National power policy: Govt wants multi-buyer, multi-seller electricity system

ISLAMABAD: Special Assistant to Prime Minister Special Assistant on Power Tabish Gauhar said on Monday that domestic and agriculture consumers are being provided a subsidy of Rs 450 billion per annum which is not sustainable.

He was addressing a session on National Electricity Policy 2020, to be submitted to the Council of Common Interests (CCI) for final approval.

"Industrial and commercial consumers are cross subsidizing Rs 250 billion that's why Prime Minister says industrial tariff is 25 per cent expensive in Pakistan as compared to India and Bangladesh. In addition, to Rs 250 billion cross subsidy by industrial and commercial consumers, Rs 200 billion subsidy is being given by the federal government, which we cannot afford," he added.

According to Gauhar, if subsidy will only be given to the consumers who use 200 units per month, the tariff of consumers using 300 units, will increase by 40 per cent and they will be on the roads, protesting against the government. Minister for Energy, Omar Ayub, in his address stated that the previous government signed expensive agreements due to which tariff is high.

Gauhar said that in future provinces will also have to pitch in for investment in power sector as the federal government bears this burden alone.

He said, the private sector, including banks, would also have to play their role in this regard. He stated that uninterrupted supply of affordable electricity should be the objective adding that if electricity costing Rs 20 or 25 per unit is added to the system, it will be of no use.

He said bottlenecks in transmission and distribution of power also need to be addressed adding that renewable policy is approved whereas hydel policy is also in the final' stage.

In the past, he said 'single-buyer' model was in place which implied placing the entire burden on the Centre but now the time has come that the Federation should divide this burden between provinces and private sector.

CTBCM has been approved which is a good step, he maintained, adding that in the first phase it would be at the wholesale level for bulk customers and would then be shifted to retail level. "If we open up electricity market for retail consumers who are in millions, it would be like an earthquake which we cannot afford," he continued.

He said, Pakistan has to shift from take or pay (rent seeking) to take and pay model at any cost. IPPs will get tariff on competitive tendering not on the basis of cost-plus tariff or upfront tariff. Tenders will be awarded only to the lowest bidders on the basis of take and pay regime. He said the government wants a multi-buyer and multi-seller system in the country.

The SAPM said the government has to promote renewable and hydel energy but at the same time, Thar coal also needs to be used. However, its rate which is $ 60 per ton needs to be revised downwards to $ 25-30 per ton so that electricity prices could be reduced. This will happen when agreements will be renegotiated. With this, economy of scale will come into play and imported coal-based plants will be shifted to local coal-based plants.

He said, frontloading should also be done away with and the 10-12 year debts should be extended to 15 years. Governance model of companies will also be improved and a newly established board will be held accountable

Gauhar further stated that IPPs' payment mechanism will be settled within the next couple of months as Finance Ministry is working on it. Presently, said, circular debt which is at Rs 2.3 trillion will be reduced by the maximum possible but perhaps it will not come to zero. He said the some subsidy factor will continue to remain in the economy because of expensive agreements.

He said it is alarming that sale of electricity has declined five per cent as compared to 2018-19. "We have to increase demand and reduce cost of generation," he maintained. Secretary Power Division, Ali Raza Bhutta, shared key outlines of the new draft policy and previous policies. He said, the policy will be based on an integrated approach to all the relevant sectors.

He said an institutional mechanism should be available for feedback and improvement in future.

The Secretary Power stated that in the overall prospective of the policy, Pakistan needs an integrated energy plan, which does not exist as of today. Planning and Development Division, has to lead it. He said, guidelines will also be formulated in the light of the policy. The policy covers generation, transmission, distribution and supply, system operations, market development and operations. Cost of service, tariff and subsidies, energy efficiency and conservation constitute a critical part of it and governance is also part of the system. The policy has also the framework of hydel and thermal development, he concluded.

Copyright Business Recorder, 2020