Energy Crisis In Pakistan:
Energy Crisis In Pakistan:
Causes, Recommendations,IPPs Stance & Its Repercussions
Introduction
In 1987, the Government of Pakistan (GOP) with the assistance of the World Bank formulated its long term strategy for development of the power sector in reliable power would spur economic growth. With energy demand growing at 12 percent and supply at 7 percent per annum. Load shedding was rampant with consequential output losses for industry and agriculture. It was estimated that the annual gap of 2000 MW of electricity cost the country approximately $1 billion per year in lost GDP. Electricity was available to only 40 percent of the population and per capita consumption of 404 kWh was only 4 percent of that in the United States and 24 percent of consumption in Malaysia.
IPPs
Pakistan had to catch up fast and the development of new capacity became the top priority, but the Government of Pakistan (GOP) lacked the funds for infrastructure development. Consequently, the private sector was invited to develop new generating capacity. It was rationalised that the private sector would not only supplement public sector generation, it would also mobilise additional equity and debt resources and improve the efficiency in the energy sector.
The new energy policy was implemented in a period of high political volatility in the early 1990s. The first Benazir Bhutto government (elected in 1988) was dismissed by President Ghulam Ishaq Khan in 1992. She was succeeded by Nawaz Sharif who initiated a number of free market reforms and also signed Pakistan’s first IPP contract for the largest power sector project with the Hub Power Company in
1992. Disagreements with the President led to the dismissal of this government also, and an interim government was installed which held fresh elections in which the second Bhutto government was elected in November 1993. During its tenure, the Bhutto government signed a number of IPP contracts under the 1994 Power Policy and in June 1996, Pakistan’s first private sector power plant, the Hub Power Company (Hubco) came into operation.
Current Situation
Currently the situation Installed capacity is as following .
a. Total installed capacity 20681 MW
b. WAPDA hydel 6,555 MW (31%)
c. WAPDA thermal power, 4829 MW
d. RPPs 365 MW
e. PAEC 665 MW
f. IPPs 7644 MW
Currently Production is 11500 MW and Demand is 15500 MWAdditional quantity is not being produced due to lack fundsand circular debt problem.IPPs and Wapda owned plants also have lost efficiency now only producing 50% of full capacity and even less.Production of additional quantity will cause Govt to increase rates due to increase in thermal factor(variable costs of electricity produced by thermal varies between Rs 12 to 19,while by Hydel variable cost is less than Rs1).So the result is rampant load shedding, blow to agriculture and industry and high Social cost.
Impacts of IPPs
Impacts of IPPs are both positive as well as negative, positive impacts include:
a. Enhanced the capacity of power sector
b. Supported the economic activity from 2000 to 2007
c. Provided a cushion time to built long term power projects
d. Provided vital support in short span of time
Negative impacts include:
a. Bulk tariff ceiling instead of competitive bidding resulted in high tariffs
b. Increase in Thermal component also contributed toward price hike ,i.e. 60%
c. Lack of transparency in contracts as discussed earlier
d. Since 2001 though it has supported eco activity but due to oil price hike and increase in thermal factor it has caused following problems :
a) Higher power tariff causing inflation especially after 2005-2006
b) Costly export goods
e. Low performance by old plants has aggravated power shortage
f. IPPs are not environment friendly and cause lot of pollution
Reasons for Power Deficit / Load Shedding
1. Lack of Adequate Investment after induction of IPPs – resultantly No Capacity Additions during 2002-2008.
2. No Worthwhile Foreign Investment, while there was reduced interest by Private Sector as well, despite solicitations
3. As a Policy, Public Sector not allowed to add new capacity, fully banking on Private Sector, which showed limited interest
4. Quantum Jump in Power Demand due to:
ü Consumption led growth strategy of 2002-2008
ü Unplanned Rural Electrification during 2002-2007
5. 8.53% Load Growth, even during the current international financial melt down.
6. Extra high Load Growth in Urban Areas, which is more than 20% in Karachi, Hyderabad, Sukkur, Rahim Yar Khan, Bahawalpur, Multan, D.G. Khan, Faisalabad, Lahore, Gujranwala, Rawalpindi/Islamabad and Peshawar.
