Saturday, August 1, 2020

Pakistan: Hopes Rise For Cheap and Abundant Electricity

Pakistani power sector is continuing its march toward cheap indigenous sources of electricity. Hydropower component has increased 22%, coal 57% and nuclear 8% while oil is down 54% and natural gas and LNG are down 32% and 15% respectively, according to Bloomberg. These changes in power mix are expected to help significantly reduce power subsidies that run into hundreds of billions of rupees contributing to large annual budget deficits.

Data From NEPRA. Courtesy Pakistan Today

Coal's contribution to power mix now stands at just 21%, in spite of 57% increase in use of coal in Fiscal Year 2020. It is still almost half of the global average of 38% of electricity produced from coal. Overall, the contribution of fossil fuels in electricity generation is now about 54%, down from nearly 66% a few years ago.

Pakistan Power Generation Mix. Source: Bloomberg

Hydropower and natural gas now contribute 32% each, making them the biggest sources of electricity in Pakistan. Coal comes next at 21%, followed by nuclear at 8%.

Pakistan Power Generation Plan 2019-2040. Courtesy of World Economic Forum

One of the biggest economic challenges Pakistan faces is it growing debt and deficit from subsidies to the power sector. Often referred to as "circular debt" in Pakistan, the government owes Rs. 1.6 trillion ($7.2 billion) to power sector at the end of June 2019. Pakistan government is now is committed to improving the situation by its development of an Indicative Generation Capacity Expansion Plan (IGCEP) that runs until 2040.

Change in Sources of Electricity in 2020. Source: Bloomberg

Pakistan recent efforts to diversify its fuel mix for cost reduction are raising hopes for cheap and abundant electricity needed for its industries and residential consumers.  Already, the electricity generation cost is down 11% and current account deficit has declined 78%. There is a plan called "Indicative Generation Capacity Expansion Plan" in place. Execution is the key to making the power sector greener, cheaper and more reliable.

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Anonymous said...

The new capacity is built via loans from China which have to be repaid in USD.If the PKR keeps depreciating by 5% per annum what is the IRR for break even?

Do the present tarrifs and leakages make this investment financially viable ?

What is the projected FX outflow on loan servicing + fuel imports+spare parts and other consumables to run these plants?

Riaz Haq said...

Anon: "What is the projected FX outflow on loan servicing + fuel imports+spare parts and other consumables to run these plants?"

It's already helping. Electricity generation cost is down 11% and current account deficit has declined 78%.There is a plan called "Indicative Generation Capacity Expansion Plan" in place. Execution is the key to making the power sector greener, cheaper and more reliable.

Rashid A. said...

Circular Debt is now at 2.2 Trillion Rupees.

Circular debt at the end of June:
2013: 308 B
End of PPP govt.

Begin PMLN Govt.
🔻 223 B
2014: 531 B
🔻119 B
2015: 650 B
🔻39 B
2016: 689 B
🔻130 B
2917: 819 B
🔻307 B
2018: 1126 B
End of PMLN govt.

Begin PTI Govt.
🔻492 B
2019: 1618 B
🔻532 B
2020: 2150 B
🔻45 B
Current estimate
End of July 2020: 2195 B

Riaz Haq said...

Rashid: "Circular Debt is now at 2.2 Trillion Rupees."

Higher capacity charges with increased capacity and rupee devaluation are the main contributors to this increase in "circular debt".

Please read the following from The News:

The capacity charges payments of the power plants have alarmingly ballooned to Rs900 billion this year from Rs650 billion in last fiscal year. The increase in capacity charges payments mainly came on account of Neelum-Jehlum hydropower project. In addition, one more RLNG-based power plant that is built at Trimmu is going to come on stream, may be in the later part of ongoing financial year.

In the wake of these projects, the capacity payment will soar to whopping Rs900 billion, a senior official at Power Division told The News. The capacity charge payment component has now emerged as one of the major factors causing the hike in power tariff. The hike in tariff by Rs1.50 per unit effective from July 1, 2019 is mainly because of the capacity charges payments.

