Category: Pakistan Politics

In Pakistan’s energy scenario, the chickens have, literally, come home to roost. Years of indecisiveness coupled with the hackneyed assertions that Pakistan has more electricity than required has manifested into a situation where the nation’s foundations are now shaking. New words have entered the domestic lexicon and even the uninitiated are recognising and understanding the ramifications of these new or oft-used words. Circular debt, Rental Power Projects (RPPs), Independent Power Projects (IPPs), NEPRA, PPIB, Discos, power outages, etc are casually floated around every now and then. Moreover, WAPDA and KESC have become words of ridicule for residents in small hamlets and all the way to metropolitan cities. It seems that, today, electricity can bring political parties into power or even consign it into the wilderness.

With the advent of the new government in Islamabad, all eyes are on the actions that Prime Minister Nawaz Sharif will take to tackle this issue. It is not possible to wave the magic wand and say, “Voila! Let there be light”. What is more constructive is that all alternative channels be energised to lessen the magnitude of the power crisis. Experts and laymen have been huddling to come up with some pragmatic solutions as there is no other choice but to take the bull by its horns.

The distressing fact is that even though alternatives are available or could be harnessed, the proverbial bureaucratic red-tape, the high incidences of corruption, the inability to rewrite the rules and regulations, and the dishonourable vested interests have impeded the momentum so much that just trying to get out of these tentacles has become a gargantuan task for any investor or policymaker. Everybody and his next door neighbour are talking about the wonders of Thar coal, wind or solar power, cheap Hydel power through dams that are susceptible to provincial politics, and of course generating energy through biogas, garbage, or even imported tyres. There is also talk about fast track conversion of power plants on imported coal.

And even though the solutions listed above are doable and feasible, and some may be done on a fast track, frankly, many alternatives are still a long way into the future. What should be done immediately is to revisit the various rules and regulations that hamper or slowdown the efforts of investors and get these amended, modified or removed. These steps would introduce the concept of Merchant Power Plants (MPP) in the country.

The government must pave the way for MPPs by making it easier for investors to penetrate this field and take advantage of the back-breaking shortage of electricity. There is a need to allow potential investors to enter into a comfort zone in this sector. There should be no restriction on the use of fuel or on the minimum capacity for the MPPs. However, in keeping with the vision of the government to utilise coal, initially imported too, it is recommended that coal-based projects be encouraged. It is a good omen that NEPRA recently announced an upfront tariff of 9.65 cents per unit for large coal-based projects for 30 years while for less than 200MW it would be 8.275 cents. It is hoped that NEPRA will soon decide the tariff for less than 50 mw.

Merchant Power Plants (MPP) are not new in today’s world. Investors have developed over 200,000MW of power plants in the United States, while India has an active MPP programme too. MPPs are technically different in the sense that they are unlike the power plants operated by WAPDA or KESC who distribute power at a set price that is determined through a mechanism and approved by a regulatory body. They are legally and economically different from IPPs and plants owned by traditional power companies in Pakistan or, for that matter, even captive power plants of the industries. Unlike IPPs, the MPPs have no single sales contract for the term of their life and there is no guarantee about their continued income.

It should be understood that MPPs will not be large power plants and only generation-based. What is important is that capacity should not be the limiting factor. There are three guiding points that justify the case for MPPs. First and foremost is the yawning gap between installed capacity, between actual generation, and between immediate consumer demand. The second fact is that investment in power plants is still not forthcoming at the speed that is imperative. The third argument is that too much emphasis on regulations and the dependence on WAPDA or KESC are impeding the distribution of electricity.

Therefore, MPPs should be set up and their viability and feasibility would become sustainable through three options that could be availed by a potential MPP. An example of a MPP could be a large industrial unit that has set up a captive power plant of, say 30MW.

This unit can firstly use power for self-consumption, secondly under the system of wheeling, sell extra power to WAPDA or KESC or use the existing power lines for transmission to consumers within the area, and thirdly set up a grid to supply power to units within its own proximity. Of course, if there are more MPPs in any sector they could share ownership of the transmission lines to attain economies of scale and reduce investment costs. In each case, the rate per unit could be negotiated between the supplier and user rather than going through a plethora of documentation, useless inspections, mind-boggling regulations, and slow process of approvals. Thus, electricity would be treated as a commodity with its own market dynamics. This could attract investors from the stock exchanges and thus, in effect, become a sort of retail power market.

