There is a general perception in political circles - be they politicians or analysts - that if the Sharif administration is successful in reducing load shedding appreciably - as high as over 8 to 16 hours in urban and rural centres respectively during the tenure of the Zardari-led government - to less than 2 to three hours this calendar year then its re-election bid next year is guaranteed to be successful. And in this context reports indicate that this enviable load shedding target per day is likely to be achieved in summer 2017.
And yet there is growing concern shared by sector experts and bilateral donor agencies and development financial institutions that performance of the power sector has not significantly improved since 2013. What is the basis of this poor assessment when load shedding has clearly declined? There are several, external and domestic, factors that are being cited as the reason for the marked reduction in load shedding and lower per unit electricity tariff that has little to do with an improvement in the sector's governance/performance.
The Sharif administration's third tenure has been marked by a massive decline in the international price of oil, a major input for thermal power stations (TPS) -independent power producers (IPP) and state owned referred to as generation companies (Gencos). The energy mix changed in Pakistan from hydel accounting for 49 percent of total generation, with thermal accounting for 51 percent and line losses 22.5 percent in 1989, to 2012's comparable figures as follows: hydel accounted for 32 percent, government run thermal generation (Gencos) accounted for 24 percent, thermal Independent Power Producers (IPPs) contributed 41 percent to the total mix, while nuclear was 3.2 percent of the total generation.
Thermal generation utilises fossil fuels including oil, gas and coal. The international price of oil has plummeted - from a high of over 148 dollars a barrel in 2007-08 to less than 40 dollars a barrel during part of the ongoing tenure of the Sharif administration though the price has risen to 53 dollars per barrel in recent weeks. The Sharif administration opted to pass on only a part of this massive international oil price decline to consumers and justified this decision by maintaining that it would use the resulting "fiscal space" to reduce the unsustainable budget deficit that it inherited from the PPP-led coalition government; this, in layman's terms, implied raising taxes on furnace oil, a key input for thermal generation, to over 40 percent as well as adjusting rates on other imported fuels to paper over the appallingly poor performance of the Federal Board of Revenue (FBR) in meeting its over-ambitious budgeted targets year after year.
Domestic gas, another source of fossil fuel for the power sector, was decreasingly able to meet domestic demand especially during the winter months and this prompted the Minister of Petroleum and Natural Resources to sign a 15-year contract with Qatargas last year in February, though its cost is linked to the international oil price so in the event that the price of oil rises, as is forecast, so would the price of imported liquefied natural gas. It is unclear whether setting up LNG power stations and linking them with pipelines would cost less than setting up other renewable energy power plants in the short, medium and long term as no research in this regard was undertaken and the decision taken solely on perceptions of the Prime Minister's inner coterie, particularly Shahid Khaqan Abbasi, the Minister for Petroleum and Natural Resources reflecting inefficiency in decision making at a massive cost to the treasury.
Another inefficiency relates to the re-emergence of the inter-circular debt after Ishaq Dar retired 480 billion rupees on the second last day of fiscal year 2012-13, with the special report prepared by the Dar-appointed Auditor General of Pakistan concluding that the entire amount was an 'irregular payment' for 'settlement of circular debt, without pre-audit' - a debt that continues to disable the power sector companies, including the IPPs from operating at capacity. IPPs recently revealed to the public that the total verified and audited amounts overdue to the power sector (excluding Wapda) are 414 billion rupees and those owed to IPPs alone are 254 billion rupees. Disturbingly, the IPPs Advisory Council claims that "NTDC/GOP is effectively borrowing on the balance sheet of IPPs at much higher cost than it can borrow itself. Violating the contract provision in terms of payment priority/mechanism, interest payments of 51 billion rupees to IPPs have not been paid for over a year, while IPPs have to pay their bankers on time for this borrowing." When asked, the Minister for Water and Power inexplicably responded that the government has individual agreements with the IPPs and not with the IPP Advisory Council and he would request PPIB to issue a notice to the Advisory Council to making some facts that showed sustained poor performance of his Ministry public through an advertisement - a direction that PPIB refused to follow arguing that the Central Power Purchasing Agency should send the notice as the purchaser. This simply highlights the non-issues that are Khawaja Asif's focus as well as his lack of understanding of the functions of the entities under his own Ministry. IPPs have also warned that they would invoke the sovereign guarantees if the government continues to ignore calls for talks on these major issues. A meeting is scheduled for the current week though it is far from clear whether an agreement would be reached.
Gencos' operating capacity as per data released in the 41st edition of Planning Power of NTDC, a company under the administrative control of the Ministry of Water and Power, titled Power System Statistics 2015-16, shows that Gencos have been underperforming during Khawaja Asif's tenure as the Minister relative to the PPP-led coalition tenure. This was picked up by the German development bank KfW which noted that: (i) Guddu generation has been declining since 2010 (7000 GWh), and, disturbingly, generation from this Thermal Power Station (TPS) in 2016 (3500 GWh) was lower than in 2013 (5000 GWh); (ii) Jamshoro increased generation marginally in 2014, suffered a decline in 2015 and registered an increase of only 675 GWh since 2013; (iii) Nandipur remains controversial with respect to a marked escalation in its cost as well as its high cost of generation; and (iv) Muzaffargarh has the capacity to generate 5000 MW but has produced on average only 1350 MW since 2013. The KfW report also highlights the fact that the Khawaja Asif-led Power Ministry's claims of new generation additions are primarily using natural gas as fuel and their construction began well before the Sharif administration came to power leading the KfW to conclude that "these new plants cannot be taken as an efficient fuel consumption regime and effective controls." Khawaja Asif, rather bizarrely again has opted to send a notice to the KfW senior Pakistan management for damaging the government's reputation rather than challenging the data released by the NTDC which was the basis of KfW's conclusions.
Distribution companies are yet another source of inefficiencies not only in terms of checking theft (though the Sharif administration has enforced legislation on this account), or ensuring payment by federal/provincial government departments as well as institutions which remains a major inefficiency issue. Each Disco has a different distribution loss ranging from 10 percent to over 35 percent. Transmission losses are another source of inefficiency and unfortunately the Sharif administration remains focused on increasing generation rather than on ensuring that the existing generation capacity be first fully utilized (through eliminating the circular debt and improving the efficiency of Gencos) before adding onto generation. Inefficiencies of the power sector have been paid for by the consumers and continue to be paid for by consumers. If all the envisaged generation projects are completed then we would have surplus energy but the cost would remain high relative to the rest of the world given that power sector inefficiencies are not being tackled.
To conclude, low international oil prices have benefited the Pakistani consumers though the government, by adjusting the taxes on fuel constantly with the objective of sustaining its revenue, is, in turn, responsible for a decline in exports due to higher input costs relative to other sellers in the international market. This, in turn, accounts for foreign borrowing at a high cost; in short, the Ministry of Finance, the Ministry of Water and Power and the Ministry of Petroleum account for sustained inefficiencies in the economy in general and the power sector in particular in descending order of their contribution.