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IT ought to have been predicted, but everybody was too busy running the sums. Since 2013, the government has gone on a buying spree in the power sector, approving and ‘fast tracking’ new projects with an almost reckless abandon. Yes, we all remember the closing days of the last government, when power blackouts were so severe we were actually counting the hours that we do have electricity, rather than the duration of the outages. But check out what has happened since then.
Shortly after coming to power, on Aug 27, 2013 to be precise, the first Joint Cooperation Committee (JCC) meeting between Pakistan and China was held in Islamabad, to be followed by five more. Over the course of these meetings, a power-sector investment plan was drawn up with the Chinese under the auspices of CPEC, and in addition to this was a slew of other projects that not only significantly added to our power-generation capacity, but would also turn the fuel mix away from furnace oil towards LNG or coal, with a small addition by renewables.
As a result, six coal-fired power plants, on imported coal, were approved. The homework for all that would be required to run these plants was done after they had been agreed to in a meeting between Prime Minister Nawaz Sharif and Chinese President Xi Jinping in November 2013. The homework showed that the cost of coal transport infrastructure for most of these was so high that the projects would not work under the tariff regime set by Nepra in June 2014.
Expansion of the power sector plan, it turned out, was coming with a heftier price tag than what was originally envisaged.
So the government decided, on the spur of the moment, to abandon some of these projects, and ordered the rest converted to imported LNG. Today, only one imported coal plant remains (at Sahiwal), while two others have been ordered to convert to Thar coal (Lucky and Siddiquesons), and two were removed from the CPEC list.
As an aside, it is worth underscoring that using Thar coal far from the project site presents serious risks because that coal spontaneously combusts when coming into contact with air for more than an hour or so. I have seen this myself in Lakhra, which is the same coal seam, where coal begins to smoulder even before it is placed onto the conveyor belt that carries it up to the furnace. And the transport time there is far shorter.
Those who were removed from the CPEC list were not happy. The investments in the power sector are the most lucrative game in town these days, with guaranteed returns, sovereign guarantees, and capacity payments that ensure that your enterprise cannot lose money, no matter what.
One of these mega plants can, according to some calculations done by the water and power ministry in those days, place a cost of up to Rs500 billion in capacity charges alone over a 30-year period. Top this off with the burden on our reserves that imported fuels places, and the power-sector expansion plan, it turned out, was coming with a heftier price tag than what was originally envisaged.
So the government decided to cap all further plants on imported fuel. Those who had been dropped from the list, and others who were waiting their turn to enter this area, were left sorely disappointed. With time, they started lobbying the government to have the cap removed. But the government did not oblige.
But by this point in time it made no sense to remove the cap. The pipeline is already full beyond capacity. By end of 2017, close to 6,600MW of new generation capacity is expected to come online, as per Nepra’s last state of the industry report (these figures might have changed since that report was published, but are alright to use as indicative units).
By end of 2018, an additional 10,000MW is to be added. By 2022, another 8,000MW are to be added. When this government came to power, the total generation capacity of the country was 23,000MW. Based on the current expansion plan, that figure will rise to more than 48,000MW by 2022, more than doubling the generation capacity.
By that point, according to projections made at the ministry, there will be a surplus of 6,000MW even if power demand is to grow at 7 per cent per annum, instead of the 4-5pc that is the norm. Meaning, in terms of new generation capacity, we will be overcapacity as it is, so the focus now needs to shift to ensuring the financing that will kick in once these projects come online, the logistical arrangements for fuel supply and power transmission, improving recoveries and governance of the distribution companies, and so on.
But these things are no fun. The real rackets are in power generation, not fuel supply or power transmission, and certainly not in improving governance or recoveries. And so the pressure mounted on the government to remove the cap and allow a few other projects, with powerful connections, to come into the system.
It seems the government is preparing to cave in to that pressure. One of the projects that was removed in the earlier exercise of pruning and rationalising the list of imported coal fired power plants is almost back. A few others are knocking hard, and are likely to get their way.
In the meantime, the regulator that had stood in the way of these plants is being dismantled and the power to issue generation licences, it seems, is being handed over to the provincial governments. Sindh is keenly talking about generating power from bagasse, and complaining that Nepra was not allowing them to do so. Bagasse is waste byproduct from sugar mills. Guess who owns most of Sindh’s sugar mills, and you’ll figure out in what direction this racket is going.
This is what is happening to our power sector. This is what the grandiose plans announced with fanfare, to end load-shedding by 2018, have come to. Rackets for all.
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, May 11th, 2017
