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Restoring power supplies

June 04, 2013

TALK of efficient and inefficient power generation plants at this stage is largely a red herring. It detracts focus from the main issue. You cannot run a modern economy without electricity.

Expensive electricity or more expensive electricity is only a question of degree. Either one is better than no electricity.

True there is no quick fix, no magic wand, but there is the immediate term and beyond that is the short-term. Apart from rental power there is no immediate fix. Inefficient plants are still cheaper than rental power. Under the present circumstances firing up all boilers would be the best choice.

According to Ministry of Water and Power estimates, this would involve a running cost of Rs3.5 billion per day, mostly for fuel supplies. With all thermal plants running, plus the additional hydroelectric power that — with the dams beginning to release water — is being added to the grid each day, the load-shedding can be brought down to about four hours a day.

Meanwhile the Planning Commission tells us the other half of the story. Of the Rs3.5bn sought by the Ministry of Water and Power, recoveries from consumers will fetch only Rs2.5bn while Rs1bn would be “lost” every day.

Half of this would be in “tariff differential” — which is the difference between production cost and selling price — and the other half in line losses and outright pilferage. This is how a billion rupees get added to the mountain of circular debt each day.

A sharp increase in electricity rates is therefore unavoidable. The public must be informed that prices will have to go up before they can come down, that is if they can be brought down at all by means of a more favourable fuel mix.

Using a combination of tariff increases, better management of the utility companies and discriminate (as opposed to across the board) load-shedding, it is possible to minimise, if not eliminate, the Rs1bn daily losses. This can be achieved in the short term.

While referring to the power bureaucracy the caretaker minister for water and power was recently heard saying that he had not seen such corruption and incompetence in his whole life.

In other words, nothing short of a massive purge here would work and this would need to be coupled with bringing in a clean and efficient top management for all the generation companies, distribution companies and the National Transmission & Despatch Company.

That too would be an interim solution, pending privatisation. Another required feature of this new management is for it to be pro-privatisation, which will be their main brief.

Finally, if the brunt of load-shedding is made to fall on distribution zones with poor revenue recovery, then that measure can contain losses.

The suggested approach has three payoffs. One, elimination of the Rs1bn daily losses means a steady power supply which is also economically sustainable.

Two, the additional electricity brought into the system is the (presently scarce) factor of production that is most needed for economic revival.

Three, it frees the government’s energy team from firefighting, to focus on the more fundamental issues of carrying out reform and enhancing generation capacity.

As the lights come back on we can begin to talk about plant efficiencies. The public-sector plants offer the greatest opportunity for efficiency enhancement. This is achieved by retrofitting them with more aerodynamic turbines and with combined cycle technology.

Because these initiatives aim to squeeze out more electricity from the same quantity of fuel, they offer a high return on investment and find willing financiers.

On the other hand, we are hearing a lot of talk of coal-power generation. As I’ve cautioned in my article on April 28 ‘Will load-shedding end?’ this route has its challenges — not least among which is raising international financing given that coal is this century’s villain in a world where climate change is a major worry.

In addition, building a coal supply chain requires extraordinary backhaul and logistic capabilities.

To put things in perspective, the daily coal requirement of a 500-megawatt power plant is around 4,000 tons.

If this is imported coal it equates to a train — a diesel locomotive pulling 30 wagons — leaving the seaport for the power plant every eight hours. If this is local coal it involves 150 large-sized dump trucks each day from mine mouth to plant, and a mining and engineering infrastructure in place that can steadily deliver coal in such quantities.

These are continuous logistical operations on a scale that is unprecedented in Pakistan. Getting to this stage may take a few years and the proposal is not something that can be seriously considered for the short-term.

Nevertheless, a short-term coal challenge for the government may be to rehabilitate the Lakhra coal-fired power plant for which local coal is available from nearby mines. Beyond that it can pick up the Karachi Electric Supply Company’s coastal Bin Qasim plant as a candidate for coal conversion.

Another good starting point is to look at the projects in the pipelines of the Private Power and Infrastructure Board, the Water and Power Development Authority and the Alternative Energy Development Board.

From here it can identify the dozen or so thermal, hydro and wind power projects that are closest to fruition and where government intervention may be able to help bring some of the commissioning dates forward.

All these of course are stop-gap measures, which if not accompanied by energy-sector reforms will unravel quickly.

Another hard one to swallow is that there is a world market for energy prices, from which Pakistan cannot remain immune. Instead of resisting that reality, the sooner we come to terms with it, the sooner we’ll be able to find a way out of our energy troubles.

The writer is a strategist and entrepreneur.