Circular debt to be Rs50-60 billion by July 2020

[VCheng]

yes but that time is surely not 8 months... especially when the previous govt leaves the economy at the verge of collapse: the economy first collapses before recovering

Very true. I have been advocating giving PMIK the remainder of his term to deliver results according to what he promised during his campaign. He has time still.

 

[Zulfiqar]

A related article w.r.t circular debt.



An interview with Dr Fiaz Chaudhry, Director Energy Institute LUMS
‘
Dr. Fiaz Chaudhry is the former Managing Director of the National Transmission and Despatch Company (NTDC) and the current Director of the Energy Institute at the Lahore University of Management Sciences (LUMS). He has over 35 years of power sector experience in more than 10 countries and has led the global power system business of Hatch, a Canadian consulting firm for 15 years. He has a PhD in Electrical Engineering from Purdue University in America. Dr. Fiaz has seen it all when it comes to the power sector in Pakistan. In this candid interview, he gives his views about the challenges being faced by the power sector, the history of how we got into this crisis in the first place and the way forward.

Below are edited excerpts from the interview.

BR Research: As far as one can recall, Pakistan’s power sector has been riddled with problems. There was a time when we had surplus electricity and then the past decade saw a crippling power shortage. Please explain to us how this came about.

Dr. Fiaz Chaudhry: The deterioration started in the nineties. For any utility there are three basic functions namely generation, transmission and distribution. Before 1994, all generation plans were the responsibility of WAPDA, and it used to assess the demand to plan generation accordingly so that a balance was maintained.

Around that time, there was increasing interest in unbundling the generation component in many countries around the world including the US. Unfortunately, the Benazir government at the time also made a decision to separate generation from WAPDA and open it to the private sector. But we were not ready for that.

The Power Policy 1994 was introduced, which I call a procurement policy rather than a planning policy. Investors were getting lucrative returns and there was presence of vested interests that led to the planning process being bulldozed and unnecessary megawatts being added to the system. This led to over-pricing, and because all risks were borne by the government meant everyone wanted to put up a power plant. The result was an additional 2300MW of installed capacity more than what was required at the time in 1994.

While the world used competitive bidding to set tariffs, we introduced upfront tariffs, which were loaded with incentives. The decision making process was compromised by appointing junior officers lacking integrity who ceded to pressure by these vested groups. The generation is there now but it was neither bought nor sold. How can the money be recovered and where will the capacity payments be paid for? This is what has been happening throughout the history of Pakistan.

Then during the Musharraf era from 1999 to 2005, there was hue and cry over the surplus power which had been installed in the previous governments. This led to the accumulation of circular debt for the first time as capacity payments for many power plants had to be paid. The contracts were take or pay in nature so capacity payments were guaranteed even if there was no off-take by the government. We tried to export to India but they were producing at a much cheaper rate and refused to buy from us. The government at the time hurt the investment environment by discouraging new investment and a lot of effort was directed towards recovery. The same mistake is being repeated by this government.

Back in 1999, WAPDA wrote a letter to the government that warned that load-shedding will start in 2005-6 and highlighted the need to set up more generation. However, as there was plenty of surplus power in 1999 the government did not heed the advice. The result was a deficit from 2005 to 2013 and constant load-shedding took place.

BRR: Lets’ talk about circular debt in more detail. Recent estimates put the figure at Rs1.5 trillion. When the PML-N government came into power they cleared more than Rs400 billion circular debts but it is now more than triple that amount in less than six years. Why does it keep ballooning?

DFZ: The circular debt came into the equation when the planning process was disregarded and power plants were set up without following any processes and proper demand forecast. A major reason has been non-compliance of the NTDC’s Grid Code 2005, which gives detailed instructions on every aspect of the power system and can be considered as the bible for the power sector.

There has been an absence of a power generation plan by NTDC and no monitoring from the side of the regulator. In such a situation everyone becomes a generation planner and lobbies rule. This leads to sub-optimal generation resources and the induction of wrong technology with high capex costs.

This drives the tariffs up as there is no reference or least-cost option available from the NTDC plan. The end result is creation of potential capacity trap with huge volume of capacity payments. There is also the risk of early retirement of value generation assets due to underutilization. In addition, as transmission is largely ignored, this leads to higher losses that again lead higher transmission tariffs. All of the above is a vicious cycle and leads to circular debt.

BRR: What is the solution to these problems then?

DFZ: The power sector needs to be structured correctly first and foremost. There needs to be a merger of some power sector entities to create a new organisation called “Independent System Operator” to avoid duplication of efforts and conflicts. On the other hand, the NTDC needs to be tasked with the planning task and develop an Integrated Energy Plan (IEP) for at least 20 years.

The Private Power Infrastructure Board (PPIB) along with the Alternative Energy Development Board and the provinces need to procure generation capacity and energy needs only according to the developed IEP plan. The NTDC’s role should be that of the market operator and to promote an efficient and openly competitive market for electricity.

The NTDC’s grid code needs to be followed while simulation studies need to be conducted to assess the need for the type of generation projects, their utilization and fuel usage. This will avoid idle capacity and must run energy payments. The existing power purchase agreements (PPAs) need to be renegotiated with the Independent Power Producers (IPPs).

BRR: You have run the numbers on the financial impact of the power sector from 2019-2025 in collaboration with LUMS. Please share some insights from your analysis.

DFZ: Let’s talk about the capex requirement first, which is about $65 billion from 2015-2024 out of which $50 billion is required in generation and $15 billion in the transmission and distribution network. This is a serious undertaking and amounts to doing the work that we have done in the past seventy years in the next five years.

The total power sector payments including generation, distribution and transmission components would amount to roughly Rs5 trillion in 2025, which is around Rs2.5 trillion for this year. To put this in perspective, our defence budget and foreign debt servicing combined for this year equals close to Rs4 trillion.

