An electric regulatory authority for Sindh

Sindh cabinet has approved a draft bill for organizing a separate electricity regulatory body for Sindh — Sindh Electric Power Regulatory Authority (Sepra).

It is not known whether or not it would be independent or subservient to Nepra (National Electric Power Regulatory Authority) or what kind of relationship it will have with NEPRA and CPPA-G (Central Power Purchasing Authority-Guaranteed).

There is a confused provision for provincial role in electricity in a centrally controlled and managed electricity system in the country. The present government has recently offered to transfer DISCOs to provinces and has requested each one to at least take one Disco’s ownership and responsibility.

All circular debt is affected and paid at DISCO level where the difference between cost and revenue is finally paid or becomes a liability. Almost all DISCOs have a negative equity and have been running under losses.

The principal grievance of the Sindh province, as espoused by the Sindh energy minister, is energy poverty — an interesting term indeed. Sindh has cheap energy resources like Thar coal, wind and solar, but is still short of energy.

Karachi’s electricity and gas problems having a national impact have furthered the appeal of energy poverty issue as raised by the Sindh government. The immediate grievance is that IGCEP (indicative generation capacity expansion plan) as approved by NEPRA has ignored solar, wind and Thar coal.

The issue has emerged with the competition among solar, wind and hydro. Hydro used to be the only local resource and used to be cheaper among all; it’s no more the case.

Old plants cost around Rs 4-5 per unit and a new hydro plant costs almost twice as much. While solar is available in day only but available throughout the year and hydro is available more in summer and less in winter but is available round-the-clock in the period when it is available.

In a way, it is a good combination if treated properly. No energy source is a panacea; all have merits and demerits. One has to make an ideal least cost mix and that is what IGCEP is supposed to do.

However, IGCEP’s methodology and software are not used strictly on least-cost principles. Almost half of the energy generation proposed in the IGCEP is given, externally imposed. It is hydro and nuclear. Competition is not allowed to work, it is argued.

Nepra may not be held solely responsible for it; there are other powerful forces which cause external impositions in the choice of projects. And the emergence of competition among solar, wind and hydro is a new issue and a generic one, partly beyond Nepra’s powers exclusively.

This is the reason Sindh has decided to make its own regulatory body. Sindh had grievances earlier also and it threatened to make its own regulatory body when provincial transmission and generation projects were opposed by NEPRA. However, Nepra and other federal bodies gave in and Sindh opted not to go for its own regulatory body.

The intensity of the problem could have been reduced if power generation monopoly had been taken from KE. KE could have been allowed to competitively have its power generation plants as IPPs (independent power producers). And the generation sharing could be made on a country-wide basis as part of NTDC (National Transmission and Dispatch Company) and CPPA-G system.

KE would have been allowed to work as a Disco only. There is a provision in the rules and the KE agreement to do this. KE does not lose anything. It gets automatic access to country-wide generation resources. However, this is only part of the problem.

Provincial control and management is not new in federal systems. In the US, Australia and India, electricity is totally under provincial domain. However, there are power markets which reduce the role of governments to a considerable degree. In India, the power system is under public sector and is provincialised that includes generation, transmission and distribution and financing the power investments and subsidies and the regulation.

The question is will Sindh be able to achieve its objectives of increasing its power supplies by having SEPRA? Energy buyer is CPPA-G. To have an effective autonomy in power sector, all provinces have to be under an identical system. It may cause confusion in the financial system in which Sindh may be a loser or gainer.

Punjab has a large energy market but almost no energy sources except solar while other smaller provinces have potential and actual energy supplies. It is in the interest of the energy producer provinces to be able to sell energy to Punjab which may be easy to handle within a larger Pakistan market.

Also, the producer provinces have to make their resources competitive. One is already seeing solar/wind versus hydro conflict raised by Sindh. There are people in both or all smaller provinces that have anti-market political ideologies which would hurt their provinces’ and people’s economic interest in the long run. A larger integrated market is in energy producers’ interest. Isolation would hurt. SEPRA in Sindh would be a step in that direction.

Fragmentation has started with the formation of provincial transmission companies; Sindh and KPK started with it and now Punjab is following in their footsteps. There are two possible motivations for it; 1.Taking electricity to far-flung areas where NTDC may not be taking interest; 2. To install generation projects independent of NEPRA and CPPA-G and avoid overheads like losses, cross-subsidy etc.

Not much has been done or achieved. It may be causing unnecessary overheads expenditure sustaining companies having not much load or business. NTDC may be asked to change its policies and practices in order to reduce the incentives of the provinces to seek independent solutions.

It doesn’t stop at transmission. It goes to regulation as Sindh is trying to do. Things may then be better off if the whole power sector is devolved to provinces. Pros and cons of various options may have to be studied. The government should be happy to get rid of an increasing circular debt. The World Bank has come up with a proposal to reduce federal expenditure.

Sepra’s formation may be used as a bargaining weapon to get IGCEP system right and get due share. One is not sure if IGCEP has provision for dealing with provincial demands and supplies or it considers meeting total Pakistan demand only. The incumbent government is convinced of the advantages of solar. In short run at least, solar is the cheapest in energy and capacity terms. To the extent of meeting day time demand in offices, schools, government departments, etc, solar has no competitor. Thar coal has been ignored by IGCEP.

It could be due to international pressure and dependence on IFIs (international financial institutions). The world is still producing 40% of its electricity on coal. India and China have been opposing harsh and fast- track closure of coal use in power sector. China has indicated that it won’t finance coal power outside its own territory. Without China, there is no possibility of adding more power plants.

However, the existing power plants based on imported coal can be converted to Thar coal. And even more market for Thar coal is there in non-power sector like cement, tiles, ceramics, glass and other mining and extractive industries. India’s textile industry in Gujarat and Rajasthan uses lignite.

The Sindh government would do well to launch initiatives in this respect on fast track. NEPRA should take leadership in solving the intra-provincial issues, although the issue belongs to inter-provincial coordination ministry where provinces themselves can play an effective role for getting their due share. Technical solutions have, however, to come from Nepra.

Copyright Business Recorder, 2023