IMPERATIVES OF TACKLING ELECTRIC POWER SHORTAGES

By MUHAMMAD BASHIR CHAUDHRY
Oct 04 - 10, 2004

Power is complex phenomena. Electric power system is no exception. Apprehensions are that the country might experience serious power shortages for which there could be many reasons. Main causes are limited addition in generation capacity as against rising demand and lower anticipated hydel generation due to severe shortage of river water. Power shortage is sometime further aggravated due to absence of alternate transmission options or poor upkeep of transmission and distribution systems.

Prolonged power shortages, due to whatever reason, adversely affect economic activities and cause inconvenience particularly to small industries, commercial establishments and household consumers. The rich and the resourceful as well face inconvenience when their in-house diesel generators also fail them. Power shortages are met through rationing and blackouts, which if prolonged and more frequent, might also have political implications. Moreover, power shortages might affect different areas and regions differently due to the location of power generation plants vis-a-vis the load centres. The power shortages might also jeopardize efforts to reduce tariff to industries for their export competitiveness. The international high oil prices at present are likely to add pressure to keep power tariff high. In the absence of corrective measures, we might have difficult times ahead.

During 2003-04, the country saw nearly 10% increases in generation capacity due to coming on operation of more hydel plants. Of the total capacity, hydel generation is now 34% (6,696 MW) as against 28% (5,009 MW) last year. Total installed capacity at 17,776 MW in 2002-03 has risen to 19,478 MW. Wapda system owns the lion's share of existing installed capacity at 59% (11,436 MW). The share of the IPPs is 30% (5,824 MW), Nuclear over 2% (462 MW) and KESC 9% (1,756 MW). Increase in hydro power and use of gas for power generation particularly by KESC, reduced import of furnace oil during 2003-04 and thus had useful impact on country's balance of payments. Lower hydel generation coupled with higher thermal generation to make up the shortfall in the current year would push up imports of furnace oil and bring our balance of payments under pressure. Water level this year is said to be 44% lower than its total capacity in Tarbela and 37% lower in Mangla.

The PPIB has released on its website Power Supply-Demand situation in the country for the period 1999-2000 to 2009-10. Firm generation capacity has been compared with peak demand for each year. According to these figures, the country is expected to face a deficit of 411MW in 2005-06, rising to 5,529 MW by 2009-10. Demand for power has increased faster lately due to better business conditions and power shortage is likely to hit the country earlier than estimated. According to other estimates, the country could face a power shortage of around 7000 MW by 2011, if emergent steps for power generation were not taken. It may be noted that per capita electricity consumption in the country is only 404 kWh which is exceptionally low and indicates stage of our economic development. Moreover, there is large pent up demand for electricity as a large section of the population as yet has no power connections. The country needs substantial new power generation capacity.

Sectoral consumption of electricity at present is skewed more towards household at 44% of total, as against industry at 31%, commercial at 6%, agriculture at 12% and other government at 7%. share of industry could partly be low due to installation of captive power generation plants by different large industries. For accelerated economic development, one would wish that consumption by the industry and commercial sectors was higher than the household.

The government is reportedly anxious for installation and operation of around 2600 MW thermal power capacity during next two to three years. The effort appears to meet the rising demand and also to compensate for expected big drop in hydel power generation due to unprecedented water shortage in the coming months. There is a possibility that if power shortages persist, the government might reconsider policy on using furnace oil for power generation, the use of which for new projects has been discouraged in the Power Policy-2002. The policy encourages generation through domestic coal and hydel power.

The federal government, the provincial governments including the government of AJ&K, Wapda and KESC are taking measures for facing impending challenges of electricity system. New generation capacity is being encouraged. Besides, funds are being given to Wapda and KESC for revamping transmission and distribution systems. Both, Wapda and KESC would also be re-activating their old thermal plants to meet the shortfall. These are positive developments and should help. However, for successfully meeting the challenges, fresh policy measures coupled with larger financial allocations are needed to transform existing power system into a modern system capable of supplying reliable power to all consumers particularly industry and information technology sector.

The PPIB, the one-window institution working under the Ministry of Water and Power, has already approved eight new power projects for which the Letters of Intent (LOIs) were issued under Power Policy-2002, with expected completion around 2008. These projects are Jarwar Project (123 MW), Western Thermal (150 MW) at Karachi, Intergen Power Project (150 MW) in NWFP, Fauji Thermal (150 MW) at Karachi, Balloki Thermal (400 MW) in Punjab, Kotli Hydro Power (97 MW) in AJ&K and Munda Hydro Power (740 MW) in NWFP, with aggregate generation capacity of 1,985 MW. The pre-qualification reports for the sponsors of these projects were prepared by PPIB as per international standards. Approval for other seven projects having generation capacity of about 600 MW is under process. The whole process including financing close and actual implementation needs to be expedited to meet the power shortfall.