In the normal demand scenario that we modelled, the capacity payments will increase from Rs773 billion to Rs1,610 billion (over 200 percent increase), while the capacity payment ratio in the basket price changes from 50 percent to 70 percent by 2025.

The energy payments for “must run” plants will increase from Rs322 billion to Rs523 billion (over 162 percent increase) and this will cause the competitive market available to shrink drastically. The energy payments for power plants under competitive bidding will decrease from Rs427 billion to Rs204 billion essentially becoming less than half.

BRR: The baseload is only 8000MW meaning that this is the amount we use more or less throughout the year except for peak demand in summers. However, installed capacity is now close to 35000MW. What should be done to utilize the excess power?

DFZ: The need is to increase the base load from 25-40 percent of peak demand in the next three to five years by encouraging and facilitating local manufacturing. This is inevitable for sustainability of the power sector.
The special economic zones (SEZs) should be established where existing transmission lines are available and connections can be given immediately. International manufacturers must be encouraged to establish manufacturing facilities in Pakistan. This will allow us to sell the excess electricity that we are producing.

There is also a need to encourage electric vehicles (EVs), which is a great flexible load for the grid. Moreover, indigenous research and development in the energy sector needs to take place by engaging universities.

BRR: Despite a ban on imported fuel power plants, a fourth R-LNG power plant of 1263MW has been approved for Punjab. What is your view on this?

DFZ: I opposed this decision when I was head of NTDC, and it is against the recommendations of the Demand-Supply Analysis 2018-2025 report. According to the financial impact analysis this will result in Rs85 annual financial commitment for 15 years as part of the fuel supply agreement alone. If this power plant would not have been procured, it would result in savings of Rs5.5 billion in 2020 all the way to Rs41 billion in 2025.

BRR: What are your thoughts about the regulation in the power sector?

DFZ: There is an inherent design flaw in Nepra. Members are nominated from provinces on quota basis but what regulatory experience or technical skillset do they possess? This leads to these members relying on the technical input of junior staff, which results in poor regulation. It also means it is easier for the regulator to succumb to pressure from lobby groups.

The NTDC grid code was never followed and it was Nepra’s responsibility to have the grid code implemented. If it had been followed in letter and spirit, the power sector would not have been in this mess. When has NEPRA ever written to NTDC that it is supposed to submit a power generation plan to the regulator in the past 15 years? This happened because there is compromised leadership in both institutions. The result was a demand supply gap that led to interventions by bureaucrats and political government. Unfortunately, Nepra became a licensing authority rather than a regulator.

BRR: There have been proposals of decentralising the power sector to provincial level following the 18th Amendment. Do you think it is feasible to do this?

DFZ: No. It will only exacerbate the mess in the power sector. The federal government was unable to handle the planning process and coordination amongst the 14 departments, which came about as a result of unbundling of WAPDA. Imagine the coordination and effort required to manage 14 departments in each province that will add up to a total of 64 departments. How do you expect the provinces with their current institutional capacity to undertake such a mammoth task?

BRR: Please tell us about the initiatives at the LUMS Energy Institute.

DFZ: We have undertaken a comprehensive study of electricity demand and supply scenarios with a focus on capacity and financial impact from 2019-25. We have also come up with electric vehicle policy recommendations, which utilize excess electricity, improve the environment and reduce the fuel import bill. There has also been an assessment of competitive electricity markets.


https://www.brecorder.com/2019/06/2...payments-to-be-north-of-rs5-trillion-in-2025/

 

[Sugarcane]

A related article w.r.t circular debt.



An interview with Dr Fiaz Chaudhry, Director Energy Institute LUMS
‘
Dr. Fiaz Chaudhry is the former Managing Director of the National Transmission and Despatch Company (NTDC) and the current Director of the Energy Institute at the Lahore University of Management Sciences (LUMS). He has over 35 years of power sector experience in more than 10 countries and has led the global power system business of Hatch, a Canadian consulting firm for 15 years. He has a PhD in Electrical Engineering from Purdue University in America. Dr. Fiaz has seen it all when it comes to the power sector in Pakistan. In this candid interview, he gives his views about the challenges being faced by the power sector, the history of how we got into this crisis in the first place and the way forward.

Below are edited excerpts from the interview.

BR Research: As far as one can recall, Pakistan’s power sector has been riddled with problems. There was a time when we had surplus electricity and then the past decade saw a crippling power shortage. Please explain to us how this came about.

Dr. Fiaz Chaudhry: The deterioration started in the nineties. For any utility there are three basic functions namely generation, transmission and distribution. Before 1994, all generation plans were the responsibility of WAPDA, and it used to assess the demand to plan generation accordingly so that a balance was maintained.

Around that time, there was increasing interest in unbundling the generation component in many countries around the world including the US. Unfortunately, the Benazir government at the time also made a decision to separate generation from WAPDA and open it to the private sector. But we were not ready for that.

The Power Policy 1994 was introduced, which I call a procurement policy rather than a planning policy. Investors were getting lucrative returns and there was presence of vested interests that led to the planning process being bulldozed and unnecessary megawatts being added to the system. This led to over-pricing, and because all risks were borne by the government meant everyone wanted to put up a power plant. The result was an additional 2300MW of installed capacity more than what was required at the time in 1994.

While the world used competitive bidding to set tariffs, we introduced upfront tariffs, which were loaded with incentives. The decision making process was compromised by appointing junior officers lacking integrity who ceded to pressure by these vested groups. The generation is there now but it was neither bought nor sold. How can the money be recovered and where will the capacity payments be paid for? This is what has been happening throughout the history of Pakistan.

