Developing the power sector through public-private partnership

Article written by M. Osman Ghani

As summer begins to hit its peak across the country, power outages have worsened. As per some latest reports electricity shortfall may reach 7,000 MW this summer season. Pakistan Electric Power Company Limited (Pepco) is facing severe shortages in the supply of furnace oil from Pakistan State Oil (PSO), to further aggravate the energy crisis. The sweltering heat has already raised the electricity demand to almost 16,000 MW, while the existing generation capacity is only about 10,000 MW.

Relentless power shutdowns and long hours of unscheduled load shedding have played much havoc with the lives of ordinary citizens and the economy’s performance. Complex issues in the energy sector have put a strain on the country’s industrial and trade fabric. Other factors accountable for the prevalent energy crisis are surging oil prices in the international market and less than planned development of various energy resources, including hydro power, coal etc.

The cumulative impact of the power shortfall on the economy was estimated at 2 per cent of the GDP during 2009-10. Low availability of hydel resources for power generation and a more than average shortage of gas tilted the “fuel mix” of the electricity generation sector towards fuel oil. Since this occurred at a time when international oil prices doubled, the effect on the cost structure of utilities was augmented extensively. Despite a hefty increase in electricity tariffs over the past two years, a wide gap still exists between power generation cost and recovery, largely due to adverse developments outlined above. The cumulative effect has been that the growth rate of Pakistan’s primary energy supply, which began decelerating in 2007-08, had turned negative in 2008-09 and 2009-10 (July-March). Final energy consumption is estimated to have dwindled by 5.3 per cent during the calendar year 2009.

Pakistan is projected to be the world’s fifth largest country by 2030, with a population of 230-260 million, 60 per cent of them likely to live in metropolitan cities. In this context, a lot needs to be done to fulfil the rapidly mounting demand of energy in future. If Pakistan seeks to enter the club of middle income group of countries by 2030, earnest efforts must be taken to achieve an annual GDP growth of 8-10 per cent for a longer period taking into account rapid industrialisation and modernisation of its shabby infrastructure system and development of its poor social indicators, especially health and education. The country’s GDP is targeted to increase from about $210 billion at present to $1,000 billion by 2030. Similarly, per capita income is expected to quadruple to about $4,000 in 2030. The share of manufacturing is expected to rise from 18 per cent of the GDP to 30 per cent. The country has the potential to become a vital business hub and transit trade centre in the South Asian region. However, to achieve all these coveted goals, adequate energy supply and skilled manpower must be ensured.

As per power target provided by Pepco, total installed capacity including that of KESE was supposed to increase by 22,176 MW by end June 2010 and 24,295 MW by end June 2011 respectively. To achieve this target of power generation, the revised estimate for 2009-10 was Rs123 billion and budget allocation during the current year was Rs125 billion. However, this colossal Public Sector Development Programme (PSDP) allocation could not produce tangible results in light of availability of electricity, as actual generation is no where close to the target.

Regarding the factors that have caused energy crisis, endemic corruption and inefficiency in the distribution and marketing system of power companies cannot be ruled out. Extensive load shedding, being pursued since the recent past, is estimated to be of the order of over 25 per cent of the system demand. Transmission and distribution losses range from 20-21 per cent under the national grid system and 30-36 per cent under the KESE system. If these losses could be cut down by even 50 per cent, acute power shortages could be curtailed.

Unfortunately, the country’s predicament does not stop there. Pakistan is also facing a severe deficiency of natural gas, which has the largest share in the energy mix (43.7 per cent). The country is likely to face a gas shortfall of around 2.7 billion cubic feet per day by 2014 due to 7 per cent per annum rise in its demand.

To improve the availability of power and other sources of energy, the private sector should join the government to overcome chronic energy shortages in the country. The private and public sectors should join hands to invite foreign investors from friendly countries like UAE and China to invest in the country’s energy sector.

It is heartening to note that the private sector is gradually increasing their participation level in the production of electricity at a small scale. The private sector has the resources and the capacity to change the fate of this ailing sector, which may change the destiny of the nation in the future.

Private sector entrepreneurs have come up with low-cost power generation options through a mixture of coal, biomass and municipal waste at competitive rates in various industrial cities, after realising that the gas and power shortages in the country would not be addressed in the medium-term. A local consultant, Arshad Munir Kazmi, for example is overseeing the installation of a 5 KW steam generation plant for an upcoming large weaving unit near Faisalabad. The generator will use a mixture of local coal, biomass and municipal waste as fuel, which will be converted into gas to produce steam. The industries in Punjab now comprehend the importance of alternative energy sources after facing an acute gas shortage this summer. Pakistan has in abundance town waste, local coal, waste wood, while agricultural wastages such as bagasse, corn cob and rice husk are available seasonally.

An expeditious private sector participation in the energy sector undertakes the following: (1) a comprehensive review of the existing framework for private sector investment, (2) disseminate the information on the best practices of public-private partnerships in energy sectors of various countries, (3) specify goal and roles of each partner, and (4) select  projects for future investment that will involve private sector participation.

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