Power Policy 2015

The power policy 2015, a Business Recorder exclusive, focuses on bridging the electricity demand-supply gap hovering at around 6000MW today. What is unfortunate about this policy is that it focuses only on electricity which is the domain of the Water and Power Ministry; fails to take a holistic view of the entire energy sector and which is not only the logical approach to take but was also a commitment made by the ruling PML-N in its election manifesto. The manifesto correctly argues that ‘the multidimensional energy crisis’ requires ‘decisive steps’ including “creation of a Ministry of Energy and Natural Resources through the merger of ministries of Water and Power and Petroleum and Natural Resources.”

Business Recorder fully supported the PML-N in this specific manifesto promise, a suggestion that is also endorsed by foreign donors – multilateral as well as bilateral – and further urges the party to ensure one regulator for the entire sector. Ideally at this stage the government should consider setting up of an energy board where there is representation of all the energy sub-sectors as well as the Ministry of Finance that has to implement the fiscal incentives as well as release subsidies and periodic unbudgeted bailout packages to enable a liquidity-strapped Pakistan State Oil to open letters of credit due to the inter-circular debt.

The policy’s focus is on facilitating setting up of new plants as well as extending incentives – including fiscal, accepting a bank guarantee, and issuance of corporate registered bonds – for generation from hydel, thermal as well as gas-based projects. The policy would apply to ownership of a proposed project by the federal government, a public-private partnership, a project established through tied financing in terms of use of an indigenous fuel resource or approved/recommended to Private Power and Infrastructure Board (PPIB) by concerned provincial governments as well as Azad Jammu and Kashmir/Gilgit-Baltistan governments. In this context, it is relevant to highlight the fact that individuals in PPIB have been implicated in corruption scandals – the most recent being the grant of bail by the divisional bench of Islamabad High Court to former managing director of PPIB who had been arrested by National Accountability Bureau for his alleged role in rental power plants corruption references.

In line with the PML-N government’s attempts to attract foreign investment in the deficient electricity sector, with the Chinese companies showing an interest on conditions, which may violate the Public Procurement Regulatory Authority rules the policy allows projects to be processed “and awarded where GoP’s international commitments of fast track implementation of projects or nature of the projects requiring specific fuel site or financing is involved.” Critics maintain that this particular clause is to allow the Punjab government to set up coal-fired plants that are not located near the source of coal, a major consideration in location of coal-fired plants throughout the world. In addition, the policy also accords approval to “mega power parks under the specific schemes sanctioned by the federal government” – a policy thrust of the PML-N government, though, if reports are any indicator, foreign investment in Gaddani Park remains a challenge.

Tariff is proposed to be determined by Nepra in rupees with adjustments for exchange rate fluctuations allowed according to (i) the energy purchase price (inclusive of the cost of fuel) aid on the rupee/kilowatt-hour at the point of delivery; and (ii) the capacity purchase price to comprise of O&M, return on equity, debt servicing, insurance, cost of working capital and or any other fixed component. The policy also notes that “in order to ensure the sustained interest of the sponsor during the entire life of the project the sum of EPP and non-debt related CPP will remain constant or increase over time”. The assumption here is obviously that the fuel cost would not decline though the recent massive decline in the international price of oil (including furnace oil) defies such an assumption. To conclude while one can support some clauses of the policy yet there is an urgent need to take a holistic approach to the poorly performing sectors, which is lacking in the policy.