Power sector reform or deform

The Pakistan Power Sector (PPS) Reform & Restructuring Programme (RRP) was conceived and launched under a PM's directive in 1998, and put into implementation in 2000 & 2001, under overall PEPCO management.
However without full authority to PEPCO and continuing strangle hold of the WAPDA Chairman, who was also incorrectly placed as PEPCO Chairman, the Reform programme could not be completed, in spite of "significant progress and ownership" as acknowledged by the World Bank. This reform and restructuring which created and set-up the power sector entities (PSE's) namely DISCO's, GENCO's and NTDC was successfully taken to phase I under the management of the then MD/CEO PEPCO (the author).
Unfortunately, the complete and approved plan, which was well underway, was stalled on the departure of the then MD PEPCO in January 2002. In the subsequent 5_ years, PEPCO was relegated to a sub-entity of WAPDA, with no real authority, and the Reform Programme was held in abeyance. It is a matter of record that none of the IFI's and other supporting agencies like WB, ADB, JICA, GTZ, USAID etc took due cognisance of this anomaly, and no voice was raised to put the PPS Reform programme back on track, until September 2007. This resulted in accumulation and escalation of the various essential reform requisites, while at the same time due attention was not given to proper planning for new supply and even the approved IPP's were considerably delayed.
Finally in September 2007 the then government took the step to re-start the Reform programme, and on October 10th, 2007, a notification was issued to separate WAPDA's Power, which was put under MD, PEPCO (the author), and the Water Wing which continued as the new WAPDA under the WAPDA Chairman. This step gave new life to the Reform & Restructuring programme, which was re-launched again under the original MD/CEO with focus on the following thirteen (13) key actions:
(i) Set-up of eleven (11) member autonomous BOD's in PSE's
(ii) Placement of competent management in the PSE's
(iii)Autonomous operations of PSE under a 5 years rolling business plan
(iv) HR development and re-allocation of man power.
(v) Loss and theft reduction and energy conservation
(vi) Performance monitoring and improvement
(vii) Increase in GENCO generation thru rehabilitation
(viii) Induction of IT, advanced metering and innovative technologies
(ix) Debt management and reduction plan and increased revenue
(x) Set-up of new large power plants for base load augmentation
(xi) Tariff rationalisation & reduction in cost for industry
(xii) Preparation of integrated power generation plan on least cost basis
(xiii) De-Link Financial/Revenue flows from WAPDA/PEPCO treasury to PSEs
Several other parallel initiatives were also launched to induct best utility practices and for HSE, revised compensation packages, worker safety and benefits, re-training of workers, management etc. As the programme gathered steam and visible results started to emerge, the new government without due understanding of the Reform programme, elected to replace the PEPCO management. An interim/acting set-up under the Member Power WAPDA, who neither understood nor supported, the Reform programme was given authority over PEPCO. After about a year a new MD PEPCO was appointed who was the former DG Energy Management & Conservation. Neither was he accepted by the senior PEPCO/WAPDA management, nor were his efforts to activate the Reform Programme successful. These were at the best half baked and the situation was further compounded by massive political and beauracratic interference, which the new MD was forced to capitulate under. He was also un-ceremoniously replaced in September 2010.
The consequences were delayed IPP's, the RPP scandal, escalating Circular Debt above Rs 300 billion, massive mis-management, corruption and lack of focal authority for Reform Implementation.
The results are all clear with the supply demand gap increasing from about 2,000 MW in 2007 to 4,500 MW in 2010, while tariffs have doubled, and there is no real Power Plan/Energy Plan or solution in sight, while the people of Pakistan are subjected to continuing load shedding, massive industry closure (3,000 units), Unemployment (500,000), and loss in GDP of Rs 300 billion. Such is the state of the power sector, which now has again been subjected to a new "Reform" programme under the IMF, World Bank covenants and being managed by USAID and other agencies.
The Need for Reform of the Power Sector: Pakistan Power Sector (PPS) has developed into a mega sector of the National Economy, a situation which can be best termed as an "inconvenient reality". After the budgetary allocation of the debt repayment and defense sector, the overall energy sector constitutes the single largest drain on the national exchequer, even exceeding the current PSDP (Public Sector Development Plan).
With the circular debt escalating to over Rs 500 billion ($6 billion plus), current annual financial gap in the power sector exceeding Rs 220 billion, and a minimum debt repayment Rs 50 billion/ year for the Rs 301 billion circular debt parked in Power Holding Ltd (PHL), the PPS definitely needs immediate and drastic Reform and Restructuring.
Delay in this matter has already resulted in doubting of power tariffs for the average domestic consumer, business and industry, over the past two (2) years. Not even the mammoth tariff increase has provided coverage for the increasing gap between cost of generation and distribution (Rs 10/kwh) versus the average tariff of about Rs 7/kwh.
