ISLAMABAD: Amid warnings about the oversupply of generation capacity, the federal and provincial governments on Wednesday agreed to the immediate purchase of up to 450 megawatts of electricity from sugar mills.

The meeting, presided over by Minister for Water and Power Khawaja Muhammad Asif, also finalised a load management plan that entailed closing down the key industrial sector for an eight-hour shift in Ramazan to divert electricity to the domestic sector for uninterrupted supplies at Sehr and Iftar.

Informed sources told Dawn that National Transmission and Despatch Company (NTDC) CEO Dr Faiz Chaudhry told meeting participants that Pakistan was heading towards a ‘capacity trap’ because of loads of additional generation capacity currently in the pipeline that would add to the circular debt crisis.

Says added capacity without matching growth in demand will lead to higher capacity payments

He explained that additional capacity in the absence of matching growth in demand would mean a surplus generation capacity for which the government and consumers would have to make capacity payments without actually utilising it fully.

The situation would start emerging in 2018-19 and become a reality by 2019-20. A carry-forward of circular debt at present coupled with additional obligations should, therefore, be kept in mind while contracting more capacities.

His words of caution were played down by the water and power minister and Sindh Chief Minister Syed Murad Ali Shah who said similar demand-supply forecasts in the late 1990s had led to the turning away of some contracted projects. Shortage problems re-emerged a few years down the road, however.

The sources said the Sindh chief minister was keen on contracting bagasse-based captive power plants, even though the NTDC was reluctant as some of them would only be available for two to three months of sugar-crushing season.

Mr Shah offered to put in place a mechanism for the purchase of bagasse from Punjab-based sugar mills to turn such capacities commercially viable and promised to get a resolution from the provincial assembly passed for the at-source deduction of the cost of electricity produced from these mills. This could reduce loadshedding in his province by four to five hours, he said.

The sources said the federal minister appeared accommodative to Sindh’s position and directed that an urgent meeting of the NTDC and the Central Power Purchase Agency (CPPA) should be convened on Thursday. The meeting will consider Sindh’s stance as Mr Shah promised to purchase the entire 420-450MW if the NTDC faced “capacity trap problem”.

Mr Asif said the NTDC had the option of decommissioning plants owned by the government generation companies that were generating expensive electricity.

The tariff approved for bagasse-based plants is set to expire on May 26 and, hence, an arrangement has to be made for the contracts before the expiry date, a source said.

Mr Asif said the load management plan for Ramazan has been finalised and will be presented to the prime minister for approval in a day or two for its implementation from May 26.

Meeting participants were told that more than 99pc bottlenecks in Pesco, Iesco, Gepco, Lesco, Fesco, Mepco and Hesco had been removed.

In Sepco and Qesco, work is in progress and their constraints will be removed by the end of the current year.

It was also decided in the meeting that Automatic Meter Reading (AMR) devices should be installed on the government buildings in Sindh by Sepco and Hesco. The meeting also decided that work on Chakdara and Mansehra grid stations should be expedited.

Published in Dawn, May 25th, 2017