ENERGY CRISIS - AN OUTCOME OF BAD POLICIES

SHABBIR H. KAZMI
(feedback@pgeconomist.com)
Mar 29 - Apr 4, 2010

During the last couple of years Pakistan has witnessed a number of worst load shedding of electricity and gas. Lately, daily electricity outages have ranged from 8 to 12 hours. Gas supply to industrial units has to be suspended for weeks rather months and CNG stations have to be closed for two days per week. According to some experts load shedding is not due to limited availability of electricity and gas but due to gross mismanagement.

Electricity generation has hovered below 10,000MW or half of the installed capacity. It is true that during winter water levels at dams go down and hydropower generation is as low as 250MW as against installed capacity of 6,500MW. But running of thermal power plants, having an aggregate capacity of 13,500MW at lower capacities to save fuel seems completely outrageous. While power generation companies may have saved some furnace oil but consumers have burnt more expensive motor gasoline and diesel in operating standby generators. The rationale is beyond comprehension because operating thermal plants at lower capacity must have increased average cost of generation and expenses must have surpassed revenue.

Hydropower generation is most cost effective and the country has the potential to produce around 40,000MW. It is true that hydropower outputs go down in winter but generating bulk of the electricity at hydroelectric plants when ample water is available can help in bringing down average cost of generation significantly low. It is true that mega dam projects have run into controversies but WAPDA can't offer a plausible reason for not constructing 'run of the river' smaller hydel plants.

In an attempt to bring down cost of generation government encouraged switching over to gas from furnace oil. However, distribution companies failed in improving their cash flow because of huge receivables and out of proportion transmission and distribution losses. Experts say bulk of these losses are noting but blatant theft of electricity going on for decades with the connivance of the staff of distribution companies. Rampant corruption and mismanagement have created black holes and injection of billions of rupees every year could not improve cash flow of the distribution companies.

T&D losses of both the PEPCO and the KESC have hovered around 40 per cent historically. This is mainly because the theft going on in connivance with the staff. Kunda culture has flourished because of overhead lines but more importantly refusal of new connections. Interestingly new connections have been denied because of limited supply but official kundas (temporary connections) have proliferated. The biggest electricity thieves are industrial and commercial consumers.

The second factor deteriorating financial condition of distribution companies is mounting receivables. These receivables have grown due to 1) habitual defaulters and 2) inability of distribution companies to disconnect supply to some of the entities falling in the category of essential services. Industrial and commercial consumers not only pilfer electricity but also do not make timely payment of bills. The most surprising point is that consumers living certain areas have been using electricity for decades but never bothered to pay the bills that too issued at subsidized rates.

National gas is the biggest source of primary energy. Due to absence of other alternative sources and shortage of LPG domestic consumers are not only on the top priority but also get gas at subsidized rates. In attempt to contain fast depletion of gas reserves cement plants have been asked to gradually switch over to coal from gas but thermal plants are still a major consumer of gas. Historically, gas pilferage was low but lately quantum of un-account for gas has increased substantially. While gas marketing companies attribute this increase to leakage of gas from pipelines facing heavy corrosion, sector experts say that over the years bulk consumers have found ways to pilfer gas. This pilferage is not possible without the involvement of the staff of gas marketing companies.

Circular debt has impaired the performance and financial sustainability of the entire energy supplying chain. In last two years quantum of circular debt has really gone out of control. Despite two issues of term finance certificates amounting to Rs180 billion, the outstanding inter corporate debt is around Rs150 million. The issue of TFCs has transferred the debt to commercial banks from energy supplying companies. However, no effort is being made to remove the root cause. Though, electricity and gas tariffs have been increased persistently the debt has also gone up.

Gas import has become necessary due to its domestic usage as well as for power generation plants. However, import can be avoided for the time being simply by bringing all the discovered gas fields online. Reportedly about 800mmcfd could be added to the existing supplies by resolving the ongoing litigations. However, import of gas will be necessary to meet the shortfall once Pakistan adds another two million tons urea manufacturing capacity.

Use of gas in power generation is the worst and has to be stopped as early as possible. In the first phase all the power plants having dual-firing system should be run on furnace oil. In the mean time work on construction of coal-fired should be completed as early as possible. No rental power plant should be allowed to use gas. Allowing rental power to operate in Pakistan is a mistake and it should be rectified as early as possible.

Work on smaller hydel plants should also be accelerated. Since these are being located close to the point of consumption, the line losses would also be lower. It seems that government has given up the idea of granting IPP status to sugar mills. These mills are capable of supplying around 3,500MW electricity and the beauty is for months these units will be run of baggase having a nominal cost.