Further the massive theft (15%) and losses (7%) in the PEPCO, DISCOs and 34% in the KESC system continues to add to the financial gap. The situation is further compounded by gross mismanagement, political interference and corruption in all aspects of the Power Sector.
The real issue remains as the fundamentals have not been addressed, and the Nation continues to be given a false perspective of a "solution" by 2012-2013. Also somehow the incorrect perspective has been projected by IFIs and MW&P that PEPCO is to blame for all the ills and dissolution of PEPCO will enable the Reform Programme.
Effect of Gas Shortages As the cold weather sets in, and gas consumption by the domestic sector rises to a peak of 900 mmcfd vs. 300 mmcfd in the summer, SNGPL is forced to cut off gas supplied to the industry, CNG stations and the Power Sector Similarly SSGC network experiences an additional winter peak load of about 150 mmcfd. This is compensated by reduction in gas supplied to Jamshoro and Bin Qasim (KESC) power plants. The combined incremental load of 750 mmcfd - 800 mmcfd is clearly un-manageable by the gas utilities.
Such a shortage has build over the past three(s) years, as MP&NR and the E&P companies (OGDC) have not been able to either finalise and implement gas import projects (500 mmcfd by 2009-2010) (Mashal LNG, Iran Pipeline etc) or the production plant contracts for discovered and capped gas of several fields in Sindh (350 mmcfd) by 2008-2009.
It is obvious that if the above 500 mmcfd + 350 mmcfd of gas was available as projected and planned under the 2005 National Energy Plan, there would have been no gas shortages, and consequently no adverse effect/reduction in output of the various power plants. There is a loss of nearly 1,000 MW in power generation of existing GENCO's, IPP's and KESC due to the gas supply constraint, while another 500-1000 MW generation loss is attributed to reduced fuel oil supply to the Power Plants.
What is of real concern is that such a shortage could have clearly been avoided under a comprehensive and integrated Energy Plan & much touted Power Sector reform programme, which clearly has not been designed to focus on the core fundamental issues facing the power sector. Adequate gas supply and rationalised tariffs are an essential requisite to control/reduce the cost of generation, as well as to maximise the generation. To ensure the same a new gas allocation policy has to be formulated, while the pending projects have to be brought on-stream a fast track. Unfortunately there is no evidence of such actions/results in the short (2012) or medium term (2015).
New Reform & Restructuring Plan
A review of the $60 million USAID "Power Distribution Improvement Programme" (PDIP) and the Planning Commissions "Power Sector Reform Programme", in tandem with the Friends of Democratic Pakistan (FODP) "Integrated Energy Sector Recovery Plan" will show that there is no real new initiative or major new concept. Much of the above programmes are a juggling of the various initiatives and actions which were under implementation or in planning, but have been stalled due to the status quo precipitated by inaction over the past three 3-7 years.
For this malaise the past government is at fault also. However it was expected that the new government would move forward from the rhetoric of "Inherited Problems" and move rapidly to resolve the power as well as overall energy crisis. Unfortunately this has not been the case and the energy short fall (power, gas) has further worsened, perhaps now to unmanageable proportions. While there is focus only on the questionable RPPs, not even a single new IPP has been finalised in the past 3 years.
The Ministry of Water & Power (MW&P) with great fanfare announced the "Dissolution of PEPCO" on September 29th, 2010 approved by the PM, along with; 24-35% tariff increase, under a new conceived power sector reform plan initiated by the new Dy. Chairman Planning Commission and supported by the WB, ADB, USAID, FODP etc. This was stated to be the much awaited "solution" to the Power Sector ills.
There was much debate on the timing and wisdom of the "announced" PEPCO dissolution. Some quarters even termed it is the suicide of the power sector. However there was also much hope resting on the shoulders of Dr Nadeem-ul-Haque the newly appointed Dy. Chairman Planning Commission. A National Power Sector Reform Workshop was organised by the Planning Commission and energy/industry experts, along with WB, ADB, USAID, FODP teams and Chairman & CEO's of PSE's, KESC etc were invited.
This proved to be a good launch and many suggestions and ideas were presented. It was also announced by the Minister of W&P, that the formal notification of "Distribution of PEPCO" and formation of a "Transition Management Group" and Reform Advisory Committee will be notified by October 31st 2010. The date came and went, and no new plan or solution has been announced.
A second Power Sector Reform workshop was held on November 11th and 12th at WAPDA House Lahore. Again, amidst many presentations, several suggestions were provided by the experts. The USAID, PDIP team also gave a presentation. Now as December 31st approaches there is no notification of PEPCO dissolution. Formal details of the Reform programme have not been announced, nor is there any record of the meetings/workshops, or of the expert opinions, suggestions inclusion in the programme.
