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No light at end of the tunnel

June 25, 2012


THE federal budget 2012-13 has earmarked Rs69 billion for the electricity sector. Wapda and other electric companies have been promised another Rs115 billion.

However, these small allocations may not be able to bring substantial improvement in load shedding or the circular debt as the energy crisis is more deep-rooted. Circular debt is one of the factors for persistent load shedding, while shortages of furnace oil and gas, low water level in the reservoirs, misallocation of gas, etc are other main reasons.

A review of the power deficit during the last three months shows the shortfall fluctuates between 4,500 MW and 8,000 MW. The shortfall once did come down to 3,600 MW because of immediate measures under special instructions of the higher authorities.

As percentage of power demand, the shortfall ranges between 33 to 50 per cent.

Data on electricity shortfall does not fully depict the ground realities. Shortfall is determined by subtracting the actual generation from the peak demand. The actual electricity delivered to the domestic consumers is always lower than electricity available at the power generation plants for feeding into the national grid, owing largely to transmission and distribution (T&D) losses and electricity theft. T&D losses hover around 25 per cent as against average international standards of around 10 per cent. For individual firms, these losses range between 15 to 30 per cent, depending on a utility’s efficiency.

Then the supply is also affected by preferred allocation of electricity to important institutions including VVIP users and exempt establishments.

According to a newspaper report such preferred allocations could be as high as 2,000 MW. In other words, the shortfall to the ordinary domestic consumers will increase by this figure. As percentage of power demand, the ‘revised’ shortfall faced by the ordinary consumers would thus range within 48 - 63 per cent. This is a relatively more realistic situation.

The ordinary domestic consumers often face load shedding up to 18 hours in a day. They show their frustration and helplessness through demonstrations on the roads that are getting violent as more people join the protests.

Power generation plants in the public sector are not maintained properly so electricity output or efficiency is lower as compared to similar plants in the private sector. On top of that, the public sector plants are often preferred in the allocation of fuel over the private sector plants. It appears the impact of shortages is being further aggravated due to poor governance.

The irony is that although the IPPs have excess capacity they are not able to buy fuel for running these plants at higher capacity because past outstanding electricity dues by PEPCO are not being paid.

The country has lagged far behind in promoting use of biogas for cooking and lighting, and in promoting the installation of gadgets such as solar water pumps, solar water heaters, etc, which have the potential to provide some comfort to the consumers when regular supply of electricity is not available or is not possible due to absence of connection with the national grid. Use of renewable sources of energy can reduce the pressure on traditional electricity made available through national grid.

The fuel mix for electricity generation is flawed. The share of hydro power is low and is getting lower by each day. According to one estimate, the average tariff for hydro electricity is Rs1.54 per unit as compared to the overall electricity tariff of about Rs9 per unit. Wapda has 17 large hydro projects of 20,000 MW of electricity besides storing nearly 12 million acre feet of water under various stages of implementation.

Wapda’s five hydro projects of total 400 MW are expected to be completed in a year or two. This may address the load shedding in a small way but is not likely to have significant impact on overall tariff. Moreover, large projects in the plan such as 4,500 MW Diamer Basha Dam, 7,100 MW-Bunji Hydropower Project, 740 MW-Munda Dam multipurpose project and 4,320 MW-Dasu storage project, etc are not likely to be completed within the present timeline largely for want of necessary funds for construction and implementation. It is therefore unlikely that within the next decade we would be able to see any appreciable decrease in load shedding or the overall electricity tariff.

The country presently appears to be sold on wind and solar power and high tariff is being offered to the investors. When wind and solar power plants start producing, the present tariff will be further jacked up. A number of wind power projects have received LOIs from AEDB but so far only three projects- two projects of 50MW each sponsored by Fauji Foundation and one project of 50MW by a Turkish investor- have reached the financial close and these projects are expected to generate electricity in 2012 and 2013.

In view of the prevailing investment climate, other local private sponsors are expected to take some more time to be able to reach the financial close. Regarding solar power, it is expected that projects with reasonable capacity say 50 MW each have little chance of being operational in the next three years.

It is surprising that there appears to be no similar enthusiasm for putting up power plants based on local or imported coal. Cost of electricity produced through coal is much lower than the cost of electricity from wind power plants, solar power plants or thermal plants based on furnace oil. Besides exploitation of Tharcoal for power generation, there are a few other proposals based on local or imported coal. Due to the lack of credible technology expertise shortage of appropriate local and foreign currency funds, these projects are expected to move at a slower pace.

The exploitation of Thar coal is not progressing at the desired pace. A number of foreign and local investors had shown interest in developing the field but somehow none of the projects made any progress and the sponsors simply bowed-out. New private investors are showing interest in setting up power generation plants based on coal dug through open-pit method or coal slurry.

Also, the pilot project based on underground gasification has been delayed for want of promised funds.

After the promulgation of the 18th Amendment, the provincial governments have a bigger role in the generation of electricity within provincial boundaries. Since before the provincial governments were not actively involved in the negotiation and monitoring of inter-linked agreements with various stakeholders, some more time will be required before they are ready to handle the job on their own.

There are efforts at official levels to import electricity from Iran and import gas from Iran as well as from Turkmenistan. We have not been able to pay the IPPs for the electricity purchased from them. The question is: will we be able to pay on time for the import of electricity and gas from the foreign countries? Apprehensions are that the pre-conditions imposed by the creditors providing funds for these infrastructure projects will be tough and it will be nearly impossible to raise funding for these projects in the next few years.

The country has very limited options with respect to the technical or financial resources to implement different power projects.

We may not be able to raise enough foreign resources any time soon to finance our important energy projects.