PoliticalPolitical andand EconomicEconomic StudiesStudies Health Policy Institute,Institute, A Report by the Children'sChildren’s Sentinel NutritionNutrition AssessmentAssessment ProgramProgram (C-SNAP),(C-SNAP), Balancing Acts: Energy InsecurityInsecurity amongamong Low-Low- Income BabiesBabies andand Toddlers ofof ColorColor Increases Increases FoodFood Insecurity Insecurity andand HarmfulHarmful HealthHealth Effects
"Data22Data takentaken from from EnergyEnergy InformationInformation Administration,Administration, USUS Government,Government, database, andand NEPRANEPRA State ofof Industry ReportReport 2013
"All23All datadata exceptexcept energyenergy perper capitacapita fromfrom EnergyEnergy InformationInformation Administration,Administration, USUS Government,Government, Country Analysis Note,Note, http://www.eia.gov/countries/country-data.cfm?fips=PK&trk=mand http://www.eia.gov/countries/country-data.cfm?fips=PK&trk=mand NEPRANEPRA State ofof Industry RepotRepot 2013
"World24World BankBank Indicators,Indicators, Pakistan,Pakistan, Energy Energy Production Production and and Use, Use, http://www.tradingeconomics.com/ http://www.tradingeconomics.com/ pakistan/energy-use-kg-of-oil-equivalent-per-dollar1-000-gdp-constant-2005-ppp-wb-data.html
"GOP,25GOP, MinistryMinistry ofof WaterWater andand PowerPower andand ADB,ADB, EnergyEnergy SectorSector Taskforce,Taskforce, Integrated EnergyEnergy SectorSector Recovery ReportReport andand Plan, October 2010, Page 2
"Energy26Energy InformationInformation Administration, Administration, US US Government, Government, CountryCountry AnalysisAnalysis Note, Pakistan producedproduced 64,000 bbl/day and consumed 437,000 bbls/day, http://www.eia.gov/countries/country-data.cfm?fips=PK&trk=m
"Asian27Asian DevelopmentDevelopment Bank, FODP,FODP, and Ministry ofof Water and Power, Integrated EnergyEnergy RecoveryRecovery Report and Plan, 2010,2010, Page 2
28Ibid
"NEPRA29NEPRA State ofof Industry ReportReport 20132013 TableTable 25, Page 81
"The30The FinancialFinancial Daily,Daily, 77 JanuaryJanuary 2015, 2015, http://thefinancialdaily.com/NewsDetail/92442.aspx http://thefinancialdaily.com/NewsDetail/92442.aspx
31Business Recorder, 2424 December 2014, CircularCircular debtdebt arrearsarrears twotwo percent ofof GDP, MushtaqGhummanMushtaqGhumman
32NEPRA StateState of IndustryIndustry Report 2013, Page 4, Growth in Circular Debt (Impact of PrimaryPrimary Causes)
"Dunya33Dunya NewsNews WebsiteWebsite 3,3, DecemberDecember 2014
34The document, Policy FrameworkFramework andand Package of Incentives for Private SectorSector PowerPower GenerationGeneration Projects in Pakistan, is is available available at at http://www.ppib.gov.pk/Power%20Policy%201994.pdf http://www.ppib.gov.pk/Power%20Policy%201994.pdf
"Government35Government ofof Pakistan, NationalNational PowerPower PolicyPolicy 2013, PagePage 33 underunder the heading Challenges
36Ibid Page 3
63 37Lahore Journal ofof Economics,Economics, Pakistan’sPakistan's Power Crisis: How diddid wewe getget here? Kamak A. Munir and Salman Khalid, Pages 76-77
38Lahore Journal ofof Economics,Economics, Pakistan’sPakistan's Power Crisis: HowHow diddid wewe getget here? Kamal A. Munir and Salman Khalid
39http://www.eia.gov/countries/country-data.cfm?fips=PK&trk=m#elec
°Lahore40Lahore JournalJournal ofof Economics,Economics, Pakistan’sPakistan's Power Crisis: How diddid we get here? Kamak A. Munir and Salman Khalid, September 2012,2012, Page 79
"Sustainable41Sustainable PolicyPolicy DevelopmentDevelopment InstituteInstitute (SDPI),(SDPI), The History of PrivatePrivate Power inin Pakistan,Pakistan, FandFahd AliAli and Fatima Beg,Beg, WorkingWorking Paper SeriesSeries ## 106,106, AprilApril 2007, Page 6
42Ibid Page 9
43GOP PlanningPlanning Commission, Public Sector DevelopmentDevelopment ProgrammeProgramme 2014-15, government’sgovernment's development budget under WaterWater and and power power Division,Division, Power, Hydel, http://www.pc.gov.pk/wp-content/uploads/2014/06/ PSDP_2014-15.pdfPSDP 2014-15.pdf
"GOP,44GOP, PlanningPlanning andand Development Development Division,Division, PSDPPSDP 2014-15,2014-15, Page 98. Only those amounts marked @@ areare GOP funding.
