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Power policies of Pakistan and the required improvement

The concept of privatization is not new in Pakistan. It may be traced as back as in 1950s, when Pakistan Industrial Development Corporation (PIDC) was established in 1952 to boost up the industrial development in the country. From mid 50s, the military government headed by General Ayub Khan encouraged domestic production of manufactured goods, primarily textiles. Government provided extensive incentives such as lucrative tariffs, favorable tax regime, foreign exchange licenses, and quotas to local entrepreneurs. With all these benefits, wealth started accumulating in the hands of few families, which later known as the twenty-two families of Pakistan. Pakistan economy was taken as a model by the less-developed countries of the world at that time where they replicated Pakistan’s economic measures in their country. In the sixties, the private sector had begun to come into its own. The ‘twenty-two families’ in Pakistan was an informal combination of legally independent business entities run by respective families. After 1971 war, Government nationalized the industries, banks and factories.

Since the establishment of WAPDA in 1958, entire investment in generation, transmission and distribution of electricity was made by the public sector through WAPDA, which effectively created its monopoly in the country. The bulk of the country is served by former departments of WAPDA but now independent bodies (NTDC, CPPA, distribution companies etc), which extends from the north of the country down to Hyderabad and Balochistan are in south excluding Karachi and its environs, which were served by K-Electric. Because of financial mismanagement, public sector utilities were heavily leveraged and needed massive overhauling and restructuring. Government of Pakistan hired M/s Acres International of Canada to conduct the energy resources survey in 1977-78. Besides this, Pakistan also approached the World Bank, Asian Development Bank (ADB) and other donor agencies in late 70s’ so as to revive these utilities. The World Bank conducted a detailed evaluation of the sector, reviewed the performance of the utilities, and later suggested improvements measures in the operating efficiency of these public enterprises. The evaluation process, which started in late 70s’ continued till early 80s’with the disbursement of first trench for financial and technical assistance to WAPDA. Initially the World Bank focused on financing the investments initialed by the public sector but later it imposed restrictions on WAPDA for any further investment. The World Bank, USAID, ADB and other international donor agencies provided financial and technical assistance to Pakistan and funded millions of dollars for infrastructure development projects in 80s’ which later continued during 90’s. Continuous focus was on borrowings to fund the operations instead of completing the restructuring and giving priority to the policy reforms led to a complete disaster. Eventually, the World Bank started imposing restrictions on WAPDA when most of its concerns were remained unaddressed despite continuous submissions of corrective measures.

That was the time, when participation of private sector was introduced in Pakistan though their confidence was badly shaken due to seventies nationalization. Government faced immense difficulty in restoring the confidence of the investors. Government started discussion with the private sector and announced that both public and private sectors had to learn to live together in a spirit of cooperation within the framework of broader national interests. On one side, donor agencies advised public sector to get benefit from the experience of the private sector as it was not fully in-line with the new management techniques, financing instruments and technological changes while on other it advised private sector to get confidence of public by initiating social sector reforms. Essentially idea was to establish a mutually beneficial relationship between public and private sector.

An autonomous body named Private Power Cell was formed in the Ministry of Water and Power in 1989 to address the private sector participation in the power sector – later renamed the Private Power Infrastructure Board (PPIB) in 1994 – to provide a one-window facility for all new power generation investments requiring government regulatory approvals, fuel and power purchase guarantees, and project development facilities.The Pakistan’s Power sector was formally opened to the private capital, both foreign and domestic in 1991. In that year, a World Bank consortium that included investors from Britain, Saudi Arabia, and the United States agreed to finance a power project for a new USD1.3 billion, 1,292 megawatt oil-fired power station at Hub in Balochistan. Hub Power project was critical for Pakistan for several reasons besides being the largest private sector investment in the country, it also demonstrated investor confidence in the government power sector polices. In 1992 the government announced plans to privatize the Water and Power Development Authority’s thermal plants and area electricity boards, but in 1994 legal and political obstacles prevented implementation of this policy.