It appears that the Reform programme has been an exercise in futility. Is it because the hastily announced decision was dictated to the PM and Minister MW&P, or is it because the fatality of an ill-conceived, half baked plan was realized a bit late by the proponents?
Reform & Restructuring or Deform & Destruction
The success or failure of any plan or initiative is best judged by the outcome, which becomes self evident, in spite of efforts of the planners to cover-up their folly or bury their mistakes. A quick review of the few "announced" actions versus the actual situation will make the success, or failure of the Reform programme self evident.
The FODP report states as its main recommendations "The ultimate objective is for the energy sector to achieve full financial and technical sustainability. The immediate objective is to eliminate load shedding in the country over the next 3 years
The report notes the key reforms as;
1. Strengthen Energy Sector Governance & Regulation
2. Rationalise Pricing & Energy Subsidies
3. Develop Energy Finance Capability
4. Maintain Energy Efficiency into Energy Policy
5. Fast Track Investment Projects for Energy Security
The USAID, PDIP is formulated to focus on 2 core activities namely; 1) Performance Audits, leading to Performance Improvement Action Plans and Pilot Projects. 2) Implementation of Performance Action Plans.
Another stated strategy of the overall USAID programme is "To rapidly close the power and gas supply-Demand gap", which is in line with the FODP/ADB objective.
The above programmes are supplemented by the Planning Commissions PSRP, (Power Sector Reform Programme) which focuses primarily on corporatization of the PSEs entities (DISCOs, GENCOs, NTDC) and ensuring good governance thru professional and competent management, while inducting latest technologies and practices in the PSE's. A key stated step was the revamping of the Boards of the PSE's, providing them full autonomy, and empowerment.
The real story is quite different from the lofty claims and projected objectives. In a sudden move about three (3) weeks back the MW&P announced that the Board of Directors (BOD) of PEPCO and of all the PSE's have been annulled. This in itself is an unlawful action as the MW&P does not have the corporate authority to do so. Meanwhile the SECP is silent, and the PSE's are now without a functional Board or Chairman for more than 20 days. Again an unlawful situation under the Companies Ordinance / law of the land.
While the company CEO's have essentially been clipped of their lawful authority, PEPCO also has had is powers/authority restricted. It is learnt that now all decisions are taken by a single learned "Advisor", who has no claim to fame. Consequently the prime objective, or so it seems, to dis-empower PEPCO, and empower the BOD's of the PSE's has fallen flat, while there is a clear violation of legal requisites of the Companies Ordinance and SECP regulations. Is the situation a consequence to hurriedly show some action, even if ill advised and destructive, to the IMF and World Bank, who collectively appear to be on a misdirected course.
The misplaced targeting of the power sector under an ill conceived Reform Plan has further stalled all the actions noted in the opening section above, which were, and could have been successfully implemented by competent power sector professionals.
The proposed dissolution of PEPCO as the focal authority of the Power Sector while the original Reform Program has been de-railed, will clearly leave a vacuum. Efforts by the MW&P to accumulate all executive and operational powers of PEPCO and the PSEs will create chaos, as is already evident. It is learnt that certain selected high profile professionals have not been approved as BOD members/chairman on political considerations.
To make matters worse the USAID, and other agencies have become a "willing party" to this ill conceived and misdirected Reform Plan, by taking the position that "it is your (MW&P) programme and we (USAID) is here only to provide experts and resources". The simple question that the MW&P and Planning Commission, along with USAID must answer is, what is the solution to the fundamental issues like circular debt, massive supply-demand gap, lack of integrated Energy/Power Plan, non-optimisation of fuel /gas supply, failure to reduce cost of generation & losses, non-placement of competent professionals as CEOs and on BODs, and above all lack of a focal Authority for Energy Planning, and implementation monitoring of key projects in the oil, gas, power, coal and renewable sectors.
The stated objectives of the FODP/ADB report, as well as the USAID clearly are off-track, and may only achieve cosmetic success. There is no plan or implementation of projects to cover the supply-demand gap in the short term (2011-2012) or medium term (2012-2015). What in essence has however happened is that the Reform programme has so far only produced disastrous results, and in fact a Deform and Destruction of the Pakistan Power Sector is underway.
The Planning Commission needs to take immediate corrective action, while the MW&P would be well advised to ensure that Reform plans are built upon the agreed covenants, earlier plans and strategy. The same must be entrusted to competent professionals, and not political appointees, and implemented under a doable Road Map, which as a first priority must resolve the fundamental issues of the Pakistan Power Sector. Failing which we would be heading towards Energy Poverty and a dark and economically starved Pakistan.