Pakistan has been faced with power crises and its multiplier effect on the economy for decades. This issue has been reviewed extensively and many options have been debated by experts at private and governmental level. I would like to add my views to this important debate which surely requires quick action. In order to have a coherent and meaningful debate on this subject, it's critical to divide this topic into two distinct parts - transmission and distribution (T&D or Discos), and generation. While T&D could be further divided into two parts but for the purpose of discussions in this write-up, this would be discussed in tandem/together. Part 1 of this article will cover the issues in T&D and their possible solutions whilst Part 2 will discuss the solutions for the challenges on the generation front.
The most interesting fact is that the predominant reason for loadshedding has been shifted from the conventional shortfall of most viable/economical generation capacity to the ability of T&D, basically Discos, to carry more than 15000 MW at a given point in time to the end consumers. Not that the constraints of generation capacity have disappeared, and hence this shift, but it's just that these deficits have been overtaken by the impediments of T&D - in 2008, ~11% of the electricity load-shedding was attributable to the bottlenecks at the level of Discos, as opposed to ~65% in 2014, as per the data provided by NTDC.
Solutions for the two divisions are very different given, of course, the distinct nature of the two businesses. The solution to take care of the generation is a bit more complex and strategic/long-term in nature; while the issues of Discos are more operational/managerial in nature and are fixable in the short to medium term. The element of large funding requirement, however, in both the cases, is common.
The primary requirement in T&D is to fix the structural and the management issues which could be pursued in two stages/phases. In the first stage, there's serious need to take these entities out of the clutches of NTDC, undertake certain structural changes, and provide them independence in terms of management and operations. Practically housing all these entities under NTDC, albeit administratively, makes the whole business of NTDC ungovernable, which not only has to supervise the operations of these entities but also have to work on the future expansion of the network and manage CPPA loop at the other end of the power chain. Government's objective to cross-subsidise the unviable entities with the viable ones and do equal load-shedding in all Discos, need to be addressed in the first-place for these entities to move-forward and deliver. This structural road-block has to disappear when there will be an independent/empowered Board of Directors and the CEO in each of these nine entities who run these entities independently with full authority/autonomy to hire/fire people, make commercial calls, plug-in collections/leakages across the board, and take decisions in the best interest of their respective territories. The mandate of the Board and the CEO shall be to get the best professionals from the market and does the management/operational restructuring necessary to turn these entities around into financially viable/profitable businesses. We have the example of successful banking sector turnaround in three years from the second term of the Nawaz Sharif Government. Similar sort of resolve and commitment is required in case of turning around the T&D Sector in Pakistan now. This is important to note that for the CEOs of these entities, power sector experience is good to have only. They basically require good/competent manager/administrator with full authority to make difficult decisions really. The financial sector had a unique advantage of very strong regulatory environment. Like SBP, Nepra is a strong regulator but it's much younger in age and is in the process of evolution. There's genuine need of capacity building in NEPRA like rest of the power sector. There maybe certain pieces of regulations which may need to be tightened to ensure full success and benefits for the masses, post-privatisation of the Discos. Fixing of financials (audit, etc) and/or any other issues, including property title documentation, etc, which turned out to be an issue in extracting/securing the full amount/payment in the privatisation of PTCL, have to be addressed on priority. Any necessary regulation and financials/property related matters have to be sorted out/rolled out in this first stage of restructuring only.
The process of revamping and expansion of the network must continue, simultaneously, for which the Government has to allocate the most necessary funding and tap into the funding pool available out there with the multilaterals globally. The collections process must also be pursued without any exception by introducing innovative ideas/ tried & tested solutions in the other Discos in Pakistan and in the region (collection outsourcing in troubled areas, etc) and the state-of-the-art-technology (smart-metering, etc).
In the second stage, privatisation needs to be pursued. There must be "tailor-made solution" for each entity; "one-size-fits all strategy" won't work. Every Disco has its own unique features and specific issues; generic or overlapping items/ issues will be very few. For example: the solution required for FESCO (Faisalabad) will be very different from TESCO (Tribal Areas), given only the uniqueness of cultures in the two areas. The process of privatisation remains the key and must be handled in the most professional and transparent way. There was an option for the government/Privatisation Commission to follow thru on the privatisation of these Discos by either offering each DISCO once at a time or as part of a cluster of one or two. Both strategies have had its pros and cons which should have been further evaluated and finalised once the restructuring exercise was completed. However, the Government/ Privatisation Commission seem to have taken a decision on it already and the chosen process is much on its way. Now, the Privatisation Commission has to ensure active participation from interested parties thru specific Roadshows in selected countries/regions, particularly China (and other Asian countries), Turkey, Saudi Arabia, the UAE, Qatar, London, USA, etc, on a one-on-one investor basis. Only direct selling will ensure maximum extraction of value.
I must re-emphasise that the above discussion is merely one piece of the equation to achieve the most affordable, long-term sustainable energy supply in the country. Solution to the second piece - Generation - is equally important, if not more, and will be discussed in Part 2 of this article.
While suggesting any solution on the generation front, one need to keep affordability (costing/ pricing) and availability (net thermal efficiency/ usage) of resources/ electricity in view. There are no quick fixes to this problem at hand but surely some options could help in addressing this issue quicker than the others. The quantum of the issue is so large (demand-supply deficit of 6000-7000 MW and growing) that the solution has to be such that it would address this deficit adequately, eg, Alternate Energy Fuels - Wind, Solar, Waste-to-Energy, Run-of-the-River, etc - could be one of the supplemental fuels but can't possibly be the main fuels to address this large gap. These fuels are essentially long-term solutions (12 years and beyond) and will always be limited in scale due to capacity utilisation/technology.
