Who is responsible?

By
Sartaj Aziz
-
50
1192

How the problem of load shedding spiralled out of hand

The Pakistan Peoples Party (PPP) is naturally apprehensive about the adverse impact of the unprecedented load-shedding during its tenure on its electoral fortunes in the coming elections. In frustration, it is making desperate efforts to mislead the nation through expensive full page advertisements that “if the PML-N government had not stopped 24,000 MW of power projects in 1997, there would be no load shedding today.”

Since this is a grave national issue whose real importance goes far beyond electoral politics, the truth must be fully explained.

Paradoxically, one of the most important underlying causes of today’s load-shedding was, in fact, the energy policy launched by the PPP government in 1994. With dazzling speed, within three months, the government issued 70 Memorandum of Understandings (MOUs) and Letters of Intent (LOIs) to Independent Power Producers (IPPs) for generating 13,000 MW. By 1995, out of these 70 LOIs, firm Letters of Support (LOS) were issued to 27 parties to generate 6,335 MW of electricity. Most of this capacity came into operation in the next 3-4 years, sowing the seeds of a major energy crisis for the future. This should be clear from the following facts:

The 1994 energy policy brought about a decisive shift in the Pakistan energy mix. In 1994, out of the total installed capacity of 11000 MW, 60 percent came from hydro electricity and only 40 percent from thermal capacity. In the next few years, this mix was reversed from 60:40 to 30:70 in favour of thermal capacity based on imported fuel. Every year, this ratio went down further to 20:80 in winter months as hydel generation was reduced due to lower water flows in the rivers.

In 1994-95, the price of crude oil was $10-15 a barrel and the price of furnace oil was only Rs.2540 per ton. As oil price crossed $100 a barrel from 2008 onwards, the cost of generating one unit at IPP thermal plant has increased manifold to Rs18 per KWh when produced on furnace oil and Rs24 per unit when produced through diesel, while the average sale price of electricity in Pakistan is about Rs9 per KWh. In other words, every unit generated by an IPP involves a subsidy of Rs9 to Rs15 per KWh. That is the root cause of the growing problem of circular debt. Since the government does not have the budgetary resources to provide this subsidy, this huge power sector deficit leads to circular debt, which forces utility companies to borrow from the banking system upto their borrowing limits. After that they do not have the cash to import fuel for the power plants. This fiscal year alone the power sector deficit is expected to contribute over Rs700 billion to the circular debt, and because of the enormous subsidy required, our current installed thermal capacity of 13000 MW (excluding hydel capacity of 6500 MW) is generating less than 6000 MW, causing long hours of load-shedding. So the real issue in load-shedding is not capacity, it is the wrong fuel mix brought about by the 1994 energy policy of the PPP government.

Another serious flaw in the 1994 energy policy was the curious decision to offer a fixed capacity price of 6.5 cents per KWh plus the actual cost of fuel as a pass through item. At that time the average cost of power generated by WAPDA was Rs0.90 per unit and the average sale price was Rs1.50 per unit. In an article which was published in a national English daily on 28 November 1994 (‘The Perils of High Cost Imported Energy’), I had warned that the average sale price will be more than double to Rs3.20 per KWh (10 cents) due to the IPPs. In actual fact, it has gone up six fold, without meeting the actual cost of generation.

The real challenge of a viable and sustainable energy policy is twofold: one in meeting the energy needs through maximum reliance on domestic hydel, coal and renewable resources and second in producing energy at a reasonable cost. The1994 Energy Policy ignored both these challenges, and by increasing dependence on imported oil, created a permanent fault line in the country’s energy system. India generates 70 per cent of its electricity from domestic coal, 12 per cent from hydro and only three per cent from oil. Bangladesh uses gas for 90 per cent of its energy needs and only 5 five from oil. Pakistan, on the other hand, is still dependent on oil for 40 per cent of its electric supply, with 29 per cent each from hydel and gas.

In the past decade, Musharraf government, while contributing to the growth of domestic demand for electricity through large scale provision of bank loans for the purchase of air-conditioners and home appliances, (share of domestic energy consumption had jumped to 46 per cent of the total by 2008), did not add any new capacity to the system.

Poor governance of the outgoing PPP-led coalition in the past five years has further compounded the problem of load-shedding. Transmission losses and electricity theft have reached record levels and size of unpaid electricity bills has been growing. These factors account for at least 10 percent of cumulative burden of circular debt despite 250 per cent increase in electricity tariff. The longer term problem of load-shedding can be solved only if we add to the system generating capacity at a cost that is less than the average sale price of Rs9 per KWh but in the past four years PPP government has added rental power at the exorbitant price of Rs25 per KWh. One can only imagine the size of the circular debt if the IPPs, lined up by PPP during 1994-95, were somehow producing 17,000 MW and not 6000 MW!

