Binding bottleneck distribution, not generation

State Bank of Pakistan (SBP) said on Wednesday that the more binding bottleneck in the energy sector is distribution, not generation, and without upgrading the existing distribution network, any addition to generation capacity and even the settlement of the circular debt could not ease load management on a sustainable basis. According to SBP's annual report "The State of Pakistan's Economy", the existing distribution system is not in a position to supply more than 15,000 MW for an extended period of time.
"In effect, the more binding bottleneck at this time is distribution, not generation. Therefore, even if existing generating units are geared up to operate three-fourth of their capacity, the country simply does not have the infrastructure to distribute this power to end-users," the report said and added that greater policy focus is needed on distribution, which suggests early restructuring (and privatisation) of distribution companies and public investment in distribution.
According to SBP, it is the old and poorly managed power distribution and the prevailing transmission & distribution (T&D) system can reliably handle loads of only 11,500-12,500 MW during a given period. "Any load beyond this increases the likelihood of a breakdown in the distribution network, which is becoming more common and it means the existing T&D network is a more binding constraint than generation capacity," it added.
This view gets further support from the fact that load management owing to a generation shortfall, has actually been falling over the years. The real problem is the distribution constraint, which has been dominating the power sector since FY12. Almost 65 percent of load management in FY14 was due to faulty distribution networks, the report pointed out.
The distribution network is especially vulnerable to failure when public pressure forces Discos to supply more power. For example, distribution faced frequent breakdowns during the period 23rd July 2013 to 1st August 2013, when the burden on distribution networks exceeded 15,000 MW for an extended period of time. As a result, electric feeders tripped from the overload, and it took almost 15 days for the repair work. During this period, nearly 80 percent of the load management was due to distribution constraints.
"Without upgrading the existing distribution network, any addition to generation capacity and even the settlement of the circular debt could not ease load management on a sustainable basis," the report said. Unfortunately, despite this hard constraint, policy has mostly focused on generation. For example, the FY14 budget allocated Rs 212 billion to operationalize on-going power projects (with combined capacity of 1,344 MW). Of these projects, 85 percent were gas-based, despite the fact that almost 70 percent of existing gas-based capacity has remained under-utilised due to on-going gas shortages. Hence, it is likely that new gas-based plants would also remain under-utilised after completion.
FY14 started on a positive note, with settlement of the circular debt in June 2013 for a list of initiatives taken by the government in FY14. Furthermore, the newly elected government was very clear and committed to resolving the root causes behind the power crisis.
Unfortunately, however, most of the needed reforms (e.g., privatisation of distribution companies; increase in household tariffs; price rationalisation of CNG; and lower priority to households in gas allocations) either could not be initiated, or made very slow progress.
In fact, the problems in the system have worsened as reflected in the persistence of load management, and the re-emergence of circular debt despite the settlement in end-FY13. Although FY14 witnessed fewer days when the demand-supply gap exceeded 4,000 MW (compared to the previous year), a comparison with the period before FY12, shows a marked deterioration.