Dec 22 - 28, 2008

The World Bank has demanded that the distribution companies (Discos) should recover Rs46 billion, out of Rs70 billion, from receivables or prepare to raise power tariff further by 20 percent from January 2009.

It is to be noted that Petroleum Ministry has already planned to increase gas tariff by 7.6 percent from next year and if Discos could not recover Rs46 billion, which would not be easy to collect in such a short time, the consumers have to add extra amount of 28 percent in their monthly budget, due to increase in gas and power tariff. Moreover, Government intended to further hike power tariff by June 2009.

Gas companies have also demanded to raise tariff up to 33 percent, the final decision would be taken by Oil and Gas Regulatory Authority. Sui Northern Gas has requested the government to permit increasing traffic up to Rs99 per mmbtu while Sui Southern gas wants to raise tariff up to Rs97 per mmbtu from December. It was the second time gas companies are demanding government to increase tariff. It is worth mentioning that the government had increased gas prices by 31 percent in July. Gas tariff is reviewed after every six months keeping in view oil prices at international market.

The manufacturers said the production sector is already in crisis and if government permits gas companies to increase gas tariff further the industry and common men would be in great trouble.

In response of WB instructions, the Government has directed all Discos, except Peshawar Electric Supply Company, to recover 100 percent targeted amount by the end of December and any CEO failed to meet the target would face action.

The Government has also directed Discos to voluntarily reduce O&M expenses. Pepco MD was asked to prepare an area-wise operational scheme for Discos, for verification of meters, that should clearly mention teams, timetable and operational details.

The Lahore Electric Supply Company has to recover Rs1.5 billion from private sector and Rs1 billion from government departments, whereas Islamabad Electric Supply Company would recover Rs1 billion from private sector and Rs0.5 billion from public sector departments.

It is also to be noted that, on the one hand, Government does not have enough funds to finance new projects but, on the other, the government is also to recover about Rs226.5 billion from Karachi Electric Supply Company (KESC), Federal Administered Tribal Areas (FATA), federal and provincial governments departments and private sector institutions.

According to details WAPDA is to recover Rs56 billion from KESC, Rs76.95 billion from FATA, Rs1.83 billion from federal government departments, Rs18.27 billion from provincial governments' departments, Rs1.88 billion from Azad Jamun and Kashmir government and Rs70.22 billion from the private sector.

Government itself owes Rs140 billion to the gas, fuel suppliers and IPPs. The government has to pay Rs10.80 billion to the gas suppliers, Rs27.44 billion to oil suppliers and Rs75.16 billion to the IPPs for the electricity provision to Pepco, to supply power to the power distribution companies. While the dues against other stakeholders stood at Rs26.6 billion.

One of the victim is Pakistan State Oil, which is the main oil supplier and it is to recover Rs55 billion from WAPDA and IPPs. The power crisis would worsen in future if PSO failed to arrange the oil stock due to the pending recoveries of dues. The inventory stock of the PSO are declining because it is facing difficulties in making payment to oil refiners and is short of money to place orders for oil import. Because of this situation the PSO managing director resigned last month. The total dues of PSO stood at Rs72 billion from different entities and price differential claims from the government on the petroleum products.

A few months back, the government announced to increase power tariff by 40 percent but due to countrywide protests it had to give a 31 percent relief in tariff, i.e., 9 percent tariff was increased. To solve this problem the government has constituted a committee to review the tariff structure and the Prime Minister also approved to revive slab-base tariff system. The Finance Secretary said in his briefing that Pakistan has no other option but to implement the International Monetary Fund programme. The Government claimed that the consumers would benefit from the old slab system, while another view is that it would benefit a little to the consumers.

The world is facing energy crisis and to overcome it investment of more than $26 trillion will be needed between 2007 to 2030, $4 trillion above the last year, to ensure that the world would have enough energy supply for future. Of this, the power sector accounts for $13.6 trillion or 52 percent of the total, and the rest for oil and gas.

