Daily Times
COMMENT: Electricity shortage and rental power —Babar Ayaz

Electricity is not getting any cheaper anywhere in the world. Power shortage is a serious problem in India and Bangladesh too, if that is of any consolation for our people. Most of the countries are moving fast on exploiting alternate energy sources while our reliance on thermal power is growing

Quick-fix solution of the present government for meeting the yawning electricity demand and supply gap by renting power plants has not worked out. On the contrary, it has brought criticism from all and sundry.

While industry and the people are out on the roads demanding electricity, newspaper and TV channels are getting good pictures of ‘power riots’ to keep their business running. On the other hand, the government is finding it hard to defend its move to approve some 14 rental power projects (RPPs). Instead of getting public support for making an effort to solve the electricity shortage problem on a war footing, it is being lashed for ‘presumed corruption’ and going for the most expensive option because of ‘some ulterior motives’.

Jumping to unsubstantiated corruption allegations is easy and provides substance for juicy stories. Such stories pass on as credible because there is a general perception that all lucrative deals with the government are made by businesses using unfair means. The fact that the rental power producers were given around Rs 15 billion as mobilisation money increased the corruption stink. This perception is not peculiar to Pakistan; it is pervasive in all developing economies. Developed countries are not free of it either.

Leaving aside the corruption trail for the time being, let us review why the government adopted this path. The political reason of finding a quick-fix solution could be that the government wanted to show that they have solved the problem left in their lap by the Musharraf regime. That is the reason they were confidently giving the dates for ending load shedding. The question is, why the hurry? In Pakistan, no political government is sure of its tenure. Intrigues start the day they are sworn-in and the impression of instability is created. All democratically elected governments, barring Mr Bhutto’s regime, have not been allowed to rule for five years. So from day one, they have been in a hurry and spent more time in fighting the ghosts President Zardari wanted to exorcise. Bad governance and rampant corruption makes the anti-democratic forces’ job of creating uncertainty easier.

The economic argument in favour of rental power was that it is better to have electricity and keep the wheels of industry moving than having no electricity at all. On the face of it, this sounds reasonable. But the problem is that the electricity cost does matter in a country where, leave alone the poor, industry finds it difficult to absorb the high energy cost.

The Asian Development Bank (ADB) report leaked to the media says that the rental power option would make electricity more expensive. The government’s plea is that since they have not yet received the full report, it would be premature to comment on media reports. But the Finance Minister Shaukat Tarin was quick to assert that his stand against the RPPs has been vindicated by an independent financial institution. On the other hand, the Pakistan Electric Power Company (Pepco) Managing Director has claimed that all the 14 RPPs “are functional” and their impact on tariff is 6.0 percent and not 31 to 45 percent as envisaged by the ADB.

Now this is getting confusing. If all the 14 RPPs are functional, then what is the benefit of the ADB report? It can be best described as a postmortem of the RPPs deal. Pepco Managing Director Tahir Basharat Cheema then says in the same interview that the projects were delayed because of criticism and the selection of the ADB as third party auditors. This delay, he says, has “resulted in the much higher tariff”. He has also disclosed that the ADB has supported eight RPPs with a combined generation capacity of 1,168 MW. If this is true, then the gleeful importance given to the ADB report by the media was misplaced. On the other hand, the ministry of power and Private Power and Infrastructure Board (PPIB) admit that most of the projects have failed to meet their deadline, hence their security would be forfeited. That means litigation with the investors, as each party would try to pass the blame for the delay on to the other.

Power sector insiders say that many countries opted for rental power as a short-term solution to bridge the demand-supply gap. The problem is not about having or not having rental power. It is that the government has struck a bad deal. Most of the power plants that have been brought in under the RPPs scheme are quite old and thus have low efficiency. One senior official told me that these plants are “fuel guzzlers” and soon we would be finding it hard to meet their appetite. They are right, because the government has not been able to provide fuel to all the independent power producers (IPPs) and public sector power generation plants. Furnace oil prices have gone up as most of it is being imported. One reason is that refineries in Pakistan have stopped producing furnace oil because of the ongoing conflict on pricing policy, thanks to the uncalled for intervention of the judiciary.

The other reason for not producing furnace oil is the huge outstanding debt on power generation companies. All government efforts to bring the energy sector out of the whirlpool of circular debt have failed so far. They retired a portion of the circular debt by borrowing from the reluctant banking sector. Those who have tried to resist have been penalised in one way or another. Private sector banks were also reluctant to finance the RPPs, so the government had to force the only public sector bank to bail out its scheme.

Power sector insiders are rightly critical of the fact that while the government was running after an expensive and inefficient choice of RPPs, it ignored solving the problems of the plants that are lying closed. Both Japan Power and Southern Electricity have been closed for months now. This means a loss of 400 MW. In Karachi, Gul Ahmed and Tapal plants are also not fully utilised because of Karachi Electric Supply Company’s (KESC’s) default on payments. Another option of bringing in 1,000 MW more was to upgrade and refurbish the public sectors’ old power generation plants. But these options were not explored.

However, the good news is that five new IPPs are expected to come into operation this year, adding about 1,000 MW. These projects were initiated during the previous government, contrary to the propaganda that it did not envisage the forthcoming power shortage. Shaukat Aziz’s government had pitched for investment in the power sector by telling investors that the country would need an additional 5,500 MW by 2010. Even the Medium Term Development Framework 2005-10 prepared by the Planning Commission in May 2005 says that the shortage would be around 7,000 MW by 2010.

The implementation of these projects has been slow because of bureaucratic red tape. Bureaucracy has not forgotten how Nawaz Sharif condemned a good power policy of Benazir Bhutto’s government when he came to power and many people had to face the bullying Saifur Rehman.

The people want electricity and at affordable rates. Now if the government wants to reduce power tariff’s burden on the poor domestic consumer and the export-oriented industry, it should provide direct and transparent subsidy, which should not be hidden in power rates. The most important measure that can bring the power rates down for the end consumer is to control electricity theft. WAPDA and KESC have over 30 to 40 percent transmission and distribution (T&D) losses. In any national distribution system, the acceptable T&D losses are about 12 to 15 percent. The rest is all theft or non-payment by government offices, mosques, madrassas, etc. And who is paying for this theft? It is those consumers who pay the bills honestly. But action against the electricity thieves requires political will, which is indeed in short supply in Pakistan.

Electricity is not getting any cheaper anywhere in the world. Power shortage is a serious problem in India and Bangladesh too, if that is of any consolation for our people. Most of the countries are moving fast on exploiting alternate energy sources while our reliance on thermal power is growing. It seems, baffled by the public pressure, the government is firefighting without any long-term strategy. But then, it is the same on all fronts. Lamenting it is futile.