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A question of power

A question of power | Khurram Husain

There is no power crisis in Pakistan. Okay, let’s put it this way: there has always been a power crisis in Pakistan. Now let me explain:

What we’re calling a power crisis these days is often described as a situation where there is a large and enduring gap between the demand for, and supply of, electricity in the country. Different words are used in different places to describe this situation. We’ve got a power deficit, or suffer from energy shortages, we’re told. There are power shortfalls, or prolonged power loadshedding due to shortages. Policymakers often talk about bridging the shortfall as the way out, while international media enjoys long and tedious descriptions of individuals suffering under the spell of prolonged outages.

In all of these convoluted descriptions, what gets missed is the fact that Pakistan has always, from its birth onwards, had a gap between supply and demand for electricity. There has always been a deficit, and as early as 1970, they were talking about “load shedding” and “peak lopping” to manage the situation. So if a crisis is a situation where the status quo is under extreme stress due to unusual circumstances, then the situation obtaining in the power sector cannot be said to be a crisis since the power shortages have always been the norm in Pakistan.

What we are facing today is a situation that is at least two decades in the making, where we’ve hit an impasse in arranging for the future growth of the power sector and nobody can figure out how to break it. This shortfall in meeting peak demand, the growing difficulties in making billing recoveries, the rise of circular debt and the worsening fuel mix in power generation are all only symptoms of this malaise. They are not a crisis as such, although the dysfunctions they have spawned are assuming crisis-like proportions.

Figure 1: A map of Pakistan’s power sector as it stood in 1955. Source: First five year plan
Figure 1: A map of Pakistan’s power sector as it stood in 1955. Source: First five year plan

To understand this, it’s necessary to take a step back out of the day to day noise and confusion of the situation and take a longer view. Start by taking a look at Figure 1, which is a map of Pakistan’s power sector as it stood in 1955. The map was attached to the first five year plan, from where our story begins.

Notice that short squiggly black line in the north. That was the only transmission line that existed in Pakistan in its early years and it ran from a little known and still functioning hydropower station in Malakand down to the garrison town of Rawalpindi. It carried just over 100MW of electricity, one of the largest bulk supplies at the time, during the summer months only.

There was one other transmission line proposed at the time. That is the red line which runs from Peshawar to the town then known as Lyallpur, then splits in three directions, one going south to Multan, another north to Lahore, and the third continues east towards Montgomery. In the first five year plan, this line was proposed to carry bulk electricity from Warsak dam, which was under construction at the time, to the urban load centres of central Punjab. By today’s standards, these lines would not be sufficient even to carry the load requirement of one locality in a medium size city, but in those days this was the only transmission system we had, if you can call it a system.

Now notice the small black dots in various cities. These were tiny power plants, generating anywhere from 10 to 30MW each, and serving a small area in their immediate vicinity only. There is one such plant in Karachi, another in Hyderabad and a third in Sukkur, a spattering of a few across towns in Punjab. The red dots were power plants that were proposed to be built in the first five year plan.

Beyond this, there were a couple of other, even smaller power plants operated by private industry, which then shared their surplus generation with their vicinity, and a few privately operated plants, with the largest of these in Quetta.

Together, these dots and a couple of squiggly lines was the entire power sector of Pakistan in its early years. There was no national grid, no interconnection between the various power plants, no rural electricification to speak of, no means to share the load between various regions, no tariff setting body and no institution to oversee the sector. All that was to come in the years that followed.

Creating a power sector from scratch was no easy task. After all, setting up a large power plant is not the same as building a shoe factory, where you can simply build the plant, make the shoes, and ship them out to market to be sold. Electricity is tricky to generate, and even trickier to transport over long distances. A large power plant would require backward and forward linkages that carried stupendous costs, far too high for the private sector to meet.

Investments in hydroelectric plants were far too massive for anyone other than the state to contemplate. They also had very long gestation periods, and there was always the question of how to grow the country’s power generation during the years when hydro-power was under construction.

For that purpose, some thermal power plants had to be part of the new system that was being built, while the country waited for the first large scale hydroelectric projects to come online. Warsak came up in 1960, but Mangla didn’t start giving its electricity till the early 1970s, and Tarbela’s power generation began well into the 1980s while turbines were still being installed.

