The people and the economy are paying a very heavy price for the government's failure to implement a proposal to convert the existing furnace oil based steam power plants to coal.

A concept paper - Conversion of Existing Thermal Power Stations on Cheaper Fuels - for example, had estimated in 2011 that conversion of 12 steam power plants fired by furnace oil on imported coal could save more than $8 billion or almost four per cent of gross domestic product annually. The savings estimate is based on the prices of furnace oil and coal and exchange rate at that time. The paper was developed by the Private Power Infrastructure Board (PPIB), and included eight public sector power companies with the total derated generation capacity of 2,325 megawatts and four private producers with derated capacity of 2,022 megawatts. The proposal can be implemented at an estimated cost of less than $1.6 billion.

"The generation proposed to be converted on coal constitutes almost a quarter of the country's total derated, dependable capacity. It, therefore, can substantially cut the overall electricity production costs, bringing relief to both the domestic and industrial consumers," argues a senior executive of a gas fired independent power producer (IPP) put up under the 2002 power policy during a briefing on power sector. Only Jamshoro power station is now being converted on coal with multilateral financial assistance.

"Another substantial amount of $1.5-1.6 billion a year on fuel can be saved by providing gas and oil to the power producers according to their position on the order of merit based on their fuel efficiency," contends the executive who does not want to give his name due to the sensitive nature of relationship between the IPPs and the government. If his argument is accepted, then the government should prefer eight IPPs with a cumulative generation capacity of 1,700 megawatts set up under the 2002 policy in the supply of gas and oil for generation. Currently, the government is providing gas and oil to the most inefficient Gencos or Generation Companies in the public sector. "The decision-makers must understand that IPPs are practically 'public sector' companies as the government is their only buyer and under their power purchase agreements they cannot sell electricity to any one else," he adds.

Further, he says, the savings in fuel costs should help the government eliminate power subsidies, considerably cut its inflationary borrowings from banks, bridge the budget gap, spare funds for new investment in hydropower projects and lift some pressure off the country's weakening balance-of-payments position.

Saba Power was the first IPP to apply for permission to convert its furnace oil based plant on coal in November 2011. The company started under the 1994 power policy was hopeful of reducing the fuel cost component by Rs5.5 per unit at the time of formulation of the proposal, according to the proposal submitted by it. It expected a saving of Rs126 billion over the remaining life of the contract. It had proposed installation of coal fired boilers at the other side of its steam turbine, which would ensure regular supplies from the furnace oil boilers for 12 months. But it has yet to get permission for changing its fuel.

The PPIB paper strongly believes that the solution to the country's power woes lies in converting maximum thermal power on coal because volatile global oil prices have resulted in huge circular debt and unsustainable generation cost and, thus, subsidies for consumers.

According to a study by the USAID, says a senior official of the Pakistan Electric Power Company (Pepco), the circular debt had been estimated to be around Rs872 billion or four per cent of GDP.

However, there are some issues involved in the conversion of the existing power plants on coal. The conversion will reduce the net generation capacity, increase maintenance costs, and affect efficiency of the plant. Additionally, the conversion will require capital cost and plant shutdown. Moreover, there are limitations to space for coal storage and ash handling.

Still, some power sector experts feel that these issues could be handled easily once the government has determined its priorities. "None of these issues is insurmountable. We desperately need to fix our power sector if the economy has to be salved and the masses given some relief from high power prices. If India can produce more than two-thirds of its electricity from coal, why can't we?," he asks.