POWER CRISIS NEEDS PROMPT ATTENTION

AMANULLAH BASHAR
(feedback@pgeconomist.com)

Sep 19 - 25, 2011

The uninterrupted and sustainable power supply is of supreme importance for socioeconomic development of any country and Pakistan is too not an exception. Unfortunately, the energy issue in the country is not responded with seriousness.

This is what exactly reflected in the unresolved issue of inter-corporate debt adversely affecting the socioeconomic growth of the country.

This will be interesting to note that SSGC is providing 180mmcfd gas to KESC, which is its minimum and basic requirement.

KESC has not yet cleared SSGC's gas bill for the month of July 2011 amounting to Rs2.2 billion, which was due on August 2011.

The gas bill for the month of August 2011 for Rs3.2 billion has also been raised, which is payable on September 22. SSGC's recoverable amount from KESC now increased to Rs30 billion approximately.

Similarly, the independent power producers were also confronted with the issue of non-payment of their dues for quite sometimes reflected in the rising amount to over Rs34 billion.

Recently, after an understanding reached between nine IPPS and the government, a partly payment of about Rs8 billion will be paid during this month while remaining amount of Rs26 billion will be settled later on.

Earlier, the independent power producers (IPPs), had served a notice to the government for payment of their outstanding dues to the tune of Rs43 billion.

Under the situation, the frustrated IPPs had warned to stop supplying electricity which could be created serious consequences on the power generation landscape. However, the timely intervention of the government saved the situation from taking an ugly turn.

According to the industry sources, on one hand IPPs were entangled in financial crisis due to non-payment of dues while on the other, they were warned to face heavy penalties if they stopped supplying electricity.

It may be mentioned that the government could technically penalize IPPs because of their inability to buy fuel as per Power Policy 2002.

Sources added that Pepco was forcing the IPPs to continue production of electricity without any interruption. Otherwise, they could be penalized for not fulfilling the contractual obligation.

The nine major IPPs facing circular debt problem including Nishat Chunian, Nishat Power, Liberty Power, Atlas Power, Attock Gen Ltd., Saif Power, Orient Power, Halmore Power and Sapphire Power are in a mess. They are not in a position to buy fuel for power generation due to nonpayment of dues by Pepco. They are struggling for uninterrupted power generation from their own resources to avoid heavy penalties under power policy 2002.

The IPPs were established under Power Policy 2002. According to that policy, if any power producer failed to supply electricity due to any reason, Pepco would heavily penalize the defaulter by withholding the capacity charges.

On the other hand, the government is also bound to pay capacity charges if it fails to order supply of electricity to any IPP. The policy seems to be a fair provided both the parties adhere to the terms agreed in the contract, they commented.

The highly perturbed IPPs have expressed concern that PEPCO made even the usual part payments to any of the nine IPPs since August 30, 2011 and thus violated the agreement under which the government is bound to make prompt payments to the IPPs for the power supplied, after lapse of 30 days.

In the power purchase agreement, it is clearly mentioned, "there is no penalty on consequential default", said sources adding that if one side did not fulfill its obligation the other party as a consequence of this action should not be liable to be penalized for not being able to produce electricity because of its inability to buy fuel sources added.

The power producers, established under power policy of 1994, are at least ensured supply of fuel from PSO on deferred payment and are not so badly affected by PEPCO defaults.

They urged the government to take immediate measures to resolve the dilemma being faced by the IPPs. Otherwise, the wheel of whole industrial base in the country is feared to stop as power is the need of every sector working in the country.

Since majority of the foreign investors are involved in the power generation, the US has also taken notice of their hue and cry and has conveyed its concerns to the authorities over the inter-circular debt issue which is lingering on for more than three years.

In this respect, there was a two-day meeting between Pakistan and US representatives in which the US has reportedly assured to help Pakistan to address the chronic energy issue.

The minister for water and power, however, appreciated the role of US in addressing the energy shortage in Pakistan and hoped that the Pak-US energy dialogue would go a long way to enhance the US cooperation and bring much-needed efficiency and capacity improvement in the energy sector.

The government, according to the minister, is committed to resolve the energy crises and is taking various short, medium and long-term initiatives in this regard. The steps for development of hydropower resources and utilization of coal reserve will be tremendously beneficial for the economic progress in future. Plans are also underway to explore new reserve of natural gas and import of LNG.

The US on the other hand being cognizant of the energy crisis, taking a heavy toll on socioeconomic progress of Pakistan, would provide possible support to alleviate the malaise the country is passing through and to address the energy crisis to bring prosperity for common man.

It was also agreed unanimously to evolve a comprehensive plan and work together to address the socioeconomic issues of the power sector of Pakistan.

The US delegation also met with the Finance Minister, Dr Abdul Hafeez Shaikh and held wide-ranging talks on cooperation between Pakistan and United States. The Federal Minister for Finance and Economic Affairs while talking to the US team emphasized technical support and shared understanding with US for the resolution of technical issues in the energy sector.

In this connection, the financial support is an important aspect of the shared understanding for the implementation of certain power projects. There are a number of areas where American investment particularly in the hydropower projects, exploitation of coal reserves, and LNG projects is needed.

It may be recalled that the strategic dialogue between Pakistan and the United States started in October 2009. US Secretary of State Hillary Clinton had announced the signature Energy Program in October 2009, followed up by phase-II of the program in July, 2010.

The last energy dialogue was held on October 23, 2010, when the then Secretary of State Coordinator for International Energy Affairs David L Goldwyn led a delegation to Pakistan which resulted in US participation and involvement in many projects (Hydel and Thermal) power generation and rehabilitation of many thermal plants.

It will not be out of place to note that despite pressures from the US, Pakistan seems determined to accomplish the much needed Iran gas pipeline which is believed to address the torturous issue gas shortage in Pakistan.