Then during the Musharraf era from 1999 to 2005, there was hue and cry over the surplus power which had been installed in the previous governments. This led to the accumulation of circular debt for the first time as capacity payments for many power plants had to be paid. The contracts were take or pay in nature so capacity payments were guaranteed even if there was no off-take by the government. We tried to export to India but they were producing at a much cheaper rate and refused to buy from us. The government at the time hurt the investment environment by discouraging new investment and a lot of effort was directed towards recovery. The same mistake is being repeated by this government.

Back in 1999, WAPDA wrote a letter to the government that warned that load-shedding will start in 2005-6 and highlighted the need to set up more generation. However, as there was plenty of surplus power in 1999 the government did not heed the advice. The result was a deficit from 2005 to 2013 and constant load-shedding took place.

BRR: Lets’ talk about circular debt in more detail. Recent estimates put the figure at Rs1.5 trillion. When the PML-N government came into power they cleared more than Rs400 billion circular debts but it is now more than triple that amount in less than six years. Why does it keep ballooning?

DFZ: The circular debt came into the equation when the planning process was disregarded and power plants were set up without following any processes and proper demand forecast. A major reason has been non-compliance of the NTDC’s Grid Code 2005, which gives detailed instructions on every aspect of the power system and can be considered as the bible for the power sector.

There has been an absence of a power generation plan by NTDC and no monitoring from the side of the regulator. In such a situation everyone becomes a generation planner and lobbies rule. This leads to sub-optimal generation resources and the induction of wrong technology with high capex costs.

This drives the tariffs up as there is no reference or least-cost option available from the NTDC plan. The end result is creation of potential capacity trap with huge volume of capacity payments. There is also the risk of early retirement of value generation assets due to underutilization. In addition, as transmission is largely ignored, this leads to higher losses that again lead higher transmission tariffs. All of the above is a vicious cycle and leads to circular debt.

BRR: What is the solution to these problems then?

DFZ: The power sector needs to be structured correctly first and foremost. There needs to be a merger of some power sector entities to create a new organisation called “Independent System Operator” to avoid duplication of efforts and conflicts. On the other hand, the NTDC needs to be tasked with the planning task and develop an Integrated Energy Plan (IEP) for at least 20 years.

The Private Power Infrastructure Board (PPIB) along with the Alternative Energy Development Board and the provinces need to procure generation capacity and energy needs only according to the developed IEP plan. The NTDC’s role should be that of the market operator and to promote an efficient and openly competitive market for electricity.

The NTDC’s grid code needs to be followed while simulation studies need to be conducted to assess the need for the type of generation projects, their utilization and fuel usage. This will avoid idle capacity and must run energy payments. The existing power purchase agreements (PPAs) need to be renegotiated with the Independent Power Producers (IPPs).

BRR: You have run the numbers on the financial impact of the power sector from 2019-2025 in collaboration with LUMS. Please share some insights from your analysis.

DFZ: Let’s talk about the capex requirement first, which is about $65 billion from 2015-2024 out of which $50 billion is required in generation and $15 billion in the transmission and distribution network. This is a serious undertaking and amounts to doing the work that we have done in the past seventy years in the next five years.

The total power sector payments including generation, distribution and transmission components would amount to roughly Rs5 trillion in 2025, which is around Rs2.5 trillion for this year. To put this in perspective, our defence budget and foreign debt servicing combined for this year equals close to Rs4 trillion.

In the normal demand scenario that we modelled, the capacity payments will increase from Rs773 billion to Rs1,610 billion (over 200 percent increase), while the capacity payment ratio in the basket price changes from 50 percent to 70 percent by 2025.

The energy payments for “must run” plants will increase from Rs322 billion to Rs523 billion (over 162 percent increase) and this will cause the competitive market available to shrink drastically. The energy payments for power plants under competitive bidding will decrease from Rs427 billion to Rs204 billion essentially becoming less than half.

BRR: The baseload is only 8000MW meaning that this is the amount we use more or less throughout the year except for peak demand in summers. However, installed capacity is now close to 35000MW. What should be done to utilize the excess power?

DFZ: The need is to increase the base load from 25-40 percent of peak demand in the next three to five years by encouraging and facilitating local manufacturing. This is inevitable for sustainability of the power sector.
The special economic zones (SEZs) should be established where existing transmission lines are available and connections can be given immediately. International manufacturers must be encouraged to establish manufacturing facilities in Pakistan. This will allow us to sell the excess electricity that we are producing.

There is also a need to encourage electric vehicles (EVs), which is a great flexible load for the grid. Moreover, indigenous research and development in the energy sector needs to take place by engaging universities.

BRR: Despite a ban on imported fuel power plants, a fourth R-LNG power plant of 1263MW has been approved for Punjab. What is your view on this?

DFZ: I opposed this decision when I was head of NTDC, and it is against the recommendations of the Demand-Supply Analysis 2018-2025 report. According to the financial impact analysis this will result in Rs85 annual financial commitment for 15 years as part of the fuel supply agreement alone. If this power plant would not have been procured, it would result in savings of Rs5.5 billion in 2020 all the way to Rs41 billion in 2025.

BRR: What are your thoughts about the regulation in the power sector?

DFZ: There is an inherent design flaw in Nepra. Members are nominated from provinces on quota basis but what regulatory experience or technical skillset do they possess? This leads to these members relying on the technical input of junior staff, which results in poor regulation. It also means it is easier for the regulator to succumb to pressure from lobby groups.

The NTDC grid code was never followed and it was Nepra’s responsibility to have the grid code implemented. If it had been followed in letter and spirit, the power sector would not have been in this mess. When has NEPRA ever written to NTDC that it is supposed to submit a power generation plan to the regulator in the past 15 years? This happened because there is compromised leadership in both institutions. The result was a demand supply gap that led to interventions by bureaucrats and political government. Unfortunately, Nepra became a licensing authority rather than a regulator.

