The Cabinet Committee on Energy (CCoE) has certainly been busy lately under the leadership of PM Shahid Khaqan Abbasi. It recently announced revisions to power policy, which included amendments to power purchase agreements (PPAs).
A major change has been the removal of “take or pay” contracts for IPPs, instead shifting them to a “take and pay” mode and discontinuing long term power purchase agreements. According to the government, this has been done in order to deal with the “capacity trap”; which by the way has materialised in light of abundant generation capacity done with extreme swiftness but zero planning.
At the same time, it has announced the end of up-front tariffs for renewable energy sources including wind, hydel and solar power projects. Competitive bidding will now be the prevalent mode of determining power tariffs.
After the government managed to secure significantly lower tariffs by competitive bidding for R-LNG power projects, the National Electric Regulatory and Power Authority (Nepra) also moved towards the reverse auction based mechanism.
This column has been advocating the move for the past year and it is certainly a step in the right direction. The obvious advantages are lower tariffs due to increased competition and encouraging private sector participation in the power sector.
What the government is eventually aiming to move towards is setting up an electricity exchange, which will in simple terms allow power to be bought and sold on a daily basis according to the demand. This is a very long way down the road in the current dynamics of the power sector in Pakistan.
On one hand, the government already the largest player in the sector, has given itself an unfair advantage by allowing “take or pay contracts” for public sector power and CPEC projects. The transmission and distribution sectors have seen zero progress both on account of improvement and privatisation.
The DISCOs continue to suffer on account of dilapidated infrastructure and poor management, which has led to the inability to limit theft and improve recovery issues. Then there is the problem-ridden transmission sector that is solely at the mercy of the National Transmission and Despatch Company (NTDCL). Even though the country has managed to achieve “surplus power”, it is unable to transmit it. The private sector already has a host of issues when it comes to grid evacuation and reliability aspects.
It would be good to have some clarity in policy making in general but the power sector is a case in point when it comes to flawed policy-making by various governments over the course of the past twenty years. Private sector participation might suffer on account of these changes because competitive bidding and the ultimate goal of creating an energy exchange is not even on the distant horizon unless government limits its own role.
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