Center for Reserach and Security Studies has recently published a weekly pager last week on the precarious power politics in Pakistan the write up can be downloaded from CRSS as well
In 1985, Xenel Corporation of Saudi Arabia conceived the setting up of a mega-power plant in Pakistan’s private sector. The sponsors of Hub Power Company had to negotiate for nine long years with 11 successive Pakistani governments and at least 40 different bank-lenders before they could sit and sign an Implementation Agreement (IA) with the government of Pakistan then led by Prime Minister Nawaz Sharif (the IA was signed on August 3, 1992). Hub Power’s four steam turbines of 323 MW each, for a total of 1,292 MW, were commissioned on March 31, 1997.
In 1993, the Pakistan Peoples Party won elections. In 1994, Prime Minister Benazir Bhutto unveiled Power Policy 1994. The Private Power and Infrastructure Board (PPIB) was inundated with 116 applications amounting to an accumulated generation capacity of 26,000 MW. The PPIB selected 75 applications — amounting to an investment of some $20 billion — to whom it issued its Letter of Intention (LoI). After further scrutiny and a deposit requirement of Rs100,000 per MW, a total of 33 applicants were issued Letters of Support (LoS). Eventually, 14 of the 33 applicants were able to reach financial close.
In 1997, Mian Nawaz Sharif was elected prime minister once again and he unveiled Power Policy 1998. Power Policy 1998 was a complete failure. In 2002, General Musharraf unveiled his Policy for Power Generation Projects 2002. The Policy for Power Generation Projects 2002 over its seven-year life span has so far added a paltry 165 MW. According to the PPIB, we now have 17 private power producers with a capacity of around 4,500 MW. Of the 4,500 MW, private power producers with a capacity of some 800 MW have been shut down. All other private power producers are operating way below their full generating potential.
Two questions: why have some private power producers completely shut down? Why are private power producers operating way below their full generating potential? Two answers: political score-settling plus the circular debt.
We at the Centre for Research and Security Studies (CRSS) have been trying for months to ascertain the crux of our power politics. Almost all roads lead back to the government. The federal government is the largest power defaulter, then come the four provincial governments, FATA, the KESC and the KW&SB. This is how the circular debt explodes into even bigger circles: the federal government does not pay its electricity bills to Water and Power Development Authority (WAPDA).
WAPDA is then unable to pay for electricity it buys from IPPs. IPPs are then unable to pay for their oil supplies. Refineries, short on cash, are unable to pay their foreign suppliers. Grow, grow, grow and we have a Rs200 billion time bomb.
Welcome to the rental power bonanza; the government’s ingenious – canny, crafty and cunning – all-in-one solution for the crux of our power politics. What we need to do is to re-start the power producers that are shut down. That’s 800 MW at US 11 cents per MW. What we need to do is to resolve our circular debt puzzle. What we need to do is to get our sugar mills connected to the national grid which could generate an additional 2,200 MW at less than US 11 cents per MW.