Economists are decrying the current state of the power sector and the resultant burden of skyrocketing electricity costs, cited at 21 cents per unit inclusive of taxes. One particular economist likened it to a zombie, that is sucking the blood out of the rest of the economy.
The extreme solution is to declare bankruptcy and do a complete overhaul, but naturally, this will not be possible given the scale of the sector and the intricate interdependencies. However, what is important is to bifurcate the sector into good and bad assets so that the government can approach its financial and operational treatment with a customized solution instead of putting them all on the same page.
The Privatization Commission is working to invite technical and financial proposals for the appointment of financial advisors in 3 DISCOs – IESCO, FESCO, and GEPCO. The process will also undergo approvals from the Cabinet Committee on Privatization and other relevant forums, but a plan is being put into place.
Meanwhile, the only privatized DISCO is also creating headlines for its renewable energy ambitions. As per the company statement, K-Electric’s RE projects received the bid for the country’s lowest tariff at PKR 11.2 per kWh or approximately under 4 cents. This is a timely move, and the company’s financial sustainability is endorsed by independent reports published by the Asian Development Bank.
These should serve as a reassurance to the government that the path of privatization is the way to go because it can yield results if done in a strategic, planned method. This is long-term planning as KE is operating with a clear direction to add renewable energy. The deadline for the bids for 150 MW projects was 31st July and in less than a month the financial and technical bids have been opened. The evaluation report will be submitted to NEPRA whose approval is required before the successful bidder is announced.
This is being aimed for completion by November 2024, after which one can estimate that the project may take another 9 to 10 months for financial close. This kind of speed and momentum requires timely regulatory approvals and close collaboration. If done right, these could also turn the tide for the hitherto sidelined Muzaffargarh project which underwent multiple rounds of RFPs with limited interest since project approval in 2022, and attract investment into the renewable energy space.
Alongside this is KE’s intent to balance baseload generation through indigenous resources. This is again a necessary strategy as imported fuel usage currently continues to dominate thermal power generation even on a national level, a dependency that needs to be reduced. Over the next 5 to 7 years, the systematic inclusion of renewable energy and adequate baseload can enhance efficiency and also set a precedent for other equity to follow. This will also need favorable winds in market conditions.
This kind of success circles back to the promise of privatization and the agility that it confers in a business. Recent reports from a National Assembly Standing Committee session showed that almost 70 percent of the HESCO network was experiencing between 2 to 12 hours of load shed, in stark contrast to the 70 percent exemption in the privatized utility’s territory.
The sector may be atrophying on many accounts, but there is still hope for a strategic turnaround at the intersection of sustainability and affordability.
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