In the intervening years, thermal power plants were to be set up, but as thermal generation capacity grew, questions of fuel supply and power transmission quickly came into view. The sheer quantity of fuel that a typical thermal power plant requires is so large that it takes special infrastructure and payment arrangements to ensure that a smoothly running fuel supply chain is in place for efficient and continuous operation. That infrastructure can include pipelines, roads (if the fuel is to be transported by tankers), storage depots, import arrangements, and a fuel supply arrangement with a large and credible partner.

After this, the next big infrastructure requirement is in getting the electricity out to the consumer, which would take a large transmission line to carry it to the nearest load centre, and then plug it into a distribution system that was already in place to carry the power to the end consumer.

None of this infrastructure existed in Pakistan at the time, and if a power sector had to be built, then all of this would need to be built along with it. The story, therefore, grew with the telling. As the power sector would grow, the country would need a vast fuel handling infrastructure to come into place with it, along with roads and railroads and pipelines, as well as the foreign exchange required to import the fuel since indigenous gas reserves were very small in those early years, and very far away from the large urban load centres.

Figure 2: Transmission corridors and power generation plants envisioned in the Lieftinck report, Volume 1.
Figure 2: Transmission corridors and power generation plants envisioned in the Lieftinck report, Volume 1.

Not only that, a large government entity to house and manage the entire power sector would need to be created as well, and the ability of the economy to earn foreign exchange would need to be increased to be able to pay the bills for the imported fuel. The revenue apparatus of the state would need to be upgraded so it could bring in revenues in the quantities required to pay for all of this development.

On top of this, a very high level of technical skill was required to operate and maintain a growing power system, as well as to conduct the load forecasts across the country to try and determine where future demand was going to come from so plans could be made to bring power infrastructure to those locations in time. A large corps of engineers and economists and finance experts would be required to be able to operate the power system, as well as plan for future growth. All of this was lacking in Pakistan at the time.

Those were the years when WAPDA was built, in 1958, to oversee the entire water and power sector and its future development. Shortly thereafter, the World Bank came in with technical help to draw up a comprehensive plan for the expansion and future growth of Pakistan’s power sector, and in a landmark document called the Liefticnk Report, named after the principal author, the first comprehensive blueprint of what Pakistan’s power sector would look like was produced.

The plan, in those days, was to amalgamate all of the various power plants and their little distribution areas into an integrated power system. To do this, a large transmission corridor would need to be built, spanning the length of the country, and one by one, connecting all the load centres together. That way, whenever one load centre had surplus electricity and another one had a deficit, the electricity could be transferred from the surplus area to the deficit. The sharing was the first large benefit that would accrue to the power system.

The larger reason why interconnection had to be such an important priority was the construction of the Mangla and Tarbela dams. These were the largest power projects in the country, and their power had to be shared across the entire country to be usefully utilized.

The Liefticnk report gave us the first glimpse of what Pakistan’s power sector was going to look like in the future. Figure 2 shows the transmission corridors and power generation plants envisioned in the report, which was finalized in 1967. Some of the transmission lines, connecting Karachi with Hyderabad for instance, and another coming down from Lahore towards Sukkur, were already in being worked on in those days. Eventually a large transmission line, capable of carrying the enormous output of Mangla and Tarbela around the country was going to be set up, and serve as the spinal cord for the country’s power sector.

The enormity of the work that was set into motion in the first three five year plans is important to understand, because in many ways, the problems we face today began to grow out of it even in the early years.

An integrated power generation, transmission and distribution system emerged from the amalgamation of all the myriad small operations around the country, and new fuel supply arrangements were made, and new power plants sited near gas installations such as Guddu thermal power plant, amongst the first of the new generation of large plants.

This was followed by the creation of a fuel depot in Muzafargarh and power plants began springing up around it. Southern Punjab and upper Sindh were seen as favourable locations for new power generation capacity in those days because they lay equidistant from the large load centres, were near the gas fields that were becoming operational at the time, in Sui and Marri and Khandkot for example, followed by Qadirpur and Dhodhak in later decades.

Figure 3: Sales of electricity in Pakistan from the 1960s till the present. Source: Five year plans (various), Lieftinck report Volume 1, National Power Plan, and NEPRA.
Figure 3: Sales of electricity in Pakistan from the 1960s till the present. Source: Five year plans (various), Lieftinck report Volume 1, National Power Plan, and NEPRA.

