Another controversy in the power sector

By AMANULLAH BASHAR
Sep 27 - Oct 03, 1999

The ban on captive power plants, proposed by the Water and Power Development Authority (WAPDA) sounds contradictory especially in the face of much publicized privatization programme in Pakistan.

The government has already divided WAPDA into various power generating companies to facilitate the privatization programme. The KESC which is another major power generating company has already been on the list of privatization.

Obviously, the government has launched the campaign for privatization of the power sector due to every increasing financial liabilities, rampant corruption, mismanagement and of course the miserable failure of the power producing organizations in the public sector to cater to the needs of the consumers.

The frequent power breakdowns, loadshedding, fluctuations and inflated billing are some of the ills which have played a nasty role in damaging the image of infrastructure facilities in Pakistan. Constantly interrupted power supplies not only have stalled the process of economic growth but have proved a discouraging factor for the potential investors particularly from external resources.

The manufacturing sector which generally relies on the public sector for power supplies says that the industry is prepared to pay the high cost of electricity provided the power producers ensure smooth supply. The industrialists while justifying the captive power plants plead that the abrupt power breakdowns besides damaging the manufacturing plants, equipment and costly materials also hamper their way in meeting the export commitments.

In order to get rid of these problems, some large manufacturing units, fed up with the interrupted supplies, have installed captive power plants within their premises and many applied for installation of the plants are waiting for approval.

No one would like additional burden of power generation provided smooth supplies are ensured by the power producers. Against the backdrop of the constant power problems their reaction to become self-reliant in power production seems to be quite natural. Once a senior director on the board of KESC directors said that existing of customers is the major requirement to make a business successful. Contrary to this concept, the power sector in Pakistan is the only sector where customers are available but the power producers are unable to cater to their needs.

According to reports, WAPDA has requested the Ministry of Water and Power to ban generation of electricity by the local industries.

WAPDA has estimated that currently some local industries have been generating over 350 mw (captive generation) power through their own resources.

The controversy between the government and the independent power producers (IPPs) has echoed within the country and abroad for quite sometimes. Industrial circles feel that whatever the factors behind the IPPs controversy may be, the tussle in a way has affected the flow of foreign investment in the industrial sector. Keeping the repercussions of the IPPs issue, creating another issue in the power sector may not help harmonizing the investment climate specially in the manufacturing sector. They said that the captive power plants are producing hardly 400mw in the private sector which may have a scratching effect on the huge power production by WAPDA and KESC in the public sector. Making it an issue does not sound well, they feel.

In a summary to the ministry and to National Electric Power Regulatory Authority (Nepra) , WAPDA has reported that certain big industrial units are marketing their extra load through self generating to other industries on 10 per cent lower rate, increasing the number of industries abandoning the national electricity network.

WAPDA further said that the recent reduction in electricity tariff for industries, up to 50 per cent, had made little headway, as the self-generation trend was gearing up in the country.

This growing trend is worrisome as more and more units are applying for the facility. Over 60 industrial units have applied for the oil and gas generators for self generation alone in Karachi's industrial areas.

Because of higher tariff and unreliable supply from the state owned utilities, private sector is installing power generations units. Small generating units have higher cost. However, self generation may involve lower transmission cost and on balance, self generating units may even be economically feasible.

Any effort to impose additional import duty on small generating units, self generation would imply higher cost of production in the manufacturing sector, thus reducing competitiveness of the manufacturing sector in the world market.

At the existing tariff, WAPDA and KESC would find it difficult to have a higher growth of demand for their power in industrial sector. A reduction in tariff rates for industrial purpose may result in diversion of demand towards WAPDA and KESC.