On Tuesday, August 30, Prime Minister Nawaz Sharif had a meeting with the Cabinet Committee on Energy at Prime Minister House. The PM was briefed on power and transmission projects, after which he expressed confidence in his government’s ability to eliminate chronic power shortages. Mr. Sharif went on to say that “after the completion of ongoing projects, a significant addition of power to the national grid will eliminate loadshedding in Pakistan for all time to come.”
A few weeks later the National Electric Power Regulatory Authority (Nepra) released its assessment of the country’s transmission system. The report presented a different perspective of ongoing projects and concluded that Pakistan’s electricity sector has weak transmission capacity and poor system reliability. As a result, the country will continue to suffer from chronic power shortages.
Prime Minister Nawaz Sharif’s claim was disputed by Nepra’s report, leading to questions about the veracity of the government’s claims and promises. As the 2018 elections draw near, the government will find itself in a bind as all the publicly inaugurated power projects sit idle or provide intermittent power to the country’s energy-starved citizens.
The government’s policy of removing managing directors is short-sighted. Rather than focus on removing MDs after major blackouts, the government should push through concrete measures to improve the organization’s capacity. The NTDC needs financing of over $1.5 billion to meet its system expansion plans that are in the pipeline for the next five years ending 2020. These projects need to be completed to ensure that newly installed generation capacity is not wasted
NEPRA refutes government
Nepra’s Visit Report – National Transmission and Despatch Company Limited takes a critical assessment of the National Transmission and Despatch Company Limited (NTDC) that is responsible for ensuring that power is safely and reliably dispersed from power plants to consumers. The NTDC is behind schedule on nine projects that are meant to ensure that power generated at newly commissioned power plants finds its way into the country’s transmission system and eventually to consumers. If these projects are not completed on time, power plants at best run below capacity and at worst sit idle.
To ensure that at least some of the power being generated is used, the NTDC relies on interim arrangements to disperse power. According to Nepra’s report, these are arrangements in “which power is dispersed from a power plant with certain technical limitations” and is an “unreliable scheme for power dispersal.”
The 404 megawatt Uch Power Project-II in Balochistan is an example of all that can go wrong when NTDC fails to do what is needed. In April 2014, Prime Minister Nawaz Sharif inaugurated the power plant and said that the government would overcome the electricity shortage within two and a half years. Uch was described by Nepra as “one of the most economical power plants” in Pakistan. And before it was up and running, the NTDC was supposed to complete its 125 km 220 kV double circuit transmission line 150 days for the plant to ensure that the power it generated was safely and reliably sent out.
But when Nepra went to check on the NTDC’s progress a year later, in September 2015, it found that only three out of the 321 towers needed for the transmission line were erected. As a result, power from Uch-II has had to be dispersed through interim arrangements that are unreliable and inefficient. These “severe transmission and transformation constraints” have wasted almost 375 MW of economical power, says Nepra. And every time the plant is shut down Rs1.5 million per hour are run up in losses, which came to Rs6.4 billion in 2014-15.
Much the same happened with the 747 MW Guddu power plant, also inaugurated by the PM in 2014. It too is dispersing its power through an interim power arrangement. Nepra adds that the plant will have to be shut down if any faults develop. Transmission projects for the Jhimpir and Gharo wind power plants, Neelum Jhelum hydropower project, Thar coal power plants, Quaid-e-Azam solar park, and several other power plants are also behind schedule.
Nepra is not the only organization that has raised alarm bells over the persistent delays in projects. The Asian Development Bank (ADB) recently reviewed the progress of ongoing projects in Pakistan, given its stake. The multilateral lending agency has a portfolio of $6.4 billion in Pakistan and has provided $3.1 billion in financing for energy projects. It observed that chronic delays mean that “the time taken to award the first contract after loan approval is more than 13.1 months on an average”. The NTDC got special mention in this report with the ADB arguing that inefficient project management and poor oversight by NTDC has created bottlenecks.
