Power planning – half-baked

Rumour has it that the recently issued Medium Term Economic Framework (METF) was released half cooked. Just going through the energy chapter of the METF, one would fall for the rumour. It is rare-medium. National electricity is being prepared, a 5-year national electricity plan will be prepared, task force is preparing policy recommendations, and many other “wills”.

Clearly, the pace of reforms is painfully slow, for the magnitude of problem at hand, even if one does not question the will at this point. The METF mentions that a long-term integrated energy plan is also under preparation to change the fuel mix over time to lower the cost.

This brings to mind the very detailed document “Integrated Energy Plan” prepared by the Energy Experts Group, first back in 2009-10, and later modified in 2014-15. The Plan had the problems and solutions laid down in extensive detail – but it kept gathering dust for years. One wonders the need to prepare a whole new plan, when it could be put in place with some minor adjustments.

The document also highlights how the government is eager to go for full cost recovery of electricity. That is an absolute must for the sector reform to yield the desired results. Having said that, pinning hopes on the recent price increase in January 2019 to “significantly reduce the financial gap for power sector utilities,” is asking for too much. The subsequent subsidized tariffs announced for the export oriented sector and the general industry have created an unfunded subsidy of Rs110 billion for the full year – of which half will remain unfunded in FY19. Even if the plan to recover all costs and eliminating unfunded subsidies is put in place from the beginning of FY20 – that would mean making massive room for subsidy allocation in a situation of fiscal crunch – which seems highly improbable.

Shortcoming aside, the energy reform plan does hit few right notes as well, such as energy conservation plan, refinancing circular debt through Sukuks, automated metering infrastructure, quarterly tariff adjustments, and better mechanism to control power theft. All of these should be vital cogs of the reform wheel, but privatization is nowhere to be seen. And if the government is serious in unbundling the whole chain and run it on a commercial market basis, then without separating it from the ills of state-owned inefficiencies –the road to success will remain less travelled.