WB-IMF FOR INCREASE IN POWER TARIFF
Investment in transmission, distribution systems essential
By AMANULLAH BASHAR
Nov 08 - 14, 2004
It is true that despite an abnormal increase in international oil prices, the increase has not been passed on to the consumers as the government has absorbed the additional cost estimated to the tune of Rs24 billion so far.
The oil prices in Pakistan are determined by the Oil Companies Advisory Committee (OCAC) by every fortnight. The OCAC was obviously asked by the government to restrain from any increase in oil prices to protect the economic cycle on one hand and to avoid inflationary pressures in the wake of the increase in oil prices.
The power sector in Pakistan is the major oil consumer for generating thermal power, the costliest way of power generation which is being discouraged even by the developed economies around the world. Though the economic managers in Pakistan too have decided not to issue any new license for thermal power production, yet the existing thermal power generation both in WAPDA and Independent Power Producers naturally require fuel oil to remain in the business.
In order to offset the growing financial impact on the economy due to increased cost of oil imports, the World Bank, which effectively monitors the movement of the economy especially in the developing economies, has recommended upward revision of power tariffs in Pakistan.
It is an intriguing situation for the economic planners because on one hand they realize that the power rates in Pakistan are already on higher side and any addition to the existing power charges may cause a serious impact both on economic and social life in the country. The situation was further aggravated by the declining hydel power generation due to drastic fall in water flows from the rivers into the dams generating around 500mw of power for WAPDA.
The difficult situation created by the high flying international oil prices has forced the developing economies in a tight situation while the common man would be the ultimate sufferer. It is the high time that the oil price issue should also be included in the agenda for talks in the world forum and the developed economies especially the United States should come forward to provide assistance to mitigate the worst impact of the oil prices on the developing economies.
Another option for the economic managers in Pakistan can be to speed up the exploration of the alternative energy resources to get rid of the nasty oil prices, posing a serious threat to the growing and under developed economies. Natural is kind to Pakistan and has bestowed with plenty of alternative energy resources like natural gas and huge coal deposits estimated to the tune of 184 billion tons. Out of the total coal deposits, the bulk of proved coal deposits i.e. 175 billion tons were identified in Thar, 1.32 billion tons in Lakhra, over 7 billion tons in Thatta and other deposits in Jhimpir and Badin areas.
Although, the Chinese friends have already started working on Thar coal project, yet the situation calls for inviting more international investors both in natural gas and coal to reduce the impact of costly oil imports.
Recently, the World Bank has asked the government to increase power tariff to offset the impact of Rs24 billion additional burdens on WAPDA producing thermal power with higher furnace oil prices.
WAPDA is facing an unprecedented cost-overrun of around Rs24 billion owing to purchase of power from IPPs because of lower hydel generation and skyrocketing oil prices in the international market.
This is a conservative estimate, since it is based on current domestic fuel oil prices and the full impact of the increase in the international oil prices during the past 6-8 months which has not been passed on to the consumers.
The World Bank is of the view that a clear plan was needed to deal with additional costs. It also asked the government to consider raise in power tariff to deal with the present situation.
According to reports, the World Bank was working with the government on the appropriate subsidy policy, which was a key input to the Financial Recovery Plan, as it would help determine the actual price push that would be followed. The privatization process of power sector, which is also on the priority of the economic agenda of the government also requires clear subsidy policy as early as possible, the bank recommended.
The ministry of finance, it is learnt, had proposed that the draft subsidy policy would be ready soon but power ministry failed to finalize it mainly due to differences with the NEPRA on tariff determination.
Sustainability of the power sector would require planning out of some of the subsidy over a realistic timeframe, with a possible move to greater use of capital grants, specially relating to rural electrification, the World Bank feels.
In the World Bank's opinion, the investment in the power sector was substantial, both in transmission and distribution systems. The estimate investment in transmission was Rs34 billion for the next five years which includes investment for 500/220kv transmission lines and sub-stations, evacuation lines for proposed power projects and strengthening of the system. In distribution the estimated requirement was Rs96 billion for the same period.