For the first time in the history of National Electric Power Regulatory Authority (NEPRA), Pakistan’s power sector regulator organized the Energy Week from 24-28 February 2020 in Islamabad. Five full days were dedicated to discuss various aspects of the power sector with the objective to listen to the views of sector experts; to figure out the most suitable and efficient solution of various challenges currently Pakistan’s power sector is facing and thereafter devise a way forward. Probably the best aspect of the event was attendance of the Authority in all the sessions with keen interest while Tauseef H. Farooqi, Chairman NEPRA kept the discussion focused. On a few occasions, Chairman NEPRA even intervened and brought back the discussion on track.
Let’s first review the agenda of the event. Discussion topics and overall agenda were worth pursuing whereas speakers and panelist were selected carefully. Each day of the event was dedicated to one specific aspect of the power sector, starting with China-Pakistan Economic Corridor (CPEC), generation on the second day, while innovation, transmission and distribution were discussed on third, fourth and fifth days respectively. It must be a challenge for the organizers to line up such illustrious panelists and speakers, which was itself a painstaking exercise. Most of the moderators were from NEPRA and they showed professionalism and command over their area of expertise. The organizers, the Authority and the Chairman deserve full marks for successfully managing the event and moderatinga great debate.
Inaugural session on 24th February was chaired by Chairman NEPRA whereas Chief Guest was Federal Minister for Energy, Omar Ayub Khan, while Ambassador of China; Ambassador of Germany; Chairman CEPC Authority and Chairman WAPDA (Water and Power Development Authority) were the speakers of the inaugural session.
According to the Chairman NEPRA, he accepted the position at a time when power sector had unprecedented challenges having a record level of circular debt of over PKR 1.9 trillion with a lot of other issues on every front. While assuming office, he decided to play an active role as a regulator and NEPRA is gradually moving toward a proactive organization from its traditional passive mode. His ambition is to make NEPRA a prudent regulator where NEPRA will have a diversified role, on one side it will provide enough confidence to local and foreign investors while on the other it will safe guard the interest of end consumer. I think, striking a balance between the two would be a challenge.
Tauseef H. Farooqi was first interviewed by the selection committee of the government on Skype when he was in the Middle East. The selection process was wildly discussed in the sector and various names were in circulation as well. It seems that Tauseef H. Farooqi made an impression in his 42 minutes Skype interview. There is no doubt that Tauseef H. Farooqi is first Chairman of NEPRA who has come from the grass root level. Selecting a commoner on merit for the most important job can give hope to the people that present government is serious in bringing a change. Prime Minister Imran Khan met Chairman NEPRA 7 times in last 15 days sometimes even more than once in a day, which shows the commitment of the government in resolving the energy related matters. Chairman NEPRA is spearheading the efforts to find a solution for piling up of circular debt, and bringing down the cost of electricity. He remained in discussion with the selective panelists even after end of the day’s session during the Energy Week and explored various options to address the current challenges.
So, coming back to the speech of Chairman NEPRA, he laid down his ambitious targets for next four years; which included more investment in green and clean energy; reduction in tariff; no more imported fuel power plant and no more capacity payments meaning thereby availability based new generation only. Chairman is probably getting confidence from the wonderful professionals of NEPRA and from the experienced Authority. He shared with the audience that the very first thing he observed after assuming the office was the working of all power sector government entities in silos. Immediately afterwards, he made it clear to everyone that close coordination among stakeholders would actually make the difference otherwise it will further deteriorate the situation. Interestingly, if we conclude every presentation given in the Energy Week, absence of coordination among stakeholders is a common denominator.
Chairman views that government can only review or revisit the project agreements of operating IPPs, if required whereas being the regulator it doesn’t come under their purview. He also informed the audience that NEPRA was in discussion with top notch universities of the world specialized in regulatory matters for the short courses for NEPRA team. As a capacity building exercise, all the segment leads have been asked to prepare reports on the event along with recommendations whereas follow up sessions will be conducted by the Chairman and by the Authority. In the coming months Chairman NEPRA has plans to start a Think Tank of NEPRA, where sector experts will be invited for brainstorming sessions on key issues, research work will be conducted and capacity building of NEPRA staff and power sector professionals will be done.
