A costly affair
By AMANULLAH BASHAR
Sep 22 - 28, 2003
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 2002-03.
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 manner.
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 consumers.
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 country.
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 year earlier.
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 year.
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 companies.
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 be taken.
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.