Another misleading portion of the PPP ads is the reference to Hubco Power Project. This project was initiated in 1991-92 under the first PML-N government and was completed in 1996. The PPP government which took over in 1993, amended the original agreement to give the company under the 1994 energy policy the full pass through cost of fuel in violation of the original agreement. When the then Ehtesab Bureau detected large kickbacks in lieu of this amendment, the announcement of 12 October 1998 was made in the press. But there was no interruption in the generation of electricity from Hubco. Similarly, the other headlines of June 1998 calling for “cancellation of all agreements with foreign companies” were an exaggerated version of the decision to review the pricing formula which PPP government had egregiously allowed to IPPs, in return for large bribes. No agreements were actually cancelled, but based on the report of an expert committee chaired by late Mr. Shaukat Mirza, some of the prices at which WAPDA was purchasing electricity from IPPs were rationalized.

I hope these facts will clearly show that even at election time there should be a limit on false accusations and distortion of historical facts.

The writer is senior vice president of PML-N. He has served as finance minister in 1990-1993 and 1997-1998.

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50 COMMENTS

  2. The power production in Pakistan has always been one or the other self generated scandals. All so called leaders received tons and tons of bribes. Pakistan can generate 50,000 MW of electricity just on hydropower not counting tremendous capacity of wind and solar power. The goondas of Millitary, religion twisting mullahs and 46 feudal families have kept Pakistan so far behind in power production and thereby keeping average people from prosperity. Shame! Shame! Shame! Having spent 45 years in engineering and building power plants, my blood boils when I hear continuous load shedding in Pakistan. I was born in Gujarat, India. That state of India with 1/3 the population of Pakistan produces more electricity than all of Pakistan. In reality, with all natural resources, Pakistan should be producing so much electricity to sell to neighboring countries.

  3. If this post had been written by close member of Sharif family we could have slammed it. But Sartaj Aziz is person with a clean record both as a politician and administrator.

  5. Sartaj Aziz sahb pay koi ungli nai utha sakta and very good work honorable Sartaz aziz sahib

  6. what PML – N has done to change the energy mix in its two tenures it is missed in the article?

    • If you follow the context of this article, within a short span PML-N government rationalized the existing contracts which has crazy secured-buy and fuel-supply-agreements (FSAs). This rationalization led to reduced burden of IPPs on government funds.

  7. Great piece … PMLN needs to voted to federal govt. to tackle this serious issues … They have a team members like this great man…

    • They coudlnt solve this energy mix porblem created by PPP in 1994 in their tenure from 1997 to 1999 how can shahbaz do it now in 3 years when the problem according to sartaj aziz is six folds now. Wake up pakistan, PML N is as much a party to this problem as PPP. PML N has been in govt with ppp in punjab and center for almost three years of the fives years of last govt. Dont let this jackal fool you who si trying to come in the shape and skin of a lion. They are bunch of liers and looters of this country money where as there business grew ten folds since1992 the common people went down the drain. Think about the past and the future before u vote these lairs and theives

  8. Very well explained sir, please also write about the accusations on PMLN led punjab govt that it didn't produce any electricity in last five years, thnks

    • Techie do u know Federal Govt did not issue a letter due to which machinery of multiple power projects which was suppose to be installed in Punjab is still in becoming scrap at Karachi Port since more then last three years. EX-CM Shahbaz Sharif protest against this act on record. If they were released on time, today you were getting around 1300 to 1400 mega watt extra.

  9. The article on facts and very brief history of energy crises and hope PML n will meet country energy crisis on his new government took place after 11th may and no other party hv knowledge and ability in this issue.

  10. I fully agreed with this fact finding effort of Mr. Sartaj Aziz, and shame on PPP which is misleading the Nation and continuing there history of lie & corruption. They loot the Pakistan with these power agreements same as they did in this tenure in shape of rental power. If I am not wrong at that time lot of companies revise and reduce there rates due to fear of agreement cancellation. We also forget the corruption made in main transmission line from Sindh to Punjab. Thanks for telling the truth Sir.

  12. Thank you Sir that why pml-n up other parties because he have such of best team for pakistan ……………………………………thanks again

  13. Sartaj Aziz Sahab, we need energy right now, and you are planning for 20 years, think about immediate solution, please!

  14. We need an honest debate on hydropower in this country including Kala Bagh Dam. Politicians should ask questions just like awam but these need to be answered by hydrologists and technical people. If issues are addressed without emotions we could be on to something. PPP while in power lost a golden opportunity to truly become a national party by ignoring hydro power. Bahsha dam is a political stunt, very costly – how will all this machine and concrete go up there for a concrete filled dam vs an earth and rock filled Kala Bagh dam ? Then there is the question of seismic activity and earthquakes in the bahsha dam region. We need to be sane to make some wise choices else this country will go to dogs for lack of cheap energy.

