A critical appreciation of NEP — II

National Electrical Policy (NEP) has been approved recently by CCI (Council of Common Interest) which is the final approving institution in this respect. The Part-I of this two-part series of articles has been published earlier in this space. In this part, we will deal with the following issues which are part of the NEP and offer our input for possible improvements and adjustments: 1. Self-reliance on local energy sources; 2. Strategic and G2G projects; 3. Discos performance; 4. Integrated energy plan; 5. National Electricity Plan; 6. Regulator’s performance review; 7. Governance; 8. Transparency; and 9. Provincial issues.

Self-reliance on local energy resources

1. NEP stresses utilization of local energy resources like hydro, Thar coal, local gas and solar and wind power. Installation of imported coal power plants has been an aberration. Attempts are being made to convert, albeit partially, the imported coal power plants to Thar coal. This aspect along with technology and indigenization appears to be the most strongest and appreciable aspect of NEP. It is a separate issue as to how the challenges of international opposition to coal would be met. Even China has started budging on the issue. Pakistan is dependent technically and financially on external sources. Nonetheless, Pakistan has other renewable sources as well. Solar power along with electrical storage is emerging as a credible and sustainable source of power. NEP, however, falls short of the required emphasis on distributed generation. It restricts itself to consumer-generated electricity, while distributed generation is a much wider subject. It appears that we are still wedded to central generation and transmission.

Strategic projects

1. NEP has included a provision for strategic projects. There is a controversy and confusion in the country about strategic projects. What are strategic projects? The past experience is that all loss-giving enterprises are somehow strategic projects. How much money can GoP afford to lose under this head of Strategic projects. Often, strategic projects are government-to government (G2G) and conflict with the transparency requirements. Powerful groups on both sides are behind such projects. Is Pakistan rich enough to sacrifice its economy for questionable and unsustainable political agenda of foreign policy? Foreign policy should be supportive for the economy and the development of our country instead of benefiting the supplier countries. NEP, however, has recognised this issue but only partially in case of nuclear energy and has provided for grant of subsidies by GoP in case of uneconomic projects. Policy planners may consider to generalize this clause for all strategic and G2G projects.

Integrated Energy Plan (IEP)

1. There is an intention of developing an Integrated Energy Policy or Plan which integrates electrical and fuel side. Lack of integrated modeling of the power and the fuel sector has often resulted in difficulties and has badly affected the performance of both power and petroleum sector. Earlier, Planning Commission has been entrusted with this responsibility. The Asian Development Bank (ADB) provided expensive technical and financial assistance, but no results were achieved. PC in its current form specializes in PC-1 and PSDP. Earlier, Ministry of Energy (MoE) was not there which could have provided the necessary coordination among Power and Petroleum sector.

2. In this background, Ministry of Energy (which combines the Power Division and the Petroleum Division) has been entrusted the role and responsibility to prepare the IEP. MoE is in the best position as it controls most of the stakeholders in the area of energy and it has many commercial organisations which have the relevant manpower and other resources. While a cell of MoE may be advisable for this function, technical assistance may be taken from several national universities where excellent know-how is available in this respect. National Electricity Plan (NEPLAN) has been included in the NEP. Its contours have not been released yet.

National Electricity Plan

NEP provides for National Electricity Plan. This is as per the Nepra Act of 1997 which, inter alia, defines National Electrical Plan. It, however, does not define what National Electrical Plan would be. One wonders what would be the purpose and contents of such a plan. Questionnaires have been prepared in this respect and public comments invited. A study of the questionnaire also does not reveal the scope of such a plan. There is already IGCEP (Indicative Generation Capacity Expansion Plan) and TSOP taking care of generation and transmission planning. If inspiration has been sought from similar processes in India and there should be no issue learning from relevant experiences elsewhere, National Electrical Plan is nothing but generation and transmission plan. The proposed National Electrical Plan in our view is superfluous and would cause confusion.