But problems similar to the ones we have today had begun springing up even then. Recoveries of bills, for instance, lagged enormously and the government had to subsidise power in growing quantities year after year. Transmission and distribution losses were high, touching 30pc in places, but averaging above 20pc in most years. By the time the fourth five year plan was written in 1973, there were already arguments being made that the new integrated system was growing too large and unwieldy to be managed together. Here, for instance, is what the fourth plan said:

“Serious doubts have been expressed about the ability of WAPDA to shoulder the responsibility of retail distribution of power along with the construction of major power and irrigation facilities. Consideration, therefore, should be given to the bifurcation of the power wing from WAPDA or at least the separation of retail distribution and its handing over to an autonomous power corporation”.

But the power system, far from being bifurcated continued to grow, and following the additions of Tarbela dam’s turbines, the quantities it was dealing in grew exponentially.

The first sign of large scale trouble in the continued growth of the integrated power system came in the mid-1980s, when work began on the next generation of hydropower infrastructure envisioned in the Lieftinck report. General Zia announced the construction of Kalabagh dam in 1984, shortly after the last of the turbines in Tarbela’s power house had been made operational. And almost immediately, the dam became a lightning rod for political dissent against the General’s rule.

Kalabagh and Tarbela were envisioned to work in tandem with each other, according to the vision behind the Lieftinck report. But the interruption of the dam project effectively marked the end of the stellar growth rates in Pakistan’s power generation capacity. From here onward, most of the incremental generation capacity was in thermal power, which placed heavy stress on the country’s fuel management infrastructure as well as its foreign exchange reserves.

Something had changed in over these years.

The early plans, in the 50s and 60s, all saw power investments as secondary to water. Where allocations for water would be in the range of 25pc or more in those years, power allocations were around 17pc of total plan resources. But by the late 1980s, power had overtaken water as the single largest sectoral investment in the seventh and eighth five year plans.

Allocations for power touched 25pc in those plan periods, whereas water dropped down to 8pc of total plan resources. The era of big dams was over, taking away its large allocations for the water sector with it. Incidentally, WAPDA remains nostalgic about that era when it was the chief beneficiary of the country’s planning process, and to this day continues making a case for large dams and for enhanced allocations of public funds.

The power sector began to enter into a period of diminishing returns precisely around this time. It began to absorb greater and greater shares of the country’s investible resources from the mid-1980s onwards, and gave less and less by way of mega wattage available for sale in return. A vast turning point began right around mid decade, and by the middle of the 1990s, a new thinking had emerged that said all future growth in the power sector ought to come from the private money rather than that of the state.

For a good illustration of this turning point, take a look at Figure 3, which shows sales of electricity in Pakistan from the 1960s till the present. Two separate long-term forecasts of Pakistan’s power requirements have been made over the decades. One was contained in the Lieftinck report, which forecast load requirements till 1985, and the other was the National Power Plan (NPP), which was completed in 1994, but whose load forecasts were performed in 1992. The NPP looked ahead till 2018.

Notice how in the early decades, actual sales of electricity are fairly close to the forecasts. The early decades of growth of the integrated power system, marred by difficulties as they were, nonetheless delivered large increases in the electricity available for sale and came close to meeting the targets set by its founders.

But then in the late 1990s onwards, the gap between actual and forecasted sales increases rapidly, and is continuing to grow. As per the NPP forecast, today Pakistan ought to be selling almost 200,000GWh of electricity every year to all its registered power customers. Instead, the figure is closer to 90,000 GWh. This difference, between where we are supposed to be and where we actually are, is what we are calling the power crisis these days, and this gap did not arise as the result of one factor alone.

At the same time as the vision of the Lieftinck report died in the fires of the controversy surrounding Kalabagh dam, homework had already begun on a new vision that would free the state from the burdensome requirements of planning future growth in the power sector. From here onwards, the new vision said, the private sector would be asked to come and invest in power projects. But before that could happen, a lot of work was necessary to determine what sort of protections a private party would need before taking up stakes in a large scale power plant with high upfront costs.