The rationale for allowing MPPs is pragmatic. At present the transmission and distribution losses are abnormally high and the main reason is theft, corruption, and free electricity. Secondly there is excessive governmental interference in the workings of the present energy sector companies. Thirdly, rates are regulated by the government and inefficiencies, management inadequacies, theft, overstaffing, cost of subsidies, etc are factored in to calculate the rates. Fourthly, since the government is unable to rein in the galloping circular debt, the impact is passed on to the consumer. More importantly, the gap between generation, transmission and distribution would not be reduced any time soon. Therefore, MPPs can be a game changer and for that reason should be debated and discussed by the economic planners of the country on an urgent basis.

As US Congressman from Iowa Steve King once stated: “That’s the key: get the constitution in place. Get rule of law in place, capital will come, electricity will follow.” This, in short, is the answer to our energy crisis.

The writer is former president of Karachi Chamber of Commerce and Industry

LONDON, May 27— A week before he is to be sworn in as Pakistan’s prime minister for the third time, Nawaz Sharif has secured one form of power, yet now faces a fierce battle to find another.

Electricity shortages, bad for years, have reached crisis proportions. Lights go out for at least 10 hours a day in major cities, and up to 22 hours a day in rural areas. As the summer heat pressed in suddenly last week — touching 118 degrees Fahrenheit in the eastern city of Lahore — Pakistanis again took to the streets to protest the chaotic state of the country’s power delivery system.

Doctors and nurses picketed outside hospitals, complaining about lacking clean water and having to cancel operations. Demonstrators burned tires, blocked traffic or pelted electricity company officials with stones.

Students cannot study for exams, morgues struggle with decomposing bodies, and even the rich complain that their expensive backup generators are straining badly — or, in some cases, blowing up from overuse.

In a bid to quell discontent, Pakistan’s interim government, which is running the country until Mr. Sharif takes over, has ordered civil servants to switch off their air-conditioners and stop wearing socks — reasoning that sandals were more appropriate in such hot conditions.

“Everyone is affected,” said Iqbal Jamil, a heat-flustered resident of Landhi, a neighborhood in Karachi.

The crisis is the product of multiple factors, from decrepit power plants to crumbling transmission lines to decades-old policy mistakes. One reason, however, stands above the others: most Pakistanis will not pay their bills.

The system is paralyzed by $5 billion in “circular debt” — basically, a long chain of unpaid bills that cuts across society, from government departments to wealthy politicians to slum dwellers. At its worst, this leaves power providers with no funds to pay for fuel, so their plants slow or shut down entirely.

As a political issue, electricity has galvanized the Pakistani public — more so, even, than Islamist militancy. Mr. Sharif swept to victory in the May 11 election in part on the appeal of slogans promising to deliver a “shining Pakistan” and to “end the darkness.”

Analysts say the question is whether Mr. Sharif has the political backbone to take the tough decisions needed to change the system, particularly as some of his own supporters, along with other rich and powerful Pakistanis, are among the bill defaulters who need to start paying their fair share.

“This is not like finding a cure for cancer — people know what needs to be done,” said Robert M. Hathaway, director of the Asia program at the Woodrow Wilson International Center in Washington, D.C., who has written a book on Pakistan’s electricity crisis. “The problem is implementation, and finding the political will.”

The crisis has hit hardest in Mr. Sharif’s home province, Punjab. In Kharian, a Punjabi town along the historic Grand Trunk Road, Malik Mazhar Iqbal Awan, a businessman, fanned himself with a newspaper as beads of sweat rolled down his forehead.

Mr. Awan owns a small marble factory. In the yard outside, a handful of workers sat quietly beside a cutting machine, waiting for the power to return. Just four years ago, Mr. Awan said, he employed 25 people. Now he has just six.

“I can’t pay their salaries,” he said, wiping away dust that had blown in through an open window. “How can I if we can only work a few hours every day?”

