Focused on the single consideration — “it is better to have costly energy than sitting in darkness”—, they are entering into contracts for unbelievably expensive thermal power whose tariff would more than double in two years and rise almost by 400 per cent in about 20 years.
The current level of tariff applicable to existing independent power producers is about 5.7 cents (Rs3.5) per unit of electricity, which, sometimes touches, about 11 cents depending on fuel cost. The new contracts for new capacity addition of about 15,000MW are being signed at a leveled tariff of about 13 cents (Rs8) per unit. This will cross 34 cents (Rs21) per unit in about 20 years or so.
If 15,000MW of electricity is produced from hydro resources, it would provide a minimum saving of Rs26 trillion when compared with thermal power (diesel- and fuel oil-based) in 25 years, a figure which should be an eye opener for any economic manager. How this saving in energy cost would translate into productivity gains and lower cost of production would need a comprehensive exercise.
Ironically, this has not been done by any government agency even at a time when the country is facing the worst ever energy crisis. Such an exercise would expose many in the power corridors and those who create crisis situation every 8-10 years for selling costly energy projects..
Until very recently, President Musharraf never missed an opportunity to criticise the previous governments for entering into expensive energy deals, perhaps, without knowing that those working under him were setting the seal on even more expensive deals.
The implication of the proposed new deals comes from estimates of experts of the National Electric Power Regulatory Authority (Nepra) on a sample 100mw thermal power plant based on residual fuel oil and diesel. The estimate was based on a fuel oil price of about Rs23,000 per ton, diesel price of Rs34.32 per litre and an exchange rate of Rs60 a dollar, although the prices have now increased to about Rs35,000 per ton and about Rs38 per litre respectively. So, an update is required that may lead the tariff to beyond Rs30 per litre in 2020 but even an earlier exercise is sufficient to show the trend. This in-house exercise was made after making indexation on the basis of five per cent projected increase in the price of furnace oil although the oil prices have increased at a much higher rate in one year.
In comparison, a hydropower project based on same 100mw capacity would cost only 3.39 cents (Rs2) per unit even if current prices are indexed on 50:50 basis with US inflation and Pakistan and could provide a saving of about 25 cents (Rs15) per unit over thermal project after 25 years.
The exercise reaches the conclusion that a hydropower project of 100mw could provide a cumulative saving of Rs170 billion over a 100mw of thermal power project over a period of 25 years. The associated benefits of hydropower projects in the shape of environmental loss, foreign exchange saving on fuel cost, transfer of asset to the government free of cost and the saving owing to longer life of the hydro project have not been taken into account for an “apple-to-apple” 25-year comparison between the two technologies.
At present Wapda’s average power generation cost is around Rs3.5 per unit and its average consumer tariff is about Rs4.09 per unit. Under the 1994 power policy, about 15 IPPs are selling about 3,000mw to Wapda and the KESC at a leveled tariff of 5.7 cents per unit, although their tariffs sometime cross 11 cents per unit.
The exercise suggests that thermal tariff approved by Nepra will begin with a little over 13 cents per unit in the first year of the project operation compared with 11 cents of the hydropower tariff and hence a 100mw plant of hydropower would provide a saving of Rs1.08 billion in the first year over a thermal plant. The Nepra- approved tariff indexed with five per cent annual fuel cost escalation for thermal project would raise the actual tariff to 17.86 cents (Rs11) per unit compared with 10.04 cents (Rs6) per unit of hydro plant. As such the annual saving from a hydro project would reach Rs4.11 billion as per unit difference between the two tariffs would reach 7.82 cents (Rs4.69).
Interestingly, the hydropower tariff would fall drastically to 3.39 cents (Rs2) per unit because of repayment of debt and interest repayments in the first 10 years of the plant operation, reducing the fuel cost to almost zero. In comparison, the fuel cost of thermal projects is estimated to continue a rising trend, although their interest repayments would also be over in the first 10 years. As a result, the thermal tariff would also come down to 15 cents per unit but it would still be 12 cents per unit higher than hydropower.
After 20 years, the thermal tariff would stand at about 23 cents (Rs13.8) per unit compared with 3.39 cents of hydro tariff. As such the hydro plant would provide a saving of 19.81 cents (Rs11.9) per unit over thermal or an annual saving of Rs10.4 billion. In the 25th year of operation, a hydro plant would provide a saving of Rs13.5 billion per annum when compared with thermal plants and total saving in these 25 years would translate into Rs169.5 billion. After 25 years, the life of the thermal plants normally comes to an end while average life of hydro plants goes beyond 50 years and then their ownership stands transferred to the provincial governments under the existing laws and that too, totally free of cost.
Interestingly, there is no political controversy -- unlike dams -- over the construction of hydropower projects because they usually do not require storages or major river diversions. Surprisingly, the government had held in abeyance until last year the 1995 hydro- power policy that offered 4.7 cents per unit tariff for hydro plants which did not attract investors for on run-of-the-river hydro-power projects.
In 1999, the then powerful chairman of Wapda Lt-Gen Zulfiqar Ali Khan, with the approval of the then cabinet committee on investment ((CCOI), asked about ten sponsors of hydro power producers to sign agreements at 3.3 cents per unit instead of 4.7 cents envisaged under the power policy. Except one of two, all the sponsors moved out. The sponsors who remained in the field was able to restore the original tariff of 4.7 cents with a number of other relaxations but the government was forced to allow thermal projects at much higher rates and at conditions put forward by the investors, leaving aside the subsequent power policies.
It is in this background that the Planning Commission and the Nepra have warned the government that a heavy tilt towards expensive thermal power generation would cause an irreparable damage to the national economy in decades to come.
They have told the decision makers that the current public concern about shortages would soon turn into a question of unbearable increase in cost of production and affordability.
The hydropower generation during the current winter fluctuates between 1,500 and 2,000MW against total supplies of 11,000-12,000MW, mostly coming from high-cost oil-based thermal projects. Fuel cost accounts for more than two-thirds of thermal tariff that keeps rising with international prices and currently averages beyond 10 cents (Rs7) per unit. The aggregate hydro power tariff from Tarbela, Mangla and Ghazi Barotha comes to less than 30 paisa per unit.
This is despite the fact Wapda Vision 2025 and energy security plan 2030 envisaged improving hydro generation to 35 per cent. While the power policies announced by the government called for a bar on thermal projects, most of the agreements signed for power generation over the past five years were in the thermal sector. This happened despite the fact that the country has about 28,000mw of non-dam hydropower generation capacity that could be developed as run-of-the-river basis or minor storages. If the power from mega dams is also included, the total hydropower capacity surpasses 40,000mw.