BRR: There have been proposals of decentralising the power sector to provincial level following the 18th Amendment. Do you think it is feasible to do this?

DFZ: No. It will only exacerbate the mess in the power sector. The federal government was unable to handle the planning process and coordination amongst the 14 departments, which came about as a result of unbundling of WAPDA. Imagine the coordination and effort required to manage 14 departments in each province that will add up to a total of 64 departments. How do you expect the provinces with their current institutional capacity to undertake such a mammoth task?

BRR: Please tell us about the initiatives at the LUMS Energy Institute.

DFZ: We have undertaken a comprehensive study of electricity demand and supply scenarios with a focus on capacity and financial impact from 2019-25. We have also come up with electric vehicle policy recommendations, which utilize excess electricity, improve the environment and reduce the fuel import bill. There has also been an assessment of competitive electricity markets.


https://www.brecorder.com/2019/06/2...payments-to-be-north-of-rs5-trillion-in-2025/

So, other than reducing the pollution, EVs can also help us in addressing our circular-debt problem of energy sector. If it's true than what we are waiting for?

 

[Zulfiqar]

So, other than reducing the pollution, EVs can also help us in addressing our circular-debt problem of energy sector. If it's true than what we are waiting for?

We have 3M plus vehicles running around (excluding bikes).

If we are to replace even 500 K of them in five years at 35,000$ (PKR 5.49 M- I am being optimistic here) via direct imports (no local production) we are looking at an FX outflow of 17.5 Billion USD. The govt would have to offer a subsidy of USD 17,500 per vehicle to bring the final cost to around 2.74 M PKR so that middle class customers can buy these types of vehicles instead of corolla/city e.t.c.

This means additional debt of 8.75 B USD for the govt. over 5 years apart from current circular debt (funded plus payables of 10 B USD)

This subsidy would have to be borne regardless of import or local production considering high EV per unit cost.

Full 3 M substitution requires 105 B $ plus expenditure at present levels.

The above does not include cost for spare parts and supercharger network.

EVs will not reduce the overall import bill unless we find substitute for following in local market. By import bill I mean the usage of FX for paying for the following:

• Capex for setting up plant.
• Capex for battery plant.
• FX for payment of dividends/interest and loan installments to foreign investors
• FX for opex e.t.c

However, it will reduce the overall petroleum based import bill down the line (a portion of overall import bill). That will be offsetted by increased LNG import (unless we divert some of the imported fuel stock for generating electricity for EV only).

If somehow we can arrange FX for all the above (either for direct imports or for local production) and somehow build a supercharger network then we will be able to use that reduce our circular debt by adding a surcharge in final tariff to recover the 8.75 B $ subsidy and the 10 B $ plus circular debt.





I have yet to read the below study but from initial go through it looks like a good one.

http://web.lums.edu.pk/~eig/pdf/evReport.pdf

 

[Pakistansdefender]

Half the people here didn't read the article and start commenting .
Atleast they are trying to reform.
We have become such a sick nation and have fallen in love with our ills and pains that whenever anyone starts to do reforms our first expressions is 'you cannot reform things in Pakistan' .
Electricity circular debt is not a thing achieved in an year or two. They are moving forward towarda electric metering plus going after the theifs too . What people forget is that they have to work with the same people and infrastructure that exist . They cannot built a new infrastructure to collect electricity bills etc.
Only last year of previous government is enough to destroy our economy by making such huge skyrocketing losses .
Stop being a pessimist nation .

 

[VCheng]

We have become such a sick nation and have fallen in love with our ills and pains that whenever anyone starts to do reforms our first expressions is 'you cannot reform things in Pakistan' .

This is not a sickness. This is a design feature that provides the results we seek.

 

[Sugarcane]

We have 3M plus vehicles running around (excluding bikes).

If we are to replace even 500 K of them in five years at 35,000$ (PKR 5.49 M- I am being optimistic here) via direct imports (no local production) we are looking at an FX outflow of 17.5 Billion USD. The govt would have to offer a subsidy of USD 17,500 per vehicle to bring the final cost to around 2.74 M PKR so that middle class customers can buy these types of vehicles instead of corolla/city e.t.c.

This means additional debt of 8.75 B USD for the govt. over 5 years apart from current circular debt (funded plus payables of 10 B USD)

This subsidy would have to be borne regardless of import or local production considering high EV per unit cost.

Full 3 M substitution requires 105 B $ plus expenditure at present levels.

The above does not include cost for spare parts and supercharger network.

EVs will not reduce the overall import bill unless we find substitute for following in local market. By import bill I mean the usage of FX for paying for the following:

• Capex for setting up plant.
• Capex for battery plant.
• FX for payment of dividends/interest and loan installments to foreign investors
• FX for opex e.t.c

However, it will reduce the overall petroleum based import bill down the line (a portion of overall import bill). That will be offsetted by increased LNG import (unless we divert some of the imported fuel stock for generating electricity for EV only).

If somehow we can arrange FX for all the above (either for direct imports or for local production) and somehow build a supercharger network then we will be able to use that reduce our circular debt by adding a surcharge in final tariff to recover the 8.75 B $ subsidy and the 10 B $ plus circular debt.





I have yet to read the below study but from initial go through it looks like a good one.

http://web.lums.edu.pk/~eig/pdf/evReport.pdf

When there is will, there are ways as well.

I am not aware of the costs of electric cars, If it's about $35,000 as you said then they are already out of range for middle and upper middle class who buy local vehicle (only local parts of these vehicles are tin box in which they install engine, maybe the seats, side mirrors and wipers etc. So, it's not there's not out flow of ForEx for these so called local vehicles). Vehicle costing $35K and above are already imported ones mostly, so we aren't talking about any new out-flow of forex as it's already happening.

We can start with electric buses (which again we are already importing), start with CKDs with clear targets of localization. Charging stations network will gradually develop when there will be demand just like CNG stations network developed and now LPG network is mushrooming.

