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December 15, 2016

Going up, down or nowhere?


December 15, 2016

International institutions are quite careful about accepting a country’s claim about its performance. It was only after a detailed scrutiny during several quarterly reviews that they put on record such glowing acknowledgements of our performance.

It is now accepted internationally that Pakistan’s power sector has come out of its worst financial crisis, from posting a loss to the national budget of Rs200 billion to now a negligible Rs8 billion per annum. In terms of its impact on the national exchequer, the power sector’s performance has brought savings of Rs400 billion in the past two years.

On the operation’s side, the power sector has come a long way from facing a routine of 12-15 hours of industrial and domestic  loadshedding, which were often unscheduled just a few years back. Industries now face zero loadshedding. As per the new schedule announced in November 2016, there is now  loadshedding of three hours in urban and four hours in rural areas. This relief in the  loadshedding schedule, however, will not be available in areas with higher thefts or low payments.

Due to an uncontrollable circular debt, rising at a pace of between Rs10 billion and Rs18 billion a month (yes, in a month) during 2007-14, no investors and their bankers were ready to put in their funds in Pakistan’s power sector till 2014. After strenuous efforts, the menace of circular debt has been successfully tackled with better recoveries in distribution companies and better management of the generation plants, plugging losses from all sides. The reduction in oil prices also helped to an equal extent. The result is that the increase in circular debt has been capped since October 2014.

Now, there is a beeline of foreign and local investors vying to get a space on our grid.

The abovementioned facts clearly show that the Ministry of Water and Power has been able to successfully put better monitoring systems for the oversight of power sector entities, which has helped reduce the sector’s losses. However, in order to keep this system afloat, such vigilant monitoring and supervision will need to continue, perhaps with greater vigour, if new generation is to be smoothly added to the system. In addition, there is also a need to keep the power tariffs realistic and ensure they cover costs. Any artificial lowering of tariffs will again jeopardise the stability achieved in the power sector after decades of turbulence.

These facts tell the story of reduced  loadshedding and better financial performance of the power sector. But how would that translate into zero loadshedding? We read some worrisome views from analysts who maintain that the aims for bringing loadshedding to zero are not supported by the available transmission and distribution capacity. Some other views even question the expected timelines for the completion of the new generation projects.

These views cannot be ignored, especially when they get support in the reports issued by the regulator which, though based on outdated data, still draw attention of the power sector analysts.

Power sector projects, like all such large-scale undertakings, always have possibilities of changes in the timelines. In order to cater to any such eventuality, the additional capacity planned to be achieved by March 2018 (before summers) is around 10,996 MWs against an expected generation shortfall between 7,000 and 8,000 MWs estimated for 2017-18.

The question is whether there are any projects which are expected to get delayed and substantially reduce power availability in March 2018. The frank answer is that while the possibility of such an eventuality occurring, owing to any unforeseen technical problems in any project, can never be ruled out, it will be far-fetched to presume such problems occur everywhere. That would put the entire plan of zero  loadshedding into jeopardy. 

And there are plans for the years after 2018 as well. There is a healthy pipeline of 30,837 MWs of the new generation projects already in execution and it is expected to be completed by 2022. These plans also include the capacity of 10,996 MWs that is expected to be completed by March 2018. It doesn’t include many projects, such as Diamer-Bhasha Dam and others, which are also expected to be initiated soon.

In these new projects, a large funding came from the China-Pakistan Economic Corridor’s energy portfolio. This solved the problem of coal (especially Thar Coal) power financing which Pakistan was seeking to replace costlier generation and improve energy security.

There is no doubt that the weak and unreliable transmission and distribution system, plagued with constraints and bottlenecks, has been a major challenge to successfully inducting new generation. The simulations run in the Ministry of Water and Power showed that there was no chance of transmitting any new generation on the system as it prevailed in 2013. It could not carry more than 15,000-16,000 MWs.

The situation was equally alarming in the distribution system of DISCOs. Work on improving system resilience is going on in all areas of the country, and is being closely monitored in the ministry. It has helped reduce these constraints substantially since 2014. This was the reason that all the generated capacity, which went up to 17,340 MWs in the summer of 2016, was transmitted without major issues. However, the system augmentation work (to allow carrying additional capacity) will be completed by the end of 2017. It is expected that more than 90 percent of the system will be constraint-free in 2018.

Zero loadshedding for the industry since November 2014 (except during the month of Ramazan) has also helped enhance GDP growth in 2015-16. The reduced domestic  loadshedding has also alleviated the sufferings of the common man to some extent.

We need to work hard in the next 18 months to put an end to the menace of power outages and its remaining adverse effects on the economy and the lives of our people, before the summer of 2018.

The increased generation and removal of system constraints will eliminate outages in most parts of the country. Futuristic investments will still need to be made into all spheres of power sector, from generation to distribution. The ministry is committed to keep working beyond 2018 to end loadshedding and turn the entire power setup into a modern, efficient and resilient system which aims to enhance the energy security of the country.


The writer is secretary Ministry of Water and Power.



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