Sunday, February 28, 2010

Pakistan's "Circular Debt" and "Load Shedding"

As Pakistanis discuss major causes and crippling effects of the worst ever power crisis in the nation's history, "load shedding" and "circular debt" are two key phrases that have entered the vocabulary of average people in Pakistan during the last few years.

Load Shedding:

What do these common phrases mean? Let me start with "load shedding" first. Long and daily power outages are called "load shedding". "Load shedding" is supposedly an attempt to share a limited resource equitably among many consumers. In addition to insufficient installed capacity as the culprit, the dramatic increase in "load shedding" in the last two years is commonly also blamed on growing "circular debt" which results in significant under-utilization of power plants already in place. There is credible data to suggest that the deepening electricity crisis since 2008 has more to do with the independent power producers(IPPs) operating at less than 50% of their installed capacity because they can not pay for the fuel they need to produce more. The outgoing finance minister Mr. Shaukat Tarin acknowledged the problem of circular debt, and tried to focus on it. He even threatened to quit last year over the lack of resolution of this problem. However, he was only partially successful in paying down the government debt. He is reportedly taking a parting shot at the problem on his final day in office.

Key Players:

The key players in this "circular debt" trap are the federal and provincial governments as the biggest deadbeats, the power distributors like KESC, the power producers like Pepco and Hubco, and the fuel suppliers like government-owned Pakistan State Oil (PSO) and partially state-owned Pak-Arab Refinery Ltd (PARCO). This debt circle begins with the government as the biggest debtor and ends with a government-owned entity as the biggest creditor. So the obvious question is: If the government is both the biggest debtor and the biggest creditor, then why is it that the government leaders can not solve the problem? Is it the lack of will? or the lack of competence? Is there a personal profit motive of the top leader of the ruling PPP, who is allegedly pushing rental power plants (RPPs) contracts ahead of the speedy resolution of circular debt? Is it a combination of corruption and incompetence? The answer to these questions depends on who you ask.

Circular Debt:

While you ponder possible answers to the question of resolving circular debt, let me share with you an interesting story posted by Naresh Goyal that explains circular debt and how it can be resolved:

It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.

Suddenly, a rich tourist comes to town... He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to choose one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher. The butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.

The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel...

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town's prostitute that in these hard times, gave her "services" on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.....


Clearly, the circular debt problem has assumed alarming proportions, threatening Pakistan's future. The IMF and the US officials in their recent meetings with Pakistan government have described the circular debt as a significant threat to the country’s economy.

After signing hundreds of millions of dollars worth of rental power plant (RPPs) projects in the face of harsh criticism, the government is finally starting to deal with rising circular debt to address power shortages. Outgoing finance minister Saukat Tarin recently told the News that “in real terms the circular debt has swelled to Rs108 billion which mainly includes non-payment of Rs42 billion by KESC, Rs21 billion by the government of Sindh and Rs15-16 billion from commercial consumers to the Pakistan Electric Power Company (Pepco)".Just prior to leaving office, Tarin has decided to raise Rs. 25 billion as a small step toward settling a debt estimated at hundreds of billions of rupees.

Unless Pakistani government deals with the economics of power generation by boldly tackling the issue of growing circular debt quickly, it will be almost impossible to get the IPPs to fully utilize existing installed capacity, much less attract new investments in the power sector.

Here is a recent video clip of former President Muharraf talking about the power crisis in Pakistan:

Related Links:

Tarin's Parting Shot at Circular Debt Problem

Circular Debt: Finance 3.0

Shaukat Tarin Resigns

US Fears Aid Will Feed Graft in Pakistan

Pakistan Swallows IMF's Bitter Medicine

Shaukat Aziz's Economic Legacy

Pakistan's Energy Crisis

Karachi Tops Mumbai in Stock Performance

Pakistan's Electricity Crisis

Pepco Increases Load Shedding By 5 Hours


Anonymous said...


Hope you got the dark side of corruption. Corruption and ineffeciency of two sides of the same coin. These corrupt people use the religion, caste and all type of divisive concept to divide the mass and live on it. It is sad but true. See mayavati, she is building statue for herself and she is the dalit leader. She has 1000 crore and people have gifted her. So it goes on.

Riaz Haq said...

Pakistan has one of the highest "transmission losses", a euphemism for rampant power theft by consumers. Now Nawaz Sharif, former prime minister and PML(N) chief, is being accused of addressing a supporter's rally lit by "kunda", a hook-like device commonly used to steal electricity.

LAHORE: Pakistan Muslim League-Nawaz found itself entangled in a controversy on Monday that threatened to undermine its claim of occupying the high moral ground, according to a report by DawnNews.

As Nawaz Sharif addressed supporters in the run-up to a Lahore by-election, his large rally was lit up by extensive use of illegal connections using ‘kunda’ (hooks that are attached to live power cables to secure supply without having to pay for it).

Power utility officials told DawnNews that they would estimate the number of units consumed and bill the user based on that, while Punjab Law Minister Rana Sanaullah tried to distance his party and government from this outrage by blaming an unnamed contractor.

PML-N spokesman Siddiqul Farooq told DawnNews that an inquiry would be held to fix responsibility for what was “clearly” a crime.

In a damage-limitation exercise well past midnight, PML-N leader Saad Rafique told a news conference his party was not at fault and that ‘kunda’ connections had been made by the administration to provide security lighting.

Riaz Haq said...

Here's an IMF official talking to Business Recorder about Pakistan's economy growing 5-8% in future years:

ISLAMABAD (February 25 2010): The biggest challenge Pakistan facing now is to improve growth rate to over 5 percent on sustained basis by overcoming structural challenges, says an IMF official. "There is no reason Pakistan can not grow over five percent on sustained basis by increasing exports and investments; all opportunities are there", said Masood Ahmed, IMF Director of Middle Eastern and Central Asian Division, in an exclusive interview with Business Recorder.

"To do so, Pakistan has to address impediments of increasing investment and to provide infrastructure, educated and skilled human capital, improve business environment, and level of governance", he said. "But in three to five years Pakistan, strongly growing on the structural reforms path, can also catch a growth rate of 8 percent, equal to its Asian rivals. That is also an average growth rate of Asia next year," he added.

Masood called for national consensus among all political parties on structural reforms so that in future these reforms should stay on course, and growth pattern should not be that much disturbed, and the government should show more political will in implementing these reforms. "Pakistan needs tough political decision to take on reforming its commercial entities, cutting its losses", Masood said.

Good macroeconomic practices to ensure strong pubic finances and competitive exchange rate to bolster high growth are also essential, he added. Pakistan grew 2 percent last year; has estimated to grow at 3 percent this year; and the Fund forecast to get to 4 percent next year. Unlike previous years' growth, based on consumption, future growth should be based on exports and investments.

In a scenario of growing global growth at 4 percent from negative 1 percent last year, exports demand would grow and competitive price advantage would support local exporters, making up for modest growth this year. "But, this is not enough, and Pakistan can achieve 8 percent of growth in coming years if structural reforms are really undertaken," the IMF Director said.

Pakistan government can save up to 8.5 percent of GDP to deploy from increasing tax revenue, and reduce losses of public sector inefficient enterprises. "Resources that are currently wasted in the loss, making public enterprises and taxes that are collecting taxes that are not collected, making public spending more efficient are estimated by Finance Ministry is over 8 percent of GDP which are almost $12 billion", says Masood, quoting Finance Ministry reports.

These resources could be deployed to finance the much-needed infrastructure, reliable electricity provision, better health and education for millions of Pakistanis, he added. Among other challenges, international oil prices can augment again next year posing balance of payments problems and inflation which had once come down to 9 percent. He said the government should also be reducing fiscal deficit, which is around 5 percent this year, that would crowed out private sector borrowing from banking sector.

"Inflation, once reduced to around 9 percent, is now again increasing, and rebounding at 13 percent, which is very harmful for the poor segment of the society. This is the biggest help for the poor class; this also helps increase investment, that ultimately helps reducing poverty," Masood said. He said help from donors, like Tokyo pledges, are slow, and IMF urges the donors to come up and support Pakistan, he added.

Riaz Haq said...

Pakistan has appointed Abdul Hafeez Shaikh, a Musharraf-era minister, as the new finance chief to fill the vacancy left by Tarin's resignation. Here's a Wall Street Journal report on it:

The post of finance minister has been vacant since Shaukat Tarin, a former Citibank executive who was a vocal critic of government corruption, resigned three weeks ago citing personal reasons. Prime Minister Yousuf Raza Gilani has overseen the ministry in the interim.

Mr. Tarin's surprise departure and delays in appointing a successor raised concerns at a time when Pakistan's financial situation remains fragile.

The appointment of Mr. Shaikh, who is viewed as having wide-ranging political and business experience, could help to assuage those worries, analysts said. "He is noncontroversial and highly regarded in the international financial agencies," said Ashfaq Hasan Khan, a former senior finance ministry official who teaches at National University of Science and Technology in Islamabad.