Day 1 –Lt Gen Muzammil Hussain (retired), Chairman WAPDA gave an informative presentation covering achievements, challenges and opportunities of his organization. However, I felt from his presentation that he was missing old times of once mighty WPADA. The powers, the position, the stature of Chairman WPADA was unmatched in those unbundled days of the power sector. I view unbundling of power sector as a first step towards present days mess. Giving autonomy to a wing of an entity is a different thing, but carving out so many entities from one WPADA is different, the process started 25 years back and still policy makers and funders are running after autonomy thing. End of the day, it’s the person not the position which takes a decision. WAPDA is trying to develop dams for the country but they have to report to two different ministries at the federal level, ministry of power and ministry of water resources and then there are provincial departments and ministries, which make their work very difficult and inefficient. As Indus Water Treaty is closely linked with water and power sector, therefore, it should have been discussed in the event.
Shah Jahan Mirza, MD PPIB (Private Power infrastructure Board) shared his thoughts on Power Projects under CPEC, progress so far and way forward. PPIB under his leadership has successfully attracted heavy investments in hydro and coal power plants besides managing first of its kind private transmission line project namely Lahore-Matiari HVDC project. He was articulate in defending coal projects and countered the criticism on giving concessions to the coal projects.
My two cents on CPEC power projects; it should be kept in mind that NEPRA announced an upfront tariff for coal after public hearing in 2015 which was opted by the IPPs. Now why to blame the investors only if some think that tariff is high. It’s a fact that PPIB issued LOIs to few local investors as well besides allowing Bin Qasim Karachi and Sahiwal projects. None but only the Chinese sponsors of Karachi and Sahiwal projects started the construction even before the financial close. Those who have developed and closed the power projects can better understand the risk Chinese sponsors of those two coal power projects had taken. Any other investor could also take the same risk and could have earned the similar returns. There are few things of CPEC which could have been better negotiated but discrediting it altogether is not fair especially when purpose is fulfilled.
Day 2 – Second day was dedicated to Generation only; which is a center of attention these days; how to reduce the cost of electricity and making prices competitive. The noticeable presentation was from N.A. Zubari, former MD PPIB, who gave an impressive presentation on potential and challenges of hydro power sector, his time slot was much less than what he had to say therefore, he had to skip a number of his slides. He highlighted that Power Policy 2002 was amended sixteen times since its issuance, which would be a world record in its own place. Various departments of federal and provincial governments create unnecessary delays and fresh legislations are required for land acquisition related matters. I agree with the conclusion of the presentation, run of the river small to medium sized hydro power projects with wheeling arrangement can bring down the cost of electricity in Pakistan.
Dr. Fiaz A. Chaudhary, LUMS Energy Institute gave a detailed presentation on supply demand situation in Pakistan. The hard work and detailed homework was obvious from the presentation, which was full of graphs, charts and tables. .I notice, a lot of focus is currently on demand-supply forecast. Not sure how but it can’t be automatic or scientific for a country like Pakistan, which is highly undocumented, and unsystematic. In my view, power demand is a complex subject and is a matrix of so many variables, fiscal and monetary policies, industry situation and economy of the country are few of the key drives of the demand side.
Day 3 – Most interesting presentation was of Salis Usman, GM Planning NTDC (National Transmission & Dispatch Company). He successfully kept the audience attentive with his wit and style, which was impressive indeed. He can be a good motivational speaker; he might have already added this in his personal plans for next 200 years. The gist of his speech was to enjoy your work and life and utilize your time.