Pakistan is also facing many challenges and major of them are the power generation, consumption and lack of technical know-how. It was estimated that about $13 billion investment would be required in power sector till 2015. The government hopes this huge investment is to come from the private sector.

There is a vast gap between demand and supply of power that reached 3,500 to 5,000 MW and 8 hours load-shedding has become a routine, this demanded to solve the crisis immediately.

In order to meet energy shortfall and to develop proper planning for future power requirements, the Government has planned institutional capacity building of National Transmission and Dispatch Company, Pakistan Electric Power Company and Ministry of Water and Power.

For this project the World Bank will also provide technical assistance, for training programme. Presently, Pakistan power sector is facing severe crises owing to shortage of trained professionals in power planning and processing. This situation needs to enhance power sector organizations efficiency. The scheme would cost about Rs295.55 million that would include foreign exchange component of Rs236.44 million. The project would be financed through WB's Adaptable Programme Loan (APL) and the government of Pakistan. The share of the donor agency and Pakistan is 80 and 20 percent, respectively.

To strengthen the analytical capacity of power related institutions, hardware and software would be purchased. Capacity building programme would also include specialized studies that would consist of organizational development; human resource management and improving organization's internal environment and facilities.

To cope with the energy shortfall and for additional power generation emphasis would be laid on the development of domestic resources, i.e. hydro, coal, natural gas and nuclear as well as enhancement and improvement in transmission and distribution.

The remedy lies in setting hydro power plants. Pakistan has a potential to establish more than 40,000 MW, out of which only 6,827 MW have been developed only. The 33 percent of this cheap hydro power is in Wapda's installed generation capacity. All major hydro projects except Ghazi Barotha and Chashma are generating electricity at less than a rupee per unit.

Since the early 1990s no new project has been established by the successive governments and the total reliance has been on private sector for setting new power generating units.

The first power policy was announced in 1994 that attracted a lot of interest from international investors. But that was confined to thermal technology, although the policy provided relatively better incentives to hydro Independent Power Producers, IPPs. It provided 18 percent returns to thermal based IPPs and assured a 25 percent return on equity to the investors interested in hydro projects. Some investors shown interest in hydro projects but could not materialize due to unknown reasons.

The Hydel sector is still not being paid due attention, for instance under the Vision 2025 programme, only 769 MW of hydro power generation is planned to be added to the national grid by the year 2010. Moreover, most of the Hydro power projects unveiled, under the Vision 2025 programme, are still in feasibility stage.

As against power supply, the average annual power demand is growing at the rate of about 8 percent. This needs to develop an additional capacity of 2,000 MW per annum.

The total installed capacity is about 20,456 MW, generation is 18,000 MW. Power supply in summer remains 16,000 MW and only 13,000 MW in winter. The peak demand is about 17,800 MW, which was projected to increase to about 19,000 MW by the end of 2008.

One of the main reasons of the delay in setting Hydro project is that priorities of power generation has been attached with the big dams while the main purpose of the dams is irrigation and power generation is supposed to be a by-product. While more attention should be given on non-controversial and non political run of the river projects to produce hydro electricity.

The "run of the river" projects are comparatively easy to execute and the power produced from them is far cheaper than thermal. Besides, they are based on indigenous raw material, i.e. water, and power projects could be set up in the shorter-period.

The policies were made and promised that necessary measures are being taken to ensure sustainable addition to the power generation capacity, but handling and implementing by the nonprofessionals have hindered the execution of projects that has resulted in present energy crisis. A major cause of the crisis is lack of mechanism to predict accurate demand of energy at a given point in time, to be able to make future plan for power generation by the government.

There is an urgent need to undertake hydro power projects on fast-track basis throughout the country, to over come the deficit of power, which is hampering the economic growth. A system of accountability and implementation should also be evolved to monitor the speed of the projects.

The other point of great concern is that country's oil and gas reserves fell by 7.6 percent and 8 percent respectively in FY08. Therefore, there is an urgent need to develop coal and water based power projects and also exploring alternative energy sources, wind, solar and biomass, on fast track basis, which have been neglected for the last 60 years.