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Power plants stay closed despite cheaper oil

19 January, 2015

ISLAMABAD: The government has shut or is partially running some power plants that could be operated on highly cheaper oil, triggering increased outages and forcing consumers to pay billions in capacity charges to industry barons without receiving any electricity from them.

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Experts question the rationale behind the government's move that is based on an argument that oil-based power production comes at a sharply higher cost, which is not fully recovered from the consumers.

The premise would have worked at other times but not now when oil prices in the international market have dropped more than 50%, providing the country an opportunity to book cargoes at extremely lower rates.

Not only this, the government has also stopped providing gas to some power plants, compressed natural gas (CNG) stations and fertiliser manufacturers and diverted it to the influential textile industry.

Officials point out that the textile industry has a nine-month gas supply agreement but they are also receiving gas in the remaining part of the year. The CNG and fertiliser industries are the worst victims of this discrimination, they argue.

Experts suggest power plants should be run on oil whereas gas should be provided to CNG stations and fertiliser plants, which have no other choice.

Since June 2014, global oil prices have plunged over 50%, sparking a sharp fall in prices in the domestic market as well, but despite that consumers are facing prolonged outages across the country, though demand has fallen in the winter.

Four power plants – Saif, Halmore, Orient and Sapphire having a combined capacity of about 800 megawatts – had been shut since long because of unavailability of gas despite being among the most efficient. At present, according to officials, two plants are partially being run to generate electricity.

The cost of power generated through high-speed diesel, which was Rs20.30 per unit, has come down to Rs14 per unit, providing an ideal opportunity to run the plants on oil.

Experts predict the current weakness in the global oil market will continue for the next five to six years, therefore, power plants should be run on oil and gas should be given to those sectors that have no other choice.

According to officials, consumers pay Rs2.50 per unit in average capacity charges to the closed power plants without receiving any electricity.

They are paying Rs1.2 billion per annum in capacity charges to the 412-megawatt Rousch power plant without any supplies as gas is diverted to the textile manufacturers.

The government also faces a loss of billions of rupees every month because of inefficiency and bad governance in the power sector.

"Power companies are suffering a loss of Rs170 billion every year including the loss of Rs110 billion caused by poor recovery of bills and Rs60 billion in the wake of transmission and distribution losses," an official said.

The Pakistan Electric Power Company (Pepco), which is headed by an official of the Ministry of Water and Power, had failed to tackle the situation, he added.


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