A protracted power shortage in the country has crippled the economy, as it has almost brought the industrial wheel to a standstill, resultantly export targets have not been met, besides rendering thousands of industrial workers jobless. According to National Electric Power Regulatory Authority (Nepra) annual report 2010-11, the unpredictable outages of electricity have affected industries as well as business.
As a result, the traders associated with export of goods have not been able to achieve export targets and thousands of industrial workers are facing job cuts. The report said that Pakistan is currently facing a crisis in the power sector. The energy crisis has its roots in a number of issues including lack of integrated energy planning and demand forecasting; imbalance in energy mix with heavy reliance on oil and costly imported fuel; non-utilisation of vast indigenous resources eg coal and hydel energy; lack of effective planning, structuring, and implementation of identified and viable projects.
As per the Pakistan Electric Power Company (Pepco), the shortfall of power is more than 4000 MW annually. The severity of load shedding is persistent that triggered violent protests in different parts of the country.
In the last five years, natural gas allocation for the power sector has declined and the use of furnace oil for power generation has increased considerably. The country spends billions of dollars per year on the import of crude oil and deficit petroleum products, which increased generation cost, raised circular debt and led to higher power rates. The power system is also infested with corruption and inefficiency.
The situation has aggravated to such an extent in Pepco - the entity entrusted with the task of managing the transition of the Water and Power Development Authority (Wapda) to a corporate, commercially viable and productive organisation - that the survival of the Generation Companies (GENCOs), the National Transmission and Dispatch Company (NTDC) and Ex-WAPDA Distribution Companies (DISCOs) is at stake. On the one hand, there is an acute shortage of power whereas on the other, Oil Marketing Companies (OMCs) and Gas Supplying Companies are not getting payments from the NTDC and the DISCOs, making it difficult for the OMCs to arrange fuel for the power plants. Again, the Independent Power Producers (IPPs) have minimised the supply of electricity in spite of available capacity, on account of non-payment of their dues by PEPCO and WAPDA. All these factors have led to a situation where it is virtually impossible to attract new investment.
It added that Karachi Electric Supply Company (KESC), mainly generating through various thermal power plants operated on natural gas, has not been able to run these power plants to their optimum capacity due to the declining supply of gas. The KESC has also not been able to arrange the required quantity of fuel from the market to operate these plants on alternative fuel due to its weak liquidity position, which is directly linked to the circular debt crisis with KESC owing to large payments to PEPCO and fuel suppliers. The KESC has at times not produced at peak capacity, to avoid purchasing expensive furnace oil, preferring instead to purchase cheaper electricity from the PEPCO/NTDC system. This is clearly a downside of privatising monopolies as fully integrated entities in an environment where the market is not competitively structured. The dispute between the management of the KESC and its staff labour union has further aggravated the situation.
The Ministry of Water and Power was requested to ensure that the CPPA was made fully functional with a full time Chief Executive/Managing Director, who is authorised to manage its finances particularly with a view to avoiding any delayed payment surcharge, which could not be passed on to consumers and only added to the subsidy portion.
The attention of the Ministry of Water and Power was drawn to the delayed commissioning of the IPPs and RPPs resulting in increased electricity cost. NEPRA recommended taking penal action against the RPPs, which were neither installed nor achieved the COD despite the lapse of specified time and the RPPs, which had not achieved COD within the scheduled time.
NEPRA recommended to the NPCC that before any plant was operated on HSD, the GENCOs and the KESC should fully utilise all available capacity on RFO and the plants should be operated strictly on merit order. Operation on HSD based plants needs to be restricted strictly to the canal closure period and only under exceptional circumstances.
The Ministry of Water and Power was advised to take immediate corrective measures to reduce load shedding, especially keeping in view the fact that the KESC was being supplied power by the NTDC from the power plants having highest cost of generation due to high use of RFO as well as diesel while the KESC was not operating its own power plants on RFO whose generation cost was much less than the cost of electricity generated by power plants of the PEPCO system and supplied to the KESC.
Moreover, the Ministry of Water and Power was advised to approach the Ministry of Petroleum and Natural Resources for increasing the gas share to the power sector; making efforts for the supply of gas to the most efficient plants; ensuring fuel payments to the generation companies in a timely manner to guarantee maximum operation of the plants to minimise the demand supply gap; and avoid operation of inefficient plants as much as possible.