4- PSDP 2004-05



The myth of surplus generation capacity is proving incorrect


June 14 - 20, 2004





Earlier than expected Pakistan will face severe load shedding due to water touching 'dead level' in major dams. On the one hand the country will experience electricity shortage and, on the other hand, the prospects of earning extra dollars from export of furnace oil will not be realized. The much talked about and said be 'incentive-studded' Power Policy announced in 2002 has not yielded the desired results as yet. The million dollar question is, can the country succeed in averting emerging power crisis?

It seems almost certain that during the calendar year 2004 Pakistan will face severe load shedding, similar situation prevailed prior to announcement of Power Policy in 1994. One may have all the criticism on the said Policy, but the investment attracted as a result is the largest in the history of Pakistan. All the subsequent Power Policies failed in attracting even one-tenth of the quantum of investment achieved through Power Policy 1994.

Recently, Waseem Haqqui, Chairman, Board of Investment, said that in response to Power Policy 2002 the government had received 33 Expressions of Interest (EoIs) for a total 5,500 MW power generation capacity in the private sector. However, a closer look at the progress of these EoIs does not show that any of the plants would become operational by year 2006.



At present 15 independent power plants (IPPs), including HUBCO, are operating in the country. However, it must be kept in mind that investment in HUBCO was committed much earlier than the announcement of Power Policy 1984. HUBCO is an entirely different project for which international lenders had provided funds. The remaining 14 IPPs are the outcome of Power Policy 1994. Since then, in more than one decade, not even one IPP has become a reality.

The blame of emerging power crisis should only go to those who have been propagating the philosophy of surplus electricity generation capacity in the country. Even the document released by Private Power & Infrastructure Board (PPIB) at a recent presentation made at Karachi, says that surplus capacity still prevails and year 2005-06 onwards the demand of electricity will surpass the supply.

It seems a little surprising that the PPIB officials are still talking about surplus electricity generation capacity in the country. The basic premise, taking installed hydel capacity as dependable capacity, is not correct. The dependable hydel generation capacity should never be considered equal to the installed capacity. The dependable capacity should always be taken at historic average or at the minimum water availability. Since the forecast about water availability may change from year to year, the dependable capacity, should always be based on the minimum and not the maximum. Simply because whatever installed capacity may be there it can operate only if sufficient water is available.

The point seems most credible if one looks at the present situation. There may be still surplus capacity but it would operate at less than half because of water level. The water level in dams has already reached the dead level. The situation is expected to get further precarious in the winter. Therefore, the installed hydel generation capacity of 6,500 MW becomes totally irrelevant.

One of the factors responsible for poor financial health of WAPDA is the growing share of thermal power generation in total number of units generated. At present, WAPDA produces only 30% of its generation from hydel plants. Most of the power plants IPPs are also oil fired. The change in mix has not only been causing losses to state-owned power generation and distribution companies but is also responsible for persistent increase in electricity tariff.

However, the most unpleasant situation arises when the utility companies start implementing 'load management', a decent replacement for 'load shedding'. Most of the industrial and commercial activities are undertaken from 9 in the morning to 6 in the evening. If the utility companies opt for load shedding during this period, it causes colossal losses to the companies.

Business community has learnt the lesson and most of the bigger industrial units have installed stand-by generators. However, the worst victim of load shedding are medium and small industrial units, which cannot afford to install stand-by generators. Many experts go to the extent of saying that despite stand-by generation facilities, the business community cannot remain fully immune to the forthcoming electricity crisis. They will need generators which are capable of running up to 16 hours, at the minimum.