Rental power plants: a crisis-driven remedy
By Shahid Javed Burki
Monday 17, August 2009
TO dispel misapprehensions, government decisions need to be transparent as it closes the deals on rental power plants. These are floating barges that carry large generators which can be hooked into the distribution or transmission systems. They produce anywhere between 100 to 200 MW of power.
Policymakers have a tendency to act in the field of energy during periods of extreme crises when serious shortages appear. Shortages cause distress and considerable economic loss. They create space within which the government can act without heeding criticism.
The present crisis is perhaps the most serious the country has ever faced, even more serious than the one caused soon after the country’s independence by India. Then the Indians decided to switch off the supply of power on which Lahore, the country’s largest city depended. It caused a great deal of discomfort and some economic loss. Pakistan then was an agricultural economy and 90 per cent of its people lived in the countryside. Electricity did not reach most villages and few people depended on it to lead normal lives.
The government of the day reacted by formulating a strategy for developing domestic sources for the supply of power and to meet the demand of an economy that was expected to grow much more rapidly than the rate of GDP increase during the colonial times. Producing hydroelectricity was at the core of the government’s approach and resulted in the development of the site at Warsak on the Kabul River. A couple of power plants were also built at the canal heads in central Punjab.
The other power crisis was in the ‘nineties caused by the government’s failure to see that the economic growth of the ‘eighties will put pressure on electricity supply which was increasing much less rapidly than the increase in national output.
The government headed by Prime Minister Benazir Bhutto launched an ambitious programme to have power generated by the power sector. It provided generous incentives to a couple of dozen “independent power powers” which included the commitment to purchase whatever was produced at a pre-determined price. The result was electric.
Within couple of years, Pakistan from being a power-deficit, advanced to a power-surplus country. But that strategy left the country with a problem. Its dependence on imported fuel increased since most of the power plants used this form of input.
How should the government respond to the new crisis? It makes sense at this time to include rented power in the package of relief measures that need to be adopted to ease the shortage of power. But the resort to this source of supply has to be as temporary as the peoples’ use of small and highly inefficient generators to supply power to their houses, shops and places of work.
The important thing to watch is that the use of these stop-gap measures will not introduce serious distortions into the economy.That won’t happen with private generators; they will be switched off and stored away once the supply of power from the national grid becomes reliable. People are better at making choices based on a cost-benefit analysis. Governments generally do a poor job of factoring in such calculations in the making of public policy.
It makes sense as Dawn did in its editorial of August 10 by asking the government exactly how much it will pay for each kilowatt hour of power it purchases, how this supply will be switched off once cheaper power becomes available, and whether long-term assurances are being given to those who are entering the power rental business. If the purchase agreements are being done to last over a long period of time, the government will be seriously distorting the picture.
It should be understood though that depending on rented power is essentially a relief measure, not a longterm, not even a medium-term solution to the problem the country faces. As the Americans say, crisis provides an opportunity that must not be wasted; it should be used to put in place a well-thought out strategy.
Islamabad has some plans briefly reflected in the budget speech for 2009-10. But some careful work needs to be done and, using the parliament and provincial assemblies, once a strategy has been developed, it needs to be debated so that it has the backing of the people. The strategy must encompass a number of areas.
The most important of these, of course, is the choice of the source to be used for generating power. Since in recent years the energy sector was developed in response to crises, the country has not developed an energy sector that maximises the use of domestic resources while opting for the least-cost solutions.
In calculating costs, what appears attractive over the short-term may prove to be expensive over the longterm. This is why it is not prudent to rely on imported fuel as a major source of generating power. It has been known for a long time that Pakistan has the capacity to produce very large amounts of power using its rivers and canals. Several estimates put the potential at between 40,000 and 50,000 MW. What has prevented the exploitation of this resource is the inability of successive governments to satisfy all the provinces that a fair deal can be worked out.
Working on one project at a time in this context is not a good strategy since it creates winners and losers whose interests cannot be balanced. A multi-project framework is needed to settle the differences among the varied interests of the provinces. A strategy aimed at developing the full potential of hydroelectricity needs to be worked out and placed before the representatives of the people for discussion and approval.
Coal is the second mostly untapped source of electric power. Since what is available in the extensive deposits in Sindh and Balochistan is said to be of low quality and since, given the increasing concerns about global warming, coal is losing its popularity as source for power, once again a well-developed strategy is required.
What I am arguing is for the government to apply itself seriously to develop a plan that would shift the focus to the long-term and increase the country’s reliance on domestic sources of energy. Crisis solving should not be the basis for finding a viable long-term solution.