Alert Sign Dear reader, online ads enable us to deliver the journalism you value. Please support us by taking a moment to turn off Adblock on Dawn.com.

Alert Sign Dear reader, please upgrade to the latest version of IE to have a better reading experience

.

Decentralising the power sector

Updated August 21, 2017

As soon as he took over, the new prime minister has made major changes in various ministries and divisions.

A key change is the setting up of a new Energy Ministry which will have two divisions — Power and Petroleum.

It is expected that this will help harmonise all energy-related affairs and result in improved efficiencies in the supply, distribution and usage of power and petroleum products.

The move may, however, lead to another type of disconnect as the work on major hydropower projects, such as Dasu and Diamer Bhasha, are expected to begin in the near future and it’s hoped that these organisational changes will not impact their timely implementation.

The newly segregated ministries of energy and water need to develop a coordination mechanism to ensure that there is complete alignment among them, especially on the Dasu and Diamer Bhasha HPPs.

The developing water scarcity, which has major implications for Pakistan is another reason for the close coordination between the ministries.

It seems that in spite of the government’s sincere efforts in the form of huge financial outlays for new power generating stations, the electricity problem continues to persist.

If a large segment of society is not paying for the service they are receiving, will the up-coming electric power stations being built be financially viable? The fact that combined loss due to theft and technical factors is over 25pc, will the country remain afflicted by a power crisis in the foreseeable future?

The 2013 Energy Policy stated that the generation deficit would be reduced to zero by 2017 but the protests in the streets recently have belied this claim.

Other targets still remain an illusory goal.

The high commercial losses (theft) in the system and a very low heat-rate efficiency of public sector thermal power plants (which was 36pc in 2014, as reported by Nepra) continue to drive up circular debt which has reportedly touched around Rs400 billion, today.

When the circular debt amounting to around Rs480bn was cleared by the GOP in 2013, it instantly added back 1300MW power to the system confirming that there is a pent-up supply in the system which can be released through fiscal measures.

The government has allocated billions of dollars for new generation and transmission infrastructure but the shortages that are hitting the common man are not likely to go away.

Without modernisation and institutional and financial reform in the sector, the mega-infrastructure that is being built will not be used to full capacity.

Experience has shown that present IPPs (Independent Power Producers) are not able to operate to capacity due to lack of timely payments and one can expect the circular debt to increase at an even faster rate as new generating plants are commissioned.

The government is keen to modernise the sector and is bringing in new practices in distribution (viz. smart metres), generation (more emphasis on renewable energy) and transmission (new high-voltage DC lines). However, no major thrust to introduce institutional reform is visible.

The last major step in this regard was the privatisation of KESC (now K-Electric) but other than that things appear to be on a stand-still.

The country’s population has gone up from 150 million to 200m in the last decade but the number of distribution companies (DISCOs) has remained nearly static at 9 thus vastly increasing their area and quantum of responsibility.

The talk of privatisation of DISCOs, starting with Faisalabad (Fesco), goes back to late eighties but nearly three decades later there is virtually no progress in this direction.

Even their commercialisation, which is the necessary first step towards privatisation, has been undermined due to a lack of professional criteria that has been followed in appointing the directors.

The long-term solution lies in greater transparency which is possible by handing-over the control of DISCOs to the provinces.

If this is done, the government will be able to enhance the accountability of the sector, empower the provinces and increase the transparency.

Based on technological considerations alone, there is a strong rationale for delegation of power sector management to the provinces. The affordability and localised nature of renewable technologies like solar and wind makes them highly attractive for installation at the provincial level, as seen from the example of Quaid-e-Azam solar park in Punjab.

The rules of the decentralisation process, to be agreed by the federation and provinces, should be guided by the fundamental goal of providing access to electricity at affordable rates with a strong element of sustainability built in the arrangement.

For this, the efficiency of DISCOs will need to be improved by reducing the incidence of power theft and collusion.

While this is going on, the existing generation assets including IPPs will remain in the federal government’s jurisdiction and not handed over to the provinces.

Once they have streamlined and improved efficiency, the provinces could then venture into power generation using domestic energy sources viz. hydropower sites, solar panels and wind turbines.

Setting up of new generation facilities below a certain level, say 200MW, can be made the provinces’ responsibility while larger projects can continue to remain under the federal entities.

We have within Pakistan a fairly successful example in the form of K-Electric which can act as spring-board for other provinces to learn and build on, notwithstanding some of the negative outcomes of its privatisation which have been a matter of debate of late.

There is a huge scope for provinces to embark on programmes that result in small-scale localised solutions viz. roof-top solar accompanied with net-metering tariff which would be relatively easier to finance and manage.

But small-scale solutions are not enough given the continuously growing demand for electricity for which large power plants are needed.

The provinces’ limited ability to borrow funds from international sources is the biggest constraint in setting up new power plants either in the private or public sector; and without foreign funds it’s not possible to build new power infrastructure.

Equally importantly, the necessary institutional arrangements are needed and the capacity to design and implement large-size projects.

To develop the capability, expertise can be borrowed from PPIB and AEDB and for comforting the international financiers to provide loans; a sovereign guarantee can be given the GOP which should appear as liability to the federation on the balance sheets of provinces.

The journey of the power sector’s decentralisation is a long one.

Such a roadmap should begin from the legal transfer of DISCOs to the provinces, followed by a phase in which they build new power generation plants.

In the final stage, the provinces can take over the transmission infrastructure thus gaining full autonomy in the affairs of the power sector.

The writer is a former Director of Energy and ICT at the Islamic Development Bank

Published in Dawn, The Business and Finance Weekly, August 21st, 2017