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Dismal Performance of Power Generation Company Continues

Power Sector Generation – 2018

The Government of Pakistan made a provision of efficient electricity supply system as one of the key objectives of the National Power Policy 2013. To achieve this, the Government set in a motion a huge program of power generation and infrastructure through both the additions through the China-Pakistan Economic Corridor (CPEC) and Federal Government spending. Help was also sought from the private sector and multi-lateral agencies for the improvement and development of Pakistan’s power sector. The following sections provide an overview of the generation sector and discusses new generation capacity, public sector generation’s woes and difficulty and progress made so far on critical power generation projects.

The following projects have been added to the national grid as per the CPEC program:

Operational Power generation Projects – China Pakistan Economic Corridor

Project Description Status
1,320 MW Port Qasim Supercritical coal power plant 1st unit operationalized while second unit awaits COD
1,320 MW Sahiwal Imported Coal Supercritical coal power plant Project completed in 2017 and connected to national grid

 

Apart from the CPEC projects, the Government’s own power sector generation initiatives are as follows. As it can be seen however, that performance of the public-sector generation projects requires a much-improved performance than the one currently demonstrated.

Near Operational Power generation Projects – Public Sector

Project

Description Status
Quaid-e-Azam RLNG Power Project 1,320 MW RLNG Power Project Not operationalized.

 

Produced 66 million Kwh in the month of Feb 2018 as compared to monthly optimum production capacity of 807 million Kwh (8.2%).

Balloki Power Project 1,320 MW RLNG Power Project Not operationalized completely.

 

Produced 17 million Kwh in the month of Feb 2018 as compared to monthly optimum production capacity of 807 million Kwh (2.1%).

Havelli Bahadur 1,320 MW RLNG Power Project Not operationalized completely.

 

Produced 33 million Kwh in the month of Feb 2018 as compared to monthly optimum production capacity of 807 million Kwh (4.1%).

Tarbela IV 1,410 MW Hydro power First unit (470 MW) commissioned in February 2018 while unit 2 will be commissioned in May 2018 and unit 3 in June 2018.
Neelum Jhelum 969 MW hydro power Not functional. Cost increased to Rs. 507 billion for project completion.

Source: NEPRA’s Monthly Fuel Price Adjustment Data

The above picture is a gloomy one indeed. The RLNG power plants are producing next to nothing to the national grid and raises serious questions as to their operational viability. The earlier commissioning date for the Haveli Bahadur Shah RLNG plant was April 15. Under the agreement, the COD (Commercial Operation Date) of both the projects was January 9, but so far these are not functional despite the lapse of over five months. While the government wanted these projects to come online before May 2018 – the testing phase keep pushing the eventual operations delayed. The production in the range of 4% – 8% has also affected the RLNG supply chain.

There is also an insurance issue going forth. The National Insurance Company Limited (NICL) has already refused to provide reinsurance cover to the two RLNG projects of 2,460 MW saying the risk factor is on the higher side, as the plants had never been tested or tried anywhere in the world and therefore the Ministry of Finance should provide a counter-guarantee for the reinsurance. The Government remains in a quandary whether to provide for a counter-guarantee or it should start operations with adequate insurance. If NICL seeks a reinsurer to arrange cover from a private entity from the global market, the insurance cost will certainly increase and so will the tariff. Further, since the plants have not come online as per the COD, the Government is believed to have imposed penalty of $1,200,000 per day on the contractor of both the projects ($600,000 per day penalty to each contractor) – which does not bode well for the contractors and sets a bad precedent for the investor community. The Bhikki power plant is also assumed to have come to a halt, as the seal of the power turbine-4 had burnt damaging the rotor. As a result, the Unit-4 is no more operational. The repair will take additional three months.

Power Generation Units – Existing Plants

The performance of public sector thermal power plants (GENCOs) have been found to be lacking in terms of all Key Performance Indicators (KPI) for the past many years. As NEPRA reported in its 2016 State of the Industry Report:

It was also observed that a number of power generation units have outlived their useful lives, operating at lower than their rated capacities and inferior efficiencies. These power plants have not only poor operational results, the work force which is already on the higher side on per MW basis remained idle due to their closure and non-operation; contributing towards higher cost of generation”

It further continued:

In order not to pass on imprudent costs to consumers, the Authority had earlier advised all the GENCOs to carry out performance tests, so that degradation in their operational capabilities, efficiencies and administrative factors like manpower and overhauling and maintenance schedules are set afresh. The performance tests for two of the GENCOs (TPS Jamshoro and TPS Muzaffargarh) have been completed and the Authority while deciding on the tariff petitions of Jamshoro Power Company Limited and Northern Power Generation Company Limited have determined tariff components using the latest results. At the same time concerns of GENCOs have also been addressed by allowing certain parameters which were not part of their tariff earlier.

Operation of new power plants like 747 MW Guddu Power Plant and 425 MW Nandipur Power Plant are also glaring examples of poor governance by the public sector. In case of Guddu Power Plant, according to the information provided by the company to NEPRA, the plant underwent testing and commissioning for more than 8 months, whereas prudently done, testing and commissioning phase lasts for 20 to 25 days only. Even after the COD, 747 MW Guddu Power Plant, which is among the most efficient plants in the country, has been operated for 53% of the time only, during the reporting year. Nandipur Power Plant is another typical case of poor handling by the management. However, refusal of the regulator, to allow any imprudent costs related to such projects, is not viewed in the context of the health of overall power sector”

Sector Update – Pakistan Power Sector 2018

Introduction Pakistan’s Power Sector

Under Pakistan’s constitution, Electricity is a Federal Subject. The Council of Common Interests (CCI) is the highest constitutional body in the country and is responsible for formulating and regulating the sectoral policies of the electricity sector. However, the Constitution does provide that the Provincial Government may play an important role:

  1. by requiring supply to be made in bulk for transmission and distribution within the Province;
  2. by levying tax on consumption of electricity within the Province;
  3. by constructing power houses and grid stations and lay transmission lines for use within the Province; and
  4. by determining the tariff for distribution of electricity within the Province.

