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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.

Fact Check – Power Load shedding in 2018

There is a lot of talk whether the load shedding has ended in 2018. The Government claims that the quantum of load shedding has substantially reduced on a year on year basis and over the last five years period. However, with an objective analysis, it can be ascertained if the quantum of load shedding has declined or not. Since the monthly electricity generation numbers are available on NEPRA’s website – Resources Future has run a quick reality check.

Load shedding status: 2013 – 2016:

The government believes that they have reduced the load shedding since 2013 which was more than 12 hours of load shedding in rural areas and 8 hours in urban areas. However, it is interesting to note the actual surplus/deficit numbers reported by the NEPRA for last five years. The actual reported numbers are as follows:

Surplus/Deficit in Demand and Supply – NTDC system

Year Generation Capability (MW) Peak Demand in NTDC System (MW) Surplus/Deficit (MW)
2013 14,600 18,827 (4,227)
2014 16,170 20,576 (4,406)
2015 16,500 21,701 (5,201)
2016 17,261 22,559 (5,298)

Source: NEPRA, State of the Industry Report 2016

Going by with above numbers, the total power generation deficit has increased from 4,227 MW to 5,298 MW. This means that the overall quantum of load shedding must have increased from prior years since overall deficit in the system has shown an increasing trend. Going by the above reported statistics, the actual load shedding may not have declined up till 2016.

Load shedding status in 2017

The above numbers till 2016 implies that there must have been little improvement in actual load shedding numbers. But what about the last two years –2017 and 2018. The consolidated numbers of actual electricity generation are not available yet from the regulator and other reporting agencies. However, Resources Future has ascertained the actual electricity generation figures for the last two years based on the NEPRA’s monthly fuel price adjustment data. The consolidated 2017 numbers are as follows:

Fuel Generation 2017 – GWh %
Hydel                                           31,786 30%
Furnace Oil                                           31,933 30%
Gas                                           31,057 29%
Diesel                                             1,648 2%
Coal                                                 961 1%
Others                                             9,684 9%
Total                                        107,069 100%

 

For 2016, NEPRA reported a comparable figure of 100,114 GWh of actual electricity generation. Compared to 2016, the 2017 numbers show a 7% increase in electricity generation – not enough to eliminate load shedding completely. This implies that on year on year basis, after accounting for an increase in peak demand, the actual surplus/deficit must have remained a north of 5,700 MW and above – and almost at the same levels as of 2013 – contradicting the reduced load shedding claims of the Ministry of Energy (Water and Power Division).

Load shedding status in 2018:

To analyze the load shedding claims in 2018, the monthly fuel price adjustment numbers have been consolidated. Till date, from July 2017 to February 2018 generation numbers are tabulated below as compared to monthly numbers from the same period of FY2017.

Gwh Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18
Hydel          3,847.6      4,196.5      4,142.6      2,438.4         2,212.5     1,231.5          606.3      1,356.6
Coal              368.1          405.1          551.2          687.4            961.8         909.5      1,144.4      1,102.0
HSD              335.6          336.0            60.3                 –                   –           51.5                 –              0.8
RFO          3,198.5      3,123.0      2,328.5      2,547.5            648.5     2,251.5      1,630.5          581.4
Gas          2,145.2      2,186.0      1,882.0      1,683.0         1,778.0     1,767.6      1,657.3      1,672.9
RLNG          1,514.5      1,369.0      1,326.0      1,492.0            865.0         395.1      1,802.0      1,340.1
Nuclear              641.6          432.2          777.6          837.6            634.2         728.1          821.0          609.2
Import                54.3            44.7            49.2            48.6               40.6           38.8            38.0            34.5
Mixed                26.7              7.8            56.7            56.8               56.1           65.4            72.4            61.1
Wind              232.8            82.6          141.7            76.8               71.1         188.8            73.1            84.9
Baggasse                75.3            69.0          110.3            65.6               55.5           86.4            86.9            81.0
Solar                56.6            52.0            61.9            62.0               42.2           48.8            54.8            54.7
Total        12,496.6    12,303.9    11,487.9      9,995.6         7,365.5     7,762.8      7,986.6      6,979.1

 

Gwh Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17
Hydel          3,948.0      4,249.6      4,249.6      2,762.0         2,842.5     1,642.7          511.8      1,493.5
Coal                  5.4            10.4            10.4            10.2                   –             2.5              8.6              4.6
HSD                65.5          142.2          142.2          172.6                   –           60.6          362.1              6.0
RFO          3,186.7      3,054.4      3,054.4      2,630.7         1,345.0     2,673.3      3,297.0      1,677.5
Gas          3,041.4      2,620.9      2,620.9      2,459.5         2,211.7     2,152.0      1,866.8      2,334.6
RLNG                     –                 –                 –                 –                   –                –                 –                 –
Nuclear              434.6          432.2          432.2          437.4            338.5         441.7          580.6          581.1
Import                45.8            44.7            44.7            41.3               35.0           32.1            34.6            33.8
Mixed                  8.1              7.8              7.8              6.0               14.6           27.8            32.5            36.1
Wind              129.9            82.6            82.6            71.6               46.7           54.1          106.6            81.0
Baggasse                68.8            69.0            69.0            18.7               56.0           69.8            73.3            80.5
Solar                57.6            52.0            52.0            56.4               45.3           43.2            39.9            54.2
Total        10,991.8    10,765.8    10,765.8      8,666.4         6,935.4     7,199.7      6,913.6      6,382.9

 

In absolute terms, there is an increase in electricity generation from 68,621 GWh in FY2017 to 76,378 Gwh in FY2018 – an 11.3% increase. If the same 11.3% increase continues, the country would be able to make 119,167 Gwh at the end of FY2018 – highest in its history. However, does that mean that it will be able to reduce the absolute quantum of load shedding? Again, just as it happened in FY2017, the 11% increase is electricity generation in FY2018 is not large enough to ameliorate the load shedding gap completely – as this still leaves a gap of more than 4,000 MW of average electricity generation to be fulfilled.

Net electricity generation addition:

In a snapshot, the total increases in electricity generation in the last five years has been as follows:

Year Electricity Generation (Gwh)
2013 88,835
2014 95,441
2015 97,881
2016 100,114
2017 107,619
2018 E 119,167

 

The CAGR increase in generation is 6.05% – not large enough to eliminate the load shedding, assuming the demand also grows by 5-7% per annum.

What may have gone wrong:

All the power sector projects that the government expected will be online before their term has unfortunately not been completed fully. For instance, the much awaited Neelum Jhelum power plan of 969 MW was expected online much before but so far only generates 60 MW. The three RLNG power plants of 3,600 MW are still in the testing phase and has not come online fully. Second, the circular debt has surfaced up again – albeit in a bigger proportion today. The large outstanding circular debt of Rs. 1,000 billion as of April 2018 (including PHPL) has constrained fuel supplies and has impeded continuous electricity generation. Last, the generation addition projects continue to face evacuation issues. While generating electricity has been the focus, the transmission bottlenecks has not allowed the electricity to be evacuated to distribution networks – causing the load shedding to stay as a permanent feature of Pakistan’s power sector.