Mr. Awan said he had voted for Mr. Sharif, a former steel baron, because he was “110 percent sure” the candidate could turn the electricity situation around. “He’s an industrialist,” he said. “He thinks differently than the others.”

Although easing the $5 billion “circular debt” is the principal problem, experts say money is only part of the solution. Deep-rooted structural issues, exacerbated by political interference and systemic graft, lie at the heart of Pakistan’s power crisis.

Electricity theft, by rich and poor, is common. Slum dwellers steal power through illegal connections; powerful politicians and government departments simply refuse to pay their bills. Electricity officials and the police, fearing retribution, dare not cut them off.

Corruption is notorious in the private power sector, where political supporters win lucrative contracts, often at inflated costs or without even producing a megawatt of power. In 2011 the auditor general noted that the government had committed to $1.7 billion in such contracts, yet added just 62 megawatts to the national power grid.

One prominent candidate in this election — Raja Pervez Ashraf, the country’s last prime minister — has been closely identified with the power crisis. After he lost his parliamentary seat in a crushing defeat, officials with the national anticorruption body stepped in, summoning Mr. Ashraf last week to answer accusations that he had taken kickbacks worth tens of millions of dollars from foreign companies on power projects.

Even those supposed to be enforcing the law are breaking it. At one police station in Sindh Province, officers erected an illegal power connection for their air-conditioners. In other areas, electricity company officials are afraid to disconnect defaulters for fear of attack.

About 20 percent of the electricity supply disappears across the country, and up to 33 percent in the worst-affected district, as a result of dilapidated transmission lines or outright theft, said Fariel Salahuddin, a power sector consultant.

“The fastest way to improve things is to start collecting bills and come down hard on theft,” she said. “That’s easier said than done, though.”

The crisis is exacting an economic toll equivalent to at least 4 percent of the country’s gross domestic product, according to economists — greater than the estimated economic cost of the Taliban insurgency.

At the same time, government policy is a shambles. Decision-making is centered in the notoriously corrupt Energy Ministry; no major new power plant has been built for decades, and the existing ones are falling into disrepair. As a result, Pakistan relies heavily on expensive furnace oil imports.

“There is complete disarray between all entities involved,” said a report on the power crisis that was commissioned by the National Planning Commission last March.

In the short term, Mr. Sharif will seek to salve his power woes by trying to find foreign cash or fuel to get dormant power stations back on line. His officials have suggested that Saudi Arabia, a country that Mr. Sharif enjoys close relations with, could offer up to $15 billion worth of emergency oil supplies on favorable terms.

But oil and money can provide only temporary relief, and Mr. Sharif may also seek other foreign assistance to tackle the structural problems — some in the face of opposition from the United States.

Last week he asked the visiting Chinese premier, Li Keqiang, to provide Pakistan with help in building a civilian nuclear power plant. That was widely seen as an indirect rebuff to the United States, which offered similar help to Pakistan’s rival, India, in 2006 — a source of enduring resentment in Pakistan.

Similarly, President Asif Ali Zardari signed a deal with Iran last year to run a gas pipeline across the border to Pakistan. But the project would run afoul of United Nations sanctions on Iran — penalties that were championed by Washington.

The United States, for its part, has spent $225 million since 2009 in refurbishing Pakistan’s decrepit hydroelectric power plants, adding 900 megawatts to the national grid. American officials are also working with the government to improve revenue collection.

But large-scale infrastructure projects, like new hydroelectric dams, take years to come to fruition. And international donors are reluctant to commit further funds without signs of strong reform from Pakistan’s political leadership.

Pakistan’s leaders know they are running out of time. Other countries also face crippling electricity shortages, of course, in parts of the Middle East or sub-Saharan Africa. But none of those nations possess nuclear weapons, or such a rapidly growing population as Pakistan, estimated at 180 million people.

Population growth alone is adding 1,000 megawatts per year to the country’s electricity needs, said Mr. Hathaway of the Wilson Center.

“We Americans also like to defer tough decisions,” he said, referring to contentious and expensive reforms in education and social welfare. “But Pakistanis are approaching a point where they no longer have that luxury.”

Declan Walsh reported from London, and Salman Masood from Kharian, Pakistan. Zia ur-Rehman contributed reporting from Karachi.