Pakistan continues to face myriad power sector challenges. Chronic load shedding, caused by technical, operational, commercial, and regulatory barriers, has reduced industrial output, crippled economic growth, and has created social unrest. To avert a looming energy crisis, Pakistan needs to address structural deficiencies in its power sector to provide an enabling environment for private sector investment to close a growing power deficit. At present, Pakistan’s almost 30,000 MW installed capacity is insufficient for the country’s growing population of 220 million (of whom 60 percent is believed to have access to the grid with others relying on off-grid solutions and other sub-standard fuels). Moreover, with losses at the distribution level of up to 40 percent in some DISCOs (HESCO, PESCO and SEPCO), not all of it reaches the end user. With the new capacity additions through China Pakistan Economic Corridor (CPEC) and Government’s own push to install new generation capacity, Pakistan will relatively receive new power generation capacity the extent of 10,000 MW which is expected to improve system efficiency and lower fuel cost. However, there remains a substantial capacity which is run down, obsolete, and inefficient and requires rehabilitation. A third of the existing capacity is fueled by fuel oil (“furnace oil”), with attendant pollution and economically onerous foreign exchange requirements. Though Furnace Oil is on a way out to accommodate RLNG in the fuel mix, the delays in existing project commissioning has strengthened operations of furnace oil plants for the time being. Further, end user tariffs are not cost-reflective and together with low collection rates, high transmission/distribution losses, theft, and technical/managerial inadequacies — render the power sector incapable of financing itself. The tariffs are financed primarily through surcharges – which have attracted litigation and have not resulted in industrial competitive disadvantage. The circular debt – last settled in 2013 for Rs. 480 billion – has again surfaced up and has touched a north of Rs. 500 billion already with additional Rs. 500 billion in the accounts of Power Holding Private Limited (PHPL). As such, it seems a challenge to shoulder the continuous O&M price tag to sustain the growing supply base given the operational efficiencies are yet to be improved. With 10% on average of loss in recoveries and 20% on average of T&D losses, the power sector losses 30% of all bills to be collected which poses a continuous liquidity challenge.

The reforms so far have also been unsuccessful. The IMF program intended to cap the circular debt at a ceiling has not been a success and no major operational improvement is yet to be observed in the system. The positive change has been led the State’s own institutions and primarily National Electric Power Regulatory Authority (NEPRA) which has taken a sectoral direction in line with international best practices and initiated a much-needed renewable energy agenda in the last five years. To expedite RE base, NEPRA gave upfront tariffs for wind, solar, bagasse, coal and liquefied natural gas (LNG) which spurred investments in various RE projects of around 2,000 MW. Also, the GOP’s investment push in large- and medium- scale public-private partnerships (PPPs) seek to expand the role of the private sector in generation, transmission, and distribution offer a potential pathway to improving the security, stability, and economic growth.

Presently, the National Transmission and Dispatch Company (NTDC) power system is being operated in a single-buyer mode, where Central Power Purchase Agency (CPPA-G) buys electricity on behalf of DISCOs and provides it to DISCOs in proportion to their actual recorded demand. The total electricity generation in the country during FY2017 was 119,276 GWh (comprised of 107,410 GWh in the NTDC system and 11,866 GWh by KE). The transmission sector is dilapidated and there is an urgent need for higher investments. On the planning side, the n-1 planning is not evident as large tripping continue to occur all over the country. NTDC has been in project partnership with China State Grid for the construction of HVDC line which will bring power down from South to North of the country. Over the years, and in the future, private investments for thermal, hydro and Renewable Energy projects, some smaller transmission lines besides private captive generation have an important role to play in the country’s power sector.

Institutional Environment

Overlapping institutional jurisdiction remains one of many challenges facing power sector governance in the country. A large number of government entities play a role in influencing policy making, governance, and/or management of the power sector, including: the Presidency, Office of the Prime Minister (PM Secretariat), Parliament, courts, four provincial governments, Ministry of Finance (MOF), Ministry of Energy (Power Division), Ministry of Energy (Petroleum Division), NEPRA, Water and Power Development Authority (WAPDA), Private Power and Infrastructure Board (PPIB), Alternative Energy Development Board (AEDB), Privatization Commission, National Transmission and Transmission Company Ltd. (NTDC), Central Power Purchasing Agency (CPPA) (G), 10 state owned distribution companies (DISCOs), and four state owned generation companies (GENCOs) along with 33 privately owned Independent Power Producers (IPPs). All the DISCOs and GENCOs are incorporated under the Pakistani Companies Act 2017, issue shares, have boards of directors, and are controlled and managed by MOE, Power Division essentially as government entities; 100 percent of their shares are titled to the president of Pakistan.

While Pakistan’s 33 major independent power producers (IPPs) are not GOP owned and controlled entities, they have power generation licenses, generate more than half of the country’s electricity, and are a key part of the power sector. The IPPs, from time to time, are embroiled in the settlement of circular debt issues and have faced clashes over the call of sovereign guarantees and non-payment of capacity dues. K-Electric, which serves Pakistan’s largest city of Karachi, is the only vertically integrated utility in Pakistan and was privatized in 2005. KE – though has improved operational and financial performance – has continued to rely on the national grid for the 650 MW of power to meet its demand.