Power plays a pivotal role for economic growth as
well as social uplift of life in any country; however, it has become a
costly affair in Pakistan due to some decisions made by the
governments in the past.
The governments in the past, under 1994 power
policy, entered into power purchase agreements in dollar terms with
Independent Power Producers (IPPs). At that time, the dollar was the
most sought after commodity because unstopped appreciation in its
value. On the other hand the government was working with an empty
kitty with highly vulnerable reserves position. That situation played
havoc with the economy. Though the correction was made in the
situation later on and the adverse effects of the power purchase
agreement were gradually phasing out yet the damage was done.
Consequently, the quantum jump in the power tariffs
not only hampered the economic growth of the country, it adversely
affected the living standards of the people especially of the middle
and lower class of the society.
The present team of the economic managers, added
fuel to the fire by using the utility companies both WAPDA and the
KESC as the tax collecting agencies instead of assigning them the role
of utility companies, which are supposed to be the key player for
social uplift and economic growth of the country. It is learnt that
WAPDA collected Rs31 billion in the form of various direct taxes. The
break down of the taxes collected by WAPDA during previous financial
year include sales tax Rs25,049 million, withholding income tax
Rs3,453 million, and the electricity duty worth Rs1,735 million during
Consequently, the tax collecting role assumed by
the utility companies proved a serious blow to the consumers as the
taxes top up the end consumers' electricity bill to the extent of
paisa 64 per kwh. The additional taxation burden on consumers, imposed
by the government, has gone up 13 times. In 1998, it was five paisa
per kWh, which is now stood at paisa 64 per kWh in 2003. The
hydropower operations which are 29 per cent of the total power
generation in the country are also expected to increase to 38 per cent
from the current financial year. The task force on Electricity Tariff,
instituted by WAPDA has recommended certain measures for arresting the
trend of increasing power tariffs. It has recommended for timely
payment of dues by the public sector consumers and the recovery of the
stuck-up Rs34 billion public sector arrears.
The government should give priority to the gas
allocation for the power sector and revising the gas pricing
mechanism. It also recommended refinancing and reprofiling of over
Rs100 billion Government of Pakistan debt due from WAPDA. It should
also undertake refinancing of the expensive IPP debt. The government
should rationalize the existing taxation structure and subsidy to
various consumers groups to be accounted separately in a transparent
The electricity consumers, leaving aside the
technicalities and calculations, simply have to pay around Rs8-9 per
unit in a layman's language which is obviously too high a cost while
compared with the per capita income in the country.
Traditionally, the fuel used for thermal power
generation is called furnace oil. The price of oil has taken a quantum
jump over the years, which is said to be the major cause for increase
in electricity prices. Another option for power generation is
hydro-electricity, which contributes about 30 per cent of the total
power generated in Pakistan.
Hubco with in an installed capacity of 1,292
megawatt, the largest power producing private sector entity in
Pakistan, was running at 60 per cent of its capacity to supply power
to WAPDA under a power purchase agreement. According to informed
sources, Hubco has offered to add at least 300-400 MW to its current
supply especially to Karachi Electric Supply Corporation (KESC) which
is facing a shortfall of around 1,000 megawatt to cater to its
It is learnt that the Private Power and
Infrastructure Board (PPIB) was currently studying the offer made by
Hubco to supply 300-400MW to KESC directly. Actually, this proposal
was being discussed at the top level for the last 2-3 years but so far
could not materialized due to lack of infrastructure, which includes
transmission line, a grid station and other requirements for
establishing direct link between Hubco and the KESC. This linkage of
direct transmission calls for an investment of $30 million, however,
it is not yet clear who would bear the cost of the proposed linking
project between KESC-Hubco.
The National Electric Power Regulatory Authority (Nepra)
has however expressed concern over what it called the slow pace of
progress on Hubco-KESC linkup project, and has emphasized that the
linkup is vital owing to increasing power demand in Karachi.
The concerned was expressed by Nepra in a meeting
with KESC officials while taking stock of the power supply situation
to the industrial city. It suggested that KESC should raise the issue
at all levels for early implementation of the project. Unlike WAPDA,
the KESC is not applying to Nepra for further increase in its tariff.
This gesture of the KESC was appreciated by the National Transmission
and Distribution Company (NTDC) had suggested that KESC should be
allowed preferential rates for power purchased by KESC as compared to
other power distribution companies operating in Pakistan. When this
recommendation was pointed out to the Nepra authorities, they agreed
to look into the matter.
Currently, KESC was facing a shortfall of around
700 MW of electricity which is bound to increase to over 1,000 MW
within next couple of years. The shortfall faced by KESC was met
through a temporary arrangement with WAPDA which supplies around 400
MW to KESC per day.