The 55-year-old Mr. Shaikh, a U.S.-trained economist who served as privatization minister in former President Pervez Musharraf's military-led government, is expected to take office next week, a senior finance ministry official said.

In the 1990s, Mr. Shaikh served as country head of the World Bank's operations in Saudi Arabia. He comes from an influential family of politiciansfrom the southern province of Sindh, though he isn't a member of any political party. He will hold the official title of Adviser to the Prime Minister on Finance because he isn't a member of parliament. The post has the same authority as finance minister.

"My main priority will be on growth and sound financial management," Mr. Shaikh said in a telephone interview. "I will concentrate on creating an environment that could attract private investment."

Mr. Shaikh is a partner in New Silk Route Partners, a private-equity firm that invests in Asia and the Middle East.

"He is experienced and strong on delivery. His appointment will give a lot of confidence to the stock market and to investors," said Muddassar Malik, chief executive of BMA Capital Funds, a Karachi-based asset-management company.

The International Monetary Fund has earmarked $11.3 billion in emergency loans for Pakistan since November 2008 when Islamabad faced a balance-of-payments crisis amid an al Qaeda-linkedIslamist insurgency that deterred investors.

To get regular disbursements of this money, Pakistan has to meet goals such as reducing its budget deficit from a current 5.1% of gross domestic product, reining in runaway inflation and increasing tax collection.

A major challenge for Mr. Shaikh will be energizing the country's struggling economy. He will also be under pressure to find money to help build much-needed infrastructure, such as power plants.

Riaz Haq said...

Here's a UPI report on Pakistan's energy situation:

ISLAMABAD, Pakistan, March 15 (UPI) -- Islamabad ordered its Finance Ministry to release emergency funds
to the state energy sector to stave off an oil, gas and electricity crisis in the country.

Pakistani Prime Minister Yousuf Raza Gilani called on lawmakers to come up with ways to avoid defaulting on foreign payments against oil supplies as the country grapples with a looming energy crisis.

Islamabad was forced to consider international loans to help the energy sector, which is dragging on the embattled national economy. Pakistani Finance Minister Shaukat Tarin stepped down in February because of the economic turmoil.

Gilani in an emergency meeting called for the weekend release of emergency funding to help the energy sector pay its debts as several sectors faced imminent cut offs, Pakistan's Dawn newspaper reports.

Raja Pervaiz Ashraf, the Pakistani water and power minister, said utility companies were running short on natural gas.

Gilani called on top Cabinet officials to present plans for a gas pipeline from Iran as early as Wednesday.

Pakistan and Iran signed a 25-year deal for natural gas supplies in 2009 as part of an effort to advance plans for the so-called Peace Pipeline. The project, envisioned in the 1990s, would move natural gas from the giant South Pars gas complex in the Persian Gulf to markets in Pakistan and India.

Riaz Haq said...

Here's a billion dollar LNG contract scandal uncovered by a complaint of the Fauji Foundation CEO, as reported by The News:

The NA members were told that the petroleum ministry bosses had never recommended to the Economic Coordination Committee (ECC) to give the multi-billion dollar contract to French firm (GDF-SUEZ), whom surprisingly they all were religiously defending now.

It was disclosed that the petroleum ministry had actually recommended the award of the contract to Shell-Qatar, whose bid was higher than the French bid by $1.5 billion. But Shaukat Tarin had thrown this recommendation of the ministry in a dustbin after he learnt that he was being asked to award the contract to a party (Shell), whose bid was higher by $1.5 billion compared to the lowest bidder.

At the end of the hour-long presentation followed by a question-answer session, Chairman MNA Sheikh Waqas Akram, praised the journalist for his comprehensive presentation. Later, MD Fauji Foundation Lt Gen Rab Nawaz was said to have reiterated his old stance that his firm’s bid was the lowest if compared with the GDF-Suez, which was awarded the deal.

The committee met with Chairman Sheikh Waqas in the chair and was attended by MNAs Barjees Tahir, Nawab Yousuf Talpur, Wasan, Khurum Wattoo and others. Petroleum Minister Naveed Qamar, Secretary Kamran Lashari, Special Secretary G A Sabri and MD FF General Rab Nawaz attended the meeting.

Klasra told the committee that his story was based on the minutes of the ECC presided over by then Finance Minister Shaukat Tarin. The minutes had revealed that Tarin had got a telephone call from MD Fauji Foundation that the lowest bid given jointly by FF/Vitol had been rejected and the highest bidder GDF-Suez was given the lucrative contract. Tarin had informed MD FF that he was not aware of any such bidding because the petroleum ministry never shared such information in its official summary tabled before the ECC on Feb 9.

Consequently, Tarin had alarm bells ringing and had ordered a serious probe into the whole issue as to why the bid offered by FF/Vitol was not mentioned in the summary. But the petroleum ministry never replied to the queries of Tarin till he departed from his office at the end of February, much to the satisfaction of the petroleum ministry officials who thought that the issue had been buried but the publication of the scandal by The News shook them.

Petroleum ministry officials had even written a letter to Tarin, informing him that Minister Naveed Qamar had desired that they should not respond to him as he would “personally deal” with this issue. According to Klasra, he had contacted Shaukat Tarin to get his version about these startling developments and the ex-FM had confirmed on record that he was kept in the dark about the joint bid of FF/Vitol, which was claimed to be the lowest.

Tarin confirmed that he got no reply from the Ministry of Petroleum till he left the office. He also claimed that according to his calculation and information, there was a difference of one billion dollars in the bid price of the French company and FF/Vitol, so the country had suffered a loss of a billion dollar.

Minister Naveed Qamar is a close friend and ally of Zardari.

Riaz Haq said...

Here's a Dawn report on US plans to help Pakistan's power sector:

LAHORE: Help for Pakistan’s energy sector will be a top priority in plans for direct US investment in the country under the Kerry-Lugar Bill, Administrator of the US Agency for International Development (USAID), Dr Rajiv Shah, said here on Wednesday.

“The US will help refurbish three thermal and one hydel power plant that will add some 4,500MW to the national grid,” Mr Shah said while talking to this correspondent at Lahore airport before leaving for Islamabad. USAID’s Pakistan Mission Director Robert Wilson was also present.

Dr Shah said the US would invest directly in Pakistani institutions in a wide range of areas. “It is time to take immediate action to aggressively meet education and health needs also.”

He dispelled a perception that a large part of the funding would go to consultants and contractors in the United States. “It will be utilised in water, education, health and agriculture sectors that are in tremendous need of development through short-, medium- and long-term infrastructural reforms.”

He said the initiatives would help create employment, especially in tribal areas where small and medium projects relating to infrastructure development, livelihood support and technology transfer would be launched.

The quality of education would be improved through teachers’ training, curriculum development programmes and provision of textbooks in other less developed areas, especially southern Punjab, he said.

In health sector, he said, the focus would be on strengthening professional institutions and USAID would arrange for capacity building of lady health workers and paramedical staff and higher education of physicians.

Dr Shah said reinvestment in agricultural research would be another major area of attention. “We are proud to be partners in research activities at the agriculture universities of Faisalabad and Rawalpindi. Now plans are afoot to improve training facilities and marketing skills of farmers as agriculture contributes more than 25 per cent to Pakistan’s Gross Domestic Product.

“We will work on the critical issue of water with programmes aimed at helping Pakistan better manage its water resources to ensure maximum water access to the people.”

Dr Shah said: “President Obama and Secretary of State Clinton launched strategic dialogue with Pakistan to make sure that our relationship is a broad and deep partnership defined by mutual respect and cooperation in a broad range of areas, especially energy, water, education and health sectors that are very important for development of cooperation.

“This trip was really an effort to follow up that strategic dialogue. We are here to meet Pakistani leaders in government, private sector and civil society. We also have a chance to meet professors at universities and hold discussions to explore effective means and ways to work together.”

Iftikhar A. Khan adds from Islamabad: Addressing a press conference in the federal capital, Dr Shah said aid to Pakistan was not tied to the country’s performance in stemming militancy. He underlined the need for financial management control to ensure that the aid was spent to achieve the defined objectives.

He said the US had significantly enhanced investment portfolio for Pakistan without setting any specific conditions.

He said the purpose of his visit was to learn about priorities in development and put in place many principles discussed during the recent round of strategic dialogue in Washington.

Dr Shah hinted at the possibility of helping Pakistan augment its water reservoirs. “We are looking at a broad range of options and will do everything which makes economic sense.” He said the US was working with other donors and international partners to help Pakistan improve its hydro infrastructure.

Riaz Haq said...

Here's a NY Times report about Pakistan's growing power crisis:

Pakistan is in the throes of an energy crisis, with Pakistanis now enduring about 12 hours of power cuts a day, a grueling schedule that is melting ice, stopping fans and enraging an already exhausted populace just as the blast furnace of summer gets started.