Edit: Along with electric buses, we can start replacing most polluting and noisy auto rickshaws with electric ones. I am sure it can be built in $1000 price which will be almost same as current ones.

 

[Zulfiqar]

When there is will, there are ways as well.

I am not aware of the costs of electric cars, If it's about $35,000 as you said then they are already out of range for middle and upper middle class who buy local vehicle (only local parts of these vehicles are tin box in which they install engine, maybe the seats, side mirrors and wipers etc. So, it's not there's not out flow of ForEx for these so called local vehicles). Vehicle costing $35K and above are already imported ones mostly, so we aren't talking about any new out-flow of forex as it's already happening.

We can start with electric buses (which again we are already importing), start with CKDs with clear targets of localization. Charging stations network will gradually develop when there will be demand just like CNG stations network developed and now LPG network is mushrooming.

Edit: Along with electric buses, we can start replacing most polluting and noisy auto rickshaws with electric ones. I am sure it can be built in $1000 price which will be almost same as current ones.

It costs $ 30-35K plus for a decent four seater that is not a dinky.

https://www.bloomberg.com/news/feat...-being-built-by-billionaire-s-energy-absolute



For that amount you can buy two local 1.6L corollas or two used 2015 imported toyota aqua hybrids.

Without a subsidy/rebate there won't be enough of a market because it will be out of reach of most users. It will cost as much as a Toyota Hilux Revo.

Regardless of how much of the EV will be produced here, we are looking at additional debt of 8.75 B $ to cover the subsidies (if govt go aheads with it)

How and why the govt. will spend that much in subsidies to cater to 500,000 families when it would be wiser to use the same amount for some other projects in order to benefit millions more.

We have 17.465 M registered bikes in Pakistan. Instead of replacing 500,000 1.3/1.6 L engine capacity cars (if the target market is middle income families) we can easily replace nearly around 9 million bikes.

This will yield more fuel saving relative to EVs as bikes use the most fuel in percentage terms.

I think that Pakistan should work on a battery plant and work on electric buses and bikes first instead of EVs.

Look at china as to how are they handling the transport problem. We need to learn lessons from them.

Charging stations can be built on the defunct CNG stations around the cities with public-private partnership.

Speakings of Electric bikes/scooters. Some years ago a factory in hattar was assembling below scooters. It ran out of juice and the guy testing it got it charging from a shop.

http://nationalgroup.pk/main-evehicle.html

 

[Sugarcane]

It costs $ 30-35K plus for a decent four seater that is not a dinky.






View attachment 566852



https://www.bloomberg.com/news/feat...-being-built-by-billionaire-s-energy-absolute



For that amount you can buy two local 1.6L corollas or two used 2015 imported toyota aqua hybrids.

Without a subsidy/rebate there won't be enough of a market because it will be out of reach of most users. It will cost as much as a Toyota Hilux Revo.

Regardless of how much of the EV will be produced here, we are looking at additional debt of 8.75 B $ to cover the subsidies (if govt go aheads with it)

How and why the govt. will spend that much in subsidies to cater to 500,000 families when it would be wiser to use the same amount for some other projects in order to benefit millions more.

We have 17.465 M registered bikes in Pakistan. Instead of replacing 500,000 1.3/1.6 L engine capacity cars (if the target market is middle income families) we can easily replace nearly around 9 million bikes.

This will yield more fuel saving relative to EVs as bikes use the most fuel in percentage terms.

I think that Pakistan should work on a battery plant and work on electric buses and bikes first instead of EVs.

Look at china as to how are they handling the transport problem. We need to learn lessons from them.

Charging stations can be built on the defunct CNG stations around the cities with public-private partnership.



View attachment 566853


Speakings of Electric bikes/scooters. Some years ago a factory in hattar was assembling below scooters. It ran out of juice and the guy testing it got it charging from a shop.

http://nationalgroup.pk/main-evehicle.html

View attachment 566856 View attachment 566857

Did you even cared to read the post you quoted? I am talking about starting with Buses and Auto-Rickshaws (Bikes can be added as you suggested) - We are already importing Buses and engines/other parts of Auto-Rickshaws & Bikes. There's no need to give subsidy, just double the import duty on these things to make them expensive than electric Buses, Autos & Bikes. Once charging network is established because of them then target replacing smaller cars with EVs.

 

[Zulfiqar]

Did you even cared to read the post you quoted? I am talking about starting with Buses and Auto-Rickshaws (Bikes can be added as you suggested) - We are already importing Buses and engines/other parts of Auto-Rickshaws & Bikes. There's no need to give subsidy, just double the import duty on these things to make them expensive than electric Buses, Autos & Bikes. Once charging network is established because of them then target replacing smaller cars with EVs.

Yes I did and that is why I seconded your idea about buses along with my suggestion of bikes instead of EVs as bikes are one of the biggest users of fuel.

I only discussed subsidy and their drawbacks about EV/Electric cars only (not other vehicles).

 

[Sugarcane]

Yes I did and that is why I seconded your idea about buses along with my suggestion of bikes instead of EVs as bikes are one of the biggest users of fuel.

I only discussed subsidy and their drawbacks about EV/Electric cars only (not other vehicles).

Okay, But I am not in favor of giving any subsidy, we can make people to adopt EVs by increasing the duties on Imported/Knockdown Kits/Parts of conventional vehicles in use, make them much more expensive than EVs, start with Busses, Auto-Rickshaws and Motor bikes. Passenger cars should be left for next phase. But the biggest hurdle I see is government's revenues, As people in Pakistan don't have habit of paying direct taxes, so indirect taxes is the major source of revenue for state and fuel is cash cow where state gets instant revenue. So, unless tax reforms in parallel are done to minimize reliance on indirect taxes, I don't think state itself will be interested in EVs.