Mujtaba Haider Khan, CEO REON and Omar Malik, Director Shams presented distributed solar sector and highlighted current scope and issues and way forward for distributed solar sector. Having two back to back presentations on the distributed solar sector by two distinguished speakers show that NEPRA also realizes the importance of distributed solar. As per Mujtaba, Pakistan wastes 82 percent of energy (14 percent higher than OECD) due to; inefficient power generation, inefficient electricity and gas T&D and inefficient consumer appliances, transport and industrial processes. This is a huge number, which needs attention of decision makers. While Omar Malik gave interesting fact that less than 200MW of solar power is only deployed in C&I, which is actually nothing as compared to the potential of rooftop solar power in Pakistan. Distributed solar in C&I can change the market big time, if NEPRA resolves the long outstanding issue of net metering. Net metering will help resolving circular debt crisis and will also bring down the cost of electricity.
Day 4 – Shah Jahan Mirza, MD PPIB presented salient features of Transmission line policy whereas going forward all the transmission projects will be done under Public Private Partnership (PPP) because a lot many consents from the public sector entities are required especially related to the way of right. On one side, private sector is interested in investing while on the other PPIB is ready to float the tender but NTDC has not so far not finalized the transmission projects to be offered to the private sector. The sooner it is done, the better it will be.
NTDC team including Salis Usman, GM Planning NTDC presented case of NTDC effectively. It seems that NTDC has some real issues that makes their work difficult. NTDC is not only finalizing Transmission Development Plan for 2025 but is also working on Transmission Development Plan for 2047.NTDC showed concern on slow process of procurement for SCADA 3 and in the absence of SCADA 3 system, HVDC or any other transmission line project will never be able to perform especially Lahore-Matiari HVDC project. Real challenges of NTDC are; getting the right of way for new projects, absence of legislation for the right of way, revamping of the procurement process, and fulfilling the requirements of upcoming merchant market. There is no doubt that NTDC is under staffed, it has hired 106 fresh engineers last year and is also going to hire many more in coming years. For the first time ever, NTDC has recently secured a debt from local banks on its balance sheet. For this purpose, NTDC recently got a credit rating (though didn’t disclose what their credit rating is) as well. I tried to Google the credit rating report but couldn’t find.
Day 5– The day was focused on discussing issues and opportunities in the distribution sector of Pakistan. Mujahid Islam Billa, Ex CEO DISCO, reveled some interesting facts about DISCOs (distribution companies). There is no concept of succession planning in DISCOs whereas all the DISCOs are facing serious shortage of new resource because DISCOs are not even allowed by the government to hire new staff. In coming years, there is a possibility that DISCOs will have virtually no young engineer. On technical side, recovery rate within a DISCO is sometimes different which shows law and order situation within the DISCO than a mismanagement of a DISCO. Mujahid highlighted a very important point i.e. not all DISCOs have ERP system in place and no proper and formal record of inventory. It was said that assets worth billions of rupees have been lost due to non-availability of ERP system. NEPRA should take a suo moto on this matter and hire some engineering firm (not chartered accountant) for stock count.
In this situation, I think efficiency improvements can be brought in by splitting the existing DISCOs, as the size of some of the DISCOs is too big to manage now.
We hear a lot about competitive market these days as deadline of November 2021 is fast approaching and thereafter the power market will be free from sole Off-taker i.e. CPPAG. It is a good concept, there should be a sequence of events only then it would be a success otherwise, it will not work. If competitive market is coming as it is being said then what is the purpose of integrated generation plan of 2025 or 2047 of NTDC. May be I am missing the point but if private party can generate and sell to another private party while a some other private party can transmit the power anywhere then what is the role of integrated generation plan of NTDC in all this.
My take: Last but not the least; I was neither a speaker nor in any panel but participated as an observer. Following were not covered in the conference therefore, I am taking this opportunity to express my thoughts:
- Profit of existing thermal power projects is probably the most discussed topic in all the government meetings these days. There is no way to go back and conduct the heat rate tests. But one thing can be done here. All the thermal IPPs be asked to provide month wise details of their revenue invoices in MS excel from the first month of their operations. All the tariff components (fuel, VOM, FOM, ROE, ROD) and dividend paid in columnar form. The dividend should not be more than indexed ROE as approved by NEPRA and as agreed in the Power Purchase Agreement. Over and above indexed ROE is heat rate efficiency or O&M efficiencies. It should be a zero sum game, simple. It would have consequences to ask an IPP to return the over and above indexed ROE but for future, the tariff formula can be adjusted accordingly.
