08.09.2013

“Energy sector needs $7-8 billion”
Dr Musaddiq Malik, advisor to the Prime Minister on Water and Power, lists government’s initiatives to end energy crisis
By Aoun Sahi

The News on Sunday: What are the main challenges confronting the energy sector in Pakistan?

Musaddiq Malik: Basically, there are three fundamental electricity challenges in Pakistan — firstly demand supply gap, secondly high cost of production and generation and thirdly administrative issues like electricity theft, line losses and revenue collection pitfalls.

Due to these basic problems, Pakistan is losing 4000-5000MW electricity. Similarly, high cost of electricity, which is calculated to be Rs 12 per unit, is also a major problem. Inefficient distribution and transmission of electricity account for 20-25 per cent loss. But seeing the system of transmission and distribution, I come to the conclusion that the losses are much more than reported.

Nowadays, we are burning everything to produce more electricity. Last month, we produced 14000-16000MW. If we start producing 18000-19000MW, we don’t have the infrastructure to distribute it. So the entire country could plunge into darkness because of our transmission lines failure. It will take 3-4 years to generate more electricity and to improve transmission system of the country.

TNS: If we look at the National Energy Policy 2013 introduced by your government, it aims at producing 5000MW more electricity, reducing the production cost from 12 cent/unit to 10 cent/unit and reducing the transmission losses to 16 per cent by 2017. How would you do that?

MM: If we want to fulfill the prevailing demand and supply gap, which is between 5000-6000MW, we need $7-8 billion to invest. Amidst the prevailing economic situation, the government does not have $7-8 billion for the energy sector. As we know that Pakistan cannot afford such a massive amount, then only private sector can invest this amount in the energy sector and private sector will only invest if they are assured that they will profit.

What we can do is to give sovereign guarantee to private sector that if they invest $120-150 million in energy sector, we will purchase power from them for the next 20-25 years at such and such rates. The Supreme Court and high courts are saying repeatedly that the Government of Pakistan is violating the sovereign guarantee that it has to give to IPPs. It is important for the government to honour sovereign guarantee because in its absence people stop trusting us and eventually stop investing in Pakistan. This mistrust makes it impossible to plug the gap of 5000-6000MW electricity shortfall.

At present, the government is producing electricity at the rate of Rs12/unit while it costs the government Rs15/unit when it reaches the end users as the government is only charging Rs9/unit. The serious investor knows that the government has to pay Rs6/unit from its own pocket which comes to around $4-5 billion and the Government of Pakistan does not have the resources to pay this difference.

The investor would only come if he is assured that the government is capable of paying. Therefore, the government should ensure measures to restore the confidence of investors and assure them that if they invest, the government will pay them and not default on its sovereign guarantee.

TNS: To regulate private sector, you need to have a strong government. Do you think your government would be able to stop private sector from exploiting the people in Pakistan?

MM: We will do so by strengthening the regulator. What will we do to end 14-16 hours loadshedding in rural areas and 08-12 hour loadshedding in urban areas if we do not invite the private sector because the government has no money. Therefore, the government has an obligation to strengthen its regulation process. If NEPRA and PEPCO are not made world-class institutions, the situation is not going to change for the better; therefore regulation process should be ensured on sophisticated grounds.

TNS: The vision of your energy policy reads ‘Pakistan will develop the most efficient and consumer-centric power generation…’ So, with tariff adjustment and private sector’s participation, how would you ensure this consumer-centric power generation?

MM: If I want to give subsidy of $5 billion and I have no money, is it sustainable? So to make energy consumer-centric, you have three choices. First, the government should somehow arrange $5 billion to put in energy sector and the only way to do it is to print more money which will raise tariff as well as inflation. If you print money unabatedly it will result in 10 times more inflation in the country. Previously, industry was the second largest recipient of subsidy after residential consumers. A man who is making money was the second recipient of subsidy.

Because of our energy mix, the cost of electricity is Rs12/unit while we are selling it for Rs9/unit. So with a heavy heart we have adjusted the tariff. The tariff hike would also change the behaviour of people as well and they would think twice before wasting energy.

The second thing we are doing is changing energy standards. We bring in most inefficient motors and appliances because they are cheaper. So we are trying to come up with standards for efficiency that will automatically improve energy consumption. So with the same quantum of energy, it will be possible to run more ACs, more motors and more machines with less electricity. We are also proposing to employ these energy standards for our industrial units. We are making it public that in next four years we will not tolerate this energy inefficiency. So four-year time period is given to introduce energy efficiency equipment.

Third, we are working to introduce new construction standards. Most of the energy is lost due to engineering styles of construction. Our windows and doors are not insulated that result in more consumption of energy. We should employ new building standards for energy efficiency and encourage zero-energy cities and green cities standards for future constructions.

We have also been working to introduce time of day metering because energy demand varies from time to time in a day. We have prime time which remains from 06pm till 10pm, so all day energy requirement is 12000-14000MW, which goes up to 18000MW from 060 to 100pm. If we start charging people more during this peak time, the behaviour will change. You will see shops in Liberty Market, where traders usually have installed 200 to 400 bulbs in their shops, closing down early. The traders will start using fewer light bulbs and energy efficient light bulbs. We also need to shun the practice of shopping at night. We should encourage people to carry out their day-to-day activities in sunlight.

TNS: The new energy policy has also been facing a lot of criticism from different quarters which say that it does not offer out of the box solution, your comment.

MM: I want to focus on demand and supply strategy, distribution and transmission strategy and for better results everything from generation to transmission should be reformed. I am open to adopt better ideas to reform the system from tariff to billing.

In my opinion, policy is a living document. In the next couple of years, realities in Pakistan are going to change. We need strategies and policies to deal with new emerging situations. Everyone is invited to give better ideas on energy and good ideas will find their place in policies of the next two years.

TNS: Will it be profitable for Pakistan to shift electricity generation to coal as the world is trying to move away from coal?

MM: Our cost for electricity is Rs12/unit whereas India is trading it at Rs7/unit and making 60-70 per cent of its energy from coal whereas Pakistan’s electricity generation ratio from coal is less than one per cent. So why are we paying double price. Why should we burden our people?

The cost of solar energy is Rs20/unit, furnace oil Rs19-27/unit, hydel Rs7-8/unit, coal Rs 8-9/unit, nuclear about Rs5/unit and on gas with subsidy the price is Rs6/unit. Hydel is cornerstone of our strategy which is no doubt inexpensive and long-term energy source. Though big dams are controversial, there is no controversy on hydel source of energy.

TNS: My last question relates to circular debt, how will the government control it?

MM: I think we have started paying it and the day we paid it, 31st of May, it started mounting again the very next day. Our projected circular debt and subsidy for this year was $5 billion. We will reduce the circular debt by reducing subsidy. Rs135-145 billion electricity is being stolen every year. If we recover Rs100 billion from electricity thieves, we will be left with only Rs70 billion circular debt.