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How Nepra is adding to Karachi's energy woes

Updated September 12, 2014
KE has been pursuing regulatory approvals with Nepra for over a year now. —File photo
KE has been pursuing regulatory approvals with Nepra for over a year now. —File photo

Like every other Pakistani, I have always wondered who to blame for the energy crisis in Pakistan. Of late, the federal government has provided strong reasons to suggest it's them.

K-Electric Limited — the now privatised entity which powers a city of 20 million people — has been wanting to convert its two power plants from oil to coal. But for some incomprehensible reason, National Electric Power Regulatory Authority (Nepra) keeps delaying the approval.

It's important to understand that unlike other developing countries, Pakistan’s energy mix is mainly dependent on hydro and thermal generation (gas and furnace oil).

Over the last several years, cheap domestic gas has been depleting and as a result, reliance on imported furnace oil has been increasing to meet the country’s growing energy demand. Expensive generation on oil, depreciation of rupee, lower recoveries from consumers have created the thorny circular debt issue.

Also read: K-Electric bosses ordered over-billing, says Nepra

Soon after coming to power last year, the Pakistan Muslim League – Nawaz government released Rs 500 billion to energy firms and as part of National Energy Policy 2013, asked a few IPPs to convert their plants from oil to coal.

Nepra is the sole authority that autonomously regulates the electricity system, with the promise to protect the interests of investors and consumers.

Interestingly, while the federal government tiptoes from one political crisis to another, Nepra has continued to cause millions of losses to the customers by thwarting the development of projects seeking conversion from oil to coal.

With its sheer incompetence, the regulator body has been testing the nerves of Pakistan and foreign investors, some of whom stand ready to start the work.

Below is a list of the major benefits of converting existing furnace oil units to coal — and these are benefits as much for the consumer as for companies,

  • Reduction in generation tariff from Rs 17-18/kWh to Rs 10/kWh

  • Increase in foreign exchange savings through reduced furnace oil imports

  • Increased level of foreign investment in the energy sector

  • Lesser construction time (two years instead of four years for new plants)

  • Higher availability of power as compared to existing units due to fuel availability

  • Lesser air pollution, as sulphide and nitride production is lesser, compared to emissions from furnace oil

The situation right now:

Independent Power Producers (IPPs) such as Hub Power Company Limited, Lalpir Power Limited, Pakgen Power Limited and Saba Power Company Limited had shown commitment for the oil-to-coal conversion of their plants (with cumulative capacity above 2,000 MW) more than a year ago.

But owing to Nepra dragging their feet on finalising policy guidelines, these companies are unable to initiate the projects.

Read on: K-Electric rejects Nepra’s allegations

Recognising the importance of coal well early, KE started working on converting its furnace oil-based generation to coal-based generation way before the federal government even introduced coal conversion in the National Power Policy, 2013.

Sources confirm that an engineering, procurement and construction contractor − China’s Harbin Electric International − has been awarded the contract of conversion. Environmental approvals for the project have alson been obtained, and multiple private equity investors stand lined up for the project.

KE, in other words, is at an advanced stage of undertaking the coal conversion project.

K-Electric in a spot of bother:

Then what stands in the way? Well, Nepra does.

Informed sources suggest that KE has been pursuing regulatory approvals with Nepra for over a year now.

Nepra records embarrassingly highlight that although the application for license was admitted almost five months ago, the regulator continues to sleep over it. Quite interestingly, the hearing called for the license in the first week of September had been quite brazenly adjourned without any reason submitted whatsoever.

Khawaja Naeem, Nepra’s member from Punjab (and friends and family of the current federal government leadership), categorically committed to granting generation license and tariff-line within 10 days of admission. Nepra's rules also say that no more than two months will be taken in the process.

Pakistan’s apex trade body, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) also extended its much-needed support to KE’s plan.

That compels one to think: Why the delay then?

To most of us energy sector professionals, the issue seems more and more like the sad old Karachi vs Punjab lobby problem.

Take a look: KE making huge profits at consumers’ expense, Nepra hearing told

Is the delay occurring because the project will serve Karachi only?

Is it because KE is a privately owned utility and is performing better than the government-controlled entities?

I believe only Nepra can respond to this.

The cost of delay:

Simple economics suggest that furnace oil-based generation (Rs 17/kWh) is almost twice as expensive as coal-based generation (Rs 9-10/kWh).

The bill for power generation runs in tandem with the bill of power consumption — the bill you pay!

Although the K-Electric conversion project (420 MW) is only a component of its total capacity (3000 MW), Nepra's inefficiency essentially translates into extra electricity cost for many, if not all consumers.

In terms of foreign exchange savings, basic calculations say the K-Electric conversion project (420 MW) will save around $ 300 million per year. Imagine the savings from the conversion of 2000 MW of IPPs waiting for the policy decision from Nepra.

The five-month delay has already cost the consumers $100 million in direct savings; and that's without including the loss due to lost output in Pakistan’s biggest industrial hub, Karachi.

This is beyond a common man’s comprehension. For me, Nepra’s behaviour is not just illegal, it is criminal.