Sep 232008

ONE really radical and somewhat ambitious way of dealing with the enormous problem created by the growing electricity demand-supply gap is to bring in the provinces into the energy sector.

In Prime Minister Yousuf Raza Gilani’s maiden address to the newly elected parliament it was indicated that his government would grant greater autonomy to the provinces in economic matters.

If that were to be done, he would have kept the word given several years ago by the then Prime Minister Zulfikar Ali Bhutto who promised that the provinces would have a larger role to play in the new Pakistani federation. He was prepared to yield more authority to the federating units in return for their support for his constitutional draft.

The support was given but the word was not kept. Bhutto, by temperament, could not easily share power with others. This was the case with his cabinet colleagues. This also became the case with regard to Islamabad’s relations with the provinces. Bhutto dismissed the two administrations headed by the opposition — one in Balochistan, the other in the NWFP — once the 1973 Constitution was promulgated. Under the two military presidents who held power after Bhutto’s removal, Pakistan became a progressively more centralised state.

As Pakistan now grapples with an economic crisis of unprecedented proportions the grant of provincial autonomy may be part of the solution Islamabad is seeking. Not only should the promise of the 1973 Constitution be fulfilled, it may also be a good time to go beyond that by focusing on what could be achieved by transferring to the provinces the subjects listed in the Concurrent List.

By transferring greater authority to the provinces in three areas — international trade, financial resource generation and energy — Pakistan may be able to lay the ground for solving not only its current economic problems, but also bringing about structural changes that would strengthen both the economic and political system. Today, I will deal with the role the provinces could play in the solution of the energy problem.

Over time the institutional underpinning of the management of the energy sector has changed significantly. Initially, two government-owned entities had total control over the electricity sector. Of these, Wapda was the dominant player responsible for generating, transmitting and distributing electricity to all areas of Pakistan other than Karachi. For Karachi, this was the responsibility of the Karachi Electricity Supply Company, the KESC. However, under pressure from the donor community, the government decided to privatise the KESC and split Wapda into several components.

Two separate operational units were set up within Wapda to manage thermal and hydel power generation while distribution was divided among eight district companies that were to become financially autonomous over time. A separate agency was established to manage transmission. Regulation of the power sector including tariff determination was handed over to an autonomous entity. The purpose of this institutional restructuring was to lessen the control of the government over electricity and subject its generation, transmission and distribution to the rigours of the marketplace.

That has not happened. For instance, the tariffs recommended by the regulator were not initially accepted by the government. It continued to subsidise the sale of power to all categories of consumers thus increasing the burden on the budget.

At this time I would suggest a radically different approach to the solution of the energy problem. The government should split the responsibility for power generation into three parts. Large projects generating more than 1,000MW should remain with Wapda, while smaller units should be allowed to be established either by the private sector or by the provincial governments. The private sector should continue to work within the policy framework determined by the central government.

The provincial governments should be permitted to establish their own generating companies with the support of the private sector. One more feature of this arrangement would be to allow the provinces to trade electricity with one another. The sale price would be determined through negotiations. It would not be fixed by the central regulator. This approach will allow each province to tap its own resources.

Sindh would most likely concentrate on coal and natural gas; Balochistan also on these two sources while developing the potential of wind power as well; the NWFP will work to develop its enormous hydel potential; the Punjab could develop small hydel units on the many canal heads that are part of its large irrigation system.

Each province could develop solar power abundantly available to all of them. The revenue generated through the sale of power to domestic users or traded with other provinces would provide capital for investment.If Punjab were to rely on natural gas as fuel, it should procure it at the market price from the provinces where it is produced. If it decides to use imported fuel oil that too should be obtained at market prices. If the province decides to subsidise the use of power by some category of consumers, it should do so by providing support through the budget rather than by distorting the price structure.

Such an approach has many benefits. It would establish a market for trading electricity, which was one of the objectives of the reform effort launched a few years ago. It would deal with the resentment of such relatively more backward provinces as Balochistan and the NWFP that they have not been adequately compensated for the use of their rich resource base by the more developed parts of the country. It would encourage the efficiency of resource use by making electricity an openly traded commodity. It would create incentives for the provinces to do research and development in such new technologies as solar, wind and waste products’ utilisation. It would ease the burden on the central government for increasing generation capacity. And it would produce healthy competition among the provinces.

Once this three-tier system is established and has created an operational track record, some of the larger units could also be handed over to the provinces. At this point while central Punjab is the largest consumer of electricity, large amounts of the power it receives are produced in the NWFP (at Tarbela), in Azad Kashmir (at Mangla) or in the gas-fired plants in various parts of the province. By purchasing power from the provinces, the economic grievances of the country’s more backward areas could be reduced.

Source: Daily Dawn, 23/9/2008

 Posted by at 10:02 am

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