ARTICLE (February 08 2009): Our approach in dealing with the electricity crisis has been to follow a policy of denial. The steps that are being taken to overcome the crisis will provide some relief but will not result in easy access to electricity for the majority of the population nor will they generate enough electricity to support significant economic growth. The sort of growth that will produce exportable surpluses and increase our foreign exchange reserves.
To come to grips with the prevailing fiasco we need to look beyond the half truths we have been fed. Our planning pundits claim that the shortfall in supply is merely a few thousand megawatts. This is an eyewash. As matters stand, only a small percentage of the total population has access to electricity. By some estimates this number is as low as 30%. It follows that a staggering 70% of the population does not have access to electricity and the actual shortfall in supply runs into the tens of thousands of megawatts.
As a result the utilities are forced to resort to mandatory management mechanisms, mainly, loadshedding. In all parts of the country, during most of the year, rationing or loadshedding has become the modus operandi. Ideally, loadshedding should be fairly applied and should lead to achieving self-sufficiency at some point in time.
The problem is further aggravated by the massive amounts of electricity theft that takes place. According to some estimates, between 40-50% of total electricity generated is stolen. Additionally, the revenue collection systems of the utility companies are inefficient. It is estimated that demand is growing between 8 to 10 percent per annum.
This suggests that if the current gap of approximately 2000-3000 megawatts is plugged and if this is followed by a yearly addition of approximately 1000 megawatts then we will find equilibrium between demand and supply. Wrong. These numbers do not take into account the suppressed demand scenario highlighted in the preceding paragraph and hence they will not close the ever widening demand supply gap.
The consumption pattern of electricity is heavily skewed in favour of residential and agricultural consumers. According to some estimates, these sectors consume about 85% of the total electricity generated and demand in these sectors is growing at a galloping rate of over 10% per annum. Thereby, leaving only 15% of the total electricity generated for the industrial and commercial sectors.
As a consequence, these sectors have been forced to self generate electricity by setting up captive power plants. This has raised their cost of production, eroded profit margins and made them less competitive internationally. Many of these captive plants have the ability to provide significant amounts of electrical output to the national grid but are not encouraged to do so by the low tariffs offered to them.
Energy conservation is a must but it is delusional to believe that a practical conservation strategy can be implemented in the prevailing bleak scenario. The concept of conservation is similar to that of savings. One can only save if one has excess income. In the absence of excess income all available resources are used to satisfy basic needs. The same applies to energy conservation.
When there is not enough energy to meet basic needs it will not be conserved. Undoubtedly, conservation programmes are a good idea. But are we ready for them? Elaborate programmes developed in Islamabad which require the general public's co-operation are mostly impractical and therefore worthless. As a nation have we ever conserved anything? Are we educated enough to understand the benefits of conservation? Is our elite setting an example of conserving electricity?
With very little new supply coming on stream in the last half a dozen years or so can conservation be seen as an effective defence against eroding electricity availability? We live in a hot country which is getting hotter all the time. Can we expect folks to turn off their air-conditioners when they can bribe the meter readers and have their bills reduced to a fraction of the actual amounts billed? Or have we been able to stop the ordinary people from tampering with their meters to reduce their bills?
The answer is a resounding no to all of the above questions. We are living in a fool's paradise if we believe that conservation will help us achieve some sort of harmony in the electricity demand-supply gap. Our electricity supply and demand scenario continues to worsen every year. Why is this so? The fundamental problem is incorrect pricing of electricity.
Simply put the electricity utility companies are not recovering their cost of production at the tariffs at which they are being forced to sell electricity. Thus, the utilities cannot add capacity to meet future growth requirements from internally generated funds and are forced to borrow or rely on government subsidies to undertake development projects and pay their bills. These sources of funds are expensive and unreliable.
This leads to huge financial pressures which push the utilities towards insolvency and bankruptcy. As matters stand, both Wapda and KESC are bankrupt entities as they cannot meet their maturing financial obligations without being bailed out by the government. Regrettably, Wapda bears the brunt of the responsibility for the current electricity debacle. Although, theoretically, the government should be held accountable for the debacle, specifically, the MOWP and the Planning Division for not synchronising economic growth with electricity supply.
However, the larger part of the blame falls on Wapda because over the years wittingly or unwittingly it took over the power planning role from the MOWP. And WAPDA is not a properly managed organisation. As a consequence the power planning process has been badly botched up. In part because it wanted to safeguard its own turf, over the years Wapda impeded the implementation of the IPP initiative, the privatisation initiative, plans for its own re-organisation and other initiatives that would have alleviated the electricity situation confronting us today.
