The looming deficit in electricity generation

As informed sources in Islamabad revealed to the Business Recorder, the federal government is determined to end load shedding by the end of next year. President Musharraf too, in a recent statement declared that clean drinking water as well as electricity would be provided to all.
These objectives, while praiseworthy, nonetheless, are unlikely to be met given the existing domestic supply-demand gap and the present investment levels, both public and private, in these two sectors.
The government has repeatedly stated that it does not have the wherewithal to meet domestic demand. This is notwithstanding the focus of the present government on infrastructure development - a focus backed by substantial borrowing from bilateral official as well as market sources abroad.
Private sector investment has not been forthcoming up to the scale required to meet the shortfall in both electricity and drinking water supplies and the reasons for that are obvious: the slow pace of governance reforms in key public sector institutions involved in these two utilities as well as the government's insistence that it has to provide basic essentials at an affordable price which has an implicit component of subsidisation that the cynics insist is linked to political considerations as opposed to a commitment to reduce poverty levels.
According to statistics released by informed sources, the current electricity shortfall is estimated at 900 MW - 600 MW for WAPDA and 300 MW for KESC. There is talk of meeting this shortfall from two sources. One of the obvious and tried methods is to offer further incentives to lure more independent power producers (IPPs) to enter the field.
There is a proposal to allow the newcomers to charge a price higher than what the IPP projects in the pipeline are being allowed. The rationale is that preferential treatment to attract additional private sector investment in electricity generation is necessary as those able to come at the previously offered tariff are already in the field.
However, this may well open a can of worms and the existing IPPs in the field would, justifiably, jockey for parity and/or look for loopholes to get the new rate.
It is also pertinent to recall here that Benazir Bhutto's government had to grapple with charges of corruption and nepotism when it endorsed a policy of allowing the IPPs to charge a price higher than the international price of electricity.
While supporters of the government may well argue that there is no intention of allowing the tariff to be quite as high yet, the fact remains that in a country where corruption is endemic, where governance issues surrounding WAPDA and KESC are not yet resolved, and where political interference in setting tariff rates continues, irrespective of the autonomous body that is assigned this function, such an approach may be a recipe for disaster.
However, if tariff rates are allowed to reflect market forces, then and only then will an environment be created that is able to attract investment. At the same time, this approach would control demand to a level that is manageable. Thus it maybe preferable for the government to focus on creating the right environment by allowing market forces to dictate the terms and conditions of IPP entry.
The second source for meeting the electricity shortfall is improved governance and structural reforms, including the commitments made by WAPDA to the World Bank to focus only on hydel electricity generation. The pace of such reforms remains tardy and even though there are constant references to increasing generation through re-fabrication of WAPDA, the process appears to be extremely slow at every step of the way.
Pakistan's ability to provide clean drinking water to its citizens is also being compromised by the floods and the drought that the country has experienced alternately in recent years. In this scenario, the government is right in its approach to focus investment and borrowing on these two sectors. However without re-fabrication of the public sector utility organisations the effort is unlikely to prove successful.
Tariffs need to be market driven and at the same time the government needs to focus on setting rules that would create the right environment for private sector participation.