The inevitable has happened. For the last couple of weeks Karachi is in the severe grip of power shortages and outages. The prolonged power breakdowns have adversely affected trade, economy and civic life, causing strong protests and street demonstrations culminating in large-scale violence and rampage in the metropolis.
As an interim measure to overcome power shortages, the Water and Power Development Authority (WAPDA) has provided another 100 MW electricity in the system of Karachi Electric Supply Corporation (KESC), thus increasing its power sale to the utility corporation to the level of 700 MW. This stopgap arrangement, however, will not help in providing any significant relief to the millions of consumers.
First, the corporation's transmission and distribution system, which requires major revamping, is not capable of taking additional load. Second, currently the load demand in Karachi is for an additional 250 MW a day, which WAPDA may not be able to meet as the WAPDA system itself is short of power due to increased load in its own service area. Resultantly, WAPDA has already resorted to heavy load-shedding, particularly in the major cities of Punjab, inflicting misery on its consumers.
Power shortage in Karachi this year was imminent. In fact the policymakers had cautioned much earlier and it was projected in 2002 that Karachi would have acute shortage of electricity, to the level of 394 MW in 2005 and 506 MW in 2006, as no new projects were under construction in the area. Pakistan Economic Survey 2002-03 had indicated power shortage of 500 MW in the country in 2005-06, according to normal power load projections. What then happened? Why was the KESC system unable to meet the demand?
It is indeed the "slow movement in the setting up of power projects", as observed by President Pervez Musharraf and Prime Minister Shaukat Aziz. But, then, what were the factors involved and the circumstances for not creating significant additional power generation capacity so far. The pertinent question is - who is responsible for the chaotic situation prevalent at present? The debate has already started in the related official circles and media.
Nonetheless, the government needs to look objectively for the answer, besides addressing the issue. Primarily, for not repeating the mistakes of the recent past. A study of the events reveal that, in essence, it is the result of the incoherent, inconsistent and short-sighted policies of the government and of the belated decisions, at times politically motivated, taken at the top level.
On the approval of the Power Policy 2002, the Ministry of Water and Power, through the Private Power and Infrastructure Board (PPIB), had launched a comprehensive roadmap for creating additional power generation capacity to meet the growing domestic and industrial needs of Pakistan's fast expanding economy.
Future energy requirements at the national level were worked out taking into account the projected shortfalls in the WAPDA as well as in the KESC systems. There is no denying the fact that the PPIB acted in time to solicit proposals from the private sector to set up power plants, based on natural gas, in order to cater for power shortfalls in the service area of the KESC on priority.
Thus, as early as in July 2003, the PPIB took the initiative to propose the setting up of two new power projects in Karachi, of cumulative capacity of 900 MW, in the first phase, based on natural gas.
One plant of 1x300 MW was to be established in the vicinity of Gadani and another 2x300 MW near Hawksbay, for which investors were invited, through the national press, to present their EOIs (Expression of Interest) as per provisions of the Power Policy. The response was very encouraging as 27 investors, domestic and foreign, showed interest, and most of these investors subsequently submitted the required pre-qualification/qualification documents.
In spite of earlier indications the government, however, could not, or did not, confirm the availability of the required natural gas - a long-term commitment for fuel supply that is essentially a pre-requisite to make any power project feasible.
The issue of gas availability for the projects was debated for long among various government agencies. While the Ministry of Petroleum and Natural Resources was agreeable, in principle, the Gas Distribution Company finally refused to provide natural gas from its network for these projects, on "technical-cum-financial" grounds. Obviously, there could be no further processing of these proposals and as such no progress could be achieved. Valuable time of almost two years was thus lost.
The constraints of non-availability of gas at that point of time was a farce as is evident from the fact that gas was committed much later to other proposed projects in Karachi. It is ironic that the PPIB, though designated as a "one window operation" for facilitation and processing of power projects in the private sector, is heavily dependent on a number of government institutions, departments and agencies.
These include the National Electric Power Regulatory Authority (NEPRA), the Ministry of Petroleum and Natural Resources, WAPDA, KESC, the Privatisation Commission, Board of Investment, Sindh Coal Authority, Provincial (and Azad Jammu & Kashmir) Private Power Cells, Sui Southern Gas Company, Sui Northern Gas Pipelines Limited and Pakistan State Oil, only to name a few.
Though not within the purview of the Karachi Electric Supply Corporation, it entertained, reportedly under political pressure, in July 2004, a proposal for a fast-track project by GSB Technologies of the USA, along with Pakistani partners.
Sometime in November 2004, however, the project was transferred to the PPIB for processing, though against its wishes, as the project should have been offered for international competitive bidding according to the Power Policy 2002. The barge-mounted power project, which was envisaged as a gas-based combined cycle unit of 200 MW capacity, was to be set up at Port Qasim, Karachi.
The fast-track project was scheduled to come on stream by end April 2006. Ministry of Petroleum and Natural Resources made a firm commitment for the supply of the required quantity of natural gas for an initial period of five years and the Sui Southern Gas Company also agreed to supply pipeline quality gas for the project from its existing network.
In spite of the full facilitation, the sponsors failed to comply with the requisite procedural and legal formalities, including the submission of a performance guarantee, by the deadline that was extended a number of times. For this reason, there could be no progress and the fast-track project was eventually shelved in February 2005.
