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Opinion
Power cartel
Dr Farrukh Saleem
Sunday, October 06, 2013
Capital suggestion
Increasing electricity tariff is not the solution to our power crisis – not at all. The PPP doubled the tariff and look what happened. The real solution lies in increasing the efficiency of independent power producers (IPPs). Our gas-fired IPPs consume up to 17,000 BTUs to produce a kWh. India produces a kWh with 6,000 BTUs. Our furnace oil guzzling IPPs are taking in almost twice as much oil to produce the same amount of electricity than their efficient competitors around the world.
The problem is with the IPPs; increasing the tariff has nothing to do with the real problem. We must answer three questions: why is the price of petrol going up?; why is the price of electricity going up? And why is the price of food going up?
Q1: Why is the price of petrol going up? A: We are dependent on the international price of oil. On June 5, the day that Mian Nawaz Sharif took the prime ministerial oath, the price of oil in the international market stood at $103 per barrel. By September 6, the international price peaked out at $117 per barrel and has since been falling. In effect, the PML-N government has no control over the price of oil.
Q2: Why is the price of electricity going up? A: The PML-N’s power policy has been completely hijacked by IPPs. It is true that the government is losing anywhere from Rs300 billion to Rs500 billion a year. The power distribution infrastructure is old and needs a few billion dollars for an upgrade. Yes, there is theft of electricity and technical line losses are very high.
Now the two ground realities. One, the government does not have the billions required to upgrade. Two, given the limited capacity of the state, bringing down theft is going to be a Herculean task (the higher the tariff the more the incentive to steal). For the record, there are 29 IPPs totalling about 8,657 MW. For the record, IPPs are around 50 percent of the country’s present installed generation capacity. Increasing IPP efficiency will bring down the cost of production and fill the multi-billion rupee loss.
Now imagine; there hasn’t been an energy audit of IPPs in the past eight years. With Nepra either as an accomplice or a silent spectator, IPPs are gulping down a lot more fuel than the amount of electricity they produce. With Nepra either as an accomplice or a silent spectator, IPPs are extracting kickbacks from Oil Marketing Companies (OMCs). With Nepra either as an accomplice or a silent spectator, IPPs are raking in profits of up to 40 percent a year. This is elite capture. This is a case of the PML-N having been kidnapped by the IPPs demanding ransom from 180 million.
Q3: Why is the price of food going up? A: The fundamental driver behind food inflation in Pakistan is the excessive printing of notes by the PML-N government. Imagine; in the first 45 days the PML-N printed a colossal Rs594 billion, Rs13 billion per day, Rs550 million per hour or Rs9 million per minute. Too much money chasing too few goods.
Welcome to the ‘power cartel’. We already have a sugar cartel, a banking cartel and a cement cartel. Our czars are now sharpening their blades to deliver a brand-new cartel – the power cartel. O 180 million sheep, blades don’t cut other blades, these blades are being sharpened for no one but you.
The writer is a columnist based in Islamabad. Email: farrukh15@************.
Twitter: @Saleemfarrukh
Power cartel
Dr Farrukh Saleem
Sunday, October 06, 2013
Capital suggestion
Increasing electricity tariff is not the solution to our power crisis – not at all. The PPP doubled the tariff and look what happened. The real solution lies in increasing the efficiency of independent power producers (IPPs). Our gas-fired IPPs consume up to 17,000 BTUs to produce a kWh. India produces a kWh with 6,000 BTUs. Our furnace oil guzzling IPPs are taking in almost twice as much oil to produce the same amount of electricity than their efficient competitors around the world.
The problem is with the IPPs; increasing the tariff has nothing to do with the real problem. We must answer three questions: why is the price of petrol going up?; why is the price of electricity going up? And why is the price of food going up?
Q1: Why is the price of petrol going up? A: We are dependent on the international price of oil. On June 5, the day that Mian Nawaz Sharif took the prime ministerial oath, the price of oil in the international market stood at $103 per barrel. By September 6, the international price peaked out at $117 per barrel and has since been falling. In effect, the PML-N government has no control over the price of oil.
Q2: Why is the price of electricity going up? A: The PML-N’s power policy has been completely hijacked by IPPs. It is true that the government is losing anywhere from Rs300 billion to Rs500 billion a year. The power distribution infrastructure is old and needs a few billion dollars for an upgrade. Yes, there is theft of electricity and technical line losses are very high.
Now the two ground realities. One, the government does not have the billions required to upgrade. Two, given the limited capacity of the state, bringing down theft is going to be a Herculean task (the higher the tariff the more the incentive to steal). For the record, there are 29 IPPs totalling about 8,657 MW. For the record, IPPs are around 50 percent of the country’s present installed generation capacity. Increasing IPP efficiency will bring down the cost of production and fill the multi-billion rupee loss.
Now imagine; there hasn’t been an energy audit of IPPs in the past eight years. With Nepra either as an accomplice or a silent spectator, IPPs are gulping down a lot more fuel than the amount of electricity they produce. With Nepra either as an accomplice or a silent spectator, IPPs are extracting kickbacks from Oil Marketing Companies (OMCs). With Nepra either as an accomplice or a silent spectator, IPPs are raking in profits of up to 40 percent a year. This is elite capture. This is a case of the PML-N having been kidnapped by the IPPs demanding ransom from 180 million.
Q3: Why is the price of food going up? A: The fundamental driver behind food inflation in Pakistan is the excessive printing of notes by the PML-N government. Imagine; in the first 45 days the PML-N printed a colossal Rs594 billion, Rs13 billion per day, Rs550 million per hour or Rs9 million per minute. Too much money chasing too few goods.
Welcome to the ‘power cartel’. We already have a sugar cartel, a banking cartel and a cement cartel. Our czars are now sharpening their blades to deliver a brand-new cartel – the power cartel. O 180 million sheep, blades don’t cut other blades, these blades are being sharpened for no one but you.
The writer is a columnist based in Islamabad. Email: farrukh15@************.
Twitter: @Saleemfarrukh
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