- Debt repayment tenor is 10 years in case of existing IPPs. As a first step, government should immediately enhance the debt tenor of all three RLNG power projects from 10 to 25 years because these are financed by National Bank of Pakistan and Bank of Punjab so it would be easier for the management to reschedule the debt. This increase in tenor will help bringing down the tariff significantly, even up to 40 percent. And engage CPEC authority to renegotiate the tenor of Chinese debt. Moreover, there is no need to have SINOSURE Fee when all CPEC projects are under G2G. This will have a positive impact on reduction of tariff. The World Bank and IFC are closely working with GoP in bringing down the cost of electricity, therefore, there can be a possibility that IFC increases the debt tenor from 12 to 20 years for the Super Six Wind Projects they have just financed.
- NEPRA should compare energy price of thermal power plants with the capacity and energy prices of a hydro power plant. If capacity and energy prices of hydro power plant are less than the energy price of a thermal power plant then government should think not to run thermal power plant and just pay the capacity price to the thermal power plant. Even if hydro capacity and energy prices are 20 percent higher than the energy price of a thermal power plant then just pay the capacity price to thermal power plant. Because it will even save foreign exchange big time.
- We see a lot of references of Mangla and Tarbela hydro projects and their tariff is used as a reference. Which is grossly inappropriate; because one, these two projects were constructed 40 years back, two, at that time there was no concept of NEPRA approved tariff and third they are just getting O&M price these days. In comparison, just look at the tariff and CAPEX of Neelum Jhelum Hydro power project. We need to be realistic in assessing the cost of electricity. I think investment and debt of state owned IPPs should be written off especially Neelum Jhelum Hydro as it will never be privatized so bring down the bucket tariff. Government should conduct cost benefit analysis of writing off CAPEX of big state owned IPPs with the cost of electricity. One time big hit is better than suffering every month.
- Has anyone ever thought why most of the IPPs on imported fuel (oil, RLG, coal) are in Punjab province, be it under 1994 or 2002 or 2015 power policies? There was a time when load shedding of electricity and gas was used to fail the political opponents. Political forces should sit and find a solution for this. 3600MW RLNG projects were only constructed around a city mainly to supply electricity to the central Punjab area. Due to politics, we have big thermal power plants on imported fuel. How much electricity is required in a city is often guided by the principles of politics. Protections should be provided under the Constitution of Pakistan for fair supply and distribution of electricity.
- When we last time developed a new city? Entire concentration is on big cities, entire population of Pakistan is concentrated on two third of the area. Town planning and relocation of industry will help reducing the cost of electricity. For example, we hear that transmitting wind energy from Jhimpir wind corridor to the load center in Punjab will make wind energy financial and technically unviable. Fine, don’t transmit power to Punjab, establish and relocate industry in those areas of Sindh, incentivize business community for this purposes. Build schools, colleges, and hospitals in those areas, people will automatically move to those areas.
- There is a limit to increase the tariff and there are limited ways to reduce the existing IPP tariff. Policy makers should spend more time on the revival of industry by other measures than spending more time on finding ways to reduce the returns of investors. There is a segment in Pakistan’s economy which always want concessions; be it the interest rates or export rebate or any plus minus status, the exports and profits of that sector never increases significantly therefore, putting all the blame to higher cost of electricity is not entirely fair.
In short, NEPRA Energy Week 2020 was very effective and informative. It is expected that NEPRA will make most out of this event in coming weeks and months. It was a right step in the right direction; good work NEPRA.
[box type=”note” align=”” class=”” width=””]Writer manages infrastructure investments; Country Manager of a multinational; Director at Markhor Hydro Holdings Pte Ltd; and Director at Prism Energy (Solar).[/box]