 

[Zulfiqar]

Okay, But I am not in favor of giving any subsidy, we can make people to adopt EVs by increasing the duties on Imported/Knockdown Kits/Parts of conventional vehicles in use, make them much more expensive than EVs, start with Busses, Auto-Rickshaws and Motor bikes. Passenger cars should be left for next phase. But the biggest hurdle I see is government's revenues, As people in Pakistan don't have habit of paying direct taxes, so indirect taxes is the major source of revenue for state and fuel is cash cow where state gets instant revenue. So, unless tax reforms in parallel are done to minimize reliance on indirect taxes, I don't think state itself will be interested in EVs.

Yes, our taxation needs to be fixed as well.

We should also work on a gigafactory type project as it would yield enormous ROI to Pakistan going forward.

 

[hassanraza90]

Some times I wonder, can Pakistan be ever debt free during my life time and why there on end of loans that Pakistan has to take.

 

[Kabotar]

https://www.brecorder.com/2019/09/02/521089/521089/



An interview with Nadeem Babar – PM’s Special Assistant on Petroleum: ‘Most refineries should be shut down because they are too old and inefficient’
BR Research September 2, 2019
Nadeem Babar is a senior executive with extensive global experience in power generation, infrastructure finance and corporate finance. During his career, he has developed, financed and/or managed over 150 power plants of all commercially available technologies, as well as other energy sector assets. He has also been involved in social sector development, especially education.

Mr. Babar has an extensive international investment banking and project finance experience. He is the founder and was the CEO of Orient Power Company (Pvt) Limited until August 2018. He has served on numerous boards in the past. Currently, he serves as the Chairperson of Task Force on Energy Reforms. He is also a board member of Port Qasim Authority, Sarmaya-e-Pakistan and an independent director on the board of Samba Bank. He is the chairman of the board of Progressive Education Network, a section 42 company that runs 226 adopted government schools, with over 48,000 students.

Mr. Babar holds a M.S. in Civil Engineering Management from Stanford University, a B.A. in Economics from Columbia University and a B.S. in Civil Engineering from Columbia University. He was a member of Phi Beta Kappa (Liberal Arts) and Chi Upsilon (Civil Engineering) honor societies for academic excellence.

Last time BR Research met him in his capacity as the Chairperson Energy Reforms Taskforce, he talked at length about his plans to address the structural issues in the power sector and addressing the circular debt. BR Research sat down with Mr. Babar again recently in his capacity as PM’s Special Assistant on Petroleum where he discusses the issues faced by the petroleum sector, particularly the gas sector reforms that the government has embarked upon. The edited transcripts of the conversation are produced below:

……………………………………………………………………………………..

BR Research: Can you share the progress in the power sector for targets you shared the last time we met?

Nadeem Babar: I mentioned four actions in the power sector the last time we met. One was to bring the power tariff close to the cost after inclusion of funded subsidies. In the latest two quarters of 2019 so far, we have seen some currency movements, the impact of which will come in the future; otherwise the tariff includes and trues up everything including the capacity payments and the indexations till the beginning of this year.

The second thing I talked about was the elimination of unfunded subsidies. The total quantum of subsidies from the Tariff Differential Subsidy (TDS) model, which is roughly Rs240 billion, has been included in the budget. As per the new mechanism decided with the government, this amount has been given at the disposal of the Ministry of Power that has just appointed an audit firm, where they will submit the subsidy claim to the audit firm now. This will streamline the process of disbursement of TDS

The third aspect we discussed was transmission. We have completed about 90-95 percent of the major issues we had identified last year. We are now onto the next round of identifying places to remove any further transmission constraints. The highest power that moved through the system in June last year was 19,600MW; whereas on July 4, 2019, we hit the highest power generation of 23,050MW, which means we moved an additional 3,500MW through the system in this one year without any problem.

The fourth issue was that of losses and theft. We launched the theft control program in November last year. We collected additional Rs121 billion revenue from this program in FY19. Taking out tariff impact and additional sale of units, the net improvement has been of around Rs104 billion.

We had estimated that by year ending June 2019, the accumulation of circular debt should be Rs320 billion accumulated for that year. We are pretty much on the spot of what we had targeted. As per the provisional numbers we are at Rs350-360 billion with one caveat: the TDS for May 2019 and June 2019 has not been disbursed. Including that, we will be close to our target. In July 2019 – the first month of FY20 with the revised tariff – the gap prior to TDS disbursement is only Rs20 billion and after TDS this will come down to single digits compared to Rs38 billion per month last summer.

We have targeted less that Rs100 billion circular debt accumulation for FY20 with the monthly average of Rs8 billion after accounting for TDS disbursement. If we continue at the same pace with no new enhancements, we will be on target. For first 6 months of FY21 when some of our technology interventions would have been initiated, we will be able to bring this monthly figure of Rs8 billion to practically zero. To get to these targets, nothing new is needed. Everything that we planned is in process; – initiated or well under way. We just have to take them to conclusion.

One last thing I would like to mention is that we initiated a campaign on theft control for gas, or what is known as UFG in the gas sector, in March 2019; and we have reduced UFG by one percent in these last four months in both Sui companies. This one percent achievement is a little deceptive as in few areas we did not seen any progress. Excluding those, the improvement in UFG has been over 1.5 percent. One of these problem areas is in KP where no gas is provided to regions that produce gas and has resulted in high losses. In the SSGC network, our key concern area is Balochistan where we need to make progress on cutting gas losses.

BRR: How do you explain the idle capacity that will further go up with new capacities coming online?

NB: Though idle capacity is there, there are some misconceptions. In peak summer months, the idle capacity is zero for a month. At the same time, there is about 2000MW of capacity that needs to be shut down due to very low efficiency but is still being run in the summer. If this is done, the one-month worth of full capacity utilisation can be extended to three or four months. But since our peak comes in summer, there will be times in spring and summer where there will be unutilised capacity since we have to plan for peak summer demand.

