Working group hacks away at power crisis

Published June 1, 2013
A protest against load shedding. — APP/File photo.
A protest against load shedding. — APP/File photo.

In his inaugural speech before the new National Assembly, the newly inducted Prime Minister Nawaz Sharif is expected to talk at length about the steps his government intends to take to tackle the power crisis. In the run up to that moment, a working group of senior party and business leaders has held five meetings — with another scheduled at noon on Saturday — in an effort to draw up a roadmap out of the crisis.

Background conversations with members of this group show that the new government will mean business. And that's no idle metaphor.

“In the immediate term, a 30-35 per cent reduction in loadshedding is feasible,” says Khwaja Asif, who has been assigned the hottest seat of them all in the cabinet — that of the Minister Water and Power.

“Basically we should get rid of the circular debt first, and make arrangements to prevent its return.”

If the country's power engines are going to start whirring again, the circular debt is indeed the first hurdle to be crossed.

But the amounts required to “get rid of the circular debt” are not small — Rs156 billion is owed to Pakistan State Oil — and for a government coming in at the end of the fiscal year, addressing this problem while keeping the fiscal equation even minimally in control is a tricky job.

The government intends to raise at least a substantial amount of this money from a combination of a treasury bill auction and what some members of the working group called “deficit financing” before the end of the fiscal year.

The same members of the working group suggest the IMF has given them feelers to the effect that an increase of 1 to 1.5 per cent in the deficit to GDP ratio would be acceptable.

“They're saying do whatever house-cleaning you have to do before June 30 and then we can talk”, says one member of the group.

That would be step one and the working group believes that the measure can bring online up to 3000 MW of electricity. But clearing the circular debt only buys time. The real challenge lies in what to do during the brief window of respite that this will open up.

“Prices need to be rationalised, you've got to sell the electricity at the right price,” says banker and industrialist Mian Mansha, who has been at all the meetings of the working group. “Inefficiencies must go, and you need honest people to do the job.”

The working group anticipates its real challenge to lie in these days, when the initial large dose of liquidity will fire up the engines for a brief period. They envision greater private sector participation in running the power bureaucracy, leading eventually to outright privatisation, starting with the Distribution Companies (Discos) and leading to the Generation Companies (Gencos). They also plan to aggressively follow up on the money owed in the form of unpaid electricity bills.

“Substantial financial respite can come from the receivables,” says Khwaja Asif. But other members of the working group acknowledge that substantial difficulties also lie in the way.

“Hundreds of billions of rupees are stuck in disputes,” says one member and goes on to list the amounts owed by entities private and public all over the country. But he's also quick to confirm that curtailing any supplies to Karachi is not on the cards.

“KESC is reluctant to generate electricity from furnace oil because the subsidy the government owes to them in return for this is not paid”, he says.

“But does it make sense to then generate that electricity from furnace oil up in Punjab then transmit the electricity back down to Karachi?”

Instead of a curtailment, he argues, it makes more sense to find a way to resolve the issues KESC faces in generating from furnace oil so they're able to use their power plants to full capacity.

Bringing idle capacity into action is another big part of the plan being worked out. As of Friday, the private power producers were pumping 6100MW into the system, with two thirds of that coming from the older family of plants that were brought under the 1994 power policy, and the rest from the newer plants that came under the 2002 policy.

Getting the newer plants going will be priority. “Gas supply must be on efficiency basis, the more efficient the plant, the greater its priority” in allocations of the vital and increasingly scarce fuel, says Khwaja Asif. “An estimated 1000MW additional electricity can come from here.”

Then there's tariff adjustments also scheduled to be carried out during the days of respite.

“We're selling the electricity for 9 rupees per unit whereas our generation cost is closer to 14 rupees,” says another member of the group. “An increase in the selling price is inevitable.”

But the future minister is quick to add that lifeline consumers will be protected from the burden of this increase.

“We need to simplify the slabs,” he says, arguing those at the top should pay more.

“But there are problems in the purchase price as well,” he continues. The cost build up of the purchase price shows the price at Rs9.6, GST at Rs1.62, transmission and distribution losses at Rs1.6. “Then there's a category they call ‘additional losses due to theft’ and they're charging us Rs1.8 against this item, with 30 paisa as GST on it," he says.

So not only are consumers paying for the electricity that is stolen from the system, they're also being taxed on the theft! “This is outright corruption," says Mr Asif, adding that in his opinion a purchase price of Rs10 is possible.

“The plan will require three ministries to work together”, he says. “The Ministries of Petroleum, Finance and Water and Power will work under a cabinet committee on energy to ensure coordination.”

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