EXCHANGE RATE AND POWER TARIFF
SHABBIR H. KAZMI
Oct 12 - 18, 2009
Beginning October the government made two decisions 1) reduced prices of POL products and 2) increased electricity tariff. This seemed a little perplexing because thermal power plants have become the main source of electricity supply in the country. The hike in power tariff has invited a lot of criticism but policy makers termed the move a rationalized measure of removing subsidy.
To begin with the government provides no subsidy on furnace oil being used by the power plants. As regards subsidy to lifeline consumers and agriculture sector the claim hardly carries any weight because other segments are paying the higher cost; it is cross-subsidization that is popularly opposed. And above all, the reason for the dismal financial condition of electric utilities is not the lower tariff but exceptionally high transmission and distribution losses.
Examination of the factors responsible for load shedding stretching from 4 to 8 hours reveals some interesting facts. PEPCO issues daily details of power generation, shortfall and quantum of electricity it is supplying to the KESC. According to the data, at an average the country faces shortfall ranging from 2,500MW to 3,500MW depending on the running of power plants. In case any of the units start malfunctioning the gap becomes even wider. One fails to understand the reasons for the shortfall. The country has about 20,000MW generation capacity and average daily output is around 13,000MW.
It is true that generation efficiency of the thermal plants has come down with the passage of time and output of hydro plants is dependent on water levels in the dams. Many of the sector analysts say that due to the quantum of circular debt thermal power plants are run at lower capacity utilization. However, the logic behind buying more than the stipulated quantum of electricity from the IPPs is beyond comprehension.
Some experts say that the menace of load shedding has been created purposely to create justification for the entry of rental power plants (RPPs). The opponents of RPPs are threatened that if these plants are not allowed to operate in the country load shedding would continue till end December 2010 and the duration would also increase.
It is beyond comprehension that the policy planners are defending RPPs so religiously but are not ready to improve the efficiency of the existing power plants in the country.
Citing the example of KESC is necessary. The number of units billed by the utility is even less than the number of units produced in-house by it. In fact the units bought from WAPDA and IPPs goes straight towards T&D losses, which are nothing but blatant power theft. The situation is also not different in case of distribution companies operating under the umbrella of PEPCO.
Electricity consumers are surprised as well as dismayed on the government policy of persistent increase in electricity tariffs. Having touched the peak of US$147/barrel crude oil prices have plunged to less than US$70/barrel or half but there has not been corresponding reduction in the electricity tariff. They also say that the consumers use small generators during load shedding, which are mostly run on petrol, which add to oil import bill. Various taxes collected on petrol, including carbon tax are yielding billions of rupees to the government but the policy planners are never tired of talking so-called subsidies being purportedly paid to the electricity consumers.
In an attempt to reduce cost of electricity generation the government allowed running of power plants on gas. While the inapt use of gas has increased electricity consumers have not benefited at all because of rising T&D losses. Sector analysts say that the hike in electricity tariff proliferate power theft. Therefore, switching over to gas is simply a waste of precious gas resources. If the government is serious in containing oil import bills it must facilitate switching over of power generation plants to other fuels. This includes giving sugar mills status of IPPs. Collectively, the sugar mills operating in the country are capable of producing more than 3,000MW. Since these plants will use baggase as fuel not only the cost of generation will decrease but there will also be substantial saving of the foreign exchange.
One could only condemn failure of the policy planners in constructing hydro power plants, capable of generating electricity at a very nominal cost and ensuring availability of irrigation water round the year. The damage has already caused but efforts have to be made to minimize the adverse impact of construction of thermal power plants. Efforts should be doubled to construct smaller hydro power plants. Since these plants will be located in the northern part of the country the added advantage would be reduction in line losses resulting from transmission of electricity produced at HUBCO to these areas. On top of this gradual increase in electricity supply from HUBCO to KESC would help in meeting demand of the metropolis having a latent demand of 5,000MW.
The policy planners have to get rid of the obsession of establishing smaller and inefficient IPPs and create awareness about efficient use. Experts are of the opinion that containing wasteful use of electricity can help saving up to 3,000MW in the country. Effectively, this will be free of cost and yield additional revenue to the distribution companies.
The government should help the distribution companies in containing T&D losses. The rule of thumb is that reducing one percent of T&D loss will yield one billion rupee. Improving cash flow of the distribution companies will help them revamp their transmission and distribution network and ensuring uninterrupted electricity supply. Improved revenues will also help in reducing the tariff. If we cannot add new generation capacity why not can we try optimizing the existing capacity.