POWER SECTOR IN NEED OF PRIVATE MANAGEMENT

TARIQ AHMED SAEEDI
(feedback@pgeconomist.com)

Apr 2 - 8, 20
12

Power crisis has assumed a dangerous proportion across the country and if not tackled by the government through proper policy response immediately can lead to serious socioeconomic implications that already started to reflect in widespread protests and energy-shortfall driven unemployment nationwide. It seems the government has exhausted, for maybe political compulsions, its governing skills to manage the generation, transmission and distribution: three entirely separate segments of power sector.

Power demand has outstripped the supply and addition of 2000 megawatts until last year and prospective 1400mw this year would be barley sufficient to meet the shortfall reaching near 5,000mw. Transmission and distribution losses are not coming down from 30 to 40 per cent because of underinvestment and negligence.

At full volume, the situation demands increasing participation of private sector not only in generation but also transmission and distribution. Though the government encourages private investments in power generation-private generation companies meet almost half of electricity demands-, yet transmission and distribution sectors are not privatized; KESC is an incomparable example in the country of integrated power company managed by a private concern.

On the other side, India has introduced privatization of power distribution and somehow it got control over its burgeoning line losses still at over 30 per cent. One of the world's most populous nations, India is however enjoying slow and steady upgrading in metering, billing, and collection after dissolution of its State Electricity Boards into generation, transmission, and distribution groups and privatization of distribution. The south Asia's biggest economy accounts for four per cent of global power generation.

Neighbouring India is encouraging private sector's participation in the power sector to increase its power generation capacity to meet its growing energy needs. Its power sector has been enjoying tax holidays for last three years. Under the tax holidays, companies that are into generation, transmission, and distribution, carrying on facelifts, and importing capital goods for ultra mega power projects (UMPPs) are exempted from taxes. Mineral oil producers are exempted from income tax for seven years.

The government of Pakistan should also encourage local and foreign investments in energy sector. The government officials agreed on liberal investment regime and no restrictions on investments during a India-Pakistan meeting of joint working group on economic and commercial cooperation and trade promotion held in August last year. Setting up of transmission infrastructure in joint venture to facilitate importation of 500mw into Pakistan via Amritsar has also been proposed. A group of experts representing officials from power sectors of both the countries was also formed to discuss modalities of bilateral trade of electricity.

It is worthwhile to note that plans are afoot to revamp and set up interconnected transmission lines in the region. India has a plan to enhance its transmission capacity for wheeling 5,000mw in the country. Its current interregional power transfer capacity of 21,000 megawatts is expected to scale up to 38,000 megawatts this year. It is already building terrestrial as well as undersea power transmission links with Sri Lanka, Bhutan, Nepal, and Bangladesh. India's fast growing economy is facing power shortfall challenges but evidently it is channelizing resources to work out the countermeasures.

Power sector of Pakistan has tremendous investment opportunities. Internationally-renowned companies such as Siemens, AES, and International Power are operating independent power plants in the country.

The government of Pakistan gives hundreds of billions of rupees in subsidies to energy sector and in spite of that, power woes of consumers are not being relieved. Critics said the government is actually feeding white elephants like state-run distribution companies on public money and befooling it and others that it is sharing burden of consumers by paying off cost-recovery differences.

According to an independent estimate, it has distributed eye-popping Rs884 billion (official figure: Rs1,000 billion) on account of tariff differential subsidies only in three years to make up for the line losses showed up by distribution companies. The breakup revealed subsidy to power sector was Rs391 billion in 2008/09, Rs147 billion in 2009/10, and Rs346 billion in 2010/11.

The government claimed of bringing reforms in the energy sector in the budget speech this fiscal and emphasized on withdrawal of subsidy. Undeniably, subsidies lend supports to the lifeline power consumers. But, how long the government should rely on giving out handouts to public, though it recently was loving it to sing the song of 'trade not aid'.

The government could save billions of rupees subsidies to improve conditions of health and education sectors, says a representative of trade association. On the other hand, the amount could also have been utilised in keeping people hooked to their jobs through reducing energy shortfall in the industries. Instead of eluding systematic corruption in the public sector enterprises in the name of public welfare, the state should have reckoned with its mandated authority to facilitate power sector to stand on its feet and windfalls would automatically transpire at grass root level.

KESC employees are bewailing over the swords of voluntary separation scheme (VSS)-some say forced separation scheme-hanging over them since the new management bought the company in an under the table privatization deal, details of which are yet to be made public. The private company has adopted the loss recovery strategy of retrenching what it is calling redundant staff while affected employees were not ready to face the music in one part of the country where power sector nationwide is distraught with the similar kind of human resource issue. It is a critical issue facing the power sector at least in Karachi and should be dealt with accordingly. Increased participation of private sector is more likely to pave the way for power sector related jobs and reforms that are evident in sectors such as banking after privatization.