Can power sector deliver?

The ongoing power crises have exacted a very heavy toll. So much so, that people are sick and tired. Although the government is trying its utmost to mitigate the crises, still there seems to be no end to the woes. On the other hand, experts conclude that the power sector in its present shape is not sustainable and would have to be reengineered as a whole.
Additionally, privatisation will have to be put on-hold in order to end uncertainty and also create the space for change. As a solution and in order to fulfil present and future consumer needs, assure affordability, somewhat stem tariff increases and lastly to arrange for long term sustainability, the concept of giving some of the PSCEs on management contracts is considered extremely feasible.
Similarly, the lame duck PEPCO is suggested to be immediately wound-up, as presently it is more of a drag than any help. That, it is unable to provide a semblance of service to the people even after 3000 MW of capacity addition, increase in average power tariff by 64% (against great public discontent) and the introduction of monthly fuel price adjustment, speaks of apathy and paucity of expertise around this entity.
Although the issues besetting the sector are technical, commercial and financial, the way forward would first be to assure financial sustainability of the sector. More-so when the present conditions inhibit investment and the cost of service for one unit of electricity has touched the high level of Rs 10, while the sale rate (even when all assumptions for tariff setting come true) is less by nearly 20% or so. This translates into a gap of nearly Rs 220 billion, in case PEPCO/KESC production touches 110 billion units for 2010-11.
The financials can be corrected through reduced expenditures, efficiency enhancement/improvement in the GENCOs and by partly off-setting the lopsided fuel mix through conversion of oil-fired stations to coal/LNG (any extra availability of gas seems to be quite distant). Improvement in revenue collection and reduction in line losses in DISCOs, along with the beefing-up of the NTDC through capacity enhancement and the induction of new technologies would increase revenues for the current level of sales.
Furthermore, change in the present set-up / dynamics of tariff formulation/determination/notification, immediate notification of the CPPA (Central Power Purchase Agency) as an independent entity and fulfilment of the various prerequisites to such a set-up, will add on to the above. A fully empowered CPPA would ensure financial discipline and that nothing like the present circular debt appears again.
Secondly, as capacity additions are a necessity, fast-tracking of the presently held-up public sector generation projects (425 MW Nandipur CCP, 525 MW Chichoki Malian CCP and 747 MW Guddu CCP) and some other quick additions in the 18 months or so (amongst others a used coal-fired plant of 300 to 450 MW at Lakhra comes to mind), upgrading PPIB (the present legislative sanction will not make any change for the better), priority bringing in WAPDA to support thermal capacity additions through coal-specially, after the demise of PEPCO would be needed.
And additional capacities, other than through the public sector, would be arranged by PPIB and the AEDB by speed tracking of the various processes at these entities and at NEPRA. WAPDA can chip in through public-private partnerships (PPP) in hydro and coal-fired generation, which all has a potential of 10,000 MW in the coming five years.
Immediate updation of the Electricity Act 1910/Electricity Rules 1937/Telegraph Act 1885, declaration of electricity bills default as a non-bailable offence and complete independence of the sector from outside influence would then discipline the operations of DISCOs/KESC - especially, when the present receivable are more than Rs 350.00 billion or a staggering US $4 billion or so.
As this amount includes huge amounts due against KESC and other governmental entities, the instrument of at-source deduction would have to be given greater clout, while payment/reconciliation of the outstanding bills shall become the obligation of the defaulting customers.
The policy-making level too needs to be improved and consequently there is a need for positioning the Ministry of Water and Power with technical resource (having hands-on experience), requiring the Ministry of Water and Power alone to be the lead manager for power sector reforms (of course with due help and liaison with the Ministry of Finance and unburdening of the Planning Commission from this onerous task).
As a regulatory regime affects the operations of the power sector very deeply, we would have to take-up immediate capacity building of NEPRA/OGRA and do away with the 2007 change/amendment to the NEPRA Act relating to the qualifications of its chairman (presently sub judice in the Supreme Court). With this should end the load suppression model of power tariff, the concept of cross-tariff subsidisation along with the lifeline consumers and the special tariff for this class of customers.
The regulator, unlike the procedure being adopted presently, may calculate the optimum efficiency values for DISCOs/ NTDC/GENCOs and then only consider such figures for tariff setting. This would do away with any further pressure to increase power rates and the inefficiencies, if any, would either be wiped away by the entities themselves or rightly shouldered by the owners viz. GoP in case of the public sector and owner and operators in case of the privatised entities.
Actually, the sector should be isolated from any requirement to bear the brunt of socio-political obligations of the GoP. Such obligations, of course, can be discharged through targeted subsidies. Additionally, the latest DISCO BoDs, not comprising of experienced professionals and nor having needed depth should be replaced with new professional boards on the principle of filling-up/arranging of the competencies that have so far alluded the various PSCEs. The new BoDs will be totally independent, executive in nature and fully responsible for their deeds.
As gaps in power supply are to remain for quite some time, one way to mitigate the shortages would be to resort to load management or load shedding or alternately to take up measures to stop wastage in the system. The latter with a potential of up to 2000 MW or so can be through stoppage of actual abuse, waste and inefficient use and an understanding into the dynamics of smart usage. Introduction of demand side management technologies in DISCO operations in a short span of 12-24 months can add to the above.
This all could be implemented through the national energy conservation strategy (including the PEPCO agenda) and regular meetings of the national energy conservation council/setting-up and strengthening of its secretariat at ENERCON. As conservation necessarily needs the general public to be educated, a mass awareness campaign through PEMRA with added clout, can be undertaken by the electronic media as public service messaging.
On the other hand, in case the above is not taken-up as a national policy, the power sector cannot ever be taken out of the crises it is facing since 2005 and nor would it make way for the implementation of the under updation (from its 1994 mothballed version) national power plan (NPP). The plan is designed on the least cost generation formula. It can arrange for the needed capacities of 43,000 MW in 2015, 65,000 MW in 2020 and 1,25,000 MW in 2030.
Summing-up, we see that the above 20-point programme provides the roadmap that will reduce pressure on the GoP to increase power tariffs and also make the sectoral operations sustainable. Implementation of these would change the economic landscape of the country, attract the necessary level of investments and provide the people the needed level of service in about three years. Additionally, this would create and provide the space that is required to implement a long-term programme to permanently correct the presently lopsided generation, fuel and customer mix.