In an effort to stem that frustration, Pakistan’s government held an emergency meeting last week, bringing together top bureaucrats from across the country. But instead of easing the problem, it aggravated it, ordering power-saving measures that seemed calculated to smother some Pakistanis’ last remaining pleasures.

“They are playing a joke on us,” said Amina Ali, the mother of a bride at a wedding hall that was under orders to close early as part of the new energy-saving restrictions. Her brother chimed in: “The Pakistani people are a toy in the hands of the government.”

The power failures could prove destabilizing if they go unchecked, analysts said. Pakistan badly needs its economy to expand to make space for its bulging young population, and chronic power cuts work against that.

It is a concern for the United States, which is trying to help steady Pakistan’s wobbly finances and keep its democratically elected government afloat. The Obama administration has pledged about $1 billion for energy over the next five years.

The crisis is a snarl of unmet responsibilities, and untangling it will not be easy. It has a cast of guilty characters that goes back years: governments that are incapable of planning ahead; bureaucrats who take bribes; even ordinary people who steal about 30 percent of all the power produced. The tribal areas in the west, for example, have no meters and have never paid for power.

The result is about $2 billion a year in energy that is generated but not paid for. Industry experts said they were skeptical the government had a way to close the growing gap between Pakistan’s demand for power and the energy sector’s ability to produce it.

“There is nobody in Islamabad who is working on a coherent, integrated plan,” said one industry executive who asked not to be identified because he did not want to be seen as being critical of the government. “The discussion just keeps going in circles.”

Riaz Haq said...

Here's a Wall Street Journal story about Sialkot's soccer ball industry's struggle to survive:

Adidas contracted with Sialkot's Forward Group to make the replica World Cup balls. Forward Group expects to ship six million balls this year, up 40% from 2009.

But even with its Adidas contract, Forward Group faces big challenges. It has to run its own electric generators because of daily nationwide power shortages. The roads to Sialkot, in eastern Pakistan near the border with India, are rutted. And foreign sports executives remain reluctant to visit because of the terrorist threat.

German's Adidas Group has given one company in Sialkot, Pakistan, the contract to produce the entire range of mass-market-hand-stitched replicas of the "Jabulani" soccer ball that will be used at this summer's World Cup. The city, once the soccer ball capital of the world, is facing stiff competition from China. WSJ's Tom Wright reports.

Adidas made the decision to switch to thermally bonded balls for the matches at the 2006 World Cup. The goal was to make the balls perform more consistently when players kicked them. With a hand-stitched ball the seams inevitably produce dead spots. Initially, Adidas made those balls in Thailand before switching production to China ahead of the 2010 competition.

In recent years, China has also taken over most of the production of World Cup promotional balls, a lucrative market of about 40 million little balls emblazoned with sponsors' logos, says Khurram Anwar Khawaja, a soccer-ball producer and former president of the Sialkot Chamber of Commerce and Industry.

Sialkot has also lost a big share of midpriced mass-market soccer balls to China, which began producing cheaper machine-stitched balls a decade ago.

Forward Group and the other soccer-ball makers here are determined to defend their turf. They have cut costs by automating many parts of ball production. Local businessmen joined together to build an international airport in 2008 after the government failed to do so.

Now, the soccer-ball makers are planning to set up a research center to develop their own version of the latest thermal-bonding technology that Adidas is using for World Cup match balls, a process that involves fusing together patches of synthetic "leather" by machine.

Two years ago, Adidas transferred its proprietary technology to Forward Group, which has been making small amounts of thermal-bonded balls. Recently, the company successfully lobbied Adidas for permission to use the technology to produce balls for the UEFA Champions League final next month in Madrid, one of the biggest events on the global soccer calendar.

Riaz Haq said...

Here's the news of Faisal Saleh Hayat asking the Supreme Court to review irregularities in the award of rental power plants:

ISLAMABAD: Justice Khalilur Rehman Ramday, a member of the Supreme Court bench hearing allegations of corruption in rental power plants (RPPs) projects, said on Wednesday he wondered why Pakistan was getting a mere 150MW of electricity despite having paid a whopping amount of Rs18 billion as a mobilisation fund to power generators one and a half years ago.

Taking a suo motu notice of the allegations, the three-judge bench comprising Chief Justice Iftikhar Mohammad Chaudhry, Justice Ghulam Rabbani and Justice Ramday ordered the IT in-charge of Pakistan Electric Power Company (Pepco) to retrieve information about the company’s generation capacity of the past one year, along with details of shortfall.

According to former minister Faisal Saleh Hayat of the PML-Q, the information had been removed by Pepco from its website.

“The statement seems to be true as our own responsible officer from the IT department confirms it,” the chief justice said, adding: “Prima facie we are of the opinion that Pepco for reasons known to its authority has removed the figures whose retrieval is very important for a decision by this court.”

The chief justice observed: “After such a big investment, prima facie the desired results have not been achieved.” He said that not any other forum, but an Asian Development Bank report itself had said so.

Last year the federal government had approved plans to set up rental power projects to generate about 1,206MW of electricity to end loadshedding.

But the plans became controversial when Faisal Saleh Hayat, a member of the National Assembly, levelled corruption allegations against Water and Power Minister Raja Pervez Ashraf in the house. Mr Ashraf rubbished the allegations and threatened to sue Mr Hayat.

The court asked Pepco’s IT in-charge to appear in person and submit the company’s authentic record.

He is required to retrieve the information from ‘master server’ if it is not available at the website.

Mr Hayat, who was summoned by the court to substantiate the allegations, described the RPP deal as the mother of all corruption and said the units being installed were 10 years old and had outlived their utility.

“They (plants) are not only very expensive, but their generation capacity has also deteriorated over the years,” he said.

Citing the official record he had downloaded from Pepco’s website, Mr Hayat said that Pakistan’s power generation capacity was about 19,478MW in 2008 while the total electricity demand was 18,200MW in 2009. About 3,068MW had been purchased from independent power producers (IPPs) which, he said, was half the capacity of 6,098MW generated through thermal plants.

Despite adequate generation capacity, Mr Hayat alleged, the much-needed power requirement was deliberately not met to justify installation of rental power houses and callously leave the poor masses to bear 14 to 18 hours of loadshedding. Besides, he said, managing directors had been appointed in Pepco in violation of the company rules because they were neither engineers nor finance specialists, or from business or accounts.

“The power generated by IPPs cost us 10 to 12 US cents per unit while the same from RPPs will cost us 15 to 22 cents,” Mr Hayat said.

But Khawaja Tariq Raheem, the counsel for Pepco, said the electricity from RPPs would cost the country Rs14 per unit while the same from thermal power (IPPs) cost Rs12 to 18. The electricity from hydel projects cost Rs2-2.5.

Riaz Haq said...

WAPDA's debt payable to independent power producer Hubco's has risen to Rs. 75 billion, according to Business Recorder:

KARACHI: The receivables of Hub Power Company Limited (HUBCO) against WAPDA have piled up to Rs 75 billion on account of electricity purchase as of February 21, 2010 and of this Rs 69 billion is classified overdue or payable immediately.

According to HUBCO's communique sent to KSE here Monday, the board of directors of power Supply Company was told that as a result of WAPDA outstanding HUBCO owes Rs 68 billion to Pakistan State Oil (PSO) for fuel supply to the power plant.

The company's obligation to PSO remains covered by a Stand-by Letter of Credit of Rs8 billion provided by HUBCO to PSO under the Fuel Supply Agreement.

One of the consequences arising from this situation has been that the fuel supplied by PSO has been insufficient to meet the plant's minimum operational requirements.

HUBCO said that the company is in constant follow-up with WAPDA and the Federal Government for early release of the entire outstanding amounts.

In addition, WAPDA is unable to provide a Letter of Credit as required under our power purchase agreement (PPA) for an amount of Rs12.92 billion. The obligations of WAPDA under the PPA are secured through the Sovereign Guarantee of the Government of Pakistan under its implementation agreement with HUBCO.

HUBCO plant has operated at an average load factor of 76% and an average complex availability (ACA) of 877. Electricity sold to WAPDA was 2,012 GWh.

Riaz Haq said...

Here's an example from today's Dawn news of ongoing debt crisis in Pakistan's energy sector:

ISLAMABAD: With the circular debt issue still unresolved, three major refineries have stopped oil supplies to Pakistan State Oil and two others have threatened to do the same if their dues are not cleared.

The PSO sent on Wednesday an “SOS” to the prime minister`s adviser on petroleum and ministers for finance and water and power for immediate payment of Rs60 billion to avert a shortage of petroleum products in the country.

In his last communication to the federal government, PSO`s outgoing managing director Irfan Qureshi said: “Attock Refinery Limited, National Refinery Limited and Byco have already discontinued supplies to PSO while Parco and Pakistan Refinery Limited have expressed their inability to continue supplies because of financial constraints. This will ultimately lead to severe shortage of POL products in the country.”

The refineries have taken the extreme step because of PSO`s inability to clear about Rs100 billion dues. The PSO`s own receivables from power sector and the government of Pakistan on account of price differential claims reached Rs181 billion on April 20.

