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The National Energy Policy 2013-18: A Critical Review

August 30, 2013 at 10:39 am | News Desk

by Mehmood Ul Hassan Khan

In the wake of continued power breaks, protests and processions, the new government at the center has succeeded to formulate the much awaited and debated national energy policy 2013-18. The same has already been approved by the Council of Common Interest (CCI). The policy accentuates the diversified but integrated efforts of the government to overcome the energy deficit in the country.

It pinpoints the existing socio-economic ills closely associated with the ongoing saga of power crisis throughout the country. A widening supply-demand gap where the demand for electricity far outstrips the current generation capacity (up to 4500-5000mw), highly expensive generation of electricity (Rs12/unit) due to an increased dependence on expensive thermal fuel sources (44 per cent of total generation) and the last but not the least, a terribly inefficient power transmission and distribution system that currently records losses of 25 to 28pc due to poor infrastructure, mismanagement and theft of electricity are the chronic problems of the power sector in the country.

It also encourages the participatory role of the private sector in the field of power generation. It gives certain incentives to potential businessmen and investors (local, foreign) to invest in the power sector. It would support the current and future energy needs of the country.

Salient Features   

Following are given some salient features of the newly announced national energy policy:

(a)    Power sector subsidy would be phased out till it is put to an end. (Unstoppable flood of inflationary pressure would create havoc in the lives of the common people in the country)

(b)    End to load shedding would be made possible till 2017 and surplus electricity in 2018. (Without proper utilization of all available natural resources, mix of alternative energy resources and above all creation of strategic balance in the power generation chain, it would not be possible).

(c)    Privatization of government owned power plants and little power distributing companies (Discos), bringing the double digit cost of power generation to a single digit. (Levels of productivity and efficiency of the private sector of the country is not so encouraging to meet the demands).

(d)   Restructuring of water and power ministry, National Electric Power Regulatory Authority (Nepra) (It may pay dividends, provided all the key appointment will be made on merit and without any political compromise).

(e)     Oil and Gas Regulatory Authority (Ogra) adjustment of outstanding dues owned by the government and privately owned bodies through federal adjusters (Financial discipline would hold the key of success).

(f)    Formation of regional transmission and power trading system would be made. (Role of provincial governments would be crucial in the days to come).

Philosophical inputs

Philosophical inputs are always good for reading but hard to implement especially where there is a chain of corruption. It has some philosophical inputs too. It speaks about the importance of honesty, transparency, financial discipline and accountability which are parts of parcels of a bygone story in our parts of the world. It has long term goals aiming to build a power generation capacity that can meet country’s energy requirements in a sustainable manner. It also aims to create a new culture of achievement, rights and responsibility and to form new culture of energy conservation and responsibility, ensure the generation of inexpensive and affordable electricity for domestic, commercial and industrial use, minimize pilferage and adulteration in fuel supply and promote world-class efficiency in power generation. Moreover, it envisages creating a cutting edge transmission network, minimizing financial losses across the system and aligning the ministries involved in the energy sector and improves governance.

Result-Oriented Policy

It is envisioned to build energy cities and corridors and sponsor public-private partnership for coal and run of river projects. The government will also redesign and strengthen the national grid transmission network and build a regional transmission and power trading system. The government would like to limit its role to policy making and unless necessary, service delivery will be promoted through a fiercely competitive and transparent private sector.

 

Elements of Supply & Demand Details
Efficiency It would be based on merit order, transparency/automation, and accountability.
Competition It would be institutionalized through the help of upfront tariff and competitive bidding, and key client management
Infrastructure It will be developed and incentives would be provided to attract greater private sector investments.
Tariff It will be by a world-class regulatory authority. Up-front tariffs will be set for low cost fuel and competitive bidding will be used to decrease the costs further.

A complete overhauling is urgently needed to put the sinking titanic of power sector on right track because, all important inputs of power generation are at their lowest ebbs. Joint ventures of alternative energy generation with China, Germany and UAE would be fruitful in the days to come.

The new national policy of energy 2013-18 tells the roadmap for attracting domestic and foreign investments in the power sector. It explains different means to increase the power generation capacity in the days to come. It introduces new system of price determination for the household and commercial utilization.  It gradually shifts Pakistan’s energy mix towards low cost sources such as hydel, gas, coal, nuclear and biomass. Local and foreign investment will aggressively be sought for small and medium size run of river hydel projects. Selected hydel projects under development will be positioned for privatization. Multilateral agencies will be invited to partner in large infrastructure hydel projects.

Operational Strategies 

 

Different Strategies Details
Generational Establishing plant efficiency through external heat rate testing, building a merit order accordingly, and allocating fuel to the more meritorious plants. Allocations will be made public online to increase the transparency. The strategy calls for the privatization or O&M based leasing of GENCOs.
Transmission Installation of upgrade SCADA software to optimize transmission and monitor its losses. Dispatch will be based on economic order and internal/audit control will be established on dispatch and payment. Plants will be built closer to load centers; high voltage transmission lines will be expanded; and the 220kv rings around cities will be strengthened.
Distribution The performance contract will be signed with the heads of distribution companies and their respective boards focused on reducing distribution losses due to technical reason, theft, and lack of recovery/ collection. Smart meters will be installed at the feeder level, profit and loss accounts will to be managed at the feeder level, and the accountability will be appropriated to the executive engineer.

 Governance Strategies 

According to the national energy policy, the financial efficiency strategy (FCS) will be geared towards punishing private defaulters and proposes severing the electric connection of defaulters after 60 days of non-payment and only reconnecting them to the grid with pre-paid meters (The ongoing federal and provincial government joint strike against electricity and gas thieves are creating history). External collection agencies may also be sourced to improve cash flows.  Overall hauling of NEPRA and OGRA to improve efficiencies is a must for the success of new national energy policy.

Estimations

It is predicated that successful execution of new national energy policy would reduce the   supply-demand gap by 2017. Moreover, there would be power surplus in 2018. The cost of power generation will be reduced to a single digit per unit, and the efficiency improvements in transmission and distribution will decrease the burden of power for the end consumer.

Concluding remarks

Apparently the overarching target of the new national energy policy to increase generation from the current 12,200MW to 26,800MW in the medium term (3-5 years) and reduce average generation cost from Rs14.67 per unit to about Rs10 per unit by bringing in efficiency, merit order and transparency in the entire spectrum of the power sector is possible but merely on papers. Practically it would be possible until and unless, optimal utilization of hydro-power is geared. Big fishes of electricity and gas theft must be dealt with iron hands.

Call for accelerating power imports from neighboring nations like 1,000MW from Central Asian states, 500MW from India and 1,000MW from Iran and restructure and renovate or replace public sector generation plants through public-private investment may work. Supply of energy from Turkmenistan, Afghanistan, Pakistan and India (TAPI), Iran-Pakistan dream pipeline (IP) and even India would badly suffer from the emerging geo-political and geo-strategic problems. Durable peace and political stability in Afghanistan would be crucial for importing energy from the CIS.  In case of IP, U.S. legislations and diplomatic pressure would not be easy to crack.

News Desk

Economic Affairs Editor

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