ENERGY CRISIS - A NATIONAL CHALLENGE

THERE IS A NEED TO INCREASE PRODUCTION INSTEAD OF TARIFFS

AMANULLAH BASHAR
(feedback@pgeconomist.com)
May 24 - 30, 20
10

The government intends to go ahead with its policy of enhancing the power tariffs at least by 36 per cent in the new financial year beginning from July this year to bridge what it is called the gap between cost of generation and the existing tariffs with a focus to address the inter-corporate debt which is said to have gone all time high at the moment.

Apparently, the decisions of increasing power rates are being taken under the pressure and conditionality of the International donor agencies especially IMF and the World Bank for continuation of its financial supports to Pakistan. While increasing the price of electricity, petroleum products or anything else it is imperative to look at the purchasing power of the majority of the people. In fact, affordable price level is the only way to maintain economic, political and social stability anywhere in the world.

It looks easy to follow the instructions of the international donor agencies to improve financial health of the country for the time being but one should not forget the consequences of exorbitant price of energy which on one hand paralysing the economic activity and adding to the sufferings of the people at large due to rising number of unemployment and poverty level which ultimately paves the way for street crime and violence.

The amicable solution for reducing the cost of power generation is to achieve economy of the scale to reduce the cost of power generation rather than following the easy way of enhancing the power tariffs. As far as enhancing the volume of power generation was concerned it can be achieved through private and public partnership especially in hydro generation which is an area where the private sector participation is insignificant so far.

According to Prime Minister of Azad Kashmir the potential for generation hydel power in Kashmir alone can cater to the entire power needs of the country. It is up to the policy makers of the country to motivate the private sector to take the energy crisis which is not so acute in terms of quantity as the country is facing a shortfall of only 30 per cent of its power requirement which can be achieved with a resolve to address the issue as a national challenge and not merely releasing the political statements for public consumptions.

INTER-CORPORATE DEBT

Primarily, it is the unaffordable price level of the fuel as well as electricity that created the scene of inter-corporate debt. It is because of held up financial receivables that caused liquidity constraints for all the stakeholders. For instance it has rendered WAPDA unable to pay not more than 50 per cent of the dues to Independent Power Producers (IPPs) consequently leading to push receivables all time high exceeding to 200 days.

According to knowledgeable sources, the cost of oil based power generation and the growing inter-corporate debt is feared to provide a reason to enhance the power tariff at least by 26 per cent during forthcoming financial year 2011.

Sources added that the inter-corporate debt has again swelled in third quarter of financial year while the generation cost was simultaneously rising which is rendering WAPDA unable to meet more than 50 per cent of IPPs power payments in cash terms; receivables are again close to all time high of 200 days.

It is feared that during fourth quarter of the current financial year the focus of the government will be increasing power tariffs as the government has to deliver Rs116 billion targeted liquidity injection before June 5 next month.

It is expected that one-time cash injection of Rs116 billion has to be followed with tariff hikes to eliminate the gap between tariff and the cost of generation.

It may be recalled that power cost was up considerably during financial year 2010 and a majority of the average income groups already finding them in a fix to pay inflated electricity bills while further tariff hikes cannot be ruled out.

Sources said that tariffs have meanwhile risen by a higher 17 per cent YoY, currently at Rs7.46/kWh. Despite this, in the absence of Apr-10 proposed tariff hike, the gap between power cost and tariff remains wide at 26 per cent at current levels which suggests that power tariff hikes are on the cards soon after budget 2011.

Under the persisting power crisis it is being assumed that the power tariffs may be hiked 36 per cent during coming financial year to match average generation cost that was based on current fuel cost and forthcoming capacity addition in the power generation sector as about 14 new IPPs are in the pipeline.

It is estimated that materialisation of the higher tariff on the back of rental power plants (RPPs) next year would lift Fuel Oil share in power generation by 42 per cent and necessitate for greater tariff hikes.

IRAN GAS PIPELINE PROJECT

Iran Gas Pipeline Project is in the head lines for over a decade giving hopes to the people for availability of cheaper gas in Pakistan. It is quite clear that this highly feasible project has been delayed on account of US pressures. It may be recalled that this project was delayed due to Indian bargaining for reducing the gas price and when the issue of gas price was resolved it raised another objection regarding security of the pipeline besides asking a guarantee for uninterrupted supply of gas as the pipeline passes through Pakistan territory.

Basically this project was originated by Pakistan and it was a gesture of good will on the part of Pakistan to invite India to join this project which might help in minimising the political tension between the two countries.

Now Pakistan has once again exhorted India to push ahead with talks with Iran to agree a controversial pipeline that would supply Iranian gas to the two neighboring countries.

It may be recalled that Pakistan and India held talks with Tehran to buy natural gas through a proposed $7.6 billion pipeline to help alleviate severe power shortages. However, the plan has been opposed by the US, which is seeking to apply international pressure on Iran to abandon its nuclear program.

According to informed sources Pakistan would welcome India joining the so-called "peace pipeline". Business people in the region view the proposed energy partnership as a major step towards ending the enmity that has prevailed between the two neighbors since the end of the British rule 63 years ago.