The country`s largest fuel supplier said that from Feb 1 it had supplied oil worth Rs78 billion to the power sector but received only Rs45 billion. The remaining Rs33 billion and the opening balance of Rs148 billion on Feb 1 have left the PSO in dire straits. It has already defaulted on its tax obligations and is on the verge of international default on Rs39 billion in 21 days.

The PSO said it immediately needed Rs60 billion to avoid default on international payments and to clear its dues to tax authorities and local refineries.

Last week, the fuel supplier had expressed its inability to import furnace oil for power generation.

“The circular debt issue has now reached a point where the PSO expresses its inability to be able to continue its furnace oil imports from May onwards.

“With no financial limit available and all our bank borrowing limits exhausted, we have no option, but to suspend import of fuel oil from May 15, 2011 to avoid any default and create a bad image of Pakistan in the international community.”

The government plans to issue term finance certificates of Rs130 billion to the local banks, but no concrete step has been taken because of the absence of the finance minister and finance secretary who have been in Washington for talks with the International Monetary Fund and other lenders.

Because of water and gas shortages, power companies are already resorting to more than five hours of loadshedding which could escalate if furnace oil supplies are affected.

Riaz Haq said...

"Pakistan’s power shortage an emergency": Khaleej Times

A daily on Monday described the acute power shortage in Pakistan as an “existential emergency” as it called for establishing a national power management plan.

An editorial in the News International noted: “Our installed sources of power generation exceed our power needs and if all were working at capacity we would be a net exporter of power.”

Giving statistics, it said: “Our power shortfall has now reached 5,000 megawatts. We are generating 13,240 MWs against a peak demand of 18,065MWs.

“Industry has ground to a halt; productivity in key sectors like that of cotton goods has dropped almost to zero in places like Faisalabad, the hub of the cotton spinning industry. In Lahore loadshedding has reached 14 hours a day.”

The editorial said that the problem is affecting every province.

It went on to say that at the heart of the matter “lies the inability to resolve the circular debt crisis and an embedded inefficiency in power distribution along with power theft”.

Taking a dig at government announcements to tackle the electricity situation, the editorial said: “We have lost count of the number of prime ministerial pronouncements on the management of the power crisis, the empty plans that never seem to materialise and the grand political statements that this or that much power has been added to the system since this government took office.”

Calling it “an existential emergency”, it added that the country needs a national power management plan.

Riaz Haq said...

Siemens Pakistan chief says 4,000MW of electricity can be produced with $1.5 billion investment that can help overcome energy crisis, according to Pakistan Today:

KARACHI - The prolonged hours of unscheduled load shedding can be brought to an end with just a small investment of $1.5 billion. “Currently, the country is facing a shortfall of 4,000MW in the production of electricity, but this can be overcome by investing only $1.5 billion, which is a small amount compared to the scale of the power crisis that has paralysed the economy and making lives miserable for the people,” Sohail Wajahat H Siddiqui, managing director/CEO of Siemens Pakistan and a member of the Pakistan Business Council (PBC), told Pakistan Today.
The PBC is a body of the elite business groups in the country that holds interactions with government officials, including the president and the prime minister, to find out ways and means to overcome the energy and economy crises and to put the economy on the path of stability. Siddiqui said that under the short-term strategy, an investment of $1.5 billion is required to produce 4,000MW of electricity that would end the shortfall in production and demand.
“I’ve have submitted a comprehensive report to the government from the platform of the Pakistan Business Council to overcome the energy crisis on the short-term and long-term basis,” he added. He said that under the short-term strategy, the upgrading and overhauling of the existing power plants would be sufficient to enhance output of electricity by 4,000MW, adding that for the long-term plan, the government should focus on the generation of electricity from wind, solar, hydel and gas.
“Power generation from the wind and solar technology is expensive, but this technology is essential to develop a mixed energy culture,” he said. “If the crude oil prices shoot above $200 to $250 a barrel in the future, how would the economy and consumers be able to face this crisis?” he questioned, adding that in this situation, alternative energy resources prove helpful to generate low-cost electricity.
Siddiqui said that the government should make serious efforts to develop the energy sector, which has been neglected in the past, creating an unprecedented energy crisis in the country. “Had the previous governments developed big dams and established new power plants in the past to generate additional electricity and to meet the country’s growing demand, the country would not have been facing this crisis now,” he argued.
He said that Pakistan is suffering a loss of about two percent of the GDP a year because of the energy crisis that triggers unemployment, affects industrial production, tax revenue collection and paralyses overall economic activity in the country. “A will is required to eliminate the electricity shortage and to ensure a smooth sailing of the ailing economy,” he said, adding that the PBC has decided to play a crucial role to support the government in overcoming major problems.

Riaz Haq said...

Increased load shedding in Pakistan alone has cost 400,000 jobs in recent years, according to the World Bank. Although the World Bank report does not address it directly, the anecdotal evidence suggests that almost all of Pakistan's job growth for the decade occurred from 2000-2007 when the economy showed robust gdp growth. During 2000-2007, Pakistan's economy became one of the four fastest growing economies in Asia with its growth rate averaging 7.0 per cent per year for most of this period. As a result of strong economic growth, Pakistan succeeded in reducing poverty by one-half, creating almost 13 million jobs, halving the country's debt burden, raising foreign exchange reserves to a comfortable position and propping the country's exchange rate, restoring investors' confidence and most importantly, taking Pakistan out of the IMF Program. Contrary to its public criticism of the Musharraf-era economy, the preceding facts were acknowledged by the current government in a Memorandum of Economic and Financial Policies (MEFP) for 2008/09-2009/10, while signing agreement with the IMF on November 20, 2008.

Riaz Haq said...

Here are some excerpts from a Financial Times story on protests against power cuts spreading in Pakistan:

Concerns over blackouts, inflation and unemployment are a far more pressing worry for many in the country of 180m people than the risk of the militant bombings or sectarian attacks that periodically rock Pakistan’s cities.

In the industrial hub of Gujranwala in the eastern Punjab province, hundreds of protesters defied a shower of tear gas canisters fired by police to hurl stones and block a railway line, witnesses said. Mobs burnt six electricity company offices in the city on Monday.

“The policemen are firing (tear gas) shells but the demonstrators are simply coming back with more rocks,” said Muhammad Tufail, a television reporter covering the protests.

Similar clashes broke out in Faisalabad, Pakistan’s textile centre, where hundreds of workers laid off due to power cuts at their factories hurled stones at police. The cities of Peshawar, Quetta and Karachi have also witnessed protests this week after an unusually severe period of outages.

Adding to the misery, Pakistan is battling an outbreak of dengue virus, which has claimed more than 150 lives in Punjab, according to media reports.

Pakistan’s government, also facing a stubborn Taliban insurgency, had sought to rally its opponents into a united front last week to face allegations from Washington that the country’s military is backing Afghan insurgents.

But Nawaz Sharif, Pakistan’s most prominent opposition leader and a former prime minister, has seized on the power crisis to lambast the government and threaten more protests. “We will be on the streets of Pakistan with our people if the government continues to fail in dealing with this situation,” said a senior leader from Mr Sharif’s PML-N party.

Several ministers and other officials from the PML-Q, one of the parties in Mr Zardari’s coalition, submitted their resignations from cabinet posts on Tuesday, though the party has not formally left the government.

“This is a time when we feel we have to show solidarity with our people who are protesting over the electricity shortages,” said Mushahid Hussain, a senior PML-Q leader.

The power sector is hobbled by the government’s chronic failure to pay bills owed to companies that supply oil to power plants. Power prices charged to consumers have failed to generate sufficient revenue to sustain state-owned electricity companies.

The government says it is releasing emergency funds to settle its bills, though an official warned that it could take several more days to curb the current spike in blackouts.

The government’s chronic late payment of fuel bills reflects its broader failure to rein in spending. The International Monetary Fund halted payments to Pakistan last year after disbursing about 70 per cent of $10bn loan, mainly due to the government’s failure to control its growing budget deficit

Riaz Haq said...

Here are some excerpts from Forbes story on Pakistan's electricity crisis:

Analysts say Pakistan's chronic electricity shortages are largely the result of the government not charging consumers enough and of customers, including the government, not paying their bills. There are also problems with outdated transmission systems and bureaucratic infighting that has stalled power generation projects.

The U.S. is working with the Pakistani government to increase the power supply by constructing and rehabilitating six power plants, according to the U.S. Embassy. This extra energy will eradicate 20 percent of Pakistan's existing energy shortage, it said.

But many analysts say a lasting solution to the country's power crisis must involve politically painful increases in electricity prices and forcing customers to pay their bills.
The country's main opposition leader, former Prime Minister Nawaz Sharif, lashed out at the government over the electricity shortages.

"The country is facing a severe power crisis, but the government is sleeping and doing nothing for the last 15 months over this issue," Sharif told reporters in Bahawalpur, another city in Punjab.

