EDITORIAL (July 04 2009): The Sindh government's plan to set up power stations of 200, 100 and 50 megawatts in the industrial estates, in the province, to cater to their power requirements, is obviously a last-ditch attempt to contain the mounting production losses arising from prolonged power outages.
Sindh Minister for Commerce and Industry Rauf Siddiqui has given approval to the plan, and directed that a power-based estate strategy for industrialisation in the province should be prepared, and offers be invited from private sector parties to energise each unit in the Sindh industrial estates.
According to sources, quoted in a Recorder Report, the minister has issued instructions for reserving adequate space for setting up the power plants, in the PC-1 of new development schemes for industrial zones. Prolonged loadshedding in Karachi's five industrial estates has, meanwhile, caused huge production loss, and according to one estimate, production activity has fallen by about 50 percent, which should ring alarm bells.
According to one estimate, the KESC is grappling with a shortfall of around 700 megawatts against a total demand of 2,200 megawatts. The KESC, which operates as a separate, vertically integrated utility, is now predominantly in private hands, after the sale of 73 percent of the shares to a consortium of private investors in November 2005.
The utility has four thermal plants, which produce 1,760 megawatts of power, and a distribution network that contributes around 40 percent to the power losses sustained by the utility. As the operational constraints of KESC are adversely impacting the country's industrial heartland of Karachi, production losses in the mega city are making a highly deleterious impact on the country's industrial productivity.
There is a perception among some analysts that, with proper maintenance and operational efficiency, and also assuming fuel availability, the thermal plants should be able to produce an additional 50 percent or more energy from the existing units, as compared to what they generated in FY2005.
While the decision to set up power plants in the Sindh industrial estates, which will obviously be oil or gas-fired plants, is a move designed to ease the impact of the current power crunch on the province's industrial productivity, the plan also has a negative side to it. The plan is likely to make things worse, as the Gencos and Discos would then feel under relatively less pressure to improve the system itself.
KESC's poor performance, in violation of its contractual obligation to upgrade the system and invest $500 million in the utility by 2008, has already, not only hit productivity in Karachi's five industrial estates, it has also generated social unrest and anger in the mega city, as elsewhere in the country.
Secondly, the industrial establishments, after installation of the plants, may start charging higher rates for their products, on the plea that they have used the generating units in the manufacturing process. Thirdly, the overhead charges incurred on their limited ("retail") operations, as compared to the KESC's ("wholesale") operations, may push up the overall cost of production, thereby further eroding competitiveness of our exports in the international market.
These are only some of the negative points in the Sindh government's decision. However, on the positive side is the surety of an uninterrupted production process, fewer industrial layoffs, and increased production volumes, though all this will be achieved at the cost of perpetuating the discredited policy of institutional fragmentation of the energy sector.
We believe the Sindh government's decision takes the "fragmentary" approach a notch higher. Instead of tackling the power generation and supply problem in a holistic fashion in the province, by forcing the KESC and other power sector entities to improve their efficiency, the provincial government has chosen the path of least resistance. Some would even view it as a "win-win" situation for both the provincial government and the power producers.
A perception has somehow developed, over the decades, that we at first create a problem, and after it has assumed proportions of an emergency, opt for a solution that best suits our interests. Decades of "go-slow" in the implementation of water and power projects, for which we received huge funding from international financial institutions, has at long last made us drop like a ripe plum into eager hands.
The power sector crisis seems to be gradually assuming the contours of a terminal illness. There is a need for all stakeholders to evolve a consensual solution to the problem, and then act in unison. A World Bank report, in 2008, had warned that "without adequate irrigation resources, power, and transport infrastructure, the very sustainability of Pakistan as an independent nation may be at stake, as shortages could lead to increased social discontent and disharmony amongst the federation and the provinces."
The government must develop consensus among the provinces on water and hydropower issues, announce a policy decision and then ensure its implementation in letter and spirit. Meanwhile, let the federal government announce a definite timeframe for overcoming the worsening power crisis in the country.
The Sindh government's decision to allow the establishment of power in the industrial estates should at best be treated as a short-term solution. There is a need for the federal government to find, and implement, a durable and economical solution to the country's water and power sector problems.
