ROLE OF REGULATOR & POWER SECTOR
MUHAMMAD REHAN & MUHAMMAD FARHAN
Oct 22 - 28, 2012
The role of the regulator is very important for any sector to run smoothly and successfully. In present era of competition and development, it is very important to make and implement rules in every type of industry to avoid any mishap. In Pakistan, role of the regulator is very week in every sector.
The main reason of non implementation of law is corruption. Pakistan has lost an unbelievably high amount, more than Rs. 8,500 billion, in corruption, tax evasion and bad governance during the last four years of democracy. There has been no check on corruption as the anti corruption institutes like the National Accountability Bureau (NAB) and Federal Investigation Authority (FIA) instead of checking corruption have been siding with the corrupt.
Recent accident of Buldia Town factory is the worst example of regulator's poor performance. No institute has taken the responsibility of mismanagement at their end. The performance of other regulators like Civil Aviation Authority, Police, revenue and land registration department are also worst.
Despite of present corruption scenario, some institutes are still working well and setting the example for others. Motorway police and State Bank of Pakistan (SBP) are the true example of good governed institutes. The policies and control of State Bank is commendable; despite of back to back recessions around the world where many big banks got bankrupt, the banking system in Pakistan remained stable.
We have discussed both positive and negative performances of regulators. Now we move to the role of regulator in Power sector. Beside the producer and distributor of electricity, WAPDA is also working as a regulator for the IPPs. The present circular debt situation in the country is mainly due to the lack of recovery from WAPDA. The production cost of the electricity is transferred to the end user. But the recovery is low due to electricity theft of 25~30%.
The solution of the circular debt issue is to either control the electricity theft or reduce the generation cost of electricity. In both the scenarios, role of WAPDA is very important. To reduce the electricity theft, we have to catch the big thieves. Similarly stringent policies are required to reduce the generation cots. To reduce the generation cost, the simplest option is to use the cheaper fuel.
But the other type of payment to power companies is capacity payment (Fixed Payment) that can also be controlled to reduce the overall generation cost. Capacity payment can be controlled by applying certain checks at following points:
POWER PURCHASE AGREEMENT (PPA)
At the time of finalizing the PPA, it is important to check the cost of each item. Because WAPDA have to make the capacity payments later on; if anything extra charged here, it will definitely increase the unit price for the end user. For example if an IPP commit to make a residential colony for its employees, the cost of construction of colony has been added in the capacity payment. Now it is the responsibility of the WAPDA (regulator) to ensure the construction of the residential colony or deduct the cost of the colony from the capacity payment. Similarly we can take the examples of construction and expansion of roads leading to plant. These are the small things that can put the big impact on overall electricity cost.
It is the requirement of the Power Purchase Agreement that every plant will run continuously for seven days (168 hrs) at different loads on WAPDA demand before the start of commercial operation. It is the responsibility of the regulator to remain active during the whole test and take the data carefully. This data will have the significant effect on the upcoming capacity payments. But the WAPDA officials usually take it very casual. This casual behavior is increasing the cost of electricity for the customer.
ANNUAL DEPENDABLE CAPACITY (ADC) TEST
According to the PPA, it is the annual test in which the Power producers have to run the unit for six consecutive hours at full capacity in the presence of WAPDA officials. After this test the approved capacity is used as the base for capacity payment of next complete year (till next ADC Test). There are many technical corrections (Temperature, pressure, power factor) are required to get the true results. The behavior of WAPDA officials is also casual during this test. They normally pass their day by reading newspapers, having small naps, gossiping and eating good quality meals prepared by their hosts (Power producers). But the responsibility of the regulator is to watch every parameter carefully and guard the WAPDA's right.
SHUTDOWNS DUE TO WAPDA PAYMENT DEFAULT
In the present scenario of circular debt, the WAPDA is usually not in a position to make the payment on time. But it pays the interest at KIBOR plus 200 to 300 basis points on delayed payment. The IPPs are keeping their units shutdown due to the WAPDA payment default despite the fact that WAPDA is paying the delayed payment interest to the IPPs. By this way they are taking the interest payments from WAPDA and not using it to borrow the money from bank to run the plant. This is the responsibility of the regulator to safeguard the interest of the customer and push the power companies to keep the units running or stop their capacity payment.
Mr. Naveed Ismail has recently joined the National Transmission and Dispatch Company Limited (NTDCL) as Managing Director. He has over twenty years of experience working at different power projects and has turned around many businesses. He is the best available person in Pakistan to overcome the prevailing energy crises. We should hope that he will play the same role in rehabilitation of WAPDA as Dr. Ishtar Hussain did in the State Bank of Pakistan.
Commitment is required from the top level to overcome the current energy crises and taking the country to the new heights. The small steps from the regulator can save billions of rupees and play a big role in reducing in managing circular debt issue. We can come out of this situation by playing our role in identifying the thieves and reducing the electricity consumption.