Pakistani Prime Minister Yousuf Raza Gilani sought to deflect blame away from his government in an address to parliament on Monday, pointing his finger at the United States. He said that the U.S. should help Pakistan solve its energy crisis if it wanted better ties.

Pakistan and the U.S. are nominally close allies in the war against Islamist extremists, and Islamabad has received billions of dollars in military and civilian aid over the past decade, including money to help the country's energy sector.

But the two countries have often clashed, and Pakistani officials regularly criticize the U.S. to divert attention away from their own government's performance.

Riaz Haq said...

Here's an excerpt from The Economist on Pakistan's worsening energy crisis:

ALTHOUGH Pakistan makes international news for terrorist attacks, anti-American demonstrations and its alleged support for insurgents in Afghanistan, it is the basic inability to switch on a light that is pushing this volatile country closer to the edge. Popular anger over Pakistan’s crippling electricity shortage boiled over on to the streets this week, with riots that paralysed whole cities, unleashing running battles with the police and causing widespread damage to government offices.
For ordinary people, the frustrations are endless. Refrigerators become useless. Water runs out because it relies on electrical pumps. Children do their homework by candlelight.

Insufficient capacity is not even the biggest problem. That is a $6 billion chain of debt, ultimately owed by the state, that is debilitating the entire energy sector. Power plants are owed money by the national grid and the grid in turn cannot get consumers (including the Pakistani government) to pay for the electricity they use. This week, the financial crunch meant that oil supply to the two biggest private power plants was halted, because the state-owned oil company had no cash to procure fuel.

The central government also continues to subsidise the cost of electricity to the tune of billions of dollars a year. That money, say the government’s critics, could be better used to pay its own bills and thereby free up unused capacity in power plants that are mothballed because of non-payment and disrepair. Cutting subsidies to people’s electricity bills, however, could lead to even more unrest. Critics argue that the government’s hand-to-mouth policymaking is self-defeating, and illustrates its general lack of planning.

In the long term, help could be at hand. Pakistan says it is about to start work on a giant dam, the $12 billion Daimer-Basha, in the far north-east, with backing from the Asian Development Bank. The dam would add a large amount of generating capacity. America may provide aid for the project. (India, which believes that the dam lies in disputed territory, in part of the former princely state of Kashmir, is inevitably against the dam’s construction.)

There are also plans for a gas pipeline from Iran, though the Americans have warned that the scheme could fall foul of their sanctions against Iran. Alternatives include access to Pakistan’s abundant untapped coal reserves, or importing gas and electricity from central Asia, across Afghanistan, a daunting proposition.

However, it is the short term that is the real problem. Unless the Pakistani government can solve its cycle of debt and disorganisation, ordinary Pakistanis will continue to vent their fury.

Riaz Haq said...

Here's an excerpt from The News on mounting debt in the power sector:

ISLAMABAD: With the addition of over Rs1 billion per day to circular debt, the cash flow deficit faced by the power sector has surged to Rs418 billion, betraying the devastatingly poor management of the power sector, a senior official at the Finance Ministry told The News.

Currently, the power sector faces Rs302 billion circular debt, which continues to soar in the wake of mismanagement and inefficiency. The system loses Rs40 billion every year just due to excessive line distribution losses that have surged by 4 percent in recent months, from 21 to 25 percent. Another Rs6-7 billion islost every month because of slow recovery of bills while Rs24 billion goes to IPPs as late payment surcharge.

Previously, line losses stood at 16.5 percent and transmission losses at 3.50 percent (total losses 20 percent) but have now increased to 21 and 4 per cent respectively, pushing a total 25 percent. It is pertinent to mention that one percent loss translates into Rs7.50 billion.

In anther setback, the government continues to pay Rs9.6 billion as GST for electricity bills that it fails to recover. Similarly the government loses Rs2 billion per month in the wake of fuel adjustment loss due to 20 percent losses that have now increased to 25 percent. And because of decreased supply of gas to powerhouses, the government has to sustain the additional burden of Rs6 billion per month.

This means that the government will suffer Rs72 billion additional losses per year if it is unable to supply gas to power plants, given that it will have to use costly furnace oil. Informed sources told The News that the Ministry of Petroleum and Natural Resources has committed to providing 76 million cubic feet gas per day (mmcfd) to powerhouses since the government has decided to give top priority to providing gas to the power sector. “We expect addition of 200 mmcfd gas to the system in December, of which 100 mmcfd each will be allocated to the power and fertiliser sectors,” secretary petroleum and natural resources Mohammad Ijaz Chaudhry told The News. “The decision to accord priority to supplying gas to the power sector was taken during the high level meeting chaired by President Asif Zardari on the energy crisis.”

The official said the Finance Ministry has asked the Ministry of Water and Power to improve its revenues outlook by improving recovery and paying arrears to IPPs and PSO. IPPs’ arrears currently stand at Rs208 billion, while those of PSO are Rs165 billion. However, the receivables of Pakistan Electric Power Company (Pepco) stand at Rs307 billion.

The finance ministry has already told IPPs it will now pay Rs45 billion to them next month. This amount was to be paid before October 15, 2011 but Pepco failed to meet the deadline because of acute financial constraints.

Meanwhile, the government has decided, the official said, to re-introduce uniform electric power tariff across the country, while the subsidy, which power consumers enjoyed, will go to the government. Currently 20 million consumers receive electricity bills under differential power tariff regime and the subsidy, which the government pays directly to the distribution companies, is mostly misused.

“The government has decided no to raise the power tariff by 4 percent as suggested by the Ministry of Water and Power in the summary sent to PM Secretariat until and unless the power tariff rationalisation plan is implemented after its approval by the federal cabinet,” the finance ministry insider said.

Riaz Haq said...

Here's a report in The News about deadbeat govt depts with huge unpaid electricity bills:

SLAMABAD: The details of outstanding power dues against government departments were presented before the National Assembly on Monday, Geo News reported.

The figures presented by the Water and Power Ministry revealed that not just one but many departments were yet to clear their dues that run into the millions.

According to details, payable dues against Senate Secretariat stood at Rs49.5 million; amount payable against federal ministers and their residences at Rs8.552 million; Parliament Lodges Rs12.1 million; Pak Secretariat Rs9.423 million; Supreme Court hearing cases of power projects scams at Rs3.47 million; Election Commission of Pakistan Rs2.997 million; federal police Rs19.1 million; Intelligence Bureau Rs2.726 million; ISI Rs8.224 million; FIA Rs4.3 and; the payables against Interior Ministry were Rs1.57 million.

Riaz Haq said...

Here's Express Tribune on govt appointees to reform power sector:

As part of its bid to reform the state-owned power companies, the government has finalised the appointments to a 12-person board of directors of a holding company meant to oversee the transition, and is likely to nominate the former head of the Karachi Electric Supply Company to serve as its chairman.

Sources in the finance ministry told The Express Tribune that the top economic management team had finalised the names and the formal announcement would be made by the water and power ministry soon.

The nominations come on the heels of the government’s decision to merge four state-owned power generation companies at the policy-making level while retaining their operational independence. It has already constituted a holding company to speed up the process of structural reforms.

Sources said that one name currently being considered to head the holding company was Naveed Ismail, who was CEO of KESC until October 2009, when he resigned from the position. He is known as a turnaround specialist, though he was unable to move KESC towards profitability.

All 12 names have been selected based on their experience levels and lack of political affiliation. Among the tasks of the transition team will be to appoint CEOs for the four power generation companies that they will have supervision over.

The four companies have an installed power generation capacity of 4,900 megawatts, though the government is only generating 2,000 megawatts from them due to inefficient fuel consumption. Efficiency levels at the plants range between 24% and 31% (an efficiency level of above 40% is considered acceptable).

In order to compensate for the low efficiency, the government has been raising power tariffs. Late last week, the National Electric Power Regulatory Authority (Nepra) increased tariffs by an average of Rs3.04 per unit on account of rising oil prices. The government is planning a further 12% increase before the end of the fiscal year to eliminate subsidies to the power sector.

Experts have been arguing that the government should accompany tariff increases with structural reforms in the power sector, something the government has struggled to do.

The power sector has exhausted the Rs11 billion injection of money that the government made in order to mitigate the financial crisis in the sector. This has again resulted in increases in the duration of power outages.

During the last cabinet meeting, no major decision on power sector reforms was taken except instituting two-day a week holiday in order to conserve energy. So far, only federal government institutions are observing a two-day weekend while Punjab, where most of the energy is consumed, has opposed the decision.

In the next cabinet meeting, the government is likely to take a decision about tackling the circular debt that according to various estimates ranges between Rs285 billion and Rs300 billion. Currently, the Pakistan Electric Power Company’s payables stand at Rs299 billion against Rs314 billion receivables.

The government has yet to find a solution to the penal charges problem. The independent power producers (IPPs) have worked out Rs24 billion penal charges on account of delay in payments. The IPPs are compelling the government to pay this amount which would ultimately be transferred to the end consumers.

