The recently released report on IPPs by a government sanctioned commission brought not only the power producers into the limelight, but also the design of the previous power policies. While the final verdict on the report is still awaited, especially given the riposte by the private power producers, it is imperative that one identifies the short comings of the previous policies that later lead to controversies. This should prove to be a useful exercise in the context of fact that we’ve embarked on yet another plan to substantially increase power production by 2040 (‘Indicative generative capacity expansion plan 2018-40’, NTDC).
These policies are all about supply. But the all-important demand side is completely ignored. Why is this aspect important? On the demand side, there is the important consideration regarding the efficiency of the electrical appliances. The California ‘energy miracle’ is a much talked about topic. The main component underlying California’s achievement was the strict efficiency standards applied to electrical appliances. No such standards exist in Pakistan. In fact, whatever little research exists in Pakistan regarding efficiency of electrical appliances (like that of Engineer Zafar Bhutta) points to some of the lowest efficiency standards of appliances being used in Pakistan. Considerable improvement in efficiency standards is one way of ensuring that there is little need for going after exceptionally expensive mega projects.
The end result of most of these plans is an expansion of the power related infrastructure, with the additional created space ending up being captured by political appointees and retired civil servants (bureaucrats and retired forces personnel). This occurs either in the form of creating a new institution/company (like PHL), or forcing appointees upon institutions given that large portion of investments is public rather than private. The new generation plan is likely to meet the same fate, especially given that the private sector would be suspect than ever to invest given the pandemonium created by IPP report.
Most of the projects seem like wishful thinking because important aspects, like their financing, remain unclear or lesser discussed. Where will the finances come from? Offering high guaranteed returns to the investor has only proven to be a disaster. Why does the government have to take up all the risk upon itself in the form of guaranteed returns, and why should the private sector take the lesser portion of the risk? But to change this equation and to incentivize private sector to take more risk would require the lessening of trust deficit, a burden that lies squarely on the shoulders of the government. It seems highly improbable that something akin to that will happen in near future.
Two important aspects missing from this whole discussion are the decentralization of power and innovative solutions to replace the trite old remedies. Why not decentralize the power system, so that localities themselves handle issues related to power distribution and pricing? Similarly, out-of-the-box solutions are nowhere to be seen. One can, for example, look at how TESLA and its batteries solved the crippling power shortages in South Australia, and at less than half the price of what the consumers were getting before. One has yet to come across any such solution in all the ‘plans’.
There seems to be little or no thought going into dealing the structural and governance deficiencies of the power sector, which has resulted in a massive circular debt. Installing even more capacity without resolving the issues plaguing the power sector would mean an even bigger stock of circular debt that would burden the already squeezed fiscal space.
Any report has to build upon the failures/shortcomings of the previous policies and lessons learned from those. For example, the thermal power generation of the 1990s was the outcome of recommendations of the mid 1980s, whereby the introduction of thermal based power plants was seen as a panacea to the shortages as a result of lower hydro power generation, especially in winters. But there seems to be little being done in this regard. The present NTDC-led report has little to offer in terms of why the former policies came up short, or their evolution, in order to learn lessons for the present.
This writer would also like to point out a recent paper in the Journal of Economic Perspectives (JEP), titled ‘The consequences of treating electricity as a right’ by Burgess, Ryan, Green and Sudarshan (Vol. 34, Winter 2020). They looked at the issue of billions of people in developing nations lacking supply of electricity, arguing that a major factor for this state of affairs is treating electricity as a right, and trace complementary issues like theft, inefficiencies and pricing to this stance. We see something similar in Pakistan, where both the government and the courts have treated electricity and access to it as a right, rather than a utility for which people have to pay. Majority of the inefficient government programs, like ‘rural electrification’ under PSDP, are instituted under this ‘right’ psyche. This has to go away, and people/communities be made aware that it’s something that they’ll have to pay for.
Quite interestingly, in the ‘Assumptions’ set on which calculations are based in the NTDC report (p.32), there is no assumption about the average growth rate of GDP. This is despite the fact that, as the report itself mentions, electricity and GDP growth have a strong correlation. GDP growth that results in overall income growth, especially of the lower strata, begets the highest demand increase in electricity since it allows for buying appliances like air conditioners for use. However, there is no mention of any such calculation of GDP growth, or income growth by strata. This could have been done easily, for example, by comparing the average incomes reported across various quintiles in PSLM or HIES surveys conducted by PBS. Also worthwhile to notice is that there is no accounting of a shock (like coronavirus) and what it could do to demand for electricity? This makes the assumptions completely supply-sided, incomplete.
In conclusion, we need to change the way our power policies are designed and the manner in which we treat this issue, especially our infatuation with supply-side policies only.