 

Pakistan was passing through an electricity shortage crisis at that time and in order to address the issue effectively, then Prime Minister formed a Task Force on Energy headed by Shahid Hassan Khan. The basic task of the Task Force was to develop a comprehensive strategy to counter the energy shortfall. Government thereafter announced Pakistan’s first power policy in March 1994. Response from both domestic and international investors was overwhelming. By the end of 1997, PPIB received 116 applications for 2,600 MW on various technologies in various parts of Pakistan, out of which 82 and 34 projects were issued Letter of Interest (LOI) and Letter of Support (LOS) respectively. 19 Implementation Agreements and 17 Power Purchase Agreements with Ministry of Water & Power and WAPDA were signed respectively till the end of 1998. Finally only 14 projects excluding HUBCO totaling 3,021.3 MW were able to complete the construction and reached COD. Total of USD 4 billion came from the private sector by these 14 companies.

In 2002, federal government announced another power policy. A number of private investors came forward and showed interested in Pakistan’s power sector after issuance of this policy. Most of the investors came forward this time where from the local business community as compared to 1994 when all were the big international power sector players. This policy was mainly for thermal and big hydro power projects only. Therefore, in 2006, government decided to issue a separate power policy for renewable energy, which covered wind, solar, bagasse, small hydro and waste to energy sector. These two polices can be called best power policies of Pakistan as both attracted billions of dollars investment in the power sector of Pakistan.

Government of Pakistan in 2013, issue yet another power policy, which superseded 2002 Power Policy. 2013 policy was basically an extension of 2002 Power Policy except it re-emphasized on the competition, which means international competitive bidding for the award of a power project. There are certain policy issues because of which international competitive bidding couldn’t happen so far.

2006 Renewable energy policy has expired in 2018 and since then there is no separate power policy for the renewable energy projects. Ministry of Power is currently finalizing a power policy for the renewable energy and it is expected that it will be announced in March 2019. There are over 14 wind projects, 8 solar power projects and more than 12 bagasse based power projects at a very advanced stage of development at this moment but are stuck due to absence of a power policy for these renewable power projects. It is estimated that a total investment of around USD 2 billion would be made if these projects are allowed to proceed. Federal Minister for Power Omar Ayub Khan has recently said that government is working on renewable energy policy to harness immense potential in solar, wind and hydel resources and have good opportunities for investments. Therefore, government is considering increasing the share of renewable energy in the overall energy mix to 20 percent till year 2025 from the existing 4 percent share and then further be increased to 30 percent by year 2030.

Besides renewable energy policy, government is also in the process of issuing a new power policy for thermal and hydro power projects. As thermal and hydro power projects in the private sector are managed by PPIB whereas AEDB works on renewable energy projects only. Therefore, it is not clear if one policy will cover both thermal/ hydro and renewable energy project or two separate power policies will be announced. There are also various inconsistencies in various polices and without clarity it is difficult for investors to invest in the power sector. NEPRA in its State of Industry Report 2017 says that “Despite historic addition to power generation capacity, the country’s power sector continues to be in a dismal state and is facing major challenges of sustainability and affordability”. This is mainly because there is no clarity in the power polices. It is important for the government to add various technologies in the energy mix through a transparent and systematic manner. Adding renewable energy in the energy mix will also help Pakistan to have energy security, will save billions of hard earned foreign exchange and will being reduction in the import bill. It is expected that government will form a new power policy to overcome shortfalls of past polices rather than just issuing the same old policy measures under a different federal minister for power. Government should also finalize a policy which should promote further private participation in the power sector, harness competition, and ensure optimal use of the natural resources covering hydro, wind, solar etc. Besides, government should not only incentivize the private sector to set up hydro power plants in Khyber Pakhtunkhwa province but should also work on a practical solution for wheeling arrangement so that cheap electricity can be transmitted to the load centers in Punjab.

Writer is an Infrastructure consultant based out of Islamabad and can be contacted on arooj.asghar@acltd.net.

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