Acute power shortages: three percent GDP being lost: Nepra
The country is losing up to three per cent of its GDP because of power shortages which may increase if this trend persists, a report compiled by the National Electric Power Regulatory Authority (Nepra) showed.
Copyright Business Recorder, 2012
In its annual reports 2011-12, the power sector regulator said that the energy crisis had its roots in a number of issues, including lack of integrated energy planning and demand forecasting; imbalanced energy mix with a heavy reliance on oil and costly imports; non-utilisation of vast indigenous resources such as coal and hydel; lack of effective project structuring, planning and implementation of viable projects.
According to the Pakistan Electric Power Company (Pepco), the shortfall of power in Pakistan on an average is more than 5000 megawatts. Many power plants were generating electricity at half their capacity because of fuel-related issues. The severity of power outages, it said, was persistent.
Violent protests over power cuts have become a routine in different parts of the country, besides affecting industries and businesses. Unpredictable outages, it said, had alsoaffected industrial output because of which export of goods suffered, subsequently resulting in job cuts for industrial workers.
According to the report, over the past five years, natural gas allocation for the power sector was reduced and the use of furnace oil for power generation increased considerably. The country spent billions of dollars every year on the import of crude oil and deficit petroleum products. This has increased the cost of generation, raising circular debt, leading to higher power rates. Furthermore, the power system was afflicted by corruption and inefficiency.
It said that the situation had aggravated to such an extent in the Pepco - the entity entrusted with the task of managing the transition of Wapda's transition to a corporate, commercially-viable and productive entity - that the survival of the Generation Companies (Gencos), the National Transmission and Dispatch Company (NTDC) and the ex-Wapda Distribution Companies (Discos) is at stake.
On the one hand, there was shortage of power and on the other, Oil Marketing Companies (OMCs) and Gas Supplying Companies are not getting payments from NTDC and Discos, making it difficult for OMCs to arrange fuel for power plants. Again, Independent Power Producers (IPPs) minimised the supply of electricity despite the available capacity on account of non-payment of their dues by the Pepco and the Water and Power Development Authority (Wapda). All these factors have led to a situation where it is virtually impossible to attract new investment.
Karachi Electric Supply Company Limited (KESCL), mainly composed of various thermal power plants, has not been able to run its power plants at full capacity because of the declining supply of gas. The KESCL has not been able to arrange the required quantity of fuel from the market to operate these plants on alternative fuel due to its weak liquidity position directly linked to the circular debt crisis owing large payments to the Pepco and the fuel suppliers.
KESCL has, at times, not produced at peak capacity, to avoid purchasing expensive furnace oil, preferring instead to purchase cheaper electricity from the Pepco and NTDC system. This was clearly a downside of privatising monopolies as fully integrated entities in an environment where the market was not competitively structured. The dispute between the management of the KESCL and its staff labour union has further added to the problems.
However, the new management of the KESCL has clamped down on the rampant culture of power theft in Karachi and efforts to increase the older plants' capacity are beginning to bear some fruit Besides circular debt, the other major issues hindering the overall operations of the PEPCO and the KESCL systems include gas depletion, load shedding, deteriorating fuel mix and losses.
Gas Depletion- historically, thermal power plants use two types of fuels namely indigenous Natural Gas and imported Furnace Oil. Initially, the power sector got the lion's share in the allocation of Natural Gas. However, the gas companies did not sign long-term agreements with the public sector utilities and later on, the allocation of gas to the public sector plants was allocated on an 'as and when available' basis. This pattern continued for a considerable period up to the mid eighties. However, with the passage of time, Natural Gas became a scarce resource because of major use in the domestic, fertiliser and transport sectors. Lately, the allocation of natural gas for the power sector has declined to a dangerous level which is hardly sufficient to produce electricity matching the installed generation capacity.
The severity of the issue can he gauged from the fact that under the Power Policy 2002, only four IPPs were set up and that too with an annual commitment of gas for nine months. With the Gas Supply Agreements (GSAs) for these four IPPs expiring and the gas companies not willing to extend or renegotiate the same any more, it is very likely that these would he operating on alternative fuel (ie HSD) which will further deteriorate the thermal energy mix of the country.
Over the years, the percentage of electricity generation using Natural Gas has declined. This trend requires a complete reversal In order to keep the tariff reasonable for end consumers. Taking stock of the situation, the Government of Pakistan was not only exploring the possibility of importing Gas from regional countries including Iran and Tajikistan but also tapping other sources of Gas including LPG and LNG for the Power Sector. The government, through the Sui Southern Gas Company Limited (SSGC), was contemplating import of LNG to find a suitable alternative fuel to replace Natural Gas.
Load Shedding- Every segment of society including households, commercial, industrial and agriculture is heavily dependent on the usage of electricity. Pakistan is facing an acute electricity shortage with the public being forced to stay without electricity for more than 9-10 hours in some cities and around 16-18 hours in many rural areas. It is estimated that the country was losing two to three percent of its GDP due to power shortage, which may increase if the shortages persist. The deepening power crisis has forced many businesses to close down.
In order for the price of electricity to be affordable, it is imperative to have a proper energy mix. Over die years, the generation mix, which was earlier in favour of cheap hydel power, has deteriorated substantially. At one time, the contribution of hydel energy was around 65% in the overall energy mix of the country, which has now reduced to around only 29.15% totally disturbing the energy mix leading to an increase in the consumer end tariff. At present, the energy mix is heavily skewed in favour of thermal generation, which is mostly based on imported furnace oil. This not only leads to higher inflation but also jeopardises the competitiveness of our industry in the international market due to deteriorating natural gas allocation for the power sector, it is expected that the energy mix will deteriorate even more, further increasing the tariff for the end consumer.
On account of depleting gas reserves, most of thermal power plants being installed use imported furnace oil as the primary fuel, causing not only huge burden on the foreign exchange reserves, but also making the overall tariff for the end consumers more sensitive to price changes in the world oil market.
The report further states that the twin issues of adding power-generating capacity and stemming transmission and distribution losses on account of pilferage is a daunting task for the Government saddled with losses running into billions of rupees due to power theft during transmission and distribution and billing inefficiencies. As agricultural power supply was unmetered, many utilities wrote off all losses from the transmission and distribution as agricultural consumption. Utilities faced losses due to unmetered and unaccounted for sales.