The power sector - some hard facts

Among many sectors of fiscal drain, the circular debt of the energy sector is one area on the economic landscape of Pakistan which is acting as a primary drag on the national economy and its fiscal sustainability. It simply cannot be ignored. It has pulled down the nation’s industry and businesses and has made life miserable and difficult for the public at large.

Behind the menace of circular debt of Rs 5.4 trillion hides years of incompetence, mis-governance and, above all, lack of transparency in recognizing and bringing forth the key facts and their consequences for public knowledge.

These are:

1. The total installed power generation capacity is 46,000 MW, which is split into:

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Thermal power : 28,000 MW

       (63 percentage)

Hydropower : 10,635 MW

     (22 percentage)

Renewable energy : 2,930 MW

        (6.5 percentage)

Nuclear energy : 3,620 MW

      (8.0 percentage)

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2. Power transmission and distribution capacity is 22,000 MW.

3. Of the total circular debt of Rs 5.4 trillion, a good Rs 3.2 trillion is on account of electricity generation, of which Rs 2 trillion is capacity payments to IPP (independent power producers).

4. According to estimates, in financial year 2022–23, around 15 to 30 percentage was electricity pilferage valued at Rs 380 billion. It is estimated that in FY 2023 -24, this figure may go up to Rs 520 billion.

The following can be concluded from the above facts:

1. Successive governments pursued a policy of an aimless increase in the installed base of thermal power generation without conducting a fair power supply and demand analysis and power supply and its evacuation capacity analysis. The result is: more than half of the power generation installed capacity is lying idle!

2. With 63 percentage of power generation based on imported fuel, it is understandable that the country is producing the most expensive electricity in the region, if not in the globe.

Hydropower generation capacity was largely ignored, which only picked up upon CPEC (China Pakistan Economic Corridor) funding. Renewable energy is a meagre 6.5 percentage of total installed base, whereas, in India, it is 21 percentage and this percentage is rapidly increasing.

3. The power purchase agreements made by the governments with the IPPs did not turn out to be in public interest. They added over-capacity in generation on an under- capacity distribution system and at an unaffordable price for the public and industry. Demand thereupon shrunk. Capacity payments to IPPs are too open-ended and liberal, and to an extent not transparent enough.

4. The level of power distribution companies’ losses and pilferage is not sustainable.

The above are some inescapable facts, which will never evaporate on their own; nor can they be ignored unless sincerely recognized and ably addressed.

It must be clear that the power sector model of the country in its present configuration of installed base, energy mix and unending capacity payments to IPPs and unchallenged power pilferage is not a workable and sustainable model. It is venerable to severe shocks and would continue to haunt the nation unless dramatic measures are taken and all of it in public interest.

So far, the government has been conveniently managing the circular debt by repeatedly increasing the electricity tariffs - a therapy supported by the IMF (International Monetary Fund). This option of penalizing the industry and the consumers at large at the expense of government inaction is coming to an end. The industry, inclusive of export industry, finds it difficult to compete in view of high energy and lender costs. The electricity demand would tend to decrease, adding more to idle capacity. The patience of public to sustain tariffs hike appears to be pushed to its limits.

The facts ailing the power sector are all too well known. They need to be recognised and acted upon to set things right. Status quo or ostrich approach cannot be an option.

There appears to be no reason why the inefficient power plants in the public sector be not declared redundant and moved out of the system. Some of the IPPs are nearing the maturity of their power purchase agreements with the government. The government could negotiate and advance the termination of these agreements. Since years, the government is considering privatising public sector power distribution companies (Discos) but shying away in the face of political considerations.

It is about time the government took into consideration the public interest and moved on with the privatisation of Discos.

Copyright Business Recorder, 2024