OVER the last 15 years, there has been a serious but less publicly talked about tussle between two indigenous, abundant and yet neglected natural energy resources — coal and hydropower.

Consequently, the power potential of both have remained generally untapped, giving way to imported expensive fuels that have put to unease governments, businesses and consumers in terms of high political expense, production cost and poverty.

While every government has avoided publicly commenting on diverging interests and failed in formulating clear public policies to give priority to any of the two, the National Electric Power Regulatory Authority (Nepra) seems to be making a humble start.

In a judgment last week, Nepra held that investments in hydropower projects should at least be treated at par — if not given the highest priority — with the special incentives being given to Thar coal projects, in view of their contribution to a clean environment.

Power projects based on Thar coal are currently being given a special incentive of 20pc internal rate of return (IRR), among other facilitations. And power projects based on imported or non-Thar domestic coal could earn 17pc and 18pc IRR respectively.

Hydropower projects, which involve a higher risk and much longer gestation period, are entitled to 17pc IRR.

This is a new kind of dispute over provincial resources. Opposition to one resource or the other shows a skewed, parochial view

Nepra has now made a commitment to give the same incentives to hydropower projects that are being given to Thar coal-based projects going forward.

“To encourage clean technology and to attract hydro-investment, the Authority assures that the return on investment in hydroelectric shall be at least similar as to those allowed by the Authority to Thar coal investors,” it wrote.

The power regulator also wrote in its judgment to cap the 20pc IRR for Thar-based projects for the first 1,000MW as an early incentive, and then return to the normal tariff with 17pc IRR for imported and 18pc for domestic coal.

Nepra has also defended its decision to offer relatively higher incentives to coal-based projects. It said that in a single-buyer model that is currently in vogue, investors required an assurance of timely payment which the “NTDC cannot guarantee despite having legally binding commercial agreements where late payments are categorically discouraged through imposition of liquidity damages”.

Therefore, it ruled that circular debt and other key energy issues have to be dealt with on a war footing because “circular debt is eating away the government’s reputation on its ability to pay legitimate claims in time,” and, hence, investor needed to be compensated through relatively better returns.

The wrestling among various stakeholders over prioritising competing resources for power production has been based on the fear that the development of one resource would reduce the chances for development of the other. It has now emerged that both have to synergise each other with simultaneous development to get rid of the crippling energy shortages.

What needs to be balanced out here are the divergent interests of the provinces over priority utilisation of water and coal resources for power generation, with the country’s per capita water availability continuing to decline and the energy demand increasing despite subdued economic growth.

Clearly, Khyber Pakhtunkhwa, Azad Jammu and Kashmir and Gilgit-Baltistan — having greater hydropower potential — have limited muscle to influence public policy. AJK and GB do not have a place in key decision-making bodies like the Council of Common Interest (CCI) and the National Finance Commission (NFC).

Sindh has been successful in presenting a strong case for the development of Thar coal on a priority basis for a permanent and sustainable solution to most of the energy problems. But the province also has a case based on the declining availability of water.

Then, there is the lower gestation period that supports Thar and other coal-based projects. Thar coal projects could be developed in three years.

Meanwhile, Punjab and KP favour cheaper and environment-friendly hydropower projects to coal-based power. But Punjab has limited stakes owing to its few hydro resources.

On the contrary, Wapda has told the government that there are hydropower projects of 25,000MW cumulative capacity in AJK, GB, KP and Punjab that could be utilised without any major storage or diversion of water.

This is a new kind of dispute over provincial resources. Opposition to one resource or the other shows a skewed, parochial view, which ignores the fact that different resources would contribute and synergise, rather than undermine, each other.

Wapda has proposed that multi-purpose and run-of-the-river hydropower projects should be given top priority because they would ensure water availability for agriculture, besides producing cheap electricity and reducing dependence on imported fuel.

Published in Dawn, Economic & Business, December 1st , 2014