Daily Times

Efficient energy market needs to be created having multiple buyers to move away from ‘take or pay’ to ‘take and pay’ and competitive pricing. In this regard, ways and means are to be explored within framework of agreements through multilateral and bilateral negotiations. Reportedly some progress has been achieved in negotiations with IPPs and Government and IPPs have signed MOU. As per media reports IPPs have agreed at freezing of dollar exchange rate around 148 and replacement of dollar to rupee Internal Rate of Return (IRR) at 2% higher rate and new methodology for calculation of IRR on monthly basis . The Gains achieved through negotiations must be consolidated, and new grounds need to be explored to arrive at mutually agreeable solutions.

But there is no magic wand to fix the situation overnight. Thermal power plants contributing to our national grid are still being operated on expensive fuel mix despite some shift to cheaper fuels in recent years. Use of imported fuels like RLNG, imported coal and RFO is costly and subject to frequent changes in prices resulting from international market fluctuations and dollar exchange rate. At this point when Pakistan has surplus generation capacity, a greater reliance on indigenous fuels like coal is the best option for generation of affordable and sustainable thermal power in the country.

As the over-arching goal is to provide sustainable and affordable electricity in the CPPA basket, three broad areas are identified below and recommendations have been tabled for consideration.

(a) Revisiting of IPP Contracts & redressing their inefficiencies: In order to revisit IPP power purchase agreements and to redress their inefficiencies, NEPRA and CPPA-G should identify inefficient plants on the basis of their performance appraisal and also initiate actions for non-renewal of their licenses as per requirements of their power purchase agreements. Afterwards PPIB, Ministry of Energy would assess energy needs for next 10 years and go for setting up new plants based on the Government’s policy preference for location, technology and fuel. They should prioritize revival of GENCOS in the process. It is also recommended that negotiations with IPPs should be held by CCoE (Cabinet Committee on Energy), CPPA. Prior to this, an exercise to identify areas for negotiations should be carried out. This is a medium-term solution ranging from to 03 to 12 months.

At this point when Pakistan has surplus generation capacity, a greater reliance on indigenous fuels like coal is the best option for generation of affordable and sustainable thermal power in the country

(b) Focus on Indigenous Fuels for future thermal power generation: Since Coal is an indigenous source that can be used in the thermal plants, therefore provincial governments, Thar Coal Authority, PPIB, Ministry of Energy need to be tasked to explore all possibilities for development of coal mines, Thar Coal in particular, along with acquisition of know-how for green technologies for coal-based plants. This has been recommended as a long-term goal.

(c) Addressing GENCO Challenges of inefficiency and under-performance: In order to fix the issues of GENCOs, we need to appoint consultants to carry out technical and financial study to ascertain their viability for revival or privatization and this can be done by involving stakeholders including Ministry of Energy and GENCO Holding Companies. The time span for this exercise is 12 months with KPIs focused on Quarterly Review to ensure that report is delivered in time. On the basis of this study, a high-powered committee should be constituted to develop and implement action plan for revival and privatization of GENCOs. Committee will task PPIB for arranging private investors interested in public-private partnership for the revival of the plants. Privatization Commission will be responsible for selling the plants not being revived. Ministry of Energy should also approach the ECC for priority induction of GENCOs in PPIB’s new projects pipe line and for privatization of GENCOs which are not being revived.

Some recent developments have essentially determined Pakistan’s pathway towards further privatization of power Sector. The government reached an agreement in principle with IPPs to renegotiate the terms and conditions (tariffs in particular) of private power generation. The actual negotiation is expected to take place in the near future. Reportedly, decentralization of DISCOs to provincial governments with a view to dealing with inefficiencies may also be on the cards. Similarly, in November 2020 NEPRA approved Competitive Trading Bilateral Contract Market (CTBCM) . It has been characterized as a step towards market liberalization geared to restricting the government’s role to system operation (network businesses). The concept is not novel since it was part of WAPDA’s 1992 strategic plan of unbundling the power sector from a state monopoly to a competitive wholesale market.

Power generators and purchasers will have freedom to sell and purchase electricity bilaterally on take and pay basis through a market operator, unlike the existing arrangement where consumers are bound to purchase electricity from the distribution company of a specific area. As such, the electricity units will ultimately be traded like share trading at a stock exchange.

The system envisaged to be put in place may be understood as being somewhat similar to mobile telephony in Pakistan where the bulk buyers would not be dependent solely on DISCOs but would benefit from a competitive market with players including Transmission Network Operator, System Operators, Market Operator, Auctioneers, Service Providers and Suppliers. It may be pertinent to mention that its gradual and time consuming transition and countries like Turkey, Denmark and UK spent almost a decade in transforming monopolies into competitive and deregulated market (Concluded).

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