Pursuant to implementing its strategy to install power projects in Karachi on a priority basis, the PPIB approved two projects of cumulative capacity of 300 MW in the private sector, which were scheduled to start commercial operations by the year 2007. The LOI (Letter of Interest) was issued to the Tapal Group (Western Electric Power project), in February 2004, for setting up a dual-fuel (natural gas and furnace oil) power project of 150 MW capacity. Likewise, approval was accorded to Fauji Foundation for the establishment of the Fauji Korangi Power project of 150 MW, in April 2004. Both the investors are important players in the power sector.
Since 1999, Fauji Foundation is operating 157 MW combined cycle power plants at Kabirwala based on natural gas. Tapal Group had commissioned a 126-MW capacity power plant at Karachi in 1997, based on furnace oil adopting diesel engine technology. At present both the plants continue to deliver electricity to the KESC system.
The two projects progressed satisfactorily, as per given timeframe, having reached the stage of negotiating tariff with NEPRA, prior to signing of a Power Purchase Agreement (PPA) with the KESC. But due to the on-going privatisation process of the utility corporation it was deemed "appropriate" by the government that the new owners of the KESC should have a say in the matter of tariff. Meanwhile, NEPRA adopted a rigid attitude towards negotiating tariffs for these projects.
This exercise was prolonged because of the inordinate delay in finalising the sales-purchase deal for the KESC and the subsequent transfer of management. It may be recalled that the KESC privatisation process had been going on since 1997 and was concluded only in November 2005.
Indeed, the credit goes to the dynamic Federal Minister for Water and Power Liaquat Ali Jatoi who tried to salvage the situation at this crucial juncture. He decided, in consultation with all the concerned government agencies, to negotiate and settle the tariff issue with the project sponsors, which was later to be made part of the agreement to be signed between the KESC's buyers and the Privatisation Commission. The best and sincere efforts of the Minister, however, did not yield positive results as the sponsors took an inflexible stand on the tariff issue, or perhaps they were apprehensive of the KESC buyers not honouring the government's pre-privatisation commitment.
During the pre-privatisation period, the KESC was not allowed to undertake the required capacity additions, as per government policy, despite the fact that its existing installed capacity de-rated over a period of years. Sometime in August 2004, the UAE government had gifted a second-hand gas-based thermal power plant, with a cumulative capacity of 512 MW.
These units were initially to be installed in the Punjab, but aware of a brewing power crisis in Karachi, the Minister for Water and Power decided that part of the plant, consisting of gas turbines of 432 MW capacity, would be installed in Karachi. Again, no appreciable progress on the project could be attained since then. The plant, which requires major overhauling and refurbishing, is yet to be transported and relocated to the identified sites in Pakistan, which remains the responsibility of the WAPDA.
In a similar move, the Minister revived the KESC plans to undertake the extension of the Korangi thermal power station, by adding another 350 MW combined cycle power plant, for which project a feasibility study was conducted many years ago, but the project was dropped in the wake of the KESC on-going privatisation. It may be added that the process to sell-off the KESC lasted for almost eight years, during which not only it was disallowed to undertake the planned power projects, but it also created despondency and frustration amongst the management and staff.
This resulted in inordinate delays in the completion of under-construction projects of the transmission and distribution system. Minister Liaquat Jatoi, while in Japan, in August 2005 accompanying Prime Minister Shaukat Aziz, had asked for Japanese financing of the project costing about $240 million. In response, the Japanese government committed to restore the ODA (Official Development Assistance) loan of $420 million.
It was envisaged that if the contract for the projects construction is awarded on an international competitive basis, it would take five years for the plant to be operational. Therefore, the well-meaning Minister took the initiative to consider placing on order with a Japanese company on a negotiations basis that would have allowed the commissioning of power plant by end 2006. The proposal was killed however, and no one heard any more about the Korangi extension project or the committed ODA loan.
The obvious result of these projects not materialising as per envisaged schedule is that all stakeholders now suffer-- the Karachi consumers the most, which will have far reaching implications on the socio-economic and political situation in the country. Under the given conditions, the demand load in the future too will remain much higher than the supply from the overall KESC system, resulting in a larger supply deficit.
It is now reported that the new management of the KESC has refused to purchase electricity from the two projects of the Tapal Group and Fauji Foundation, and instead have plans to construct its own power generating units. Consequently, the two projects need to be re-located, outside the KESC system, if still considered feasible by the sponsors. That will be another setback to the domestic power sector.
Deluged by public problems the KESC now promises to add 45 MW power generation within three months, another 276 MW by May 2007 and additional 500 MW by August 2007. This is not practically possible in the given period by any standards, whatever emergent measures adopted. In any case, the useful life of the KESC existing power plants had been depreciated to the extent of nearly sixty-percent, and the proposed additional power generation would not cope with the growing demand.
Many of the KESC power units would retire shortly, the two units of the Korangi power station and the Korangi Town gas turbine power station by 2007-08 and the SITE gas turbine power station in 2008-09.
It is a reality that there is no shortcut to combating the looming power shortage. During the coming winter season, when hydroelectric power stations at Tarbela and Mangla operate at almost half of their installed capacity, the country will face another spate of persistent load-shedding.
The demand for electricity is growing fast nation-wide and Karachi is estimated to be in need of an additional 1,300 MW electricity in 2007. People will continue to suffer for a long time, it is obvious, with no signs of respite. Rather, the shape of things to come in the future presents a potentially more explosive scenario as WAPDA is on its way to privatisation.
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