KESC has an installed capacity of 1,700 MW but the
outlived power generating plants run by KESC hardly produce 1,200 MW
in a constant manner. The supply usually remains susceptible to
breakdowns or the corporation had to resort to load shedding due to
overloaded transmission lines during peak summer. The bail out KESC
from operational and financial problems, the ECNEC is expected to
approve Rs13.4 billion for the system improvement of the KESC. As a
result of these problems, KESC has to suffer losses worth over Rs1.361
billion per annum owing to 40 per cent line losses caused by the
illegal Kunda and service improvement. The government on its part,
however, keen to reduce the losses of the KESC and efforts have been
initiated in this respect as reforms in the KESC had already started
and would be completed in three years. The government has already
agreed to finance the above investment through budgetary allocations
and allocated Rs1.3 billion last year and another Rs3.3 billion in the
current financial year.
The KESC authorities have a plan to spend Rs13.4
billion on installation of cable wires for transmission, moving of
152,000 electricity meters hanging on the out wall of the residential
and other buildings premises and the rehabilitation of Port Qasim
Thermal Power Station. The KESC officials are hopeful that the
transmission and distribution losses and the theft of electricity are
expected to reduce from existing 41 to 24 per cent by 2006.
The Executive Committee of the National Economic
Council (ECNEC) is currently considering into KESC system improvement
and six other power projects costing more than Rs82 billion.
It is learnt that summaries of eight new power
projects have already been prepared and are with the ECNEC for
approval. Besides improvement in the KESC system and six new power
plants, nuclear technology is also being utilized to overcome the
electricity shortage in Pakistan. In this regard, steps are under way
for setting up Chashma Nuclear Power Plant Unit-II at a cost of
Rs45.39 billion. The ECNEC is also actively looking into this project
also. This nuclear power plant would be undertaken by the Pakistan
Atomic Energy Commission (PAEC) for generation of 300 MW electricity.
This project, however, would take 6-7 years for completion.
Although the government has planned for more
hydro-power plants and recently one of such project namely Ghazi
Barotha Hydro Power Plan, with an installed capacity of 1,400 MW has
gone into power generation, however, this project would take a couple
of years to be fully operational. People also talk about other
non-traditional options for producing power through wind energy, solar
energy or nuclear energy, however, the thermal or hydro-power are the
only workable options for sustainable supply of power. As far as other
options were concerned they have not been proved successful for reason
or the other. Some studies were conducted alongside the coastal area
of Balochistan for setting up of wind powered electricity generating
plants, however, all these studies are still on papers, except a 20 MW
wind powered plant being developed by Defense Housing Authority in
collaboration with Siemens in Karachi. Let us hope it would be success
story. If this experiment proved fruitful, more wind power electricity
generating plants may come on the ground on certain spots in
Balochistan where wind speed remains constant through out the year.
However, this option may contribute a little in resolving the problem.
In order to meet the shortfall and to meet the
future demand of electricity, the government has decided to launch
about 3,000 MW of thermal projects at a cost of around $7.5 billion by
inviting Independent Power Producers (IPPs) in selected areas of the
Out of the proposed 3,000 MW plants, three units
with an installed capacity of 1,080 MW would be set up in Karachi
which is the most electricity starved city of the country. While
remaining plants with installed capacity of 2,000 MW would be set up
in the industrial zones and towns of Punjab.
To meet the electricity needs in Balochistan, power
is being imported from Iran in Taftan and Muskhkhel. The Iranian power
supply had recently been provided to Mand, Tump, Turbat, Pasni and
Gwadar. For import of power from Jackigor to Mand, a 132KV
transmission line had also been erected at a cost of Rs250 million.
Since the electricity consumers had to suffer
unbearable as well as unaffordable cost of electricity, they generally
blame the power policy of 1994 through which IPPs were set up in
Pakistan. Though they helped a lot in overcoming the growing shortage
of power as an additional capacity build-up of 3,000 MW, yet it proved
too costly in all respects. As a result, the economy had to bear an
additional burden of Rs100 billion annually paid by WAPDA to these
IPPs for purchase of power.
It is a national tragedy that more than 40 per cent
of the electricity is stolen out of the WAPDA and KESC systems all
over the country. The price of the stolen electricity, however, has to
pay by the genuine consumers because the utility companies time and
again demand raise in electricity tariff which usually accept by the
authorities. The losses on account of power theft are running in
billions of rupees. It is generally observed that there are two
factors behind this huge loss of national wealth. Those consumers who
cannot afford to pay the huge bills and the corrupt staff of both the
utility companies behind this multi-million racket of power theft.
Now the government is considering allowing more
IPPs both in WAPDA and the KESC areas. However, in order to avoid
recurrence of the past experience, these IPPs are being asked to set
up power generating units operated on gas or coal-fired systems so
that the cost of the generation could be brought down considerably.