Riaz Haq said...

Here a News story on KESC exempting low-loss areas from load-shedding:

The Karachi Electric Supply Company (KESC) has denied allegations that the power utility has “ulterior motives”, and it is resorting to 12 to 14 hours of loadshedding, saying only three to 7½ hours of loadshedding is being carried out for the last six months in high-loss areas.

“Low-loss areas in Karachi are still exempted from loadshedding while loadshedding is only being resorted up to 7½ hours only in high-loss areas despite the fact that electricity demand has soared to 2,500 megawatts,” a KESC spokesman said on Thursday.

Commenting on the allegations levelled by an MQM MPA in the Sindh Assembly on Thursday, he insisted that the KESC was a public utility and acting as a utility service provider, otherwise it could have disconnected power to several defaulters who were not ready to pay their electricity dues.

“The KWSB is the biggest defaulter, but the KESC is still providing power to it as any action against the water utility can create an extreme water shortage in the city. Corporate organisations do not give such relaxations to their clients,” he claimed.

Commenting on the provision of 50 billion rupees in subsidy to the KESC, the spokesman said public representatives should know that subsidies were provided to consumers, not to the power producing companies.

“Subsidy is being given to the consumers so that the entire cost of power production is not passed on to the consumers, otherwise each unit of electricity would be costlier than the rates applicable now,” he maintained.

On the occasion, the KESC spokesman urged the public representatives to assist the power utility in curbing electricity theft and recovering dues from the defaulting consumers, and said that by doing this, the KESC would be able to minimise loadshedding and breakdowns and provide quality service to its consumers.

Meanwhile, the KESC strongly condemned the rising streak of violence at its area offices by defaulting consumers, trying to pressure the company into restoring the power supply without wanting to clear their dues.

A KESC’s Garden area office came under attack recently by agitating defaulters, who get electricity from Malbari Lines and Ambajivilljee PMTs, where power theft is in the region of 60 percent and outstanding bills are close to Rs10 million.

Often in such cases, the PMTs are rendered faulty due to the unauthorised connected load put by illegal power users.

In the case of the Garden area’s PMTs, the KESC issued the defaulting consumers with several notices for th clearance of bills, warning them to refrain from illegally using electricity and asking if they wanted the utility to replace the non-functioning PMTs.

They, however, refused to cooperate and instead shifted their illegal load through unauthorised hook connections onto another PMT, eventually overloading it to the point of breaking down.

Consequently, the KESC officials held several meetings with the local MPA and area notables and sought their support for the clearance of dues and curbing the menace of power theft....,says-outages-only-in-high-loss-areas

Riaz Haq said...

Here are some excerpts of an interesting Op Ed in The Nation newspaper by former finance minister Shaukat Tarin:

Despite all the gloomy news and events that has started to define Pakistan, our national resilience remains intact. However, the question that is one every one’s mind is for how long?

Let’s start with the positives (yes there are always some!) of Present Day Pakistan;

• CP Inflation while high is showing signs of becoming range bound;

• Foreign Remittances continue to rise (the PRI scheme launched under my stewardship has borne fruit with remittances expected to cross the $l2b annual mark this year);

• We have finally started to debate/define our role in the devastating ‘War on Terror” and the end game of Afghan conflict has started to be played out.

• Pakistan’s banking system remains insulated from the Western banking meltdown.

• Booming Agrarian economy, despite devastating floods; with corporate sector moving into dairy, live-stock and value added processing.

• While most of the rest of the world is ageing our population is getting younger

• Democracy is still holding on!

However, we are far from the country we all aspire. The negative list (so to speak) is long, makes a somber reading, but largely includes:

• Lack of governance and transparency (lack of meritocracy).

• Unrelenting and crippling energy shortages.

• Lack of Scale/infrastructure to support GDP growth.

• Security and Law and order situation (Perception twice as worse as reality with the reality bad enough especially in Karachi and Quetta)

• Weak Social Sector reforms/indicators.

• Increasing friction amongst state institutions.

... the economic and social sector performance of Pakistan has also been severely impacted by the following:

1) Inability of the successive governments to balance their budgets by increasing tax to GDP ratio, reducing non-development expenses and losses of the Public sector enterprises.

2) Negligible expenditures on education and health sectors to develop our most important asset i.e. human resource.

3) Creating a competitive environment of high economic growth by focusing on the productive sectors of our economy such as agriculture and manufacturing, and

4) Focusing on infrastructure and energy sectors to facilitate the economic growth.

Whereas, we have seen efforts in the past to address these weaknesses they have been at best weak and far between.

The present economic scenario is again infected by the same weaknesses i.e. large fiscal deficits, low expenditure on education and health, chronic electricity and energy shortages, lack of focus on the productive sectors resulting in high inflation, high unemployment and low economic growth. We all want a Pakistan which is economically prosperous, institutionally resilient and strategically oriented. In essence, we want to make Pakistan an economic welfare state. In my view, a key pre-requisite for an Economic Welfare State is to ensure that a country experiences equitable and sustainable growth for a prolonged period of time. Look at the examples of India and China where uninterrupted economic growth has changes the whole value proposition of these countries.
To reduce our fiscal deficit we will have to increase our taxes. As I have said it many a times, all incomes will have to pay taxes and there cannot be any sacred cows. Agriculturists will have to pay their taxes and so should the retailers, real-estate developers stock-market and all professionals. Our tax to GDP is woefully inadequate at 9pc, where Sri Lanka is 17pc, India 19pc, China 21pc and Turkey 33pc. Before I left the government, there was a tax plan in place, which needs to be implemented. It will require a strong political will.....

Riaz Haq said...

Here's a News Tribe story on a computer center at Multan Electric Supply:

Multan: Helping to strengthen Pakistan’s energy sector in ways that increase the supply of electricity to consumers is a top assistance priority for the United States government. That’s why today the United States Agency for International Development (USAID) inaugurated a brand-new planning and engineering computer center at the Multan Electric Supply Company. This center is equipped with the latest generation of sophisticated computers and software that engineers at the Multan Electric Supply Company will use to help ensure a more reliable supply of power to consumers.

At the event, USAID Mission Director Jock Conly remarked, “Distribution companies don’t have a system to assess energy losses. That makes it difficult to come up with a solution to the energy crisis. The USAID Power Distribution Program is helping the Multan Electric Supply Company by establishing a planning and engineering computer center using the same type of software the United States uses to manage its energy to perform much-needed assessments and implement plans for loss reduction.”

The Multan Electric Supply Company power distribution system supports approximately 120 million Pakistanis. Distribution Companies (DISCOs) like Multan Electric Supply Company play a key role in ensuring a smooth and uninterrupted delivery of power to residential, commercial, agricultural and industrial customers. Establishment of the new USAID-funded computer center will allow the Multan Electric Supply Company to segregate technical losses so they can plan and implement plans for loss reduction. These plans will enable the energy sector to save megawatts and increase revenues, which are both key to solving the issue of circular debt. USAID has established similar computer centers in 7 other DISCOs throughout the country. Through the Power Distribution Project, USAID is also introducing new technologies like smart meters to improve meter reading and thus improving the accuracy of billing to Pakistanis.

In addition to these activities, the United States is renovating thermal plants at Jamshoro, Guddu, and Muzaffagarh, which have already added 650 megawatts to the national grid since September 2011. The U.S. government is also co-financing the completion of the Gomal Zam and Satpara dams which will add another 35 megawatts and irrigate more than 200,000 acres. Finally, we are helping to replace thousands of highly inefficient agricultural and municipal water pumps throughout the country to save additional megawatts. These and other major U.S. energy projects will add 900 megawatts to the national grid by the end of this year – enough power to supply electricity to estimated two million households.

Riaz Haq said...

Here's a Time Magazine article on Enernet---the use of information technology(IT) and Big Data in power grids:

Cutting energy waste is first and foremost a data challenge. You can’t cut waste until you know what you’re wasting, and most of us have only the slightest idea. Standard electricity meters take one reading for an entire month. Imagine trying to diet if all you knew was the total amount of food you ate every four weeks. Says Bennett Fisher, CEO of the building-efficiency start-up Retroficiency: “You need data to make energy saving work.”

We’ve got the data, thanks to the growth of smart, Internet-enabled sensors that can read and relay energy use almost in real time. A host of new big-data companies are figuring out how to crunch that information so energy users from huge factories to individual households can track and reduce waste. This combination of energy technology with the Internet–the industry calls it the Enernet–is the hottest sector in clean tech, in part because it relies on relatively cheap, easily scalable software rather than on the expensive factories needed for, say, making solar panels. “It’s much more capital-efficient,” says Roy Johnson, CEO of EcoFactor, an energy-management start-up.

