Daily Times

Energy plays a vital role in the economic and social development of a country. Electricity being widely used form of energy is essential to keep a balance between supply and demand, to cater the need of high population growth and industrialization in a developing country like Pakistan. During the 20^th century the governments had the monopoly over the power sector of a country but with the passage of time the increasing demand of power due to increasing population put a huge burden on the expenditure of infrastructure development. The problem was aggravated by the inefficiencies, line losses, managerial in competencies and theft. Therefore governments all over the world looked towards private sector to share the burden. But it required special expertise to address the development in the shape of effective regulation with efficient and accountable regulatory authority.

This concept of contribution and assistance of private sector has been termed as privatization. It emerged within the framework of policies implemented in response to the Cold War and was first used in the 1979 election manifesto of the UK British Conservative Party. Thus, privatization practices are widely reported to have started in the with the Thatcher government. So basically it means transfer of ownership, management, and control of public sector enterprises to the private sector.

Generally privatization envisages two aspects i.e. transfer of assets & services from public sector into the private sector, and the other is deregulation when a heavily regulated private company or industry becomes less regulated. Economists mention various benefits of the privatization as it leads to the increase in competition, economic efficiency, availability of choice to the consumer; discourages monopolies; the private firm competes for finance of the capital markets; it increases accountability of the private firm.

Pakistan in order to improve the situation of power sector as a means and economy as an end invited private vendors to invest in the power generation sector. This initiative was portrayed as a panacea to all our problems. However, this massive investment was mostly limited in non-renewable energy sector and the policy makers did not take into account a balanced energy mix which did not provide relief to the end users, both domestic and commercial, who are still facing the issue of expensive electricity. The government model of privatization in vogue brought marginal relief because it caters production issues and ignores tariff control, managerial, transmission, and distribution.

Circular debt has crossed 1.7 trillion rupees and power sector is under tremendous financial stress, on other hand power consumers are paying sky rocketing cost for power touching more than 21 rupees per unit for domestic consumers

Although policy for private sector power generation on Build Own Operate (BOO) basis was in effect since 1986, the real impetus came from detailed framework for private power producers introduced under Power Policy 1994.  In 1994, only 40% of the population had access to the electricity and 60% of the population was living without electricity. There was 2,000 Megawatts gap in demand & supply since demand was 12,800 MW and supply was 10,800 MW only. Government not only wanted to bridge the shortage but also wanted to expand the coverage. As gap in financing requirements and available resources was enormous, therefore, power policy 1994 announced promising unprecedented concession for the investors in power sector, like guaranteed purchase, indexation of loan and equity to dollar and purchase of power from premises of power producer at generation site, upfront tariffs and Take or Pay provisions.

After 1994, different government have given four policies 1998, 2002, 2013 and 2015 and all five policies have almost similar features i.e. allowing capacity and energy prices, indexation of dollar to rupee on equity, and foreign loans. Power generation policy 2015 has departed from past policies on two accounts. It has moved to solicited projects meaning thereby interested parties will offer their bids on per-unit-tariff, and NEPRA shall decide on basis of lowest price. Another departure from past agreements is point of purchase; 2018 policy shifted right to buyer to decide point of purchase. Thus, responsibility for construction and maintenance of transmission line shall be responsibility of producer if buyer decided to buy at its existing grid station.

Upto 2020, 40 IPPs have been commissioned with installed capacity of 17,276MW and total thermal electricity generation for year 2019-20 was 68.627GWh in which 88.4% was from IPPs. IPP installed capacities vary from 10MW Davis Evergreen to Kot Addu 1,638. Coal and RLNG based big units are new trend in thermal generation. Three coal fired units with installed capacity of 3,300 and three units with 3,600 RLNG fired have been recent addition to system. Out of 40, nine units are Coal fired and rests are RFO/Gas/RLNG/HSD.

On one hand Circular debt has crossed 1.7 trillion rupees and power sector is under tremendous financial stress, on other hand power consumers are paying sky rocketing cost for power touching more than 21 rupees per unit for domestic consumers. Since 64% of the installed capacity lies with the IPPs therefore, major part of the blame is targeted against them. It is argued that power policy and power purchase agreements from the outset were constructed in favor of IPPs at cost of exchequer and consumers. Special reference is made to guarantee Internal Rate of Return, Rupee to Dollar Indexation of Equity, foreign loans and some cases dollar denominated expenses on operation and maintenance and upfront tariffs. Another aspect under criticism is “take or pay” based tariff structure and burden for transmission line connectivity on buyer ex-WAPDA and currently Central Power Purchasing Agency-Guarantee (CPPA-G) (To be concluded).

Saud Bin Ahsen is an old Ravian. He can be reached at saudzafar5@gmail.com.