7. Air-conditioning load in Pakistan is more than 5000 MW, while the average shortage is around 3000 MW.
8. No major Hydel Plant due to lack of political consensus.
9. Diversion of Gas by SNGPL & SSGC, resultant shift to Oil, jacking-up cost of production, loss and availability of generation upto 1,500 MW
10. No tariff increase from FY 2003 to FY 2007, in spite of steep rise in Oil prices – resultant financial strangulation of Power Sector
11. Non availability of Funds for development of Transmission & Distribution Infrastructure and rehab of GENCOs - resulting in system constraints
12. Non-Bill Payment and Kunda Culture in major parts of the country hardened over the last one decade
13. Extreme lack of political and administrative support from Provincial Governments
Power Sector Issues
1. Poor Recoveries & Piling Receivables (up to Dec 2009)
• HESCO 56% and receivables Rs.45 billion (Receivables from Govt. of Sindh Rs.20.8 billion)
• PESCO 80% and receivables Rs.27 billion
• KESC Rs.49 billion after adjustments
2. Accumulated Circular Debt
• Tariff artificially frozen during 2003-07 in spite of heavy dependence of oil and surge in its prices and increase of cost of service
• Insufficient provision of tariff differential subsidy
• Non-payment by KESC, FATA and Provincial Govts.
3. Measures to address the Circular Debt Issue by the present Govt.
• DEBTCO established to assume loans of Power Companies (Rs.216 bln)
• Issuance of TFCs (Rs.85 bln) to clear FATA arrears
• Subsidy duly budgeted.
• FATA dues duly budgeted
• NEPRA Act amended.
• Difference between cost of supply and tariff programmed to be bridged through:
• Tariff increase in shape of Monthly Fuel Price Adjustment
• Quarterly Tariff Determinations
4. ELECTRICITY GENERATION BY FUEL (excluding KESC)
a. From 2006-2007 = 18% by oil, 38% by Hydro, 41% by Gas, 3% by others.
b. From 2009-2010 = 37% by oil, 38% by Hydro, 22% by Gas, 3% by others.
c. World Average = 5.8% by oil, 16% by Hydro, 20.1% by Gas, 41% by coal, 14.8% by nuclear, 3% by others.
5. CONSUMER MIX & CONSUMPTION PATTERN (excludes KESC) JUL 09-DEC 09
a. 7% commercial, 24% Industrial, 15% Agriculture, 48% Domestic, 6% others.
b. World Average Industrial Consumption is 42%
c. Customers PEPCO: 19.1 million and KESC: 2.0 million
6. Oil Handling Infrastructure
• Present oil requirements is 30,000 ton per day, whereas on the average 24,000 ton oil had been supplied
• With new rentals and other thermal plants, this is going to increase further.
• Additional infrastructure and arrangements are required to be made by Ministry of Petroleum and Natural Resources.
• PSO to expedite acceptance of TPS Muzaffargarh Oil Farm (263,000 MTN) as mid-country strategic reserves
7. Uncertainty of Oil Prices
· Volatility in the oil prices directly affecting the viability and affordability of the sector.
8. Investment Required for Development of Indigenous Resources
• Heavy Capital requirement for development of Indigenous resources of Hydro, Coal and Renewable
9. Legal Issues
• The Electricity Act nor supports the Sector legally to force recovery nor helps curb illegal abstraction of energy.
• Draft Energy Conservation Act of 2009 is devoid of any penalties for non compliance
Both Need change – Drafts ready with PEPCO
10. Corporate Governance
• Non Professional Management for over 10 years
• Human Resource depletion forced by non professional management
• Capacity Issues in every sub sector and activity
• Lack of political support in non-performing DISCOs
• Capacity building of all stakeholders, specially NEPRA required
11. Security Issues
• Security situation negatively affecting Foreign Investment in the Sector
Key Recommendations and Way Forward
1) Demand Supply Position
• Demand will continue to grow by about 8%
• Immediate capacity additions required
2) Supply Side and Demand Side Measures
• Government guarantee and financial support is required to install matching capacity in Public Sector otherwise load shedding will persist in view of lack of private sector appetite for investment
3) Cost of Service & Affordability effect
• For financial sustainability, full cost of service needs to be effected, which may increase the tariff
• The affordability issue needs to be addressed by targeted subsidies
4) Recoveries
• Political and active Provincial Governmental support is required to help effect recovery of outstanding dues, especially in HESCO, PESCO & QESCO
• At source deduction be allowed to effect recovery of outstanding dues from Provincial Govts and KESC
5) Efficiency Improvement and Theft Control
• Political and active Provincial Governmental support is needed to control theft in HESCO, PESCO & QESCO
• Electricity Act & Conservation Act need to be amended to include penalty clauses on theft and energy wastage
6) Allocation of additional gas
• Immediate allocation of additional gas of 350 mmcfd be made to Power Sector.
• If not done, the sustainability of Power Sector and affordability will be jeopardized
• Availability of gas can save the day
7) Policies
• Strategy to overcome the power crisis should be supported by the set of policy measures
• Joint Session of Parliament be summoned to discuss energy crisis and how get out of it.
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