THE first part of the article published yesterday examined the causes of Pakistan`s energy crunch and indicated the need for short- and medium-term measures to overcome the crisis. What these would entail is discussed in detail below. We first focus on the short-term measures

1) The quickest, though fiscally difficult, way to reduce load-shedding is to resolve the “circular debt problem” on a priority basis. With the decline in oil prices, this drain on budget has declined but the past amounts payable to oil companies, Pepco, gas companies and Wapda, should be settled as early as possible to clean the books. The payments should also be linked to higher capacity utilisation to ensure that Wapda and private thermal stations increase their generation to at least 10,000 MW, which together with 2,500 MW from hydel generation should be adequate to meet the projected winter demand of about 12,500 MW in 2008-09.

2) Many new power generation and power conservation projects have been identified but their implementation is behind schedule and costs relatively high. These include a) additions of rented and barge mounted power plants (950 MW); b) new IPP`s thermal plants under installation (375 MW); c) quick rehabilitation of Wapda`s power plants (200 MW); and energy conservation and loss reduction measures (980 MW)

The capital cost of about 1,500 MW of new plants is reported to be $3bn. That means about $2,000 per MW, which is twice as large as the cost of IPP projects in the 1990s and three times the cost of many Wapda power plants. By adding such expensive electricity to the system at Rs12-14 per unit, more electricity will be added but will not be affordable.

3) Similarly, the agreement to import 1,000 MW electricity from Iran has been discussed for some time, but it is difficult to determine its implementation deadline.

4) The manner in which the burden of load-shedding has been spread between different categories of users leaves much to be desired. As additional electricity becomes available, the load-shedding schedule should reflect very clear and transparent priorities, in consultation with all the stakeholders.

5) As long as electricity shortage continues, further increments in tariff should be avoided. GST should not be re-imposed and a cap on withholding tax on electricity maintained. With reduction in oil prices and proposed conservation measures, the unit cost of electricity generation should come down.

Given below are measures to be taken in the medium term

i) In the next three to five years, all gas-based and inefficient Wapda plants should be replaced by new and more efficient combined cycle plants. Many of the old plants are running on gas but since they are inefficient, they produce only 60 to 70 per cent as much electricity as a new and more efficient plant will produce with the same quantity of gas. This will not only reduce the cost per unit but also be more cost-effective than setting up a new power plant at a new location in the public or private sector.

ii) The distribution companies should also be provided adequate resources to modernise the overloaded transmission and distribution system. The required investment can be recovered in less than three years through savings in transmission losses.

iii) The longer term solution of the energy crisis will be to restore the hydro-thermal mix to 6040 or at least 5050 in the next five years. The Water Accord of 1991 had opened the way for constructing many dams to store water and generate electricity. But the continuing controversy over the Kalabagh Dam became a major obstacle. Surprisingly, even many smaller and non-controversial hydroelectric projects have been delayed without any justification. The hydel projects in the pipeline include the following Neelum Jhelum (969 MW), Tarbela Fourth Extension (960 MW), Suki Kinari (840 MW), Munda Dam (700 MW), Khan Dubar (130 MW), Allai (126 MW) and Jinnah Hydro (96 MW).

Some of these were recently presented to the World Bank for technical and financial support, but to fast-track these projects it will be necessary to announce a fixed tariff at which any private power producer can sell hydroelectricity to the system. Urgent negotiations are also needed with experienced Chinese authorities to finance and implement some of these hydroelectric projects.

iv) The programmes and initiatives listed above would be difficult to plan and implement, without major institutional and administrative improvement in the energy sector to upgrade implementation capacity. Wapda and its thermal arm, the Gencos, Pepco and KESC must be given full autonomy to prepare, market and construct new projects, as it did in the 1960s and 1970s when it undertook the massive Indus Basin Works, under the supervision of its own autonomous governing bodies. These organisations also need the best available technical expertise and competence to meet the energy challenge of the future. Drastic reduction in Wapda`s capacity due to micro management by the ministries concerned is one of the main reasons why its proposals made in 2003-2006 to expand the generating capacity could not be implemented.

v) The natural resources of Pakistan are not just limited to water and gas. Coal is also available. Thar has one of the largest deposits of coal in the world. The coal at Thar is not of high quality but it is locally and abundantly available. Tapping of this resource would greatly reduce the dependence on imported energy. The Thar coal can be cleaned and the sulphur reduced so that it can be burnt in conventional coal power plants and also converted into gas. Coal gasification is a slightly more expensive process, but the gas from coal is a proven and cleaner technology. The Chinese had prepared a feasibility report in 2005 to produce 3,000 MW at 5.8 cents per unit, but the project could not move forward because they were offered only 5.3 cents.

vi) There are also many possibilities of regional cooperation in building gas and oil pipelines. These include the Iran-Pakistan-India gas pipeline; the Turkmenistan-Afghanistan-Pakistan gas pipeline; an oil, gas and electricity corridor from Gwadar to Western China, the import of 1,000 MW electricity from Ragun hydro station in Tajikistan for which an agreement was signed by me in March 1992 at the rate of 3.3 cents per unit.

Regional energy cooperation can greatly facilitate the objective of national energy security, because it will not only reduce the cost of energy, but also attract international financing.

vii) Internationally, much greater attention is being paid to new and renewable sources of energy such as wind power and solar energy. Pakistan should enhance its capacity to follow research in these fields and promote much greater use of renewable energy for light, heating, agriculture and small scale enterprises.

Concluded

The writer is a former finance minister.