And efficiency is what the Enernet is all about. Take Virginia-based Opower, one of the oldest and most successful Enernet companies. Opower began by offering homeowners the chance to compare their power use with their neighbors’. Just knowing whether they were energy hogs or energy saints–along with following Opower’s energy-efficiency tips–was enough to reduce waste among homeowners. But as smarter meters taking dozens of readings per day have begun to gather more-granular data, Opower has been able to offer much more. The company sorts through the data collected by smart meters to help customers identify exactly where the waste is occurring and how it can be reduced. “These are things we could never do without big-data analytics,” says Dan Yates, CEO of Opower.

For utilities, big data can be even more powerful and valuable for the bottom line. Smarter energy management can keep overloaded grids running and prevent the need for new, expensive plants. Energy use isn’t constant throughout the day or the year, but because utilities keep power running 24/7, they need to have spare capacity to accommodate spikes. Even if it isn’t needed all the time, that extra power has to be generated, usually by polluting and costly coal or gas plants. Companies like AutoGrid help utilities spread out the demand for energy, smoothing the spikes and reducing the need for unused excess power. AutoGrid’s algorithms sort through the petabytes of data from smart meters–adjusting for variables like weather–and spit out solutions that let utilities and their customers automatically shift nonessential electricity use to nonpeak times. The Enernet can also help utilities make better use of wind and solar power, compensating when the wind isn’t blowing or the sun isn’t shining. Amit Narayan, AutoGrid’s CEO, estimates that his company’s algorithms can help utilities get about 30% more power out of existing resources.

If we’re ever going to truly clean up our electrical grid, we’ll need to replace coal and natural gas with zero-carbon sources like solar or nuclear while improving efficiency. It won’t be easy or cheap. But a smarter, more efficient grid–enabled by the same intelligence that brought us the Internet–can help smooth that transition.

Riaz Haq said...

Here's an Express Tribune report on Engro-KESC deal for coal electricty:

Karachi Electric Supply Company and Sindh Engro Coal Mining Company (SECMC) inked a memorandum of understanding to construct a power generation project capable of producing 600 megawatts (MW) at Thar coal field.
According to the agreement, SECMC – a joint-venture between Engro Powergen and the Government of Sindh – will develop a 600MW Mine Mouth Power Plant in Thar field’s block 2, whereas KESC will purchase power from the plant to meet the rising power demand in Karachi and adjoining areas of Sindh and Balochistan, according to a press statement on Wednesday.
Both the parties believe that the agreement will serve as the base for a mutually beneficial partnership for future progress and development of one of largest coal reserves of Pakistan.
The two companies acknowledged that coal from Thar had the potential to address the country’s severe power shortages and bring energy security which is indispensable for economic growth.
The Thar Coal Power Project aims to provide affordable and sustainable electricity to consumers using domestic resources. Reliance on indigenous fuel is likely to save billions of dollars in foreign exchange currently spent on import of the expensive alternative furnace oil, cutting the overall cost of power generation.
After the signing ceremony, Sheikh said, “Thar coal is a project of national security as it will bring much-needed energy security to propel the nation into an era of prosperity and development. SECMC’s Thar block 2 alone can produce 5,000MW for the next 50 years, amounting to an estimated foreign exchange savings of $50 billion throughout the life of the project. This project will demonstrate maturity and capability of corporate sector to join hands and synergise on national level.”

Riaz Haq said...

Here's a piece on Pakistan's energy crisis:

Energy and Security: Natural Gas and the Example of Pakistan
By Paul Sullivan,
Georgetown University
I recently got a question the other day about Pakistan. It is having a serious electricity crisis. One of the solutions proposed to me was that a pipeline be built from a neighboring country, Iran, which has a lot of natural gas in order to fuel the power stations of this South Asian state.
Fuel is not enough.
The electricity generating stations in Pakistan need to be better maintained. Many plants are simply not running due to bad maintenance. More people need to be paying their electricity bills. The pricing of electricity needs to be more rational. Without the right amount of payments coming into an electricity company, even if it is a public sector company, the company cannot remain solvent and well run for long. Pakistan’s electricity is produced by two public sector utilities and about 20 plus independent power producers.
Part of the problem with this in some developing countries is that in the villages and even the large cities one can see thousands of “informal” wires being connected from the electrical poles to houses and businesses without any meters (or even safe connections, but that is another story). Income losses from essentially stolen electricity are gigantic.
Pakistan’s electricity demand growth of about 10-11 percent per year is overwhelming its supply of electricity.
About 55 percent of Pakistan’s people use biomass, such as cow dung, other agricultural waste, garbage and more to heat, cook, etc. These people will likely have an increasing want for electricity connections in the future. Pakistan will not develop even near to its potential if this huge proportion of its population is not connected with electricity, either on a grid or via distributed energy systems at the village and town levels.
These distributed systems could use the vast wind, solar, geothermal and other renewable energy resources available, but severely underutilized in the country. Setting up distributed power systems in villages and small towns could also prove to be a lot cheaper than extending Pakistan’s often shaky and overused grid....

Riaz Haq said...

Here's a Daily Times report on Pakistan settling "circular debt" owed to IPPs:

In order to eliminate circular debt, the government has released Rs 362 billion to the Independent Power Producers (IPPs), out of which four IPPs announced that they have received a total sum of Rs 116.826 billion as a part of their overdue receivables, according to the Karachi Stock Exchange (KSE) notice released on Tuesday.
Five IPPs out of 19 others, in Memorandums of Understanding (MoUs) signed between government and IPPs, including Hub Power Company Limited (Hubco), Nishat Chunian Power Limited (NCPL), PakGen Power Limited (PKGP), Kohinoor Energy Limited (KEL) and Nishat Power Limited (NPL) have announced officially in notices to all bourses of the country that they have received around Rs 116.826 billion from Central Power Purchasing Agency (CPPA), Water and Power Development Authority (WAPDA) and National Transmission and Despatch Company (NTDC).
Hubco remained prime beneficiary as the company stated in a letter to the KSE that the company has received overdue amounting to Rs 75 billion out of Rs 83.2 billion (overdue as of May 31, 2013) for Hubco and Rs 17.4 billion for Narowal Plant from WAPDA and NTDC, bringing the total to Rs 92.4 billion.
Hubco announced that the company has paid Rs 55.8 billion to Pakistan State Oil (PSO) as agreed under the settlement arrangement.
Hubco has entered into three MoUs with the government as required by them for the settlement of agreeing to convert Hub plant from oil to coal, extend the credit period for its Narowal Plant from 30 days to 60 days and to endeavour to operate the plants at full capacity.
Under the MoUs, IPPs also agreed to achieve their maximum generation capacity and provide 1,500 megawatts (MW) to 1,700 MW to the national grid before Ramazan, four IPPs including Hubco, Lalpir, Pakgen and Saba Plant, have agreed on conversion to coal-based power generation within 18 months, extend credit period from 45 days to 60 days and reduce interest rate on late payments by public sector power companies.
Similarly, NCPL announced that the company has received overdue receivables amounting to Rs 6.86 billion from CPPA without any reduction in existing delay mark-up rate of existing 4.5 percent to 2.5 percent as against expected cut of 2.0 percent from 4.0 percent to 4.5 percent.
Likewise, PKGP also informed the KSE that the company has received overdue receivables amounting to Rs 6.982 billion from CPPA at existing delay mark-up rate.
Also, KEL announced in a letter to KSE that the company has received overdue receivables amounting to Rs 3.504 billion from WAPDA.
Muhammad Affan Ismail of BMA Research told this scribe that the fund injections (cash or otherwise) are a short-term solution and have no long-term implications on operational factors or returns to investors. Best would be to recall the Rs 82 billion Tem Finance Certificates (TFCs) issued last year by the government in order to help solve the power crisis, he added.
NPL has announced that it has received overdue amounting to Rs 7.080 billion.
Naveed Tehsin of JS Research believes that PSO stands out as a key beneficiary from the retirement of the circular debt as its receivables and payables to local refineries have sharply declined to Rs 79 billion (down 54 percent) and Rs 9 billion (down 66 percent), respectively.
Tehsin expected that receivables would further decline by Rs 48 billion after the issuance of Pakistan Investment Bonds to PSO.

Riaz Haq said...

Privately-held KESC has devised a collective reward and punishment scheme to deal with dead-beats and thieves in Karachi. Areas where there is 90% money recovery see almost zero load shedding, 80% get a couple of hours of power cuts and those with less than 50% endure very long hours of black-outs.

Riaz Haq said...

Debt Markets worry over #Pakistan default on $50 billion debt coming due as Credit Default Swaps surge via @business

Bets are rising that Pakistan will default on its debt just as it starts to revive investor interest with a reduction in terrorist attacks.
Credit default swaps protecting the nation’s debt against non-payment for five years surged 56 basis points over the past week amid the global market sell-off, the steepest jump after Greece, Venezuela and Portugal among more than 50 sovereigns tracked by Bloomberg. About 42 percent of Pakistan’s outstanding debt is due to mature in 2016 -- roughly $50 billion, equivalent to the size of Slovenia’s economy.
Prime Minister Nawaz Sharif has worked to make Pakistan more investor-friendly since winning a $6.6 billion International Monetary Fund loan in 2013 to avert an external payments crisis. The economy is forecast to grow 4.5 percent, an eight-year high, as a crackdown on militant strongholds helps reduce deaths from terrorist attacks.
"Pakistan’s high level of public debt, with a large portion financed through short-term instruments, does make the sovereign’s ability to meet their financing needs more sensitive to market conditions," Mervyn Tang, lead analyst for Pakistan at Fitch Ratings Ltd., said by e-mail.