The viability/cost-effectiveness of the other alternate fuels could be discussed in this write-up but for the time being, I would like to confine myself to Solar alone, as there has been a considerable debate about Solar as being electricity/ power solution recently. There are three main impediments vis-a-vis Solar - 1) can't be used on a scale basis (limited supply possible to the grid); 2) the capacity utilisation is very low - below 40% - verses 80% plus in Gas and Coal; and more so 3) this is an expensive solution in the medium to immediate long term - eg, the levelled tariff in the 12-years for solar is 17/18 cents, which means that it goes beyond 22 cents in the initial years and then starts falling down.
The dynamics of other alternate fuels can also be seen in the similar context with slight variation in numbers. Solar, however, is indeed a fantastic off-grid solution for domestic heating like geysers, tube- wells, street lights, schools, colleges, etc. Basically, all those places where the utilisation is either during the day or limited for few hours with the battery support (longer and high-capacity battery requirement are not the most realisable). But more so on those items which are power-guzzlers. For the upper and the upper-middle class households, it may be a good solution, given that it requires initial high investment costs plus changes in wiring and appliances capacitors, etc.
That essentially leaves Coal, Natural Gas, and Water, as possibly the most viable options. Pakistan's extremely blessed to have abundance of Coal, Natural Gas and Water resources, and all these could very well be the main fuels at different points of time, now and in future. However, in short to medium term, contrary to the popular belief about Coal, Natural Gas is the most viable fuel to address this large power deficit in the quickest possible way at the most affordable costs/ pricing. The typical lead time for setting up coal-based power plants is 4-5 years, and building medium-sized dams is 7-10 years, whilst a gas-based power project could be converted into 9-12 months, or even earlier, on an already producing field/ mine. It's important to mention that the conversion of existing Diesel/Residual Fuel Oil (RFO) based power plants to coal, may be the quickest solution to the problem (15-18 months gestation period), but it has a glass ceiling of 3000-3500 MW.
Given total estimated 66+ Trillion Cubit Feet (TCF) of explored and unexplored gas reserves in Pakistan: existing reserves are ~29 TCF whilst our annual utilisation is ~4 BCF. The unexplored reserves are estimated to be in the vicinity of ~37 TCF. This is pretty sizeable and that's onshore only. We have huge opportunities offshore and, of course, Shale Gas which is an expensive source of exploration and must be taken in at a later stage. The availability of natural gas for power, therefore, can easily address the current deficit. It can also contribute substantially towards the future energy needs thru rationing of the existing resources and better Exploration and Production (E&P) activities.
The existing rationing of the supply of Natural Gas to CNG and the subsidised industries like Fertiliser could in itself take care of the existing power deficit to a large extent in the shortest possible time. The complete diversion is neither possible nor practical; however, progress has been made in this direction and more is desired by gradually withdrawing subsidies and encouraging these two industries to switch completely to the fuels like LNG over the next 3 years.
Another area which needs rationing is domestic consumers (second largest user of natural gas - north of 18%). This segment needs to be diverted away from natural gas usage to power and/or solar, particularly for domestic heating. The new large real estate projects should not be allocated gas or electricity. They need to find their own power generation solutions, ideally solar or wherever possible wind. Solar-driven domestic heating initiatives to be made mandatory for all the future requirement. There shall be fiscal benefits, both in the forms of taxation and concessional credit, for encouraging utilisation of solar as the fuel.
E&P activities have been lacklustre in the last few years largely due to security concerns in the oil and gas rich territories, as well as unattractive wellhead prices. Additional domestic gas production is surely a way to reduce the deficit and the cost of power generation. The (indicative) supply curve for domestic gas in Pakistan shows that 85% of domestic gas costs Pakistan less than $5/mmbtu. On the other hand, the cost of RFO and LNG is about three times this level. The Weighted Average Cost of Gas (WACOG) for domestic gas is in the range of $3.2/mmbtu which is why Pakistan is able to have such low retail prices of gas. The WACOG level indicates how low domestic gas prices are in Pakistan where not all of the gas potential has been realised as yet. Therefore, it is critical that Pakistan gives higher priority to further domestic gas production.
Albeit a room for improvement, the Petroleum Policy 2012 offered prices, which also allows E&P companies to apply for conversion of their existing fields to this policy prices, maybe considered adequate by the E&P industry for the time being. This can bring fresh investment to the upstream gas sector and, if guided carefully, more gas can be brought into the system in the coming 12/36 months. Even if further domestic gas comes in at the $6/mmbtu offered under the 2012 Policy, it will be much cheaper than any imported fuel, which is actually $20/mmbtu. This would mean that the power to the eventual consumers will be available at an estimated cost of $0.08/Rs 8 per KwH, which is more than half the current tariff levels. Hence, domestic natural gas becomes the most viable solution to the problem, both in terms of affordability and availability, in the shortest possible timeframe. This may require laying of distribution infrastructure for connectivity of these power plants to the grid, which could be achieved within 24-36 months and must be pursued, simultaneously.
Stated above is a solution to address the immediate power shortages for which the estimated timeline is 1-3 years. For the medium-term (4-6 years), coal, particularly that which is locally mined. The long-term (7 year and beyond) solution vests in hydropower projects. To achieve a proper fuel mix, alternate fuels to the extent of say 1/4th of that, is an absolute essential from the long-term energy security perspective. This can be achieved at the lowest possible costs which should not cross single digit ever.
This thesis makes the argument for consolidated Energy Ministry (merger of Ministry of Water and Power and Ministry of Petroleum & Natural Resources) more cogent. There seemed to be divergent priorities/views of the two Ministries - for example, the allocation of natural gas to power sector is low on the priority list of the MoP&NR, while it is, and should be, top of the MoW&P priority order. The resolution of the circular debt issue can also be best managed and resolved, if the two ministries are consolidated.