Aug 112009

By Dr Ashfaque H Khan

There are many misconceptions about Pakistan’s economy, which have either been created deliberately or are the outcomes of ignorance. One such misconception deals with the power sector. It has been generally argued over the last two years that not a single unit of power has been added in the past seven or eight years or why the generation capacity was not increased to keep up with demand. In this article I intend to clear this misconception by presenting facts.

Prior to the 1994 power policy, the country was facing power shortage in the range of 1,500-2,000MW. The 1994 Power Policy attracted massive investment by independent power producers (IPPs), and by 2001 Pakistan was facing a surplus of over 3,000MW with all its financial implications. We must know that power, once generated, cannot be stored; it has to be consumed. Furthermore, one of the critical incentives of the 1994 Power Policy was capacity payment. Whether the government uses the power or not it had to pay 60 percent of the capacity to the IPPs.

Since Pakistan was facing a surplus of over 3,000MW and was making capacity payment, it wanted to find markets for its surplus power to earn money. Pakistan started negotiations with India to export its surplus power in early 2001. The negotiations reached a fairly advanced stage and even the areas were identified through which a high-transmission line would enter India to connect its national grid.

On Dec 13, 2001, terrorists attacked the Indian Parliament and, as usual, India blamed Pakistan for this attack and moved its troops to the border. All negotiations for exports of power to India just ended. In 2003 Pakistan was still carrying a surplus of over 2,000MW, with all its financial implications.

The issue at hand in 2003 was when would supply match demand. Several exercises were conducted to project demand to match the power supply. Power demand was rising at an average rate of 3.0 percent per annum during the last 13 years. At this rate a break-even was to reach in 2010. However, the-then government assumed that the revival of economic growth would certainly increase power demand. Projection was then made on the basis of a 6.0 percent growth in power demand (doubled from historical standards) and the break-even was to reach in 2007.

One thing needs to be remembered. It takes three or four years for a thermal power plant to come into operation. In 2003 Pakistan had a surplus of over 2,000MW with all its financial implications, and the issue at hand was to find out when the demand would equal supply. I would like to pose a question to the readers: Was it economically justified to undertake more power projects in 2003 when the country was already having a surplus, with all its financial implications?

Pakistan‘s economic growth from 2003-04 to 2006-07 averaged 7.3 percent per annum, which was beyond the expectations of the government. As a result of the stronger economic growth the power demand grew by almost 9 percent per annum, instead of 6 percent, during the period. Why did power demand surge? Because the economy grew at a stronger pace; the real per-capita income grew by an average rate of 5.4 percent per annum; the number of electricity consumers increased by three million and almost 47,000 villages were electrified during the period. The rising level of economic activity increased people’s level of income, enhanced commercial activity, more roads were built and more streetlights were required. The consumption of electricity by households, the commercial, industrial and agricultural sectors and streetlights grew at an average rate of 8.9 percent, 14.0 percent, 7.0 percent, 8.2 percent and 12.3 percent, respectively, during the period.

As a result of the surge in economic growth the power demand grew by an average rate of 9.0 percent per annum and the break-even reached in 2005, instead of 2007. The natural question to be asked is: what did the-then government do to increase the power supply, or make any effort to increase the generation capacity?

One can check with the Private Power and Infrastructure Board (PPIB) that 50 new power projects totalling 12,141MW were launched from February 2004 and to June 2007 by the previous government. These projects were to come in operation during October 2008 to December 2015. In fact, the details of the projects were available on the website of the PPIB until few months ago but now the dates have been removed. Interestingly, PEPCO advertised in this newspaper in the month of July, informing the people that by December 2009 3,500MW additional electric power would be available through 18 new power projects. Among these, eight projects, translating into 1,700MW, are those which were initiated during February 2004 and January 2006. The rest of them appears to be rental power plants. The fact is that 390MW was to be added in 2008, 1,350MW in 2009, 2,136MW in 2010, 1,393MW in 2011, 1,152MW in 2012, 2,150MW in 2013, and so on.

We must learn to acknowledge the good things done by any government. I could have given the benefits of Ghazi Barotha to the previous government, but I did not mention this. This project had been launched before the previous government took over, and it simply completed the projects and added 1,478MW of power. Similarly, several thousand power projects of megawatts were initiated by the previous government which will benefit the present and the future governments, provided they continue to monitor the projects and ensure their completion in time.

The current power crisis is the results of stronger-than-expected economic growth during 2003-07; the unprecedented surge in the prices of furnace oil in 2007-08 resulting in accumulation of circular debt, non-payment of electricity bills by some departments of the provincial and federal governments in time, accumulation of outstanding power bills in the billions from FATA and the growing transmission losses and power thefts.

The writer is dean and professor at NUST Business School, Islamabad, Email: ahkhan

 Posted by at 10:06 pm

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