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Energy Sector Victim Of Inconsistent Policies

Analysts had termed creations of independent power plants (IPPs) as putting the cart before the horse. It was true that power generation plants were not very efficient, but real losses were due to highly inefficient distribution companies. There was rampant pilferage, reported as high as 40% that was clubbed under transmission and distribution (T&D) losses. Inductions of IPPs and failure to privatize distribution companies became the biggest reason for the creation of circular debt. At an average the government has been dishing out over half a trillion rupees per annum to keep the slate clean. However, the menace continues to emerge because the distribution companies have been failing in containing pilferage.

Analysts were also critical of creation of furnace oil based IPPs. However, creation of IPPs was ‘selecting a lesser evil’ because multilateral donors were not ready to extend fresh loans to Water and Power Development Authority WAPDA. To facilitate Pakistan in overcoming energy crisis, the multilateral lenders promised to extend loans to the private sector. Creation of thermal power plants was considered a quick remedy because even if funds were approved for a hydel plant it would have taken around ten years to bring it on line. Analysts kept on reminding the government to mobilize funds for hydel plants which offer two advantages: 1) development of water storage facilities for irrigation and 2) low cost and pollution free electricity. The prevailing situation raises apprehensions that the government has remained hostage of ‘oil lobby’ as it kept on deferring construction of hydel power plants.

It is on record that PML-N became the biggest opponent of HUBCO and the legal battle cost about Rs60 billion but the then government lost the case. Experts had warned that the government would not succeed in making amendments in ‘iron clad’ agreements but advisors of PML-N paid no heed. With the passage of time collective generation capacity of IPPs exceeded 6,000MW and they became the prime source of electricity. Though, there exist three hydel generation facilities, namely Mangla, Tarbella and Ghazi-Brotha but their generation capacity reduces to one-fourth in winter.

At the highest level an endless debate still continues about using gas for power generation can bring down the cost per unit for consumers. Experts don’t mince their words and say straightforward that unless theft, going on with the connivance of the staff of distribution companies, is reduced generation of electricity by using gas will prove futile. However, even a person of average wit is amused at the policies followed by the successive governments.

 

Lately, Minister of State for Power, Abid Sher Ali announced that the present government would shut down all expensive oil-based power plants (IPPs) to ensure availability of cheaper energy for consumers. He also apprised that the previous government did not pay heed on rehabilitation and maintenance of old power plants which caused several system constraints inflicting heavy losses. However, the government has carried out and completed various projects during last four years. He said that the Ministry of Power identified system constraints, communicated targets to all the departments concerned to initiate upgradation of transmission system on war footing. He directed the heads of power sector entities to complete their ongoing projects well before time.

His statement sounded like a political gimmick because the government does not have funds to pay off IPPs and furnace oil storage tanks of refineries are overflowing. Some of the refineries are forced to operate below optimum capacity utilization. Even in the past government preferred to use imported furnace oil, terming it cheaper as compared to locally produced one. Analysts fear that another scam is in making as the incumbent government claims ‘imported LNG is far cheaper than furnace oil’ but completely ignores the fall out of not using locally produced furnace oil. According to a critic if PPP suffered from ‘Raja Rental’ scam soon another scam would be known as ‘Abbasi LNG’.

According to the data released by the National Electric Power Regulatory Authority (NEPRA), the country’s power generation witnessed an increase of 16.2% to 9,866GWh during October 2017 as compared to 8,494GWh during the corresponding month of last year. Major contribution came from furnace oil (25.8%), followed by Hydel (24.7%), gas (17.1%) and LNG(15.1%). The report also suggests that generation based on hydel, furnace oil and gas displayed a decline, but coal, LNG and nuclear-based generation displayed a substantial increase. Induction of Sahiwal coal power plant, three LNG power plants and Chashma Nuclear-III and IV were primarily responsible for higher generation. On a monthly basis, generation was down 12.2% during the month under review that was attributed to lower demand for electricity due to change in weather.

The claim of the government that LNG is a better option loses credence if one reads the announcement of Sui Northern Pipeline Limited (SNGPL). The gas distribution company has expressed its inability to supply 150 mmcfdgas to Punjab-based textile industry for at least two and half months starting from 1st December 2017. Sharply reacting to the SNGPL decision, All Pakistan Textile Manufacturers Association (APTMA) has stated that the decision would further add to the exorbitant cost of doing business in Punjab by forcing its export industry to more expensive LNG. The price of LNG for November 2017 surpassed US$9.5557/ mmbtu (equivalent Rs1,006.45 per mmbtu). The association has also raised a point that gas is being made available in other provinces at Rs600 per mmbtu round the year.

Analysts say, “Operating power plants and industrial units on imported LNG is not sustainable. Its price was low in the recent past mainly because of decline in crude oil prices. However, with the recent hike in crude oil prices, LNG price would also skyrocket. Frequent switch over of plants from one fuel to another is neither easy not recommended. The real case study is KAPCO where plant efficiency has declined substantially due to running the plant on furnace oil having high sulphur content. The myopic policies are pushing the power generation plants and manufacturing units from bad to worse.”

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