Power rackets continued

June 08, 2017


FOR almost two months now, word has been circulating in power-sector circles that the large power-sector expansion plan being put in place by the government is at risk of commissioning too much generation capacity, saddling us with a steep payment bill for power plants that will basically sit idle for much of the year. Until recently, this was talk one was hearing, although persistent and accompanied by all the signs that the talk was true.

On Tuesday, we received confirmation. The prime minister himself, while chairing a meeting of the Cabinet Committee on Energy (CCoE), signed off on two more power plants that had been dropped from the expansion plan following a cap on new generation capacity placed on imported fuels last year. The two are a coal-based power plant in Rahim Yar Khan and another in Muzaffargarh, both of which are to be converted to run on imported LNG. Both were pushed by the Punjab government.

In order to approve these plants, the government has to first remove its cap on more generation capacity on imported fuel. And in order to justify that, they need to revise their forecasts of future demand for power, because based on the present forecasts, on the basis of which the entire expansion plan has been drawn up, Pakistan will be surplus in power generation within a few years.

The original capacity expansion plan saw generation capacity rising to 31,000MW by June 2018 when projected demand would be below 27,000MW, meaning by then the country would be surplus. Over the next four years, an additional 20,000MW would be added, bringing total power-generating capacity to 53,000MW by 2022.

Flustered and under pressure with the onset of Ramazan, the PM looked around for suggestions on what to do.

As this capacity would be added, existing plants based on outdated technology and lower efficiency would be idle. But capacity charges on them would still be due. The same plan had forecasted that these payments for idle capacity alone would rise steeply from 2018 onwards and reach Rs48 billion by 2021. This was already considered too heavy a charge to bear and further increases in capacity payments could well mean they could replace the power subsidy as the next big drain on the sector’s finances.

So a decision was made on May 3, 2016, during the 105th board meeting of the Private Power Infrastructure Board, the commissioning body for fresh power-generation capacity, that “no power projects based on imported fuel will be entertained and processed” unless they were already in the pipeline.

With this decision, the doors to the biggest, most lucrative, and most secure investment area in the country — power generation — were slammed shut. Some of those left on the outside, however, were determined to bust their way in. And this is how they did it. First they used the load-shedding of the April heatwave to argue that the ministry had drawn up wrong forecasts. Then they came with their own revised forecasts of demand, basing their numbers on criteria like “increase in use of electricity appliances due to economic prosperity”.

Note how effectively this pitch would have hit all the prime minister’s sweet and sore spots simultaneously. The people are suffering due to prolonged load-shedding, the government is getting pilloried in the media for not having lived up to its promises of eliminating load-shedding, the water and power ministry is on the defensive trying to explain its awkward position. Now is the time to strike!

So strike they did, with a pitch that said the following: the ministry misled his highness the prime minister of Pakistan, with “rosy” forecasts! The real power demand in the country is rising faster than they bargained for, because the policies of his highness have spread prosperity all around and people are better able to afford electrical appliances now! Therefore, we need to revise our demand forecasts upward based on new assumptions of rising prosperity and growing power demand, and make immediate arrangements to commission the future generation capacity that will be needed to meet this demand once it matures.

This pitch had been circulating for a while. Last it appeared was in the two back-to-back CCoE meetings held last week, on May 29 and 30. Both meetings saw a flustered prime minister, squirming under the heat of the power protests growing around the country, unable to put his finger on the problem. When he asked about the circular debt, the ministry water and power gave a different figure from that of finance.

When he asked about the gap between supply and demand, he received different figures from his ministry and the deputy commissioners on the ground. When he asked about idle power plants, he received what to him seemed technical and convoluted answers about obsolete technology and litigation issues. Flustered and under pressure with the onset of Ramazan, for which he had made repeated and heartfelt promises that there should be no load-shedding at least during sehri and iftar, a hapless prime minister looked around for suggestions on what to do.

The water and power ministry worked feverishly to rev its engines and ramp up power output in the next few days. The minister and Maryam Nawaz later tweeted screenshots of the power dashboard, showing record high generation standing above 19,000MW, with the latter asking “load-shedding anyone?” But it was to little avail. By Tuesday, in the next CCoE meeting, the prime minister was swayed by the seductive argument of the Punjab government, and signed off his approval for a new, large, power plant in Rahim Yar Khan based on imported fuel.

The episode reminds one of the mid-1990s, when under the IPP policy of 1994, the government was advised to not contract more than 2,000MW of power while it used the breathing room afforded by the IPPs to reform the power sector. Instead, they contracted 4,500MW, and never got around to the reforms. We all remember how that ended!

The writer is a member of staff.


Twitter: @khurramhusain

Published in Dawn, June 8th, 2017