Second, people don’t realise the natural steady decrease in capacity utilisation from summer to winter is always there when hydel is added to the equation.

And third, the availability of solar and wind is between 20-30 percent. We can’t change that so there is idle capacities depending of the variability in wind or sun since these currently are not base load supply. On paper our installed capacity is 32,000MW; but the actual effective available capacity varies with seasons due to reasons I’ve just mentioned. It peaks in summers to about 23,000 to 24,000MW, and comes down in winters with hydel dropping down to practically nil.

BRR: Tell us about the broader gas sector reforms you have embarked upon?

NB: Within the petroleum sector we have five sub sectors: E&P, Refining and marketing (R&M), Pipelines and Gas Sales, LNG, and LPG. Within the next few months, significant reforms and policy changes are planned in all these sectors. You will see a whole list of policy and regulation changes going to the cabinet or the CCI in these five segments.

We had not awarded any block in the last 5.5 years prior to this government taking office, which has resulted in dwindling gas production. Every year, we are losing about seven percent of our production. This cycle is not instant; increasing exploration and production activity today will yield results in about 3-4 years. Even the existing players have been focusing more on development wells than exploratory wells to find new gas. To address why there has been a decline in drilling interest, we started consultations with all the industry. And surprisingly, pricing of gas was not the issue; we found out that it was the risk associated with policy changes in recent years that made oil & gas exploration unfeasible for many companies. One such example is the abrogation of signed contracts by introducing a new policy that took away some concessions and forcibly converted prior contracts to new terms.

Another example is that of wind fall levy on oil. The government decided to put a windfall levy on oil when the oil price touched $140. This essentially nullified the conditions and agreement signed in the existing contracts in terms of price being paid to the producer. Effectively, when the oil hit the peak of $140 a barrel, the price paid for local oil produced peaked out at just over $60.

Then in the E&P sector, the policymaker – Director General Petroleum Concession (DGPC) – itself is the regulator.

What we are doing is that we are making changes in the policy and separating regulatory function from the policymaking. So, there will be separate regulator for the E&P sector. Whether we merge it with OGRA or make a separate upstream regulatory body that is still being debated.

Another major thing we are working on is the old fields that got concessions 20-25 years ago signed at $1.75 to $2.50 that still haven’t exhausted completely. When you put in a new production well to replace the old wells, you are not taking the risk whether there exist any gas reserves, but you are still spending money to drill a new well. There comes an inflection point where the price of gas being offered in these old fields does not justify spending money to put new wells to extract that last volume of gas. There are many fields today that still have some gas reserves but it is not economical to take that gas out at the original prices in these contracts.

Our point of view is very simple. Agreeing to import LNG at say $9 versus not willing to increase the gas prices of these old fields for example from $2 to $3 to extract that last extractable volume out is a nonsensical decision, at a macro level. Do you make changes in the agreement? Because if you don’t, the operator and the partners will abandon the field as it becomes uneconomical. If the government plans to take it over, it can only auction it again at the current prices under the existing policy which is higher.

What we are now coming up with a change in policy for these end-of-life or marginal fields where the gas from these fields is offered a new price to replace imported gas.

BRR: What are your plans for the LNG sector?

NB: Our main issue in the LNG sector is that we have two signed contracts with two terminals where effectively, the entire obligation is that of the government. Our recommendation, which the cabinet has approved, is that the government is not going to make any new financial commitments or buy LNG, except for the two terminals it has contracted with.

We want the private sector to step in. In the last two months, we have given full authority to the private players for setting up an RLNG terminal and finding their market. Secondly, if the existing terminals want to remarket their excess capacity, they are free to do so. And if they do so, and the government is not using its full capacity, then effectively they are first remarketing our unused capacity, which basically means that the take-or-pay charge that we are supposed to pay them should first reduce before they sell off the extra.

Thirdly, while the third-party access rules for the pipelines have been issued, we are now working on third-party access rules for the terminals. Effectively, we are shifting the LNG business from a pure state-led monopoly to an open market where the government will be one player, and there will be other players from the private sector. Pipeline will be open access; the available capacity is advertised and live data is available to let people make decisions as per market conditions.

BRR: What other areas are you trying to reform?

NB: In the gas pipeline segment, we plan to separate the transmission from the distribution and split the distribution into smaller units not necessarily along the provincial lines. Why do we want to separate pipelines? SNGPL operating from northern Sindh to the northern tips of KPK is too large to effectively manage. Also, if we are to allow private gas, which will not be possible without separating transmission part of the pipeline and giving it open access. Our fundamental approach in the deregulation of pipeline is to separate the trunk transmission from both gas distribution companies and combine them into a single transmission company, which will be open access. The distribution should be split in my opinion into six distribution companies and privatised where possible.

We are also finalising the laying down of the third major trunk line, because our existing trunk lines are running on full capacity. We really don’t have much room to add gas to go from south to north whether it’s LNG or domestic gas. We will take this third line to the ECC and then to the cabinet towards the end of September for approval.

BRR: Let’s talk about the downstream refining segment.

NB: Refining and marketing has three segments: refineries, OMCs and retail. I believe that except PARCO refinery, all other refineries should be shut down because they are too old and too inefficient. Because of its location, maybe I give some leeway to Attock Refinery as well.

We are currently working on two new refineries. Work on PARCO Coastal Refinery will start from the beginning of next year. It will be a 250,000-barrel top of the line deep conversion refinery and will take 5 years to complete. Because of the delay in the project, the cost of the project has gone up and PARCO does not have the financial capacity to implement the $6-7 billion refinery itself. Already UAE government has 40 percent shareholding through PARCO and it is ready to increase its position directly or through another UAE-based company.

