The country, realizing the importance of electricity for economic growth, has been taking measures for enhancing generation capacity

Oct 20 - 26, 2003



Most of the energy consumption in the country, apart from the transport sector, takes the form of electric power. A substantial part of gas and oil are converted into electricity together with the primary energy derived from hydel power. Electricity demand is growing at a faster rate than other fuels, reflecting its high value in specific uses. Although the generation and distribution losses are high for electric power, it is much more efficient than other fuels in such uses as the motive drive and the pumping, and is uniquely suited to other uses such as lighting and the operation of appliances. Of the energy system, electricity sector is more capital intensive and thus claims a larger share of energy investment.

The country, realizing the importance of electricity for economic growth, has been taking measures for enhancing generation capacity. Due to such efforts, the installed capacity for power generation had risen to 4,809 MW by 1982-83, the terminal year of the 5th Plan. In 1982-83, generation capacity consisted of 2,547 MW hydel, 2,125 MW thermal and 137 MW nuclear. By 2002-03, power generation capacity has increased by 12,919 MW to 17,728 MW consisting of 5,009 MW hydel, 12,257 MW thermal and 462 MW nuclear. The increase in generation capacity during the past twenty years has changed the capacity mix in favour of thermal and the share of hydel has declined. In 1982-83, the capacity mix being 53% hydel, 44% thermal and 3% nuclear has changed to 28% hydel, 69% thermal and 3% nuclear. On average installed capacity increase works out to 646 MW per annum. The above capacity increase was made possible through huge capital investment.

The entire installed capacity in 1982-83 was owned by the public sector entities, namely Wapda 3,954 MW, KESC 718 MW and PAEC 137 MW. During the next twenty years, the position has changed considerably. The private sector Independent Power Producers (IPPs) have stepped in a big way. The IPPs sell power in bulk to Wapda and KESC. The IPPs have added generation capacity by executing green field projects as well as through acquisition of a project earlier own by Wapda and privatized by the government. Of the total installed capacity in 2002-03, Wapda owns 9,694 MW, KESC 1,756 MW, the IPPs 5,816 MW and the PAEC 462 MW. In 1982-83, Wapda owned 82% of total capacity but now Wapda owns only 55% of the installed capacity. The IPPs now own 33% whereas PAEC has maintained its share at 3% of the total. The share of KESC has declined from 15% of total in 1982-83 to only 10% of total in 2002-03. Karachi being the centre of industry and trade normally its share in the total installed capacity should have increased. This also partly explains dependence of KESC on Wapda and the IPPs for part of the power supply.



Increase in installed generation capacity under different Five Year Plans had not been smooth or easy. In order to draw lessons for future we need to study the targets actually achieved during the Plan Periods and the problems encountered. Increase in thermal generation capacity during the past twenty years has been 5.8 times as compared to only 2.0 times increase in the hydel capacity. Introduction of the private sector in power generation in the meantime through the IPPs and the drop of proportionate share of KESC are important developments, a review of which might help in the preparation of policies in future for energy generally but particularly for electricity sector. For such a review, capacity increases during 6th, 7th and 8th Five Year Plans, shift in policies/priorities and the changes in the institutional/organizational set up for the induction of the private sector shall have to be examined.

The 5th Plan had sought to increase installed generation capacity to 5,370 MW but was restricted to 4,809 MW largely due to delay in Tarbela Units 9 and 10 under Wapda system, and delay in the completion of Pipri-I steam power station of 200 MW and constraints on the allocation of gas for continuous running of gas turbines in Karachi.

According to the census figure of 1980, 71% of the urban households had got electricity connection. More than one-third of the villages had been electrified.

During the 6th Plan, generation capacity was planned to increase to 8,604 MW. Actual performance, however, lagged behind target. Against the planned capacity addition of 3,795 MW only 2,018 MW was added, a shortfall of 47%. Main reasons for the shortfall were that the execution of a number of generation projects was delayed. Total installed capacity in 1987-88 was 6,716 MW, of which Wapda system comprised 5,552 MW, KESC 1,027 MW and PAEC 137 MW. In percentage terms capacity mix was: 43% hydel, 55% thermal and 2% nuclear. In the terminal year of the 5th Plan Period, the share of hydel was 53% whereas thermal was only 44% of the total. Developments during the period appear to have changed course for more of thermal generation in the coming years. It may be mentioned that during the 6th Plan period a number of hydel and thermal projects were initiated but their completion was beyond this Plan period.

The energy programme in the 6th Plan, being of large magnitude, required accelerated implementation. Under the Energy Planning and Development Project, development of capability for integrated and sectoral energy planning was initiated in the Energy Wing. The 6th Plan document also refer that the policies were being formulated for encouraging the private sector to set up electricity generation facilities for selling to Wapda/KESC at predetermined rates, allowing attractive profits on efficient operations.

Specific objectives of the 7th Plan pertaining to power generation included: (i) to substantially increase electricity supply to sustain the projected growth in different sectors of the economy, eliminate load-shedding and electrify most of the rural areas; (ii) to reduce the import burden by increasing use of indigenous fuels like coal and gas in power generation and other sectors of the economy, and (iii) to draw upon the financial resources and expertise of the private sector to a much greater degree for energy development and production. According to the policy, the private sector could install power generation capacity based on oil, indigenous coal and hydro electricity. Moreover, the low calorific gas fields were also available for power generation to both private and the public sector. The contribution of the private sector in power system development was expected to be over 2,000 MW. This also included incentives such as designating areas for private sector power projects which had been identified, and defining conditions for purchase of power by Wapda and KESC.



