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Pakistan Must Redefine Its Energy Procedure

Pakistan got independence from British Raj in 1947 and till early nineties its energy sector remained under state control. The policies were driven on the whims of the governments and support by the multilateral lenders rather than needs of the country, in complete disregard to the cost of doing business and above all facing no competition. The landscape changed drastically with the change in lending policy of the multilateral lenders to private sector from public sector, pressure on the Government of Pakistan to initiate process of liberalization, deregulation and privatization. Since the program was imposed and lacked ownership the economy plunged deeper into the problems, rather than offering a sustainable solution to the existing and upcoming problems. Since this issue is about energy sector, efforts will be made to remain focused on identifying the problems and suggesting plausible solutions.

Pakistan’s economy is agro-based which demands storing adequate irrigation water to combat droughts. Luckily, the country is blessed with mountains covered with snow, ample rains in the northern parts, rivers and the largest man-made irrigation system. This requires construction of dams with regular intervals to overcome silting problem. The added advantage is that these dams also become electricity production facilities, with cost of generation running into paisas rather than rupees. In the last seven decades Pakistan has constructed only two mega dams namely Mangla (1967) and Tarbela (1976). Over the last 40 years no other mega dam has been constructed. The result is that hydel energy share has reduced to less than 30% in total electricity generation. Due to heavy dependence on thermal power plants, cost of generation has increased manifold.

During last fifty years per barrel crude oil price has soured from US$2 to US$147 and now hovers around US$60. Over the years the successive governments have failed in learning any lesson and developing alternate sources of electricity generation. As oil prices are likely to hover around this level there is an urgent need to focus on hydel generation and construct large, medium and small dams. According to the experts, Indus River alone in capable of generating 40,000MW and another 10,000MW can be produced by constructing run-of-the-river type facilities.

Power generation, transmission and distribution sector, operating under the government control is the most mismanaged one. Hydel generation, transmission and distribution companies operating under the state control suffer from rampant corruption, misappropriation and inefficiency. Multilateral lenders curtailed funding to WAPDA projects as its debts increased disproportionately. This also led to its bifurcation into water and power wings. Power wing was subsequently divided into generation companies (GENCOs) and distribution companies (DISCOs) for ultimate privation. This process started in early nineties and till today hardly any progress has been achieved. The government takes credit of privatization of Kot Addu power plant, now called KAPCO. However, the government continues to be the biggest shareholder. Over the year its plant has depleted substantially due to running on furnace having high sulphur content. There is a lot of talk about switching over furnace oil based plants to coal but it is highly regrettable that country’s only coal based power plant located in coal rich Lakhra area has be closed. According to an expert, “Power plants operating under WAPDA became inefficient only because of absence of timely maintenance. At one stage, even Bin Qasim plant of KESC suffered the most due to the lack of timely maintenance”.

 

This prompts me to talk about the time when KESC was supplying electricity to Punjab, besides catering to the needs of adjoining areas of Sindh and Balochistan provinces. It is also on record that HUBCO was established to meet growing electricity demand of Karachi. However, it was later hijacked and WAPDA was made its sole customer. At the time of privatization of KESC, it was agreed that Karachi would continue to receive 650MW but lately this facility has been suspended. It is ironic that after this suspension HUBCO, being a furnace oil based plant has been asked to curtail output but the government continues to pay capacity charges. Though, the government says that the country has surplus electricity, many areas are still the victim of load shedding. Some of the areas of Karachi face from 8 to 12 hours of load shedding because of high pilferage of electricity. One completely fails to understand the reasons for not regularizing the illegal connection. According to an expert familiar with the operations of K-Electric, “The new management has inherited a lot of illegal connection but little success has been achieved in removing those. The biggest hurdles are political, religious and linguistic groups and even the legal system which does not allow the utility to disconnect supply of state owned, semi government and municipal authorities”.

It is often said that Pakistan is heavily dependent on imported crude oil and POL products. However, even a cursory look at the prevailing state of affairs reveals interesting stories. Exploration and production companies operate under state control and pay huge dividend. One should be shocked to hear that high dividends are paid by these companies to help the government in overcoming budget deficit. Had this money spent on drilling, the country would have achieved self-sufficiency in crude oil production.

Similarly, oil refineries are also a victim of circular dent which does not allow them to operate at optimum capacity utilization. On top of all PSO, another state owned company continues to import POL products, rather than buying from the local refineries, on the logic that locally produced POL products are expensive as compared to international markets. The government fails to understand the logic that if refineries operate below optimum capacity utilization, the cost of products would go up automatically.

The moral of the story is that there is complete lack of coordination among different ministries and policy planners. It is also feared that the government policies are dictated by non-state actors and groups having vested interests.

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