The provincial governments of Punjab, NWFP, Sindh and the government of AJ&K are pursuing installation of power generation projects in their respective areas. While NWFP and AJ&K are working on hydel generation, Punjab is pursuing both hydel and thermal, while Sindh has focused on thermal projects particularly based on local coal. Wapda and KESC are also anxious to reactivate old thermal power plants with a view to meet the impending shortfall in power generation. Coordination and cooperation among all stakeholders might increase the chances to bring more capacity on line and in a shorter period. It is expected that the two utilities have already examined the pros and cons of reviving the old thermal plants in Sukkur, Quetta, Multan, Lahore and Karachi at a time when a number of other power plants are under different stages of approval or implementation.

The IPPs are committed to make entire capacity available to Wapda or KESC as the case may be, at their option. The expected shortfall can be partly met if Wapda and KESC require the IPPs to supply maximum power. As the IPPs would be operating near full capacity, total average cost per kWh will drop and utilities are expected to be better off.

Wind power and solar power at present are in development stage in the sense that these have cost of generation per kWh much more than the cost of traditional thermal or hydel power. These alternate sources might be useful for specialized use but they shall have to first become competitive for use of electricity so generated by the consumers such as households, industry or commercial. Therefore, wind or solar power might not be a big help for meeting the impending shortfall in power supply due to lower hydel generation or other reasons.

KESC is dependent on Wapda system for nearly 40% of its total purchases of power. In case WAPDA system faces shortage due to low hydel generation, it is unlikely that Wapda will supply to KESC with the usual load. Even if Wapda agrees to help KESC, it might not be economically possible for it to supply power at old rates of Rs 3.70 per kWh. Therefore, KESC might not be fully protected from adverse impacts of power shortage. Severe capacity shortage with KESC has developed due to various reasons. At one time, the government did not approve request from KESC for replacement of an old power plant at Karachi. Moreover, of the large number of IPPs wishing to set up new power generation capacity around Karachi City, only two IPPs, namely Gul Ahmed and Tapal finally materialized with aggregate capacity of around 260 MW. The government is urged to make sure that more generation capacity is installed in and around Karachi to meet the increasing demand of the industrial hub. Moreover, the linking of Hub Power with Karachi through a transmission line might also be expedited.

The Prime Minister attended on 9th September 2004 a presentation by the Punjab governor on supply and demand of gas and electricity in different cities of the Punjab. The Prime Minister stressed the need for adopting a proactive policy to increase power generation so as to meet growing demand of economic sector. He reportedly told the PPIB to solicit investment in power generation. He stressed the need to adopt a more dynamic and focused policy for power generation in the country in order to meet the domestic and industrial demands. He added that Wapda and private sector power companies should be facilitated to generate more electricity to meet the demand of the industrial sector. He asked Wapda to ensure that power stations generated electricity to their optimum capacity. The Federal Minister for Water & Power has reportedly also asked for simplifying the procedures and expediting the matters for increasing power supply. In this context, the following suggestions are offered for consideration by the government:

1. There is need to review the Power Policy-2002 in consultations with the provincial governments including the government of AJ&K and other stakeholders. Moreover, it should include clear policy for the captive power plants currently operating in Pakistan. These plants at times can also supply power to the national grid if the price is attractive and the procedures are hassle-free.

2. The PPIB has the experience and minimal manpower for the purpose but there is immediate need to strengthen the institutional capability at the provincial level including at the government of AJ&K. The needs of all these institutions might be assessed and funds/manpower provided to them to easily handle the increased workload due to accelerated installation of new power generation capacity.

3. There is need to re-activate the Private Sector Energy Development Fund (PSEDF) of the government, earlier entrusted to NDFC for administration, now with National Bank of Pakistan (NBP) with which NDFC has since been merged. The PSEDF might be made a bank for the financing of the infrastructure projects including power generation. This should boost the financing of new power generation capacity.

4. The report of the Task Force on Tariff, earlier submitted to the government, might be shared with the stakeholders for information. Moreover, information regarding the working of existing utilities such as annual audited accounts, plant-wise electricity generated by the IPPs/others and sold to NTDC, power sold to various distribution companies, etc might be provided to the general public for information through the PPIB/NEPRA. Further, the information already being provide by the PPIB and NEPRA through their respective websites might be improved and made user-friendly.

5. For the consumers, electricity tariff is what they pay for the actual electricity used. For the utility receiving the payment from the consumers, the tariff is what is left with it after remitting to the government various taxes and royalty collected as part of the electricity bills. To be profitable, the utility must be left with some amount after meeting administration expenses, cost of electricity purchased or generated, high losses in transmission and distribution, depreciation on the power system and the financing cost payable to the creditors. Technical or administrative inefficiencies in any part of the power system and/or the capitalization structure of the companies and their operational/contractual arrangements with counter parties might further increase the cost and consequently reduce the profits or result into losses. All these matters might be carefully reviewed followed by corrective measures for a vibrant and reliable power system in Pakistan.