All the economic pain being incurred today will reap fruits tomorrow only if structural reforms and correction in imbalances take place. At the heart of the problem is inefficiencies in energy sector and blind addition of capacity on guaranteed exuberant returns without consideration of holistic demand and supply situation. The resolution of energy mess is utmost important for future sustainable recovery; but not only media and analysts’ community discourse is missing, also the government instead of reversing the bad of past, is making it uglier by adding fresh woes. And as a result, the good may get lost in the process.
There are two electricity systems that operate in Pakistan – NTDC and KEL. KEL is only in south while NTDC is all around the country. Within the NTDC system, there is supply glut in the south and existing and to be capacity payments are reeking of the fiscal imbalances (on amount that is not yet on the balance sheet). The capacity payment has to be made with or without production/consumption.
There is shortage in KEL system and that is being filled by regular supply by NTDC system. But KEL wants its own generation capacity to expand – and the best way could have been to novate some of the surplus capacity from NTDC to KE. The idea has been covered adequately in this space over the last year or so. The special advisor on energy, Nadeem Baber acknowledged the need in his interview with BR. But still KE is coming up with its own new power generation.
KE has awarded an EPC to Siemens-Harbin consortium for 900MW power plant at Port Qasim costing $425 million. The plan is to execute it on fast track basis and with the aim to have power generation to be added by summer of 2021. Yes, there is need for more power in KE system; but what about the supply glut in NTDC. Is there anybody to vouch for country’s larger interest?
According to recently published NEPRA State of the Industry Report 2018, the total installed capacity factor – measured as a percentage of installed capacity that is utilized - was 41.5 percent in 2018 versus 51.2 percent in 2014, and similar is the trend of load factor that stood at 64 percent in 2017. The installed capacity for NTDC is 35,870 MW for 2019 whereas the planned generation capacity is estimated at 26,887MW while peak projection demand is at 27,261MW.
Not all the installed capacity can be used as renewables, while flows from large hydro projects also fluctuate. The planned generation capability as per NTDC takes care of these factors and is the available capability for peak demand. The gap is negative at 374MW in 2019, but due to the addition of new plants, there will be surplus of 5,500MW in 2023.
The gap in KE is estimated at 726 for 2020, including 650MW from NTDC. KE would be in surplus due to upcoming plants envisaged by the company, but what about the surplus in NTDC system– there has to be some matching of both. It is important to note that these demand factors are for peak months while most of year the demand is much lower.
Such factors add to the circular debt more than anything else. The stock of circular debt is standing at whopping Rs1.7 trillion and this is not directly reflecting on government books. Now under the IMF, NEPRA is to become autonomous, and all the increase in cost has to be passed to the consumer. That is better than piling up circular debt, but because of this with every new plant, there will be higher capacity payment and tariffs have to be revised upwards!