HIGH COST OF ENERGY FUELLING INFLATION

UNINTERRUPTED SUPPLY AT AFFORDABLE COST IS NOT POSSIBLE WITHOUT CHANGING ENERGY MIX.

(feedback@pgeconomist.com)
Jan 10 - 16, 20
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Experts are fully cognizant of the fact that rising cost of energy has become the obstacle in accelerating GDP growth rate but little is being done due to groups having vested interests, summersaults of multilateral lenders, and inability to mobilize funds internally for the construction of hydro and nuclear power plants.

The recent attempt to increase power generations unless supported by reduction in transmission and distribution (T&D) losses will prove futile. Reduction in T&D losses cannot increase supply but will certainly improve cash flows of the distribution companies. This will in turn allow the distribution companies to revamp T&D networks and generation companies to add new generation capacities. This objective of ensuring uninterrupted supply at affordable cost just cannot be achieved without bringing a change in energy mix.

PRIMARY SOURCES

Primary sources of energy of Pakistan are fossil oil and gas. Though the country has billions of tons of coal, the resource could not be exploited partly due to groups having vested interest but mainly because the federation as well as Sindh government are not making enough allocations to construct roads up to the areas having coal reserves. It is on record that Benazir Bhutto performed the groundbreaking ceremony of a coal-based power plant in Thar, but the work of plant never started. Thar Coal Development Authority was created nearly two decades ago but little progress has been achieved and despite having the largest coal reserves in the world use of coal in power generation has not achieved any significant share.

Declining share of hydro generation due to no construction of dam after Tarbella (completed in 1976) and construction of more and more thermal power plants based on furnace oil has reduced share of hydro generation to around 30 per cent of total electricity generated in the country. Rising price of crude oil has also increased cost of power generation at thermal plants manifold. During 2008, per barrel price of crude oil touched record high of US$147, and is still hovering around US$100. In such a scenario, keeping electricity tariff low has become almost impossible. With every hike in crude oil there has to be a corresponding increase in electricity tariff.

NUCLEAR TECHNOLOGY

Though Pakistan established first nuclear power plant in sixties, it failed in creating more of similar plants. It is only in the recent past that Pakistan has succeeded in acquiring nuclear power plants from China. Though Pakistan attained the status of 'atomic power' in late nineties and also has handsome reserves of uranium, it has not been able to procure nuclear power plants. It seems that with the exception of China many of the countries selling the technology have some sort of pressure not to sell the technology to Pakistan.

The United States of America calls Pakistan its frontline alley (or ally) in war on terror but does not seem ready to enter into a similar agreement for supply of nuclear technology for civilian use it has signed with India.

ENERGY MIX

To bring down cost of energy, it is imperative to change energy mix of the country, meaning reducing dependence on fossil oil and utilizing alternative energy sources i.e. wind and solar.

Windmills can be installed in large number in the coastal areas where wind blows at fast speed. Solar option may be for the areas, which have smaller populations and where constructing electricity transmission and distribution system is not economically viable. Smaller panels can be installed to serve tube wells, railway signals, and streetlights. Almost all the experts have the consensus on construction of power generation plants in Pakistan, but are recommending fossil oil/gas based facilities. Now it is up to Pakistan to decide what percentage of future generation should be based on fossil oil, nuclear, coal and wind turbines.

HYDROPOWER

However, the ultimate saviors are hydro and coal-fired power plants. Hydropower plants serve two basic needs 1) storage of water for irrigation throughout the year and 2) electricity generation at a nominal cost and with least spread of pollution. Since constructing mega dams requires tons of money, Pakistan can opt for constructing smaller and run of the river power plants to begin with and also undertake construction of a few mega size projects. One may ask that output of hydropower plants reduces substantially when water touches 'dead level'. This is the period when thermal power plants can be used as stand-by power generation facility.

Though a few smaller coal-fired power plants are likely to commence electricity generation in the near future, the addition is really too small. It is right that Sindh has the largest coal reserves but other provinces also have coal reserves and government should encourage private sector to establish mine-mouth power plants, though may be smaller to save cost of transportation of coal and keeping pollution away from the residential areas and agriculture farms.

T&D LOSSES

Whatever energy mix Pakistan may opt for, the efforts will not yield results without containing wastages, leakages, and pilferages. It is known to all and sundry that electricity tariffs are increased consistently to improve cash flow of the utilities. However, hardly any effort is made to contain theft. According to sources, now T&D loses of KESC exceeds 50 per cent and unless these are not brought to less than 10 per cent neither financial health of the utility can be improved nor the objective of ensuring uninterrupted supply of electricity at affordable cost is possible.

However, no respite can be achieved without resolution of inter corporate debt, which has become mother of all the evils. Let the government gather the courage to resolve this issue completely rather than keep on injecting money to save the companies from committing the default. The sooner a comprehensive bailout plan is introduced the better it will be for the country. Pakistan must get rid of load shedding of electricity and gas to accelerate GDP growth for poverty alleviation. (SHK)