In a sense, the formulators of the new vision inherited the same problem as the planners of decades past. Power sector investments were not standalone enterprises like many other manufacturing investments. They were deeply embedded within fuel supply arrangements, power evacuation and transmission problems, and financial and tariff issues. What if somebody made the investment to set up a power plant, and after putting a billion dollars down, the government decided they were not interested in buying any electricity from them? What if the government wanted to reset the tariff? What if fuel was not available for whatever reason, shutting the plant down? What if oil prices shot up right after operations commenced, or the government devalued the exchange rate?

The formulators of the new vision worked almost a decade on these questions and emerged with an experimental new approach designed to create a framework to attract private money into power investments for the first time since the early 60s, when the amalgamation of the disparate power plants and distribution systems had absorbed all private generation companies into the integrated system.

The new approach was called the Private Power Policy, and it was placed before the government for approval in 1994. As a test case, a private power plant, called Hubco, had already been incorporated in 1991.

But the new private power policy was not supposed to be the solution by itself. It was supposed to be accompanied by a slew of other reforms, which would break up the state owned monopoly in the transmission and distribution, as well as the state’s role in deciding tariffs. Markets were going to do what the state had done in its early years because the fiscal and foreign exchange burden of making arrangements for future growth in the power sector had become too heavy for the state to bear.

Since markets were supposed to play a growing role from the introduction of the private power policy onwards, the role played by government bureaucrats was going to shrink. Some of this indeed happened.

From the introduction of the policy till the year 2000, all new capacity additions in the generation mix came from private investment. Some hailed the policy as a success, but others warned that for this momentum to continue, the reforms to expand the role of the market and squeeze the role of the state must also continue.

And that is where things went wrong.

In the second Nawaz Sharif government, from 1997 till 1999, a series of very strong actions were undertaken in the power sector. On the one hand, the government came down hard on the power bureaucracy by handing it over to the military to administer, with the aim of reducing losses and increasing recoveries. Legislation was passed that sought to break up WAPDA into water and power wings, then into distribution and generation companies, and prepare to privatize these. NEPRA, the main power sector regulator, was created under a vision that it would supplant the role that WAPDA had played during the growth of the integrated system – that of overseeing the smooth operation of the new system.

But simultaneous to these moves to severely restrict the role of the bureaucracy in the power sector, the government of the day also attacked the private power producers who had come in under the new policy of 1994. It first accused many of them of using underhanded means to gain advantageous terms for themselves, demanded that they renegotiate their tariffs and capacity charges, accused them of criminal acts, seized their offices, arrested their senior management and shut down their operations. The disaster that was created had, like most actions in the power sector do, far reaching consequences.

Even as a framework for attracting private investment in the power sector was laid down, the strong actions taken against those who were already within the system dissuaded other from acquiring stakes for many years.

The next big attempt to try and move things forward in the power sector came under the Musharraf government, when the strongest and most credible attempt to break the growing dependence on thermal power and its associated requirements of imported fuel was made. His government brought in the first credible Chinese partner to explore and prepare a bankable feasibility study for Thar coal, created the next generation private power policy, produced the LNG policy and came close to starting work on LNG imports with a long term supply contract, started work on the next generation of hydropower projects on the main stem of the upper Indus.

None of these efforts bore any fruit though.

By 2003, the Chinese had packed up and left because they saw that the government was unable to coordinate its end of the bargain in Thar, namely arranging enough fresh water supplies to operate a coal fired power plant, or to build a transmission line from Thar all the way to Jamshoro to carry the electricity out. The LNG policy remains but the project ran into court related problems. The hydropower projects for the upper Indus languish for want of a financier, and the private power policy of 2002 had to be amended back towards the terms of the 1994 policy within a couple of years because it attracted minimal investor interest.

The next government, the PPP, barely tried to address the power crisis, but the current one is once again talking about large scale investments in coal conversion and attracting Chinese investment. Much of the promised Chinese investment has, reportedly, already walked away from the Gadani Power Park project, again because they saw that the government was unable or not serious about building the associated infrastructure to manage a large power investment on the coast.

The transition from state to market driven power sector has been abortive in Pakistan, leaving us stuck with a power system that is a mongrelized version of something other than what it was meant to be. Today we have a system where much of our electricity is generated from by private companies, but transmission and distribution are controlled by the state. This gives us the worst of both worlds – the inefficiency of the public sector coupled with the cost of the private sector.

The writer is a member of staff.

He tweets @khurramhusain

Published in Dawn, Sunday Magazine, April 12th, 2015

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