One way that was employed to stop Wapda's privatisation was to recommend that KESC should be first privatised as a test case. Anticipating that KESC's privatisation would be done under close media scrutiny and would therefore lead to negative publicity especially as it would immediately pit the privatised KESC against formidable political and social forces. And if any hiccups were to develop it would attract enormous media attention.
The difficulties encountered in the privatisation of KESC have worked out well for Wapda. It is now being said that the government's privatisation policy in general and especially vis-à-vis the electricity sector is a dismal failure. Voices demanding Wapda's privatisation have been silenced and Wapda is going along its merry way as the great power provider and planner of Pakistan.
However, WAPDA's track record makes it clear that it lacks the vision and capability to take Pakistan towards self sufficiency in electricity generation. Some examples will make this clear. Back in the day, Hubco was originally planned to be set up at a cost of approximately $670 million. Wapda's officials and the other super bright zealots managing the electricity affairs at the time started howling that this was highway robbery and that the British East India Company had returned in the form of Hubco.
They claimed that with their superior negotiating skills they could bring down the cost of Hubco. After much delay and negotiations Hubco was set up at a cost of approximately $1.6 billion. An increase of almost a 150 percent over the original cost estimate. Now we find Wapda saying that the Neelum Jhelum project is heavily over invoiced.
This is a critical project and if it is delayed much longer we might lose the use of these waters to India once and for all. If this were to happen we will have lost a great opportunity to generate a substantial amount of relatively cheap electricity. The Lakhra coal field's project has been simmering under our planning process for decades.
A huge amount of electricity can be produced from the coal reserves at Lakhra. The Chinese organisations that worked on the project were told by Wapda that the project cost estimated by them was too high. Understandably, the Chinese pulled away and the project became dormant. The current electricity crisis facing us is likely to become even more intense in the years to come. Such was not always the case.
From 2000 to 2003 a relative balance was achieved between supply and demand because of the coming on line of the IPPs. This window of opportunity could have been utilised to develop new sources of generation. Earlier, a hue and cry was raised regarding unwanted surplus power and how to dispose it of. There was talk to sell the surplus electricity to India and the view was established that we had achieved self-sufficiency in power generation.
The result was that future plans to grow electricity capacity were shelved. Power planning is a dynamic process. One which demands continuous evaluation and preparation for anticipated demand growth. In terms of policy and government initiatives first priority should be given to focussing on resolving the circular debt issue plaguing Pepco and its associated companies on the one hand and the IPPs and the OMCs on the other.
Closely followed by rationalising electricity tariffs both in terms of pricing and sectoral allocation. Priority must also be given to addressing power theft and revenue/bill collection matters. Budgetary support for the utilities in the federal and provincial budgets must be ensured. In terms of improving the electricity system we need to consider refurbishing old power plants to generate more power than they are currently producing.
Similarly, we may consider reconditioning older transmission and distribution networks. However, for this approach to yield positive results a very careful cost benefit analysis needs to be conducted to assess the real economic advantage of squeezing out a few hundred more megawatts from an old plant or an old grid system for a few more years. Alternate energy sources can be utilised to plug the electricity demand and supply gap.
Alternate energy sources are environmentally friendly and renewable. These are their two major advantages. We need to study as to how they can be incorporated into our power system. But the question is whether we will be able to undertake their development on a commercially viable basis. Probably not, given their high implementation costs and low efficiency levels. Alternate energy systems are typically set up in far off locations and need to be interconnected with the main grid. This adds to their set up costs.
Even in the leading industrial countries they still provide only a tiny fraction of the total electricity energy generated. Nuclear energy is a good option and Pakistan has successfully set up several nuclear power plants with the help of China in the recent past and with that of Canada some decades ago. But it remains to be seen whether going forward we will be able to add more nuclear capacity to our power grid given the position the West has taken in regard to Iran and generally with regards to the disposal of nuclear waste.
While we should continue to establish run of the river hydel, fuel oil and diesel based power projects, our focus should be on developing high head hydel projects whose untapped potential is massive and translates into thousands of megawatts and coal based power projects whose potential is also vast. Pakistan has the fourth largest coal reserves in the world, albeit, a large part of the reserves are of low quality coal.
However, technology is now available to convert inferior quality coal reserves into electricity at relatively efficient conversion rates. For now coal contributes under 5% in our total energy mix, whereas, in India it represents about 50% and in China about 80%.
In conclusion it is clear that if we are to ever become self sufficient in energy generation than we will have to focus on developing our high head hydel resources and our abundant coal reserves. We have the natural resources to not only overcome the present electricity crisis but to provide for future growth. What we need to make sure is that we harness them properly and manage them effectively.
(The writer is SEVP Group Head IBG Dawood Islamic Bank Limited)