Since Sharif took the loan, Pakistan’s debt due by end-2016 has jumped about 79 percent. He’s also facing resistance in meeting IMF demands to privatize state-owned companies, leading to a strike this month at national carrier Pakistan International Airlines Corp.
The bulk of this year’s debt, some $30 billion, is due between July and September, and repayments will get tougher if borrowing costs rise more. The spread between Pakistan’s 10-year sovereign bond and similar-maturity U.S. Treasuries touched a one-year high on Thursday.
If Pakistan’s debt servicing costs rise, Sharif doesn’t have much room to maneuver. Already about 77 percent of the country’s 13 trillion rupees ($124 billion) budget for the year through June 30 is earmarked for interest and principal repayment on loans.


Another worry, as ever in Pakistan, is political stability. The military has ruled the country for most of the time since independence in 1947, and General Raheel Sharif -- no relation to the prime minister -- has boosted the army’s image with a campaign to root out terrorists who massacred 134 children in 2014.
While Raheel Sharif has said he plans to retire when his term ends in November, the risk of political upheaval is ever present. Pakistan has the 10th highest political risk score among more than 120 countries in the Economist Intelligence Unit ranking, worse than Egypt and Iran.

Riaz Haq said...

Circular #debt in #Pakistan #power sector declining: #IMF | SAMAA TV

The annual increase in circular debt of Pakistan’s power sector has come down from Rs 222 billion to just Rs 8 billion in the fiscal year 2015-16.

It was revealed in the data graphics released by the International Monetary Fund (IMF) about the circular debt of Pakistan’s Power sector.

According to the data, power sector losses paid out of the federal budget in Pakistan have come down from Rs 342 billion in fiscal year2012-13 and Rs 138 billion in fiscal year 2013-14 to zero since past two years fiscal years 2014-15 and 2015-16.

Riaz Haq said...

Glimmer of light in #Pakistan’s blackout crisis. #loadshedding #CPEC … via @FT

The households and small businesses that crowd the narrow lanes of Gazdarabad, Karachi, are used to blackouts. Until recently, residents here, as in many parts of Pakistan’s biggest city, suffered between eight and 10 hours a day without electricity.

It has taken years for engineers from K-Electric, the local power company, to unpick the tangle of loose wires and illegal connections that were symptomatic of a city deprived of regular electricity for the past decade.

“We would have up to 10 hours of load-shedding,” says Tariq Gulsher, a local resident, referring to the area’s power cuts during the latest of Pakistan’s energy crises. “Although we could pay people for access to a back-up generator, it was expensive and fluctuations in the power often meant our equipment broke.” 

Gazdarabad’s residents now have reliable, 24-hour power — but they are the lucky ones. Pakistan is facing an unprecedented power crunch, which has left households and businesses either in the dark or relying on back-up generators for large portions of the day.

It poses a risk to economic growth as Pakistan becomes a more attractive place for foreign consumer businesses, which are enticed by its young and growing population and cautiously optimistic about improving security.

Ehsan Malik, chief executive of the Pakistan Business Council, says the energy shortfall “is business’s biggest difficulty right now”.

Electricity in Pakistan is both insufficient and expensive. Peak demand surpasses maximum generating capacity by 6 gigawatts — equivalent to about 12 medium-sized coal power plants. 

Pakistan plans to remedy this by building coal-fired power stations funded by more than $35bn in Chinese loans — part of the $50bn-plus China-Pakistan Economic Corridor scheme to improve Pakistan’s infrastructure. Several large power stations are under construction and the government says at least one will come online every month until next March, producing eight gigawatts of new capacity.

These schemes are intended eventually to take advantage of the 175bn tonnes of coal reserves discovered at Thar, about 400km east of Karachi. The amount of fuel there puts Pakistan in the top 10 countries in coal reserves. 

Pakistan has some of the highest power prices in the region, at $0.13 per unit of electricity, compared with $0.12 in India, $0.11 in China and $0.09 in Bangladesh. Furnace oil is burnt to produce 40 per cent of the supply, with hydroelectric dams accounting for 30 per cent and gas 25 per cent. Virtually none of the energy comes from coal, which is far cheaper,

“We are sitting on some of the largest coal reserves in the world but the government in the 1990s was completely focused on furnace oil,” says Syed Murad Ali Shah, chief minister of Sindh province. A concern is the financial risk. The falling cost of solar energy could render coal power plants useless, and energy suppliers complain the electricity tariffs set by authorities are too low for them to make a profit or attract new investment.

Energy regulators have slashed the tariffs of a range of suppliers in the last year, causing three of them to slide from profits into losses. Since virtually all the electricity distribution companies are state owned, it is up to the government to fill the holes its policies have created.

Riaz Haq said...

#Pakistan has #electricity overcapacity but it still suffers #power shortages because of lack of #grid capacity. #PTI govt to increase investment in grid and delay about 10,000 MW worth of planned #coal/#wind power projects. #cost #debt #economy #PMLN

After spending decades tackling electricity shortages, Pakistan now faces a new and unfamiliar problem: too much generation capacity.

The South Asian nation’s power supply flipped to a surplus last year after a flurry of coal- and natural gas-fired plants were built, mostly financed by the Belt and Road Initiative launched by Chinese President Xi Jinping in 2013. Pakistan is slated to have as much as 50% too much electricity by 2023, according to Tabish Gauhar, special assistant to Prime Minister Imran Khan for the power sector.

That is problematic because the government is the sole buyer of electricity and pays producers even when they don’t generate. To help tackle the issue, the government has negotiated with producers to end that system, lower their tariffs and asked them to delay the start of new projects, according to Gauhar. It is also trying to convince industries to switch to electricity from gas.

“We have a lot of expensive electricity and that is a burden,” he said.

While the Chinese financing and the surplus is a welcome change after years of shortages that left exporters unable to meet orders and major cities without electricity for much of the day, two main problems remain. The first is a creaking network, and the second is the need to supply cheaper power while keeping emissions in check.

“Pakistan has overcapacity, yet it still has power shortages because of the unreliability of the grid,” said Simon Nicholas, an analyst at the Institute for Energy Economics & Financial Analysis. “They haven’t invested in the grid the same way they’ve invested in power plants.”

The last nationwide blackout happened just last month after an outage at the country’s largest facility. While the new plants have also boosted coal generation to a record fifth of the power mix, Pakistan plans to increase the share of wind and solar to 30%, while another 30% will be generated from river-run dams.

Pakistan will pay private power producers 450 billion rupees ($2.8 billion) in overdue electricity bills in a deal to reduce future tariffs. The government targets to pay 40% of that bill by the end of February, with the second payment slated before December, according to Gauhar. A third of the payment will be made in cash, with the rest in fixed income instruments, he added.

About 8 gigawatts worth of government-owned power plants will also have tariffs reduced. And Pakistan plans to negotiate lower tariffs for mining and power generation at the Thar coalfield, said Gauhar.

The government aims to delay about 10 gigawatts worth of planned power projects, including coal and wind plants, since there won’t be any need for them next year, said Gauhar.

Riaz Haq said...

Pakistan’s surplus power generation capacity has come at a price
The country confronts steep electricity payments amidst persistent blackouts.

Pakistan’s dilemma is a surplus of power generation capacity – a problem it has avoided since the late 1990s. “We are producing much more than we need,” Tabish Gauhar, the prime minister’s special assistant on power, has been telling the media since January.

In his public remarks, he points out that the country cannot afford the new electricity that has been in its system ever since a spate of Chinese-built power plants began to come online in 2017. Gauhar also attributes the bulk of the increased cost to “fixed capacity charges” that he says have “gone through the roof”.

By some estimates, the country has had to pay capacity charges of 85,000 crore Pakistani rupees a year in the last few years, a figure projected to rise beyond 1.45 lakh crore Pakistani rupees by 2023 – by when it will be larger than the country’s present peacetime defence budget.

Technically capacity charges are not a budgetary item (they are paid through power bills sent to consumers rather than out of the government’s own budget). The escalating cost of surplus power generation has meant a continuous rise in consumer power tariffs.


Javed Hassan
Capacity payments to IPPs:
FY 2017-18 cRs250bn
FY 2018-19
FY 2019-20 cRs900bn
FY 2029-21 > cRs 1.0tr
FY 2023 > Rs 1.5tr

Electricity Consumption
2018 c106bn units
2019 c109bn units
From ‘18 to ‘23 Capacity payments increases by cRs1.25tr; or from Rs2.4/unit to Rs12/unit