Relying on LNG import for power generation a mistake: Pasha

Former Finance Minister, Hafeez Pasha said that the govt is making yet another mistake by over relying on LNG import for power generation. Replying to question at an event organized by Institute for Policy Reforms (IPR) titled "putting power back on track; a sustainable resolution to the energy crisis" he said he was surprised that NEPRA came up with upfront tariff for LNG based power project without knowing its import price.
He said that the after gasification and transportation cost, the power generated by LNG would be high than those of efficient fuel-based power plants. Additionally, he said that his concern is that import liability would go up substantially which would create balance of payment problems unless exports goes up proportionally.
Former Secretary Planning Commission, Ashraf Hayat held Ministry of Finance responsible for compounding fiscal problems of power sector by delaying the release of subsidy. Hamayun Akhtar Khan said that electricity crisis is not because of demand-supply issue but due policy, governance and structure failure, which requires revamping of the system.
He said that one of the fundamental problems of the power sector is that generation cost is not being recovered and each unit need required subsidy. They added that the govt does not have a concerted plan to address the power crisis and seems to have reduced the response to one of increasing installed capacity. They expressed the hope that govt would keep in mind past mistakes, which have brought the sector to this stage.
Gaps existed in policy and governance. Decision makers knew most factors behind the power crisis, but have been unable to address them. Even in the priority area of increasing generation, it is not clear where the govt stands. It has moved between coal-powered plants and LNG. In between there was also talks of solar farms. Without addressing issues endemic to the sector, increase in capacity will face the same difficulties as at present. Foremost among the many issues that affect the power sector, is its inability to recover cost of delivery of power.
DISCOs lose about 30% gross revenue. This means a shortfall in liquidity, which leaves no space for capital formation. The build up of receivables limits power generation. It is not possible to improve the sector with such high losses. Reliance on imported fuel has led to high energy cost. The 1994 power policy gave liberal incentives and paid no importance having an efficient fuel mix. Since then oil price have increased by twenty to thirty times.
The country continues to suffer from such policies today in the shape of high power price as well as high shortages. Past practices continue in the same way. As late as last week, govt agreed on upfront tariff for LNG, which did not come through a competitive process. Government has also not released information on details of the coal and LNG arrangements. Even NEPRA states that in determining tariff for LNG, it adopted a value for input cost.
State run generation and distribution companies have underperformed. It is important to improve their management structure. Buildup of circular debt clogs the energy supply chain. Govt has no declared plan to do away with circular debt. The tariff and subsidy policy needs to be reformed where NEPRA must have a greater say.
Though govt states that power sector is a priority, its public investment program suggests otherwise. Overall, budget for the power sector is low with a major portion to be met by PEPCO itself. Rather than prioritize projects for early completion, many projects receive small sums of money and remain under implementation for years.
The IPR recommended that pay the outstanding tariff differential subsidy and continue to timely liquidate this obligation, to settle the issue of circular debt, take administrative measures to reduce line losses and under recovery of bills. It should also reduce tariff slabs and have criteria for disconnection of supply, govt must increase gas allocation to the power sector, it must reform the tariff and subsidy policy, it should divert public funds from roads for early completion of on-going hydro and thermal power projects to increase generation. In the medium term, for sustainable development of the power sector, it must, Plan base load generation according to cost per unit (prioritize hydro and coal) and solar/wind for off grid.