The second refinery is the Saudi refinery which will take time. We are working on its feasibility, and I can tell you that development work is happening at a good pace.

Another related fact is that we have added a provision in the budget that those refineries that are willing to go into deeper conversion will have income tax exemption and custom duty exemption on such conversion projects as with new refineries. PRL is working to benefit from this provision.

BRR: How are you dealing with the FO crisis?

NB: Our daily FO production in around 8-9k tons, out of which 2k tons is used by general industry. So, we have about 7k tons of FO to deal with, which was previously taken up by the power sector. Byco’s one unit is not operating for some time, while Attock’s production is around 1,100 tons. ATRL gets all the crude from the north region in Pakistan and produces low sulphur furnace oil. What we have done in the previous few months is that we have sent Attock’s entire LSFO production to KAPCO.

Why are we doing it this way? There are two reasons: exporting Attock’s FO is uneconomical given the freight. Attock will be reasonably secure if KAPCO runs on fuel oil only for a month and a half in the year. We expect that in winters when the gas will be diverted to domestic sector and we are not able to provide gas to KAPCO, it will run on fuel oil for a few days in winters. So when I say that we want to end fuel oil being used in power sector, it means that other than a short window in winters when gas is diverted to domestic sector, and 15-30 days of peak summers, fuel oil won’t be used in the power sector.

In this context, the domestic production of 2,700 tons of PARCO and 1,100 tons of Attock will be consumed in the power sector for another 1-2 years. The production of fuel oil by coastal refineries, which is around 4000-5000 tons per day is the issue. Last year when this issue erupted, we made a mechanism for export of furnace oil with consultations with the refineries where we agreed to give them financial support for six months, while they developed export channels. Almost everyone agreed, but then tensions with our neigbours resulted in increase in demand for a different slate of petroleum products for defense purposes, and everything went on the back burner. This year, we will revive the plan and ultimately get the refineries to export excess fuel oil, until they upgrade.

BRR: What are the issues of the OMCs and the retailers?

NB: The issue with the OMCs is that the regulation on the storage of oil was formed in a reactive mode after the crisis of December 2015, and it has some serious structural issues. They are not thought through. Big players that have over 800 fuel stations in the country have not been able to setup new stations due to these storage regulations by OGRA. We need to fix this storage concept; rather than focusing on storage, big players talk of “inventory in country” and inventory turnover to lower cost of storage, which is more sensible to address shortage issues.

Another serious issues that the OMCs, refineries and to some extent retailers face is OGRA’s decision to factor in exchange rate fluctuation in the cost of product. In the last one-year exchange rate has moved so quickly that there is much variability in the amount at which the orders had been placed, versus the amount that was actually paid. There was a lot of agitation, and OGRA changed the regulation to end of monthly exchange rate application. While this addressed the volatility in the exchange rates, it fails to address the second factor that oil imports cannot be hedged as per SBP regulations and payments may come after the end of the month. This has resulted in the accumulation of over Rs20 billion of unrecovered costs relating to exchange movement. On the other hand, the ECC decision was to use the actual cost to make fuel price calculations. These losses due to exchange movements have been detrimental to the refineries’ and OMCs’ profitability.

The issue with the retailers is that the margin that they were given many years ago is completely off balance with today’s inflation and cost. We need to fix this as well.

BRR: Let’s talk about the LPG sector now.

NB: In the LPG sector, we are producing around 2,200-2,300 tons per day domestically on average. During peak winter times, the demand rises to 3,200-3,500 tons per day, while in summers it is around2,700-2,800 tons per day. Previously, the price at which LPG was being sold had no connection to the cost. Domestic selling prices have ranged from PKR 50,000 to 80,000 per ton. Price volatility was rampant and supply in winters became inconsistent.

To address these issues, we are coming up with a new policy in the next 30-60 days. There are four major LPG producing countries in the region: Iran, Oman, UAE, and Qatar. What we are recommending is to make a weighted basket of the indices of these four countries as the benchmark, then using an average of freight to Karachi as a levy, and peg the domestic price to the weighted basket to bring them on a level playing field. This will make supply consistent and price relatively stable.

BRR: DISCOs have been a top priority for privatisation for a longtime. What’s the progress?

NB: While a lot of work is being done in the regard, there is a discussion going on between the various government stakeholders over the timing of the privatisation process. I was asked to make a report on the privatisation of DISCOs about five months ago, which I submitted to the cabinet committee on Privatisation back in April.

I proposed that we split some DISCOs into smaller units. Out of the resulting 16-17 DISCOs, around 11 can easily be privatised, and should be privatised immediately, while around 5-6 DISCOs that aren’t yet ready can be handed over to the provinces, or continue operations in present structure with the condition of a subsidy commitment, until they get ready.

Overall, it is expected that some of the first DISCOs will come up for privatisation within 1-2 years, but how many eventually get privatised is being discussed.

 

[tkmd]

Pakistan has big financial challenges. But iA as the economic shock of this devaluation recedes and as our industries orient themselves to exports, as CPEC continues to develop and as nascent relationships with new trading partners solidify I am hopeful that a growing economy will provide the fiscal space to deal with these issues. Daunting tasks but as a PMLN partisan let me just remind everyone of one thing....im 35 years old and in my lifetime I do not remember a time when Pakistan was this alone diplomatically and this challenged fiancially. And yet this Prime Minister has weathered an attack by India, shot down their jet and now literally knocked that ugly badmanas modi onto his butt at the UN. PTI cleaned India's clock on social media, international media hype and drove the discussion. Benazir never did that. Musharraf never did that. Sharif never did that. Zardari never did that.

So heres a guy who tilts to PMLN openly saying that PM IK is slowly but surely making us proud and showing us the way. Hell iA make headway with the economy as well.