Solution to Karachi's electricity problem

ARTICLE: In the background of severe load-shedding in Karachi recently, NEPRA has moved finally to take some action under tremendous political and public pressure. Cynics or skeptics believe that nothing is going to happen except some fine and any meaningful step may not be taken. The fact of the matter is that KE has delayed many actions and projects which cannot be rectified quickly .There is a problem of under-capacity and under-utilization of existing capacities. KE has been on profit maximization strategy for a long time now, "ignoring" its contractual and legal obligations, which tantamount to killing the goose that lays golden eggs.

NEPRA has issued a show-cause notice with the following list of charges, which except for a few issues, are correct and legitimate. The following is the list: the Licensee (KE) has failed to ensure availability of stock of 120,000 M. tons at BPQS-I despite having storage capacity; Hourly generation data examined at BQPS-I revealed that BQPS-I was underutilized as it could only generate 916MW as against a dependable capacity of 1107 MW; lack of proper maintenance of machines despite routine maintenance expenses allowed by the Authority to the tune of Rs.25.07 billion in multiyear tariff; with proper maintenance it could have generated approximately 250 MW additional power from its own generation facilities; a new power plant of 900 MW BPQS-III which was to come online by December 2019 ; NEPRA allowed US$ 730.51 million or Rs.84, 408.6 million as total cost for BPQS-III and allied projects in multiyear tariff determination dated 09-10-20 17 of the Licensee. Despite the fact that cost of the said project has been allowed in 2017 and passed on to the consumers, KE has failed to complete the said project to fulfill its obligation to make adequate investment in generation segment to meet load demand; KE has not executed Gas Supply Agreement (GSA) with Sui Southern Gas Company Limited (SSGCL) to ensure reliable supply of gas for its generating facilities despite clear direction of the Authority; Fuel Supply Agreement (FSA) between the Licensee and Pakistan State Oil Company Limited (PSO) requires the Licensee(KE) to place month-wise order for estimated quantity of furnace oil on 1st May 2019 for FY 2019-20 i.e. 60 days in advance; this created short supply of RFO which contributed to load-shedding; KE has not executed Energy Purchase Agreement (EPA) with the independent power producers i.e., Tapal Energy and Gul Ahmed Energy which has been duly approved by Nepra; KCCPP and BQPS-II have the provision of dual fuels as per its generation license; however, KE has not yet commissioned both power plants on alternate fuel (HSD); power draw from 500/220kV NKI grid station can be enhanced from current 450 MW - 500 MW to 700 MW - 800 MW so as to have 200 MW -300 MW additional power available from existing NKI 500/220kV grid station; despite Nepra's approval of investment in transmission segment to the tune of Rs. 115.7 billion, KE has not put serious efforts to upgrade transmission system. Consequently, KE could not utilize the excess power available in the NTDC system.

The other three points are regarding overloading of Transformers, repair issues of feeders and load-shedding policy based on AT&C losses. Frankly speaking, these three issues are common in all Discos .Higher load-shedding in high loss (theft) areas is a GoP policy throughout Pakistan and is being implemented cruelly and generously. Thus, we have to ignore these points which have been presumably added to make a longer list of KE's default.

Show-cause notices and advices have been regularly issued by Nepra covering the following points; i. Excessive load shedding; ii. Failure to adequately increase generation capacity to meet demand; iii. Underutilization of generation facilities; iv. Failure to restore power supply within the permissible time limits; v. Failure to upgrade transmission and distribution system; and vi. Failure to provide secured, safe, reliable and efficient supply of power.

KE has been under financial and management stress for a long time. They wanted to make a killing by selling it to Shangahi Electric without paying up the liabilities and leaving these under a confused legal and contractual state which was naturally not acceptable to the lenders and suppliers. The main issue has been gas purchase payments to SSGC.

There is a consensus now among knowledgeable people that KE was privatized (off-loaded in indecent haste) without adequate forethought and sound policy principles under the "veritable' guidance of IFIs. The administration of that time thought that their guidance should be good enough. In the industrialized countries, a takeover of even a motor garage (workshop) is allowed only to eligible buyers; otherwise the license of the workshop is cancelled.

Nepra has threatened to levy fine on every single violation which can add up to a significant amount. If fines are adequate and proportional to the damages done and calculated to nullify the purported and intended benefits, it can, indeed, discourage future violations. In many European countries, utility is required to compensate the loss and disturbance of consumer. If calculated diligently and according to this norm, KE's current year's profit can be confiscated in lieu of fine. Frankly, that may be the only action people are thinking that may be implemented.

Threat of cancellation of license without any elaboration appears to be phony or at best a theoretical legal construct. Cancellation of license can be a highly complicated issue. Who can take over-government's bureaucracy? How good job is being done in other government controlled DISCOs. We have, time and again in this space, argued for a permanent solution i.e. to bring KE at par with other DISCOs (Original privatization agreement provides for such a possible arrangement), taking the generation and transmission functions from it. No case of confiscation is being made here.KE may be allowed to own and operate its generation assets by registering as independent IPP. Transmission assets can be acquired by NTDC under a commercial arrangement. This way, Karachi would come at par with other areas of Pakistan and would be able to benefit from the country-wide creation of generation capacity of 75000 MW by 2030. It would be lot more easier to meet demand and supply deficits of Karachi of 5-8000 MW from this larger pool. This would do away with a feeling of discrimination against Karachi among a section of people. After all, it is said, if something is good for other parts of the country, why shouldn't it be bad for Karachi, except for bygone circumstances. Sooner or later, this may become a festering political problem that may be exploited by politicians, although the federal government has already allocated generously from the new power plants.

There are other radical proposals like allowing more companies(geographical distribution)or wire-only with open retail market .In case of KE, these may create more complications, although wire-only model may be a good alternative to privatization of other government controlled DISCOs.

The current tariff arrangement is to expire and replaced by a new one sometime in 2021.This is the ideal time and opportunity to implement our proposal. Courts appear to be ready to allow reasonable executive action. New arrangements have to be made before handing over the KE to a powerful party wherein strategic issues may get mixed up. Structural problems have to be resolved. KE has not shown much interest in generation and transmission except in projects wherein there are prospects of making a quick buck and under-hand deals as is an unfortunate common practice in Pakistan in power sector. It can make good money by concentrating on distribution, reducing losses, increasing efficiency and optimize its resources on distribution. It can continue with its generation assets as IPP. Both the parties, GoP and KE, should seriously start working on a new arrangement including this writer's proposal.

(The writer is former Member Energy, Planning Commission. The views expressed in this article are not necessarily those of the newspaper)

Copyright Business Recorder, 2020