Power sector turnaround?

Ever since the incumbent government announced a spectacular turnaround of the power sector, its claim to it has been a subject of controversy and much disputed by economic and energy analysts. The Ministry of Water and power recently announced that "with a 25 percent increase in power generation since 2013, we have touched 16 billion units' annual generation in 2016, thanks to efficient fuel consumption regime and effective controls." The claim also attracted the attention of KfW of Germany.
KfW has questioned the power ministry's claim of turning around the power sector through efficient generation and effective control, terming it "politically influenced." KfW is a government-owned development bank based in Frankfurt. Its name comes from Kreditanstalt für Wiederaufbau ("Reconstruction Credit Institute"). It was formed in 1948 after World War II as part of the Marshall Plan. KFW immensely contributed in positioning Germany as global leader in technology and a role model for the emerging markets of that time. KFW also extended its support to emerging markets in developing their energy and infrastructure.
Pakistan has also been a beneficiary. KfW is extending support to Pakistan over the last six decades through soft- and long-term bilateral loans, commercial loans and grants in support of our power sector, infrastructure and social sector projects of larger public interest. Most of the mega-hydro and thermal power plants and the transmission and Distribution system of Pakistan has KfW footprints.
Whereas most of the co-operation programmes are funded by the Federal Ministry for Economic Co-operation and Development (BMZ) and implemented by other German organisations such as GIZ, there are various individual projects implemented by Pakistani organizations which are funded directly by the Foreign Office.
It is understandable that KfW closely follows up economic development in Pakistan, notably, in the power sector, and that the Germans' observations enjoy credibility. In a policy paper released in Islamabad, KfW has stated that Pakistan's power generation has no doubt improved in recent years, but added that it came from three new power plants initiated before the current government came to power in 2013.
It said that three major public-sector power plants - Muzaffargarh, Jamshoro and Guddu - cumulatively under-performed over the past three years and produced fewer electricity units last year, compared with 2010 and 2013. KfW said it had special interest in promoting system efficiency, and therefore decided to analyse such high efficiency gains in a short period based on all figures taken from Power System Statistics 2015-16, 41st Edition Planning Power of NTDC - a subordinate company of the power ministry.
KfW is reported to have argued that achieving generation efficiency as high as 25 percent deserves applause since public sector generation increased by 3,243GWh (gigawatt hours) to 16,103GWh in 2016, compared to 12,860GWh in 2013. But the question is: Was this growth entirely due to an efficient fuel consumption regime?
KfW said the number of government-owned thermal power stations was 10 in 2013. In 2014, three new units added to the thermal power stations Guddu and Nandipur came on line. This addition does not qualify as efficient fuel consumption regime. "In 2013 and 2016, all these stations have been burning natural gas as a primary fuel," the bank stated.
In reality, a significant declining trend was seen in the amount of power generated by these three big plants since 2010. All these stations have been rehabilitated under a USAID programme in recent years and yet produced significantly fewer units in 2016 than in 2010.
The research paper said the Guddu (at 1,655MW Pakistan's largest thermal power station), had been generating fewer units since 2010 or even in 2012. In fact, in 2016 it generated units fewer than in 2015. "This station simply cannot be presented as an icon of performance," it said. He added that Guddu produced more than 7,000GWh in 2010, which declined to 5,000GWh in 2013. It produced about 3,500GWh in 2016. On the other hand, the Muzaffargarh Thermal Power Station (1,350MW) could generate over 5,000GWh in 2014, but fell off the bar in 2015, only to surface a little above the bar again in 2016. Still, its generation remains far below that in the benchmark year of 2010.
According to the KfW report, the Jamshoro power station (850MW) showed some success in 2014, a dip below that line in 2015, and struggling again to reach up to a 4,000GWh mark. The plant had shown an increase of only 675GWh (rather than 3,243GWh) since 2013, which could possibly be attributed to an "efficient fuel consumption regime and effective controls," it said.
All these numbers put "a question mark on the ministry's claim that after years of mismanagement and losses by the government-owned thermal power generation companies, Pakistan has now entered an era of performance and delivery". KfW said the increase in generation came from two additions to the system, generating 1,246GWh, as well as another 1,322GWh from the Nandipur power station.
"Construction of all these units began before 2013. They became operational recently and hence the performance of these new plants cannot be taken as an example of an efficient fuel consumption regime and effective controls," KfW asserted. It said that such an announcement by "a technical ministry may be politically influenced," but this should not undermine the importance of introducing better overall management in Gencos (generation companies) for optimising the much-needed efficiency. "After their useful life, these fossil fuel-burning plants need to be retired in favour of more efficient, preferably renewable, energy plants," the KfW study concluded.
KfW observations have merit, considering the ground realities. With a 25 percent increase in power generation since 2013 on account of an efficient fuel consumption region and better controls would have well managed the menace of circular debt which is largely on account of inefficient power generation and mounting receivables. On the contrary, the circular debt this day stands at the same level as in June 2013, if not more. Also, with this unprecedented performance beyond best global benchmarking would have evaporated the load shedding in Pakistan. The fact is that even in winter the country is experiencing load shedding.
In the meantime, Federal Water and Power Minister Khawaja Muhammad Asif has reaffirmed the commitment to ending electricity outages in early 2018 as Pakistan will be producing surplus power by that time. Speaking at the signing ceremony of two contracts, MW-01 worth Rs 115 billion and MW-02 valuing Rs 64.4 billion, with China Gezhouba Group Company for main civil works on the Dasu hydroelectric power project, the minister emphasised the government's resolve to optimally utilise hydroelectric power resources of the country in order to produce low-cost electricity, eliminate load-shedding and provide relief to people.
The fact remains that when things improve everyone will experience it. There is no need for the government to brag about it since there are no takers for it. Reliable and affordable power supply will be applauded by the public and evaporation of circular debt by entities effected by it. But we are still far away from that moment for applause. The government's isolated applauding makes no sense.
(The writer is former President Oversees Investors Chamber of Commerce & Industry)