Excess power capacity

E-Paper | July 26, 2026

THERE is a growing risk that the government is now on a buying spree for more power- generation capacity than the country can handle. Sometime in the middle of last year, the government placed a cap on contracting further power-generation projects that rely on imported fuel. This was in line with projections of the burden these would place on foreign exchange reserves, which would be beyond what the economy could manage. There was also a cap on further power projects that have capacity payment charges built into their terms, since the additional power capacity that is currently in the pipeline is already going to leave the government with a massive bill. A vigorous conversation has been taking place within the water and power ministry ever since, focusing on these caps. This has not been without its casualties. Powerful vested interests wanting to be part of the rackets now brewing in the power sector have wielded their clout to get their way and have the caps adjusted or removed.

Only last week, we heard of a warning from the chief of the National Transmission and Despatch Company that runaway commitments to contract more and more power are being given to various parties. The latest is a commitment to the Sindh government to buy power from bagasse, the waste by-product from sugar mills, that the NTDC and the ministry have been resisting. For some reason, the Sindh chief minister is mounting an unusually strong representation on behalf of the sugar mill interests of his province. There are numerous other examples of projects being brought into the fold that had previously been scrapped. The government is in a mood to accommodate the chief minister’s request, more likely on political grounds than having anything to do with forecasts of power demand. One result of these runaway commitments is that the bill for capacity payments will be beyond the government’s ability to handle by 2020 when most of these plants have been commissioned, causing large-scale damage to the country’s fiscal framework without yielding any significant dividends in return. The country may be in the midst of an acute power shortage at the moment, but that does not mean that these plants be commissioned with reckless speed. The government should heed the warnings of overcapacity, and tread carefully when tampering with the caps of last year.

Published in Dawn, May 29th, 2017

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Kamal Gurgaon

May 29, 2017 06:32am

"Capacity Payment"? That's a new one. It is done for solar & wind power on green grounds, but never for thermal. Racket is the right word. Even in CPEC Solar, Pakistan has agreed for a very high tariff, more than twice what Bangladesh, India and Sri Lanka are paying.

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Kamal Gurgaon

May 29, 2017 07:04am

The cheapest and greenest power is the one you don't consume. Technology is already in place to cut lighting energy consumption by 70% to 90%, of HVAC by up to 50%, and of motors by 10%, using retrofit solutions with 6 to 18 months payback. That can be the ideal solution for developing and emerging economies. Even the US is on track to cut the energy intensity by 30% by 2025.

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R.Kannan

May 29, 2017 02:57pm

The power generation from biomass waste , like bagasse, should be encouraged. It provides C neutral energy. The real resistance could be that the world leaders in this technology are all Indian companies and the campaign against it could be more political than logical. However, virtually all Sugar Mills in India generate power from bagasse and the surplus is fed into the grid.

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Fudayl Z. Ahmad

May 29, 2017 03:11pm

Excellent editorial that rightly cautions the federal and provincial governments about capacity payments. Very few people in the public domain realize that these capacity payments are one of the major reasons behind power outages as well as the phenomenon of circular debt. Unfortunately without capacity payments, not many investors would come forth for establishing power plants.

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Mehboob ali lalani

May 29, 2017 05:10pm

There is no power shortage. Power is not generated to the fullest capacity. The problem is with the distribution system. Line losses are abnormally high. This is due to power thief and kunda system. Because of high electricity cost,inflated billings people resort to kunda system. Since payments not made power are not generated. First and foremost is to build dams to produce hydro electricity as to cope up burning issue. Second transmission line be improved with completely dismantling kunda system. Third power rates are kept affordable. Fourth Wapda should be cut to size and make it corruption free corridor. But the question is who will do to improve the situation by taking step in right direction?

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gp65

May 31, 2017 05:00am

@Kamal Gurgaon The contracts with the Independent Power Producers signed in 1990s (which were all thermal power plants mostly oil based) had capacity payments. Thus out of the 400 billion circular debt, around 80 billion is capacity charges to IPP. If one wonders why there would be any capacity charges at a time when there is major load shedding? The answer is that the distribution companies are unwilling to buy power at the high rates beyond a threshold promised by the government since government is unwilling to provide subsidy beyond a threshold. Pakistan has sufficient generation capacity even today. But the power is not affordable power.

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gp65

May 31, 2017 05:04am

@Mehboob ali lalani "There is no power shortage. Power is not generated to the fullest capacity. The problem is with the distribution system." Agree 100% " Line losses are abnormally high." True but that is not the only reason why power is not generated to fullest capacity. In some cases the government has agreed into contracts with IPPs to costs which are not affordable. Hence distribution companies are only willing to buy power if government is willing to provide a subsidy to cover the difference between the price customers are able/willing to pay and the cost being charged by IPPs.

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