  15. No one is bothering to take a look into depth about the so called blames by those government who screwed Pakistan in their last five years of tenure, if every single political party believes that energy crises can be solve within 3 or 4 years why PPP failed to do so , simply they were not willing and for many of us Rental power scam by Raja is obvious .. Great Article Sir

  16. Sartaj Saab failed To tell us the benefit of allowing those IPPs to work? How much GDP of the country would have increased if uninterrupted power was to be ensured to firms? Further, by deregulating the sector and allowing more IPPs to compete cost would have come down to its natural equilibrium level.. Sartaj Saab also failed to tell us that hedging plays an important role in managing prices and IPPs working in private sector they could have easily managed the prices.. Oil prices increased globally than how come those countries with no hydal sources are able to produce cheap energy? How come other counties do it and Pakistan could not? Example of KESC is in front of everyone as karachi is witnessing lot lesser load shedding than other parts of the country. How it is able to do it?
    Sartaj Saab also failed to let us know how much water resources of the country has declined over the period of time and people are fighting for having adequate water in sowing season let alone making water available for electricity. how can you manage the trade off between loss in agriculture output (which is largest sector in this country) with that of increase in industrial output due to this?

  17. One more piece of Blame game, PML-N was also in Fed Gov two times(3+2 years) + in Punjab, so My request is that, What you have done to change it? If you could seize all the foreign currency accounts then why not you stopped / canceled these agreements during your tenure? you are also part of problem! and you too Rejected!

  19. Some one need to translate this article in to Urdu for publication in soe mleading Urdu daily. Thanks

    • Sorry for typo, here what i wanted to say:

      Some one needs to translate this article in to Urdu for publication in some leading Urdu daily. Thanks

  20. PMLN will win, very well written. Newspapers should promote such facts so that an ordinary citizen knows what is right rather than what some parties which rant change slogans say just to gather votes

  21. Sirtaj Shabib, good article of clarification on behalf of PML(N), but when your party came in to power, what did you do to enhance the hydro electricity and on alternative source of power generation??

  22. GOOD ARTICLE ALTHOUGH I M VERY CLEAR ABOUT THESE FACTS ALREADY. GOOD IDEA TO BE PUBLISHED IN URDU DAILIES AS WEL.

  23. Real antrue facts and figures,but Allas our innocent people are still favoring this chore ppp and its fraduelent alliances.Now general public must be clear and do not vore to these parties which have exploited them anymore.PPP has made Pakistan beggar and there is no money where it has gone?

  26. As usual the blame game has started while both the parties in power are at fault of ignoring the power need . they failed proactively and landed in crisis.
    One thing is correct that dependency on fuel oil will increase the production cost over the period and may increase the subsidy on it leaving less for welfare activities.

  27. very well good article. we are awaiting new article to solve energy problems. shame for ppp. pml n will inshallah win election.

  29. It will be highly unrealistic and ignorance of basic facts if some troll of PTI still “claims” that PML-N is responsible for loadsheddings…
    Imran Khan’s tirade has been only & only against PML-N. His bijli advertisement showing Punjab Assembly Building (and not NA/WAPDA/PEPCO/RPPs) proves that he is severely suffering from the disease called “PML-N phobia”. While he remains totally dumbfounded against PPP, PMLQ etc.

  30. Thanks for bringing the facts n truth to the pple of pakistan, inshAllaha pmln will win the election n solve the problems in pakistan.

  32. What PML(N) did in its 2/3rd majority government during 2007-2009????????
    Sartaj sahab where were you at that time??? Just blaming is not a solution.

  33. "In the past decade, Musharraf government, ….. did not add any new capacity to the system."

    Absolutely false! you missed to give credit to Musharraf govt for the growth of the economy (which increased electricity demand) but also missed the point that, Musharraf Govt did infact inaugurate many small dams.

    Politicians, always hypocrite and never hesitate to lie.

  34. Very good eye opening post, we can expect this kind of piece from a clean man like Mr.Sartaj. I like to suggest to those pointing pls read it again. We in karachi suffering with KESC forced over billing & 6 to 8 hrs load-shedding even to resolve complaints we have go through political people. They r the worse private system working here.

  35. If PML-N can spend billions on metro bus, laptops, why didn't they spent that money on energy generation to produce power in Punjab ????? Which would have created more jobs, by helping industries, and peace of mind to masses of whole Punjab not just Lahore.

  36. Sartaj Aziz concedes that about 6600 MW was added during Benazir era. Imagine what would have been our power generation capacity without this addition, because both Sharif and Musharaf simply ignored to make any addition. Can anybody deny this fact.

  37. I have honored to meet Mr Sartaj Aziz in 2001 – I went in his home to fix is Macintosh system and they way he talked to me and discussed 9-11 issue was amazing – I cant belive he was so down to earth person . I really admir Mr Sartaj Aziz – PMLN missing a great humble voice from its camp.

  39. You were not compelled to come and take part in elections? You knew all but made false promises to nation for votes. See your manifesto. No point in telling lies to nation

  40. Politicians have eaten so much bribe that they will never make Kalabagh Dam
    They want to finish the country and make their District Governments or satelite country
    Like East Bangal never got West Bangal to make original Bangladesh concept
    Blessing in disguise, Management overheads reduced
    These politcians should learn from Bangal
    Or Afghanistan, which killed Liaqat Ali Khan, but never got Pakhtunistan
    Instead Russians,Nato and Americans to slaughter their citizens

    Power crises are deep
    China might help to make his own corridor
    If Americans dont throw away this govt for helping China
    Keep W A I TI N G

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