Feb 02 - 08, 2009

Pakistan's power sector is heavily dependent on thermal generation. The corporatize entities of WAPDA have an aggregate installed capacity of about 5,000MW, KESC has 1,756MW and IPPs have collective capacity of about 6,000MW. Natural gas and furnace oil remain the main fuels because the country has failed in exploiting its coal reserves.

It is often said that Pakistan's power generation sector is inefficient but hardly any effort has been made to find out the reasons for its poor performance. According to sector experts the key factors responsible for this inefficiency are 1) running of power plants which have outlived their lives; 2) smaller power plants consuming higher fuels and 3) highly inefficient combustion system. Among the thermal power plants, combined cycle technology is considered more efficient but it is the least deployed technology in the country.

Out of WAPDA's 5,000MW capacity, Muzaffar Garh, Guddu and Jamshoro constitute about 4,000MW. Similarly KESC's Bin Qasim plant has 1,260MW out of a total of 1,756MW capacity. Out of sixteen IPPs having an aggregate capacity of 6,000MW, two plants namely and Hubco and Kapco contribute 3,000MW. All other plants are of relatively smaller capacity where the fuel efficiency is very poor.

In an attempt to improve profitability of electric utilities the government has encouraged them to switchover from burning of furnace oil to natural gas. The government has also persistently increased electricity tariff to minimize losses of these companies. However, both the incentives have failed in improving balance sheet of these companies. It is true that the thermal power plants are inefficient but the real cause of poor financial condition of electric utilities is huge transmission and distribution losses.

In recent years, growth in Pakistan's thermal power generation has come primarily from the IPPs having substantial foreign investment. The two largest IPPs in Pakistan are Kapco (1,600MW) and Hubco (1,300MW), both of which supply power to WAPDA. Kapco was privatized in 1996 and International Power of UK holds 36% stake in equity. The Pakistani government decided that the majority of thermal plants in the country would run on fuel oil, which also produces considerable amounts of pollution.

In the past Pakistan was generating bulk of its electricity, up to 60% from hydro electric projects but now the country meets bulk of its electricity demand from thermal power plants having an aggregate capacity close to 13,000MW. The cost of electricity generated at thermal power plants is up to ten times more expensive compared to hydel power plants.

One ought to know the reasons for increase in thermal generation capacity, despite it being very expensive. The reasons include from inability of WAPDA to secure funding for hydel projects to political controversy, last dam was completed in 1976 and since then no other mega dam has been constructed. Ideally three mega dam should have been constructed during this period to meet the growing demand of electricity.

Another reason for the growing dependence on thermal power plants, particularly IPPs was the shift in the GoP policy dictated by international financial institutions (IFIs).

These institutions refused to lend money to public sector entities posting huge losses and asked the GoP to allow creation of power generation companies by the private sector. To facilitate this transition the IFIs also promised to finance private sector projects.

One can say that IFIs did not extend much support to Pakistan as only Hubco has been financed under this policy and most the other units are too small to be given the status of IPPs, at the best these can be called captive power plants.

The other serious problem is that emphasis remained on imported furnace oil. The adverse impact of this policy was most obvious in 2008 when crude oil prices touched the highest of US$147/barrel. Not only that cost of generation became unbearable but oil imports eroded country's foreign exchange reserves sharply and significantly.

Lack of private sector interest in developing hydel projects and failure in exploiting coal potential has also added to oil import bill of the country. On top of this inability in establishing nuclear power plants has also resulted in excessive dependence on oil and gas based thermal power plants.

Instead of complaining about the attitude of IFIs, the policy planners must learn to live with the new realities. If there was restriction on public sector utilities to add new capacity, the scenario has changed for KESC, at least. The electricity demand in its franchised area exceeds 5,000MW, if one adds all those units having captive power plants, as against a dependable capacity of 1,200MW. It is true that the new management is adding capacity but this is still too little compared with total demand.

The four generation companies (previously part of WAPDA's Power Wing) should be listed on local stock exchanges and at least 10% of their shares should be offered to general public for their ultimate privatization. Mean time proceeds from sale of shares should be used to finance creation of additional power generation capacities.

Lately, there were deliberations regarding giving sugar mills status of IPPs. However, the discussions have failed because the GoP was not willing to offer them the bulk power purchase tariff being given to other IPPs. The resistance was based on the fact that sugar mills use baggage as fuel which is dirt cheap compared to furnace oil and gas. The policy planners completely ignored the fact that the available baggage is not sufficient to run the power plants of sugar mills through out the year and they will have to use furnace oil.

Sugar mills presently operating in the country are capable of delivering up to 3,000MW to the national grid. The added advantage is that the mills are close to the point of electricity consumption and will help in containing transmission and distribution (T&D) losses.