45GOP,G0P, PlanningPlanning and and Development Development Division, Division, PSDPPSDP 2014-15,2014-15, Pages 92 -98
4648NEPRA StateState of IndustryIndustry 2013, Pages 14 and 15
47NEPRA SOI 2013, Page 16
48State BankBank ofof Pakistan AnnualAnnual ReportReport 2013-14,2013-14, Chapter Energy, Page 39
49NEPRA SOI 2013, Page 111 Table 45
50NEPRA SOI Page 111 Table 46
51Government of Pakistan,Pakistan, NationalNational PowerPower PolicyPolicy 2013, Page 12.
52ibid
53Computation of QuantumQuantum Index Numbers of Large Scale Manufacturing Industries (base(base periodperiod 2005-2005- 06), PakistanPakistan Bureau of Statistics.Statistics.
54Government of Pakistan,Pakistan, Planning Commission,Commission, Integrated Energy Energy Model, Model, 2011,2011, Page 74
55Government of PakistanPakistan NationalNational PowerPower PolicyPolicy 2013, Page 3
5856ibid
57GOP Ministry of WaterWater and Power, National PowerPower PolicyPolicy 2013, Page 3
58Dawn, Consumers to bear Rs Rs 55 55 billion billion extra extra cost cost for for power power sector sector inefficiency, inefficiency, KhaleeqKiani, KhaleeqKiani, 23 23 January 2015,2015, http://www.dawn.com/news/1159054/consumers-to-bear-rs55bn-extra-cost-for-power- http://www.dawn.com/news/1159054/consumers-to-bear-rs55bn-extra-cost-for-power-
64 sector-inefficiency
59World Bank,Bank, Rethinking Electricity TariffsTariffs andand Subsidies in Pakistan,Pakistan, PolicyPolicy Note,Note, ChrisChris Trimble,Trimble, Nobuo Yoshida,Yoshida, andand MohammadMohammad Saqib,Saqib, JulyJuly 2011, Page 1
60Government of Pakistan,Pakistan, National PowerPower TariffTariff and SubsidySubsidy PolicyPolicy Guidelines
61NEPRA StateState of IndustryIndustry 2013, Page 5
62Ibid
63Dawn, 20 November 2014, http://www.dawn.com/news/1145665
64NEPRA StateState of thethe Industry ReportReport 2013,2013, page
65http://www.gsp.gov.pk/index.php?option=comhttp://www.gsp.gov.pk/index.php?option=com_content&view=article&id=30:thar-coal&catid=1:data content&view=article&id=30:thar-coal&catid=1:data
66Government ofof Sindh,Sindh, Coal and Energy DevelopmentDevelopment Department,Department, TharThar Coal and EnergyEnergy Board,Board, https://www.google.com.pk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&cad=rja&uact=8&ve d=0CDYQFjAE&url=http%3A%2F%2Fenergyupdate.com.pk%2Fdownload%2Fpd=0 CDYQFjAE&url=http%3A%2F%2Fenergyupdate.com.pk %2Fdownload%2Fp ower-gen-pak-pre-ower-gen-pak-pre-09%2FAJAZ_ALI_KHAN_Secy_Coal_%26_ 09 % 2 FAJAZ ALI KHAN Secy Coal %26 Energy_Dept._Sindh_Govt.%2C_Thar_Coal.ppt&ei=_x54VPP5FZXUEnergy Dept. Sindh Govt.% 2 C Thar Coal.ppt&ei= x 54 VPP 5 FZXU apLmgbAB&usg=AFQjCNGPUgsobuKp4mUwdcUIG85b8U4O3g&sig2=Xy3LIIY48Cwe6ho6GeEOVAapLmgbAB&usg=AFQj CNGPUgsobuKp4mUwdcUIG85b8U403g& sig2=Xy3LIIY48Cwe6ho6GeEOVA
67http://www.eia.gov/todayinenergy/detail.cfm?id=11611http://www.eia.gov/todayinenergy/detail.cfm?id=11611,, JuneJune 10,10, 2013,2013, TableTable 22 ofof ReportReport TechnicallyTechnically Recoverable ShaleShale Oil andand Shale Gas Resources
