Strategy for ending energy crisis
23 August, 2013
By Malik Muhammad Ashraf
Dilating on the salient features of the energy policy put in place by the government to deal with loadshedding, Finance Minister Ishaq Dar rightly identified the change in the energy mix during the last two decades as a major cause of power shortages in Pakistan.
One can hardly challenge this contention, keeping in view the arbitrary power generation policies of the past regimes and their impact on the cost of electricity production and accumulation of circular debt. That precipitated the energy crisis further by forcing power generating companies to operate much below their production capacity.
It is a proven fact that the electricity produced through hydel resources, coal-based thermal power projects, and renewable energy resources is the cheapest in terms of cost of production. This is why many countries in the world choose them as their first choice; whereas, only those states resort to thermal power production from oil and gas where such options are not available. Currently, the global energy production mix comprises hydel (16 percent), coal (40 percent), gas (20 percent), nuclear (16 percent), and oil (8 percent). Hence, the ratio of thermal power produced from gas and oil is 28 percent of it.
According to a report compiled by Wapda in 2009, out of the total installed capacity of electricity generation of 19,671 MW, the thermal power produced stood at 12,740 MW, nearly 65 percent of the energy production mix. Out of this, the Gencos' were contributing 6,590 MW and the IPPs 6,150 MW. The IPPs did provide some relief for a while, and the country was even in a position to export electricity in 1997. However, the stress on the production of thermal power turned into a disadvantage.
The government, therefore, had no choice. To generate electricity, it had to import oil at high prices that exponentially increased its production cost. This development, coupled with lack of attention on adding new power-generating capacity by successive governments, despite the burgeoning demand for power, triggered the onset of the present energy crisis.
The high cost of electricity production necessitated a programme of subsidies to protect the consumers, which in a way also constituted a serious drain on the government's resources. According to Finance Minister Dar, this amount at present is in the vicinity of Rs 580 billion; a major contributory factor to the accumulation of circular debt. The government is producing electricity at Rs 14.80 per unit and selling it at Rs 8.90. The failure of the PPP government to rationalise the power tariff on political considerations, despite Nepra's recommendations, further aggravated the situation.
In view of the foregoing facts, the energy policy put in place by the PML-N government with greater emphasis on retiring the circular debt, and preventing its accumulation in the future through rationalisation of power tariff and phasing out subsidies, is a very prudent and bold initiative rooted in and dictated by economic realities. Getting it out of the way has certainly reduced the power outages to a great extent.
Pakistan is confronted with a situation where it not only has to control the present crisis, but also invest heavily in power projects for future requirements. It is possible by enhancing indigenous resources and attracting foreign investments.
As regards foreign investment, it seems that Prime Minister Nawaz Sharif's visit to China has already started paying dividends, since a Chinese firm is expected to invest $6 billion in the energy sector of Pakistan during the next five years. More foreign investments are also expected to materialise very soon.
The federal government has already retired the circular debt and as a preventive measure against its accumulation in future, it is fully justified in raising power tariff and by adopting a targeted subsidy programme. That makes a provision for protecting domestic consumers and putting burden on the sectors, which are capable of taking the load.
In addition, it is giving top priority to changing the energy production mix by switching over to coal-based power production and other renewable energy resources. Power producing companies have been asked to switch over to coal-based power generation. Ten new coal-based projects, with a cumulative production potential of 6,600 MW, will be set up at Gadani in the near future.
Similarly, four coal-based power plants will be constructed in Balochistan by the Punjab government in collaboration with a Chinese company. Thar coal reserves, which have the potential to produce 100,000 MW of electricity, are the pivot of future energy generation in the country. Their use for power generation would help in reducing excessive reliance on imported fuel, thereby, easing the balance of payments situation and tackling the problem of circular debt.
According to Wapda, Pakistan also has the potential to generate 57,000 MW of hydel power. So, the strategy adopted by the federal government to focus on these indigenous resources is beyond reproach. If plans come through as envisaged, the country will never again have to worry about another energy crisis.
The writer is a freelance columnist.