May 17, 2007

It seems all dark on the electricity front and getting to be darker day by day. The power crisis, which started developing some three years ago, has now become critical. It may become an outright disaster if the present neglect of the sector continues by planners and the military rulers.

The most tragic part of the current crisis is that instead of carrying out an objective appraisal, rulers and policymakers are resorting to a blame game. With blame flying in from every direction, the crisis at hand is being ignored for political compulsions imposed by an election year. Planners and decision makers do not realise that the situation does not augur well for the country.

Currently, Pakistan is facing a shortage of some 2,000mw –– around 17 per cent of total peak demand, which is likely to hit 17,000mw during hot, humid July and August. This deficit, at the current load growth rate, would grow to 4,000mw by next summer and snowball into 6,000mw by mid-2009.

On the generation front, only 1,000mw is planned to be added to the electricity pool and that too not before 2009, leaving the entire 2008 uncared for. The first addition of some 200mw will be made in January 2009 and the rest subsequently, if all goes according to the plan. By these calculations, the country will face a shortage of 4,000mw next summer and some 5,000mw by the end of 2009.

The post-2009 scenario could be a little better if all the projects, mentioned on the website of Private Power Infrastructure Board (PPIB) –– the agency charged with bringing investment into power generation –– materialise. However, the board’s record in carrying out its task is not exemplary; it has failed to bring any significant investment to the power generation sector so far.

This current and the next two years’ demand-supply situation defines the context and the depth of the problem in which the country finds itself now. Questions as to how it slipped into this crisis, rather why it was allowed to land in trouble, make a scary read. True, Pakistan has been facing power deficit of varying degrees for the last 25 years, but it did see a six-year surplus regime from 1997 to 2003.

The surplus sustained itself only because of slow load growth, inching forward by a manageable three to four per cent due to different reasons, over the same period. Then came consumer finance making home appliances affordable and trebling the average load growth within two years, wiping off the entire surplus over the next three years. (See the chart).

Failure to cope with the growing demand and the neglect shown by decision-makers despite repeated warnings by Wapda and power-sector experts of impending disaster have resulted in the current crisis. The result is that now that the focus has shifted to availability rather than affordability of power, drastic, immediate measures need to be taken regardless of the costs involved. This, many say, means more kickbacks for those at the helm of policy making and those assigned to implementing it.

Power purchase agreements (PPAs) being considered and signed with independent power producers are based on basic tariffs as high as $0.12 per unit. These are to come online in 2009 and after, citing the current crisis facing the country and immediate need for more power. Some of the new entrants are demanding and getting promises of even 14 cents per unit.

With these agreements in the process, the average per unit sale price of electricity would double (from current Rs4.50 to nine rupees), based at the current international oil price.

The cost of sustaining the current 10 per cent load growth is phenomenal, certainly well beyond the fiscal reach of Pakistan. A look at the anatomy of power demand clears the picture. It is the domestic consumers who will face the major increase. Industrial and agricultural growth can correspondingly increase national income and foot the bill for infrastructure required for it, but the same cannot be said about the average domestic consumer. The only other country having 10 per cent power load growth is China, which is a factory for the world consumers, sitting on a foreign exchange reserve of over a trillion US dollars.

Domestic and commercial consumers make 62 per cent of Wapda’s clientele, followed by industrial (18 per cent), agriculture (17 per cent), and all others amount to three per cent. Out of the 10 per cent load growth rate, domestic consumers account for seven per cent.

The domestic consumes had 7.5 million home appliances last year, which went up to 9.8 million this year –– a staggering growth of 32 per cent. Home appliances at current market prices have a total turnover of around Rs100 billion. To meet electricity needs –– generation, transmission, grids, local feeders and transformers –– of these appliances alone, Wapda needs Rs133 billion. This means that for every rupee spent by consumers, Wapda has to spend Rs1.33. Out of the 9.8 million home appliances in question, 7.7 million are estimated to be connected to the Wapda system without any documentation in the authority’s records, thus hindering necessary planning by Wapda.

The crisis demands that the government adopt a clear cut policy to deal with it. It not only needs to cater to the growing demand but also to try to rationalise the trend of burgeoning domestic demand. It also needs to work hard on keeping electricity affordable for the average consumer.

With the proposed PPAs taking effect, a bigger affordability crisis is on the cards. Instead of the PPIB allowing local business houses to set up power plants and ensure windfall profits, companies with some experience in power generation should be brought in for operation at reasonable rates.

Up to four-times inflated invoicing by business houses to claim higher tariffs is a known fact. Allegations that front men acting at the behest of government functionaries setting up plants and claiming tariff of their own choice also carry a measure of truth. These and other practices amounting to power theft and bill evasion have to be plugged.

Meanwhile, the government has no option but to resort to massive conservation measures. With these measures, it could save up to 1,500mw without affecting productivity. It has already initiated some measures like closing shops after 9pm. It must ban abuse of power consumption taking place in offices, in the street and parks, by leaving streetlights on when they are not required, illuminating parks, buildings and neon signs after dark when not doing so can save considerable amount of power.