OIL & GAS
The economy had to bear the huge cost of import
bill on account of POL products. During the previous financial year
the POL products imported was estimated over $3.6 billion. Out the
total import of POL products, the furnace oil and diesel were on top
of the list. However, the present government has taken effective
measures to cut down the import bill. Under this policy, most of the
oil consuming sectors have been asked to switch over from oil to gas
which has started making visible impact on the imports.
As a result of these efforts, country's oil imports
fell by 7.6 per cent or $38 million in the last two months mainly
owing to the policy of shifting to natural gas and coal. Import of
crude oil and oil products fell to $467 million in July and August
from $505 million in the same period of the previous year.
Pakistan electricity producers and heavy industrial
users such as cement companies have already been switching over to
coal and natural gas to save costs. The import bill of petroleum
products fell by 25.48 per cent to $196 million as compared to $262
million, including that the shipment of reined products have fallen
considerably. The rise in petroleum crude imports hinted that the
refineries in the country are making all out efforts to reduce the
import bill of finished petroleum products. The petroleum crude rose
by 11, 74 percent to $271 million in last two months as against $242
million in the corresponding period last year. In terms of quantity
about 1,320 million tons of crude oil was imported, up from 1,272
million tons of the corresponding period a year back.
Pakistan's oil fuel consumptions also fell by 2.3
per cent to 16.8 million tons in the year, from 17.2 million tons a
Petroleum sector which again a key sector and
provide fuel for growth is being used as the revenue collection sector
by the government. According to an estimate, the government expects to
collect Rs46.6 billion ($807 million) and Rs15 billion through oil and
gas taxes, respectively at the end of the current financial year in
June 2004. Surcharges collected on gas and petroleum were also higher
at Rs68.2 billion in 2002-03 against Rs54 billion of the preceding
In the oil and gas exploration sector, nine new
wells of oil and gas have been discovered during last one and half
year in Pakistan. Out of the nine discovered wells, three were found
by Oil and Gas Development Corporation (OGDC) while the credit for
discovering the remaining 6 wells goes to the private sector
These newly discovered well will be producing an
additional 70 million cubic feet per day of gas and 5000-6000 barrels
of moil per day. With the development of these new wells, Pakistan's
output of natural gas would go up to one billion cubic feet of natural
gas per day. This additional supply of oil and gas would help reducing
the oil import bill by $240 million.
The discovery has been made some 40km off Hyderabad
and 3km of Tando Allah Yar in the province of Sindh.
A joint venture between OGDC and the government
Holding Private Limited, well known as Dars-I will add 850 barrels of
oil per day besides 14 million cubic feet of gas which may result in
import substitution of around $424 million per year.
OGDC has discovered another well at Pandori having
a capacity to produce 2,000 barrels per day of moil and 7.07 million
cubic feet of gas. The oil petroleum incorporation has also discovered
a well at Mirpurkhas with a capacity to produce 820 barrel of oil per
day and 100 cubic feet of natural gas.
In order to accelerate the pace of exploration work
in the oil and gas sector, the government has planned to drill 68
wells across the country during the current financial year. Out of the
target of 68 wells, OGDC will drill 22 wells while 44 remaining wells
by the private sector oil and gas companies. As far as the development
of the infrastructure in the network of SSGCL and NPGCL was concerned
for laying transmission lines from the gas fields of Miano, Bhit,
Zamazama and Sawan to consumers into the main transmission network,
the government has spent huge amount of one billion dollar.
The exploratory work in the oil and gas rich
province of Balochistan has also been resumed, it is learnt. According
to informed sources, the government was paying Rs9 billion royalty to
Balochistan. The issues with Bugti tribe have also been settled and
the government was paying Rs60 million to Bugti for the leasing of
4,500 acres of land.
Pakistan is going to host the forthcoming meeting
of the steering committee of Turkmenistan Gas Pipeline Project next
month in Islamabad. The meeting will be attended among others by
representatives of Asian Development Bank, Turkmenistan, Afghanistan
and other stake holders from the financial sector. The meeting is also
likely to be attended by Indian representatives who have also been
invited to join the project.
The meeting is going to be a big event in the sense
that a final decision regarding the cross border pipeline is likely to
Pakistan has declared the natural gas as the fuel
of the future. Since all major oil consuming sector are swiftly
switching over to gas, the import bill on account of POL product is
getting slim on one hand, but the consumption of gas is being
increased rapidly in Pakistan. According to the policy more, IPPs are
being allowed to generate another 3,000 MW of electricity in Pakistan.
But these new units would be allowed to run only on natural gas or
coal. In this situation quick steps are required to arrange
uninterrupted supply of gas to these power generating units. A large
portion of KESC's generating capacity has already been shifted on gas,
while the remaining part of the capacity would also be run on the gas
in near future. Hopefully, the benefit of low cost fuel would be
passed on to the consumers to let them enjoy the share of the national
resources on equity basis.