During the 7th Plan Period (1988-93), additional power generation capacity of 6,558 MW was proposed to be added. For the first time the private sector was given a target of adding 1,330 MW while 5,228 MW was to be added by the public sector. After retiring of old thermal capacity of 162 MW, installed capacity at end 1992-93 was expected to reach 13,112 MW. In actual, only 2,992 MW could be added in the 7th Plan. Combined installed capacity at end June 1993 was 9,786 MW, of which Wapda system had 7,911 MW (81%); KESC owned 1,738 MW (18%) and PAEC had 137 MW (1%). Capacity mix in terms of fuel was: 38% hydel, 60% thermal and about 2 % nuclear. Because of resource constraints and physical implementation delays the achievement of targets in respect of power generation capacity had been less than the target set in the 7th Plan. The private sector projects also experienced delays because their original schedules were optimistic in respect of formulation of project details and arrangement of finance.

The key objectives of the 8th Plan (1993-98) included: (i) to continue to promote energy conservation, rational use and demand management; (ii) to meet the energy demand of the economy in sustainable manner; (iii) to improve and expand the system of transmission and distribution of energy; and (iv) to decentralize and deregulate the Energy Sector Agencies and to promote induction of private sector. For hydel development, the policy adopted was that the first priority would be given to the accelerated development of hydel projects for which feasibilities and engineering studies have been completed and the optimal use of the existing hydel stations. It was proposed that new thermal power projects identified may first be offered for competitive bidding in the private sector for which necessary tender documents and basic engineering documents should be prepared by Wapda.

Pakistan had already initiated its privatisation efforts under which a number of BOOT and BOO type projects were being considered. A detailed policy in this regard had already been announced, of which some of the salient features were: (i) guarantee of purchase of electricity at 60% plant factor; (ii) establishment of Private Power Board, under the Ministry of Water and Power, for one window operation; (iii) appointment of NDFC to administer the GoP's Private Sector Energy Development Fund, for providing subordinate loans, up to 30 % of the project cost, having longer maturities, (iv) recommendation by the GoP to the State Bank of Pakistan for modification of Prudential Regulations to allow 80:20 debt equity ratio; and (v) Setting up of National Electricity Regulatory Authority, NEPRA. The power policy was amended a number of times during the 8th Plan period.

In 1997-98, the terminal year of the 8th Plan (1997-98), total installed capacity was proposed at 16,422 MW, showing an increase of 6,636 MW over existing capacity of 9,786 MW. Actual increase in installed power generation was only 5,832 MW, raising the total capacity to 15,618 MW. For the first time 88% of the target capacity addition was achieved. Combined installed capacity at the end June 1998 comprised 4,826 MW hydel, 10,655 MW thermal and 137 MW nuclear. In percentage terms capacity mix was: 31% hydel, 68% steam and 1 % nuclear.



With the execution of public and private sectors power generation projects, the installed capacity continued rising during the period 1998-99 to 2001-02. The country had total generation capacity at 15, 663 MW in 1998-99, that increased to 17,399 MW for 1999-2000, to 17,458 MW for 2000-01, and to 17,758 MW in 2001-02. Capacity for March 2003 is 17,728 MW. Of the total capacity Wapda owns 9,694 MW (55%); the IPPs have 5,816 MW (33%), PAEC 462 MW (3%) and KESC 1,756 MW (10%). The increase in capacity in the period has been largely due to completion of on-going projects as well as execution of a number of the private sector IPP projects. Power generation capacity during the past twenty years has increased nearly four times and also has changed the capacity mix in favour of thermal and the share of hydel has declined. . In 1982-83, the capacity mix was 53% hydel, 44% thermal and 3% nuclear, which presently stands at 28 % hydel, 69% thermal and 3 % nuclear. The new capacity mix has a number of implications.

According to the Economic Survey 2002-03, Wapda, with the normal growth rate, will face shortage of 55 MW in the year 2005-06 and further to 5,529 MW by the year 2010. To fill the upcoming shortfall, the GoP has announced a Policy for Power Generation Projects for 2002 for attracting private investors. Main thrust of the policy is on the exploitation of indigenous resources. Some of the salient features of the new policy are: (i) Applicable to projects in private sector, public sector and through public-private partnership; (ii) Hydel projects to be implemented on BOOT and thermal projects on BOO or BOOT basis; (iii) GoP will guarantee the terms of executed agreements including payment terms; (iv) availability of standardized security agreements; (v) Exemption from income tax including turnover tax and withholding tax on imports; provided that no exemption from these taxes will be available in case of oil-fired power projects; and (vi) Maximum indigenization shall be promoted in accordance with GoP policy. It has been said that the investors' response to the policy has been encouraging. Twelve companies have already shown interest in setting-up power plants, having cumulative generating capacity of 1,915 MW promising investment in the country for more than $ 2 billion. This is happy news but one should at the same time not forget that there are many a slip between the cup and the lip. It would be better if we periodically be critically examining the policy contents in the light of developments around us.