Thar coal-based power plants are being built and one more imported coal based power plant in Baluchistan has almost come on stream. More importantly, the capacity payments have also been increased because of the massive devaluation of Pak Rupee by Rs40 during the PTI government.

Riaz Haq said...

Neelum-Jhelum traiff:

Neelum Jhelum Hydropower Company rejected the tariff determined by the National Electric Power Regulatory Authority (Nepra) for sale of power to Central Power Purchasing Company and filed a review petition, the official added.

Neelum-Jhelum Hydropower Company — a subsidiary of the Water and Power Development Authority (Wapda) — filed a tariff review petition before the Nepra, asking for Rs13.24/kilowatt-hour (kWh) reference tariff over the 50 year life span of the project.

The reference tariff is Rs14.59/kWh for the first 20 years, which will then drop to Rs5.10/kWh for the remaining 30 years.

The total cost of the project has been reported at $4.825 billion.

The National Electric Power Regulatory Authority, however, allowed the seller to charge a tariff of Rs5.9180/kWh on take and pay basis with must run condition for a period of one year.

The tariff was determined on take and pay basis as against request of tariff determination on take or pay basis in line with the government’s power generation policy for hydel independent power producers (IPPs) and on the analogy of tariff determined by Nepra for hydel IPP and Wapda hydroelectric projects.

The company requested the National Electric Power Regulatory Authority to determine power sale rate in two parts i.e. variable charge to meet with revenue requirement for variable overhaul and maintenance (O&M) and water utilisation charges based upon actual generation and fixed charge to meet revenue requirement for fixed O&M, insurance, debt servicing and return on equity based upon installed capacity of Neelum Jhelum hydropower project.

Rashid A. said...

That is true Riaz Sahib.

The other reason is Islamic Republic of Pakistan’s citizens, those who shout slogans against Tauheen Risalat also have the dubious distinction of being the main cause of the HIGHEST IN THE REGION electric power line losses (POWER THEFT).

Read this:

K-Electric is even buying Fatwas by Imams.
400 units of power free if the Imam issues a Fatwa against Power theft! Best Fatwa that money can buy!

nayyer ali said...

Pakistan's power sector has doubled in last decade to 40 GW of installed base, but is still 30% smaller per capita than India, which has 360 GW of capacity. Pakistan likely needs to double capacity to 80 GW by 2030 and 160 GW by 2040 to meet soaring demands. Currently, there is overcapacity due to COVID slowdown, but that could be eaten up quickly in 2021 if there is a vaccine. There is largescale rooftop solar going in, and that does not get counted in the national grid, but that is still only about 1 GW I believe.
Interesting new comparative data from World Bank, which recently released results from their 2017 ICP data round. In PPP GDP per capita, India was at 6150 dollars, Pakistan at 5000, and Bangladesh at 4400. But when they looked at individual consumption per capita, which is a better measure of the average material standard of living, the numbers were Bangladesh 3370, India 4170, and Pakistan 4600. This fits with consumption data showing middle-class Pakistanis with higher living standards than Indians, and much lower extreme poverty in Pakistan. Another element that the World Bank has to leave out is that Pakistan still has not rebased its GDP from 2006, and so it is likely 20-25% higher than official measurements if the rebasing was done, which would put Pakistan's GDP per capita on par with India. The PMLN government was supposed to do that in 2017, but never finished the work, so we are using a faulty ruler to measure Pak GDP.
The biggest macroeconomic imbalances of the last decade, the massive overvaluation of the rupee which caused a soaring current account and trade deficit, and high inflation, have both now been corrected. The tight policy of the SBP, combined with COVID-19, has taken inflation from 14% down to zero now on month over month basis for last few months. Once the pandemic is controlled, Pakistan may be well-positiioned for sustained economic growth. This will have to include continued rapid expansion of the power grid.