News Analysis |
The energy crisis in Pakistan has not been resolved entirely. An energy shortfall of 4000 Megawatts on average continues unabated, contributing to all sorts of problems that Pakistani citizen’s face. To make matters worse, the summer heat has also just begun.
Contrary to the promises made by the government, power demand remains at about 19000 Megawatts while supply is just over 15000 Megawatts. The shortfall fluctuates between 4000 Megawatts and 7000 Megawatts, depending on the season. In summer, demand is greater since most people will turn on fans or air conditions, especially during peak hours, which cumulatively results in increased demand by at least a couple of thousand Megawatts. There are various reasons why the problem persists.
The electrical network of Pakistan consists of three tiers, generally speaking, i.e. generation, transmission and distribution. Generation refers to power plants that generate electricity e.g. Tarbela, Mangla and the soon-to-be-inaugurated Neelum-Jhelum Dam. Before decentralization towards the end of the 1990s, all these tiers were under the control of the Water and Power Development Authority (WAPDA). In 1998, following IMF demands, the government of Pakistan took the first step towards decentralization and privatization of the electrical network.
The distribution and transmission system needs to be upgraded and modernized along with generating stations. The government has only recently taken the iniative to modernize the Mangla dam, which was relying on technology that was almost half a century old to run.
DISCOs or distribution companies were formed e.g IESCO, LESCO etc. to deal with distribution i.e. distribute energy down to individual streets and houses. The National Transmission and Dispatch Company (NTDC) commenced operations in December, 1998 to deal with the transmission of energy from generating stations to the distribution network. And WAPDA was left with the sole responsibility of power generation. New dams such as the Neelum-Jhelum are being built under the auspices and supervision of WAPDA. In addition to the Water and Power Development Authority, the alternative energy development board explores renewable energy and/or resources to meet the country’s needs. And Independent Power Producers or IPPs are private enterprises that sell electricity into the national grid. NEPRA or National Electric Power Regulatory Authority lists these power producing companies and sets the tariffs at the national level.
Each tier of the system needs to operate effectively to ensure smooth supply of electricity where there is demand. It’s not simply a matter of adding more generation capacity to the existing system. It is entirely possible that we may have a system with excess generation capacity but without an effective way to make sure that energy actually reaches the consumer. According to a 2015-16 Performance Evaluation Report on DISCOs and K-electric by NEPRA, all DISCOs except the Islamabad Electric Supply Company (IESCO) breached the targets set by NEPRA. The Peshawar Electric Supply Company or PESCO reported 33.80% in transmission and distribution losses. SEPCO in Sukkur reported 37% losses. In other words, for every 100 Megawatt generated, a little over 60 Megawatt actually reached the consumer in Sukkur. In the same vein, a bit less than 70 Megawatt would reach the consumer in Peshawar, for every 100 Megawatt generated.
These losses are divided into two categories: technical and non-technical. Technical losses are inherent in the equipment used to build the system and are said to be naturally occurring. Non-technical losses are caused by electricity theft and non-payment of bills etc. Another systemic problem in our energy system is circular debt.
In summer, demand is greater since most people will turn on fans or air conditions, especially during peak hours, which cumulatively results in increased demand by at least a couple of thousand Megawatts. There are various reasons why the problem persists.
The Economic Coordination Committee (ECC) defined circular debt in these words, “The Circular Debt is the amount of cash shortfall within the Central Power Purchasing Agency (CPPA), which it cannot pay to power supply companies.” In other words, the problem relates to cash flow within the system. IPPs supply electricity to DISCOs who are responsible for providing it to the consumer. But when DISCOs suffer losses, they are unable to recover the cost of electricity and pay the IPPs their due share. This hurts the business of private power producers who are then dis-incentivized to sell more electricity, which adds to the shortfall. At times, the burden to compensate for these losses has been put on the consumer. When the government was promising that Pakistan will have surplus power in 2018, NEPRA was saying load shedding won’t end until 2019.
The government removed the CEOs of four distribution companies at the beginning of this year for not being able to reduce losses. LESCO, PESCO, SEPCO and QESCO (Lahore, Peshawar, Sukkur and Quetta Electric Power Supply Companies) were removed by the minister for power, Awais Khan Leghari. In addition to that, the government has taken a number of steps to increase generation capacity in the country. The Neelum-Jhelum plant is a prime example (although, had it been started earlier, the cost of construction would have gone down). Coal-based power plants are being established in Sahiwal as part of CPEC as well. The government in KP has taken the imitative to introduce mini run-of-the-river hydel power plants wherever possible. The Prime Minister also ordered the closure of inefficient power plants. All this sounds great but it is not enough.
In other words, the problem relates to cash flow within the system. IPPs supply electricity to DISCOs who are responsible for providing it to the consumer. But when DISCOs suffer losses, they are unable to recover the cost of electricity and pay the IPPs their due share.
There are factors beyond the control of the government that impact Pakistan’s electrical grid and consequently, the consumer. Pakistan’s energy mix is as follows: over 60% comes from thermal power plants, about 30% from hydroelectric generators and the rest from nuclear power and renewable energy resources. Thermal power plants often rely on oil for their operation. When global oil prices rise, the cost of producing electricity also rises resulting in the rise of electricity tariffs. Many thermal plants may be used as “spinning reserves” i.e. they are connected with the grid only during peak hours to meet increased demand. Peak hours refer to the time before midnight and after 6 p.m in the evening when most consumers are at home. Using electricity during these hours will lead to a higher electricity bill as compared with the rest of the day, since more expensive electrical energy produced by thermal plants is added to the grid to meet demand.
There are various ways to solve all these problems. Oil imports are a major burden not only on the economy at the macro-level but the electricity consumer as well. Dependency on oil needs to be reduced. Indigenous resources of energy need to be exploited as much as possible. The distribution and transmission system needs to be upgraded and modernized along with generating stations. The government has only recently taken the iniative to modernize the Mangla dam, which was relying on technology that was almost half a century old to run. Adding generation capacity is a step in the right direction but more needs to be done.