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Changing Energy Mix
While there is urgent need to switchover from imported fossil oil to indigenous resources, containing theft and recovering overdue amounts should be on top of the agenda
by SHABBIR H. KAZMI
For a considerably long time experts have been highlighting the need for bringing a change in Pakistan's energy mix. At present the country is heavily dependent on fossil oil and gas. Huge import of POL products, especially furnace oil, is not only a drain on country's foreign exchange reserves but it is also the cause of hike in electricity tariff which becomes necessary because of increase in international prices.
It goes without saying that the first step for overcoming circular debt is containing electricity theft and improving recovery. However, unless the basic reason for electricity theft which is high tariff is removed, containing pilferage may not be possible. It must also be kept in mind that electricity theft is going on with the connivance of staff of distribution companies, which discourage installation of legal connection and meter but facilitate theft.
Over the years experts have been asking the government to ensure uninterrupted supply of electricity at affordable cost. All of them have the consensus that bringing down cost of generation is possible but nothing could be achieved unless cash flow of distribution companies is improved. According to experts if a distribution company dispatches 100 units, it gets payment for 30 units only because 40 are pilfered and payment of remaining 30 is never received. On top of that, efficiency of thermal power plants, especially of those working in the public sector, has declined to pathetically low levels because of improper repair and maintenance.
Lately, the Government of Pakistan (GoP) has negotiated over one billion dollar loans with the Asian development Bank for revamping of three power plants operating in the public sector. Out of this $433 million will be used to convert two power plants— Guddu and Jamshoro — operating in Sindh to imported  coal. It is being said that after the overhaul and conversion the capacity of these plants will increase by 700MW. The move could yield benefit only when these plants are operated on indigenous coal.
A lot has been talked about the potential of Thar coal over the last two decades but lately the plan has become victim of 'vested interest'. The petroleum lobby does not want power plants to be run on any fuel other than furnace oil. To sabotage Thar coal project some of the experts are insisting of 'coal gasification' rather than establishing 'mine-mouth power plants'. They are also opposing 'open pit mining'. Experts insist that 'coal gasification' is not an economically viable option therefore; no more money should be spent on 'an unyielding project'.
Since the idea of construction of mega dam starts controversies and heartburn a more practical approach would be to construct 'run of the river' type hydro electricity projects, mostly in the northern areas of the country. Since no water storage facilities have to be constructed, displacement of people and impact on ecology is also minimal. The country may face problem in mobilization of funds but many experts say the issue can be overcome even in case of mega dams through flotation of 'Sovereign Ijarah Sukuk'.
Lately, the GoP has floated this type of Sukuk worth nearly Rs300 billion. Floating 'dollar denominated' Sukuk also does not pose any problem. The biggest incentive is the difference in cost of electricity generated at thermal and hydel plants. Experts say cost of electricity generated at hydel plants costs less than Rs2 per unit. Since these hydel plants will be located closed to point of consumption, expenditure of construction of transmission lines will also be minimal.
The KESC is Pakistan's only 'compact and integrated' utility. It generates, transmits and distributes electricity to nearly 15% population of the country, has largest base of industrial and commercial consumers. However, its entire generation capacity is thermal based. Power plants can be run either on  gas or furnace oil. Conversion of these plants to coal does not bode well economically and environmentally.
In the case of KESC the government has to ensure either running of power plants on gas or paying the difference between the cost of gas and furnace oil. One of the issues is that KESC owes around Rs30 billion to SSGC and at times SSGC seems to be losing its patience. However, it is also a fact that KESC's receivables also hover around Rs50 billion. Therefore, if KESC gets its payment, it would be in a position to pay off SSGC and PSO, which in turn would pay the overdue amounts to refineries and exploration and production companies. The solution is simple since bulk of these receivables pertain to federal and provincial governments and public sector entities, deducting amounts 'at source' can help in resolving the issue.
Some quarters have been suggesting that NTDC must stop supplying electricity to KESC. However, the critics forget that HUBCO was primarily constructed to meet electricity demand of consumers living in KESC's franchised area but bulk of the production was diverted to Punjab because it faced energy crisis. It is also on record that in the past KESC had supplied electricity to WAPDA.
It is also necessary to point out that electricity demand in KESC's franchised area now hovers around 5,000MW, whereas its in-house generation capacity is less than half of that. The situation could have turned real nasty had many industrial and commercial consumers not opted for in-house power generation. Many of the enterprises have gone for co-generation where the cost of generation is even less than the tariff being demanded by the KESC. The added advantage is that in-house generation ensures uninterrupted and free of surges supply at a relatively lower cost.
Various quarters, also having vested interest, demand use of alternative sources of energy. Let one point be very clear that alternative sources are capital intensive and mobilization of resources can pose problems. As such the country does not suffer from insufficient electricity generation capacity. Average output hovers around 12,000MW against an aggregate installed capacity of 24,000MW. Therefore, the first objective should be to operate the existing capacity at optimum utilization.
It is necessary to reiterate that mismanagement, poor maintenance and substandard quality of fuel have been some of the key reasons for low capacity utilization and inefficient generation, resulting in the malfunctioning of the state owned power stations. Resolution of these problems alone could significantly bridge the demand and supply gap, which if synchronized with improvements in the distribution network, could help in enhancing availability of electricity in the country.
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