Govt urged to halt power generation licences

KARACHI: The government needs to pause any further licencing to power projects as the country sits on surplus generation capacity due to excessive incentives announced for the independent power producers (IPPs), expert said on Wednesday.

The speakers told a webinar that electricity should be dealt as a commodity, as this would transfer the risks to investors from the government.

Ahsan Zafar, chief executive officer of Engro Energy said if the GDP grows at a rate of 4.5 percent, there will be a 3,500MW electricity surplus by 2025.

“We do not need more power plants,” Zafar said. “The IPPs that have not achieved the financial close should be deferred until a proper and consensual power plan is in place.”

The Engro Energy’s chief said power generation sector grew faster than the GDP growth in last eight years due to undue incentives, while the lower demand resulted in higher capacity payments.

“We need to run our power sector as happened in other developing markets,” he said. “A competitive market structure should be adopted to transform the market from a sellers’ market to a buyers’ market.”

Mahreen Aziz, chief marketing and communication officer at K-Electric said inefficiencies in transmission and distribution should be focused in the short-term, because circular debt is emanating from distribution side.

“K-Electric has not been contributing to circular debt since its privatisation,” said Aziz. “Bailing out discos is just a temporary fix, which discourages the reforms.”

KE official agreed there is an excess production capacity of around 7,000MW presently, which could increase to 12,000 MW in five years.

“Governments incentivised only the generation sector ignoring transmission and distribution sectors,” Aziz. “Having excess capacity is a good thing, but what’s the point if the same couldn’t be delivered to the consumers.

Speakers said power sector crisis in Pakistan emanated from excessive incentives announced for IPPs and inefficiencies of the state-owned distribution sector, experts said on Wednesday.

The experts said they are the root causes of the entire power sector crisis, including surplus capacity, rising circular debt and higher cost of generation.

Shakil Durrani, ex-chairmen of Water and Power Development Authority said the privatisation of K-Electric was not a successful model.

“A better model should be adopted for privatisation of distribution companies,” said Durrani. “It would be better if the distribution companies are leased out instead of privatising the assets.”

The power sector’s expert said incentivising IPPs resulted in mushroom growth of generation plants and distribution sector was completely ignored.

Talking about the circular debt and the measures to resolve the issue, World Bank’s former director Rashid Aziz said revenues and resources going into the power sector are lower than the costs, which caused the circular debt.

“The fix is simple,” he said. “Power sector needs to generate more resources matching the prudently incurred costs. These resources can be managed through tariffs, grants, aids and consumer contributions.”

Criticising the hegemony of K-Electric, former member energy Planning Commission Akhtar Ali called for unbundling of K-Electric into a distribution company, and the generation should be separated.

Tahir Basharat Cheema, former head of Pakistan Electric Power Company criticised K-Electric for being one of the largest contributors in the circular debt.

“K-Electric has to pay Rs100 billion to National Transmission and Dispatch Company alone and a significant amount is payable to Sui Southern Gas Company (SSGC),” said Cheema.