The country has been in the grip of a severe energy crisis for several years. Budgets reflect that the political will is lacking to view the problem in perspective and that quick fixes are preferred to long-term solutions. No one even talks about Kalabagh Dam. Let us not forget that the first thing the US did was to build the world’s biggest dam. Then China came up with the Three Gorges Dam and 15 cities sank into oblivion. There was an international hullabaloo about the destruction of ecology, but somehow, China went ahead to complete the dam. Now, even the diplomats enjoy ship rides in the over 600 kilometre water reservoir. The dam paved the way for heavy and small industries downstream and China began to emerge as a competitor to the west.
Towards the end of the 1980s, Pakistan met 70 percent of its energy needs from hydel (hydroelectric) power and 30 percent from thermal energy. By 2012-13, Pakistan became dependent on thermal energy generated from costly furnace oil and diesel by up to 44 percent, with the remaining 56 percent being generated from other, mainly thermal, sources. This change had a cascading effect on prices and the consumers’ bills skyrocketed. Hydel energy remains largely neglected, despite its low production cost. According to the Planning Commission, it costs Rs 0.8 per kilowatt-hour to produce hydel electricity. The variable cost of production per kilowatt-hour is Rs 13.56 from furnace oil and Rs 18.4 from diesel. How strong is the thermal lobby? In 2008, the Board of Investment managed to attract $ 800 million in foreign investment for the installation of a 600 megawatt hydropower plant to produce electricity at Rs four per unit but the investors were hounded out. Each year we lose two to three percent of the GDP to the power shortage and an additional one percent to the gas shortage.
Several illegal thermal power plants have cropped up and the National Electric Power Authority (NEPRA) considers them at par with legal ones. A lot of public sector electricity generation plants have outlived their utility. They are operating on expired licences at costs of more than twice the national average. For instance, the plants in Multan, Faisalabad, Kotri and Guddu produce electricity at a cost of Rs 27-29 per kilowatt-hour. A 2011 audit report of some plants by Haigler Bailly reflected that some power plants produced only 25.3 to 32.1 units of electricity, instead of the standard 100 units. NEPRA should have retired the cost-ineffective plants but it continues to approve monthly fuel charges adjustments for these plants (Jamshoro, Guddu and Muzaffarnagar).
Thermal generation requires Rs three billion a day in fuel, whereas collections from consumers are only about Rs one billion. Without cheaper electricity, circular debt will continue to mount. Circular debt, accumulated in the power sector, is a handy excuse for the energy crisis. This debt piles up when downstream customers fail to pay their bills to upstream suppliers (or producers) in time. Who are the defaulters? They include not only ordinary citizens, but also the provinces, the public sector, influential corporations and powerful individuals (including political tycoons). To continue supplying power, the thermal producer has to borrow (and later pay interest charges and repay the contracted loan) and find alternative financial sources, unless the government makes the bounteous payment. The solution is simple: power distribution companies should promptly pay their dues to the generation companies.
However, circular debt is only the tip of the iceberg. There are many other factors blighting the energy scenario. Favouritism and nepotism is eroding efficiency. In such a case on November 8, 2013, in which former Chief Justice Iftikhar Hussain Chaudhry was part of a three-member panel, he remarked: “Everything is being run through nepotism and junior officers are being appointed on key posts.” The petitioner claimed that the then acting chairman of NEPRA was a close relative of federal minister Khwaja Mohammad Asif. Independent Power Plants (IPP) are earning about 70 percent profits on their investment, even though the permissible limit is only 15 percent. When the government tries to apprehend them, they obtain a stay order from the courts. The government should follow such cases vigorously, not half-heartedly.
The government needs to evolve a policy in which the power sector is prioritised, instead of megaprojects. The Council of Common Interests should be convinced that electricity arrears will have to be deducted from the provincial share of the divisible pool of federal revenues. Line or distribution losses amounting to about Rs 140 billion a year are power theft and should be recovered through stringent measures. To solve the energy crisis, the government needs to take a host of measures. It should evolve an optimal energy production mix and follow it up with integrated energy planning and demand forecasting. We need to reduce our reliance on furnace oil and costly imports, control line losses due to power theft and accelerate recoveries from private consumers, in addition to better maintaining government-owned power generation plants.
The writer is a freelance columnist