Chronic power shortages in Pakistan have been a drag on economic growth for decades. Investments worth billions of dollars have been made in the energy sector, but not much attention has been paid to reforming the NTDC. Its inefficiency means that a significant proportion of newly installed power capacity will not be effectively and reliably transmitted to households across the country. The PM’s promise to end loadshedding in 2018, much like the promise of ending loadshedding in 2009 by Raja Pervaiz Ashraf of the PPP government, could remain unfulfilled.
Reforming the NTDC
It appears that the government did recognise the risks of further delays for it pushed through leadership changes at the NTDC. In 2015 it removed NTDC MD Tahir Mahmood after holding him responsible for a nationwide power blackout. That change, however, failed to fix the problem for two more blackouts in early 2016 led to the removal of Mahmood’s successor, Engineer Muhammad Arshad Chaudhry.
On June 30, 2016, Dr Fiaz Ahmad Chaudhry took over as MD. Since then, the NTDC has made progress on completing its transmission lines on time. Two 500 kV transmission lines were done at the end of November. They will be used to dispatch power from the 1,200 MW Bhikki and 1,320 MW Sahiwal power plants. Whether Dr. Chaudhry is able to reform and restructure the NTDC remains to be seen.
The government’s policy of removing managing directors is short-sighted. Rather than focus on removing MDs after major blackouts, the government should push through concrete measures to improve the organization’s capacity. The NTDC needs financing of over $1.5 billion to meet its system expansion plans that are in the pipeline for the next five years ending 2020. These projects need to be completed to ensure that newly installed generation capacity is not wasted. If NTDC manages to do this, it will increase its grid station capacity from 38,418 MW in June 2015 to 63,151 MW by 2020.
This expansion will play a critical role in ensuring that chronic shortages are addressed in Pakistan. With over 23,000 MW worth of projects slated to be completed by 2020, it is essential that the NTDC sticks to the schedule.
Pakistan’s energy sector has faced decades of underinvestment and mismanagement. It is therefore no surprise that projects have not been executed as smoothly as one would expect. The mismanagement has also led to a weak transmission system prone to nationwide blackouts. Integrating over 50 power plants in a three-year period from 2014 within that context is a Herculean task for an organization with limited capacity and human resources. Changing leadership every so often only exacerbates the problems linked to years of mismanagement.
Entering election mode
As the Pakistan Muslim League-Nawaz government gears up for elections in 2018, it will find it necessary to provide evidence of tangible economic change in the country. While macroeconomic stability has been restored, history shows that it does not take long for economic shocks to reverberate across Pakistan. A sharp rise in oil prices and tighter borrowing conditions could impact how people view the government’s economic performance in 2018. Prime Minister Nawaz Sharif will therefore need to point to other areas of success.
During the next election cycle nothing will garner as much support as credible evidence that electricity shortages are a thing of the past. This is why the PM has repeatedly said that chronic shortages must be dealt with by 2018.
Time, however, is running out.
While major power projects have been inaugurated by the PM over the years, the mundane work of modernizing and expanding the transmission system has been off track. Furthermore, the circular debt in the system is rearing its head again. After clearing circular debt of over Rs480 billion in 2013, the government had promised to usher in structural reforms to prevent the dues from mounting in the future. The latest figures, however, show that circular debt has crossed the Rs320 billion mark, while Pakistan State Oil has added Rs250 billion to its bill since 2013.
Circular debt paralyzed the country’s power sector during the Pakistan Peoples Party government and the speed at which they are climbing now, despite a reduction in generation costs, does not bode well for the PML-N government. As the elections draw near, the opposition will use every opportunity it gets to hit out at it for this. Eliminating electricity shortages and reforming the power sector was a key policy plank of the PML-N during the last election cycle.
The PM has fought a long and hard battle against loadshedding, and he must continue to push through as he comes closer to the finish line. The hard work of reforming the energy sector and increasing transmission capacity remains to be done. Failing this, the PM may find himself out of a job in 2018.
Uzair Younus is an analyst at Albright Stonebridge Group and can be reached at email@example.com