68NEPRA SOI Page 24
°World69World Bank, Lessons fromfrom thethe IndependentIndependent PrivatePrivate Power ExperienceExperience in in Pakistan, Pakistan, JuliaJulia Fraser, MayMay 2005
70GOP.G0P. MinistryMinistry for Water and Power, PPIB mission statementstatement website http://www.ppib.gov.pk/Nhttp://www.ppib.gov.pk/N_mission.htm mission.htm
71NEPRA SOI 2013, Page 130-131, Table 60
72NEPRA SOI 2013, Page 130-131, Table 60
73NEPRA SOI 2013, Page 130-131, Table 60
"Planning74Planning Commission, Commission, GOP, Pakistan IntegratedIntegrated Energy Energy Model, Model, 2011,2011, Page 48
75NEPRA SOI 2013, Page 132-133, Table 61
76NEPRA SOI 2013, Pages 132-133,132-133, TableTable 6161 forfor 2012-13.2012-13. WAPDAWAPDA for 2013-14
77NEPRA SOISOI 2013,2013, PagePage 4, ‘Growth'Growth in Circular Debt'Debt’ basedbased onon PlanningPlanning CommissionCommission andand USAID'sUSAID’s Analysis of thethe Causes and Impact of Power SectorSector CircularCircular DebtDebt inin Pakistan,Pakistan, 2013
78NEPRA SOI 2013, Page 121-122, Table 55
65 79 79NEPRA SOI 2013
80 80WATER andand PowerPower DevelopmentDevelopment AuthorityAuthority website
81 81SAIFI is calculated by dividingdividing TotalTotal NumberNumber ofof all all Consumer Consumer Power Power Supply Supply Interruptions Interruptions (numerator)(numerator) by the TotalTotal NumberNumber ofof ConsumersConsumers ServedServed byby thethe DISCO.DISCO. Likewise,Likewise, SAIDI thethe sum ofof all consumerconsumer interruptions inin minutesminutes divided divided byby thethe numbernumber ofof consumers.
82 82International Energy Energy Agency, Agency, WorldWorld Energy Investment Outlook,Outlook, 2014, Page 11
83 83International EnergyEnergy Agency,Agency, Signs of stressstress must notnot bebe ignored,ignored, IEA warns in its newnew WorldWorld Energy Outlook, 14 November 2014.
"See84See Table7Table7 of thisthis report
85 85Table 12 of thisthis report with NEPRANEPRA SOI 2013, Tables 60 and 61, Pages 130-133
86 86IPR research
87 8TMOF,MOF, Pakistan Pakistan Economic SurveySurvey 2010-11, PagePage 199, Table 14.3
88MOF, Pakistan EconomicEconomic Survey 2013-14, Page 227, Figure 14.10
89 89NEPRA SOI 2013, PagePage 81, Table 25
90 90NEPRA SOI 2013, Page 82, Table 26
91 91NTDC NationalNational Power System Expansion PlanPlan 2011-2030, 2011-2030, 2011,2011, Table 4-9, Page 4-14
92 92Page ii
93 93Ministry of Finance, Economic AdvisoryAdvisory Council, Council, Energy Energy Experts Experts Committee, Committee, Integrated Integrated EnergyEnergy Plan, Page 17
"Project94Project Syndicate,Syndicate, PleasePlease StealSteal ourour FossilFossil Fuel,Fuel, AdairAdair Turner formerformer chairman ofof the United Kingdom'sKingdom’s Financial Services Authority and formerformer membermember ofof thethe UK'sUK’s FinancialFinancial PolicyPolicy Committee,Committee, 2323 DecemberDecember 2014, http://www.project-syndicate.org/commentary/low-fuel-prices-threaten-environment-by-adair- turner-2014-12
66