IPR comes up with ‘power-centric’ proposals for govt

Report claims govt has no concerted plan for power crisis, advises policy reform, laments dependence on imported fuel for power generation

Islamabad’s Institute for Policy Reforms Tuesday released a comprehensive report with a plan to meet power shortage in the country.

At the event, speakers stated that government does not have a concerted plan to address the power crisis. They noted that government seems to have reduced the response to one of increasing installed capacity. They expressed the hope that government would keep in mind past mistakes, which have brought the sector to this stage.

“Gaps existed in policy and governance. Decision makers knew most factors that lie behind the power crisis, but have been unable to address them. Even in their priority area of increasing generation, it is not clear where the government stands. It has moved between coal-powered plants and LNG. In between there was talk also of solar farms. Without addressing issues endemic to the sector, increase in capacity will face the same difficulties as at present. Foremost among the many issues that affect the power sector, is its inability to recover cost of delivery of power,” the report said.

“DISCOs lose about 30 per cent gross revenue. This means a shortfall in liquidity, which leaves no space for capital formation. The build up of receivables limits power generation. It is not possible to improve the sector with such high losses,” it added.

The report contended that reliance on imported fuel has led to high energy cost. “The 1994 power policy gave liberal incentives and paid no importance to having an efficient fuel mix. Since then oil price have increased by 20 to 30 times. The country continues to suffer for such policies today in the shape of high power price as well as high shortages. Past practices continue in some ways. As late as last week, government agreed on upfront tariff for LNG, which did not come through a competitive process. Government has also not released information on details of the coal and LNG arrangements. Even NEPRA states that in determining tariff for LNG, it adopted a value for input cost. Transparency is key for the success of these projects.”

Moreover, it claimed that state run generation and distribution companies have underperformed. It is important to improve their management structure.

“Build-up of circular debt clogs the energy supply chain. Government has no declared plan to do away with circular debt. The tariff and subsidy policy needs to be reformed where NEPRA must have a greater say.”

The report says though government states that power sector is a priority, its public investment programme suggests otherwise. Overall, budget for the power sector is low with a major portion to be met by PEPCO itself. Rather than prioritize projects for early completion, many projects receive small sums of money and remain under implementation for years.

IPR recommended that in addition to new generation projects, government can increase power supply by taking immediate action to pay the outstanding tariff differential subsidy and continue to timely liquidate this obligation; to settle the issue of circular debt, take administrative measures to reduce line losses and under recovery of bills.

“It should also reduce tariff slabs and have criteria for disconnection of supply. The government must increase gas allocation to the power sector, it must reform the tariff and subsidy policy and it should divert public funds from roads for early completion of on-going hydro and thermal power projects to increase generation.”

In the medium term, for sustainable development of the power sector, the report suggested that the government must plan base load generation based on cost per unit (prioritize hydro and coal) and solar/wind for off grid.

“Adopt a least cost approach to sequence projects and focus on indigenization, despite present decline in energy prices: expand hydropower, develop a plan for Thar resources, explore shale potential, and increase solar and wind generation,” the report urged.

The report also recommended that the government should create a dedicated window for financing of private power. It should create a private energy support fund with Rs 157 billion with the Special Development Fund (from the Kingdom of Saudi Arabia) as seed and seek international support for the fund. “In addition to traditional multilateral sources, tap into China’s Asian Infrastructure Investment Bank, WB Global Infrastructure Facility, G 20 Global Infrastructure Hub, and Risk mitigation through MIGA.”