High cost of electricity major reason behind under-recoveries

ZAHEER ABBASI

ISLAMABAD: The high cost of electricity has been identified as one of the major reasons for under-recoveries of distribution companies (Discos), leading to deterioration in balance sheet of power purchaser and liquidity crunch for power producers, revealed an official report.

Sources said a study conducted on power sector by a firm hired by the Planning Commission revealed high power generation cost, due to existing fuel mix, has exacerbated collection and under recoveries for the Discos, leading to balance sheet deterioration of the power purchaser (Wapda) and ultimately a persistent liquidity crunch for the power producers.

An overview of power sector identified that Pakistan fuel mix is heavily skewed towards fuel oil and gas at over 77 percent of total consumption responsible for an excessively costly power generation. The overall electricity demand is projected to reach 36,000 MW by 2015 and a staggering 114,000 MW by 2030. The total energy requirement by 2030 is estimated to reach 361 million tons oil equivalent (MTOE) compared to 62.5 million tons oil equivalent during 2008-09 fiscal year.

The study underlined the need for giving high priority to developing hydroelectric potential of Pakistan on fast track basis, immediately focusing on run-of-river schemes (1-2years) and improving and strengthening the grids - both distribution and transmission with a view to improving reliability and reducing technical losses. Pakistan has a hydropower potential of about 40,000 MW, of which some 6,450 MW has been developed, the remaining economically exploitable potential is around 20,000 MW or more. There is suggestion for the policymakers to focus on developing an indigenous resource mix for power generation with the objective to bring down the electricity cost. The government should consider low cost expansion plan for the power sector, which would utilise indigenous resources such as coal and natural gas in the medium term (3-5yrs) while focusing on hydel for the long term (5-l0yrs) or longer gestation period projects.

Pakistan remains dependent on oil imports for now, which make up nearly 30 percent of the import basket. Oil and gas energy demand makes up approximately 78 percent of total energy demand and based on current estimates, the country be easily spending over $25 billion on oil import by 2020.

Thus, the study recommended that the exploration activities, required to be stepped up, particularly in Balochistan, which remains largely untapped and address the concerns of investors with regards to regulatory and policy framework to attract investors in energy sector.