Over the last one year, the Ministry of Finance of Government of Pakistan showed that there has been no significant change in the consumption pattern of energy, although the share of households in electricity consumption has risen slightly to 51 percent. This has been offset by a 1.0 percent fall in share of industry in electricity consumption. Statistics explained that the comparison between consumption patterns of energy during July-Feb FY2018 with the same period last year.
The experts recorded that Pakistan’s circular debt payable to the power producers has topped Rs 807 billion and the Government of Pakistan is introducing initiatives to enhance recovery of dues and outstanding liabilities. The government official said the circular debt payable to Independent Power Producers (IPPs) in December 2018 was Rs 683,484 million, while the amount payable to fuel suppliers by thermal power plants (Gencos) is Rs 124,403 billion. It is said that the Government of Pakistan was striving to slowly control the outstanding amount of circular debt. An anti-theft campaign has also been introduced in the entire country to manage line losses and enhance the recovery position.
According to the government official, the current line losses reached at 18.3 percent, adding that 95 percent of those line losses were occurred due to ‘Kunda’ culture. Statistics also showed that the losses were mainly high in Sukkur (36.7%), Peshawar (36.2%) and Hyderabad (29.9%) regions. To curb the menace, ABC [aerial bundled conductors] cables were being fitted on which hooking did not work. It is also said that the contracts to generate electricity from alternate sources were made during 2006 but unluckily, about a year and a half ago, the alternate sources of energy were abandoned to shift to LNG (liquefied natural gas).
It was also recorded that the present government had planned to develop more wind and solar power projects by competitive bidding in order to avail advantages of falling prices through market competition. The experts also mentioned that the government of Pakistan wants financiers to participate and purchase energy to offer it to Gilgit-Baltistan and Balochistan, adding that 19,000 tube wells in Balochistan were being converted to solar energy.
Furthermore, the several initiatives had been taken by the government through AEDB (Alternative Energy Development Board) and PPIB (Private Power Infrastructure Board) in respect of foreign investment in power generation sector.
It is also said that AEDB is pursuing the development of renewable energy-based power generation projects through private sector on IPP mode under the Renewable Energy Policy, 2006.
The government is offering various fiscal and financial incentives to private financiers in the renewable energy sector. The incentives, included preparation and approval of bankable standard security agreements [Energy Purchase Agreement and Implementation Agreement] for wind, solar and bagasse co-generation power projects.
The industry experts recorded that the government is also conducting a resource assessment of renewable energy resources in the country, while a detailed ground data-based resource assessment of solar, wind and biomass was being carried out through the support of ESMAP (Energy Sector Management Assistance Program).
The statistics showed that the cost of the Nandipur Power Project predicted at Rs 22,334.75 million during 2007, but it was revised in 2013 to Rs 58,416.20 million. The cost incurred so far is Rs 57,655 million and presently, the plant is capable of generating 460-480MW of electricity on gas fuel.
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Recent challenges
- Transmission and distribution losses average 20 percent in Pakistan, peaking at 39 percent in certain districts. The power infrastructure is old, unreachable to 50 percent of Pakistan’s population, and is deteriorating in condition with time.
- With time, the creditworthiness of state institutions is deteriorating drastically, with very little new finance available to the state. This credit crunch has meant a crippling lack of investment in the upkeep of a rapidly deteriorating power network.
- The country owns over 10,000 MW of generating assets, the majority of which run on imported oil. The efficiency rates of these energy plants are well below international standards, and the plants are rapidly deteriorating in situation every year.
- Tariff supplements launched by previous governments to accelerate energy sector revenue have proven to be unpopular, damaging to economic activity, and have ultimately been ineffective in curbing the growth of public sector debt.
- Total 40 percent of Pakistan’s power generation comes from imported oil. This dependency has contributed to immense pressure on the tumbling rupee, and would continue to do so until Pakistan’s power mix is weaned off oil.
Solutions
- National-level policy is required to incentivise private investment in distributed generation assets, counting small energy plants and smart grids, to decline the pressure on a centralised transmission and distribution network.
- State-owned generation assets require urgent investment and management through qualified and experienced professionals. With the absence of a public-private finance framework, the only solution deliverable is partial privatisation. Any privatisation procedure needs to offer the assets to the private sector on a pre-defined project basis, strictly defining minimum investment, equipment, efficiency and generation covenants.
- The proceeds from the sale of these assets must be used to guarantee fuel supply to IPPs to revive financier confidence in the energy sector, and as investment in the upgrade of key regions of state-owned transmission and distribution network.
In last I would also like to mention here, the resolution of circular debt is essential as this would ease supply constraints. The task is challenging since it requires the outstanding stock of circular debt to be cleared before plugging more build-up of circular debt receivables. One main lesson is that power subsidies can be sustained only if these are explicitly recognized in the fiscal budget; otherwise, the economy would continue to suffer from the indirect cost of these subsidies.