Discos Performance

1. NEP provides for a Disco performance improvement process. It is a welcome inclusion mandating corrective and improvement activities in the form of some kind of an Action Plan. The like of it has not been around. Only financial disincentives against certain variables were provided which only deteriorated the balance sheets of Discos disabling those to undertake required corrections and investments. Discos main issues are governance, losses, receivables and efficiency. We have discussed these issues earlier in these spaces. In gas sector, UFG plan imposed by Ogra (Oil and Gas Regulatory Authority) is a good example which mandates certain input-output programme on gas companies and ties incentives with it. A broader programme on this line may help bring about improvements in Discos. Discos are full of corruption which affects both consumers and the company. Any action plan will have to include direct action on corruption. Success in this area would directly result in improving Discos performance. As far as structural reforms are concerned, we have in Part-I discussed the separation of Wire and Electricity trade.

Governance

1. Perhaps unnecessary hopes have been tied with the Board of Directors. BoDs may never be able to deliver what is being expected of them. Members are not full-time. In a few hours per month of a motley crowd cannot achieve much. It can provide limited oversight functions. Then ministries have direct dealing with companies as well making BoDs somewhat redundant. Consideration may be given for appointment of some full timers on the board or an alternative institutional role in the form of revival of Pepco in a much improved, expanded and innovated forms. We have discussed it many times earlier in this space and elsewhere. Nevertheless, merit-based appointments on the board can bring about some performance improvements. There has been some improvement in this regard recently which ought to be acknowledged.

Transparency

1. NEP provides substantially to improve transparency. It stresses data transparency in all sectors and segments of electricity sector. Power market can function only with data transparency. Also consumers have a right to know as well. Presently, data transparency is not there which is indicated by the recent load-shedding. People conjectured as to what was the reason and source of load shedding. Interestingly, daily power generation data has remained a great secret and was not communicated to even government departments, i.e., Planning Commission. There are other non-transparent practices in the power institutions which have to be addressed.

2. There has always been scepticism on the process of project approval of LoIs and LoS. Although, if power market is brought about, these processes of LoI and LoS may be done away with, to the extent, these remain operative, institutional arrangement for preventing abuse of power has to be introduced. There are other non-transparent practices that need to be taken care of. Nepra’s decisions are often based on PPIB recommendations. A transparency and performance review may have to be instituted for all electricity organisation is required as has been proposed by NEP for Nepra. Right to Information legislation is already there. It should be encouraged and implemented in all electricity organizations.

3. Perhaps, NEP authors have forgotten to mention the role of tribunals in conflict resolution. Electricity Tribunal is on the cards for quite some time now. Consumer rights to go to tribunal will increase transparency. There may be a surfeit of tribunals if all tribunal proposals are accepted. There are three or four tribunals in pipeline; power, gas, and NEECA Energy conservation. Perhaps, one consolidated energy tribunal may be in order.

Regulator’s performance review

1. Regulator’s (Nepra’s) performance has been debated and often termed wanting. Some and not all of the criticism may be well founded. NEP provides for performance review of the regulator to be done within the next 12 months for the first time and every four years thereafter. The review should include a sample of the review of determinations, its results, data input and variances with the market and best practices. It should identify weaknesses and gaps in capacity and capability and suggest action for improvements. Locals may never be able to do an impartial and objective evaluation. International experts may be easily procured through IFIs technical assistance.

Provincial issues

1. There are some controversies dealing with the provinces. Will the provinces cooperate with the federal government in the same way as has been required in NEP? The issue of provincial transmission companies and their linkages with the mainstream; adding transmission cost for computing generation cost that may hurt hydropower’s competitiveness reducing KPK NHP income; and the NHP issue itself which has become a major political bottleneck. Provinces demand more say in the power sector. They want to install their own generation plants and transmission lines. It requires a separate discussion. We will discuss these at a later opportunity.

(Concluded)

(The writer is former Member Energy, Planning Commission and author of several books on Energy Sector)

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