How to deal with surplus power generation through CPEC projects?

Currently, it means consumers are pay hefty capacity charges

ISLAMABAD (Web Desk) – Pakistan has surplus power generation capacity but the tariffs are skyrocketing in the country, reaching an unbearable level with all consumers – domestic, commercial, agri and industrial – registering their protest over inflated bills.

The rising tariffs have resulted in reduced demand as many industrial units closed or suspending their operations thanks to the high cost of doing business while domestic consumers too are now forced to consume less electricity – an obvious consequence of shrinking purchasing power amid record-high inflation.

Meanwhile, the government has failed to deliver on its promise to provide some relief as the International Monetary Fund (IMF) rejected the proposal for any tariff adjustment or provision of additional subsidy, citing fiscal deficit.

The IMF has been stressing reforms in energy sector and increase in power tariff to deal with circular debt through slashing subsidies.

Whatever the reasons or justifications are, the crust of the matter is that the electricity tariffs have reached unsustainable levels both for domestic users and businesses. There can’t be any economic activity in this scenario as the interest rate hikes and rupee depreciation have already crippled the economy.

CAPACITY CHARGES AND SURPLUS POWER

The government wants to recover Rs146 billion from consumers in terms of quarterly tariff adjustment (QTA) for the April-June 2023 period through the bills payable in October, November and December, as they are already paying the amount under the same head for previous quarter [January-March]. And a huge chunk of Rs146bn comes from capacity charges – Rs124bn.

Read more: Negative impacts of IMF conditions force govt for smaller power tariff hike

So no matter what the demand and consumption is, the independent power producers (IPPs) are supposed to get a certain amount for the electricity they generate or can generate. That’s why power generation became a lucrative business thanks to the conditions listed in the agreement signed with the government.

CPEC POWER PLANTS

These units certainly helped Pakistan getting rid of power outages but sustainability remains the issue thanks to the capacity charges.

Reports suggest that the financial crunch has forced Islamabad to think about asking Beijing to either renegotiate the agreements in a fashion similar to what has been achieved with other IPPs (Independent Power Producers) or purchase 1200 MW of electricity for supplying the same to Afghanistan – an energy deficient country.

In 2020, the government and over 30 IPPs had inked revised agreements which paved the way for discounted tariff for the projects of 20 to 30 years of life.

According to reports, similar deals with the Chinese IPPs will enable Pakistan save $14.29bn over the life of these projects. It translates into an average of $0.48bn per year for an average project life of 30 years.

However, China isn’t likely to accept the solution for the reason that it is being floated by the IMF, World Bank and the United States of America and western countries have time and again urged Islamabad to give similar treatment to Chinese IPPs on the pattern of other IPPs.

But the option of selling electricity to China for supplying the same to Afghanistan may work out, resulting in an earning of Rs100b ($0.57bn) per year for Pakistan.

WE DON’T KNOW HOW TO DEAL WITH ANYTHING SURPLUS

This surplus power and the related capacity charges resulting in circular debt and rising tariffs is reminder that we are not good at planning.

In 1980s, we were told that establishment of sugar mills in Pakistan would lower the commodity prices – a promise that never materialise.

Later, the same thing was heard with the focus shifted to the cement industry as new plants mushroomed around the country. However, cheaper cement remained elusive.

Read more: ECC bans sugar export as 94pc spike in cost makes masses bitter

Meanwhile, first exporting wheat and sugar while later importing the two commodities during the same year at higher rates are also among our annual rituals – a practice which makes one wonder Pakistan should never have any surplus.