By Adnan Aamir
The word Balochistan has become synonymous with crises and problems in present day Pakistan. There are a lot of problems faced by Balochistan ranging from insurgency, deprivation, kidnappings for ransom, corruption and complete collapse of government machinery amongst other problems. However, one problem in Balochistan often overshadowed by security related problems is the electricity crisis of the troubled province. Electricity crisis is a major problem for entire Pakistan but in Balochistan its much bigger crisis and beyond control to say the least.
To sum up the problem in one phrase, the load shedding in Balochistan will not end even if the country has surplus electricity. The reason is hidden in the obsolete and weak transmission network of electricity in Balochistan. The total electricity demand of Balochistan in peak season is around 1620 MW, equal to total demand of Multan region alone. The demand falls to 1200 MW in winter season. The primary problem is that electricity transmission network has the capacity of 700 MW and to be on safe side 650 MW is transmitted. These statistics were provided by Federal Minister for Water and Power, Khawja Asif in National Assembly. This means that when there is no load shedding in rest of the country in winter season, people in Balochistan continue to suffer the worst load shedding or load management as Wapda calls it. This is a serious problem and should not be overlooked in context of wider electricity crisis in entire country.
The effects of prolonged load shedding have been devastating for the people of Balochistan. Most of people in rural areas are farmers and since there is no canal irrigation system in most of Balochistan, electricity-powered tube wells are the only source of water for irrigation. Using other fuels such as diesel to run the tube wells increases the costs multifold and makes it unaffordable for the farmers. This means that livelihood of most of people has been taken away from them because of load shedding of electricity. Quetta has minimal load shedding because QESCO, the electricity distribution company in Balochistan, can’t supply uninterrupted electricity to all cities so it does to the biggest one. In other districts, people get electricity for only 2 to 4 hours in Summer and maximum 8 to 12 hours in winter when there is no load shedding in cities like Lahore. Considering the population of Balochistan, which is less than city of Lahore; this is a travesty of justice.
Apart from that most of the Balochistan suffers from low voltage problem. It’s because only one transmission line provides electricity to the province through Guddu in Sindh. Few years back, work on two new transmission lines began to solve the electricity crisis in Balochistan. One transmission line connects Dadu to Khuzadr and the other one connects Dera Ghazi Khan to Loralai. The estimated cost of these two transmission lines is 10 billion rupees. These were scheduled to complete in 2011 but even now there is no sign of a definite completion date of these transmission lines. Even after their completion these will add 730 MW in system. The new capacity of electricity distribution infrastructure in Balochistan will be 1430 MW and still there will be a shortfall of 200 MW in peak season. So, if government has started a project to solve electricity crisis, it should, at least, solve the problem completely when and if the project is ever completed.
To rub salt to wounds, State minister for Water and Power, Abid Sher Ali, declares people of Balochistan electricity thieves. Balochistan is not the sole target of bad mouthing by him and one day he lets loose his tirade against KESC and another day people of Khyber Pakhtunkhaw are electricity thieves according to the person who got his ministry due to his relations with the ruling Sharif family. People like Abid Sher Ali are fanning the Anti-Punjab sentiments in smaller provinces. When people get only two hours electricity daily then how much electricity they can steal or use unmetered. There are some people who are involved in electricity theft but it’s only possible due to corrupt staff of QESCO, who takes bribe to allow such theft.
In Balochistan 1700 MW of electricity is produced but most of that is transmitted to Sindh. Entire electricity production of 1000 MW plant of HUBCO and 520 MW UCH Power Plant is transferred outside Balochistan. According to a study conducted by Alternative Energy Development Board’s Rural Electrification Project for Southern Balochistan, 5000 MW of electricity can be produced in southern Balochistan only though wind Turbines. No one is interested in funding the project of wind turbines not even the Balochistan government which gets almost 200 Billion rupees annually from divisible pool of Federal government.
The electricity crisis in Balochistan is smaller in magnitude and can be easily resolved. Government of Balochistan and specially the Federal Ministry of Water and Power needs to show commitment and sincerity towards solving this problem. The two aforementioned transmission lines should be completed on war footings. If the Babus in Islamabad are not releasing funds for these projects based on concocted excuses then Government of Balochistan should finance them. Electricity should also be imported from Iran in higher quantities. Given the sense of deprivation in the province and its small population, it should be declared a load shedding free province. This can be made possible in short span of time and without using too much resource. Solving this problem, to some extent, can reduce the sense of deprivation in Balochistan.
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The Solution to the Pakistani Power Imbroglio - Part 1
Doom No.1
IPP/RPP Power APM, is at 12-16% in USD - which,in effect,affixes the power tarriff in USD,for sale by the IPP/RPP,to the TransCo,at a certain PLF,with passthrough of fuel,taxes and capacities,in a tolerance band,with bonus/incentives and penalties.
Solution No.1 to Doom No.1
The rationale for the USD - APM , is that the investors could have invested,in thermal loads - base and peak,in the USA and EU,and would have earned a return in USD .That is bull,as power plants based on coal,are banned in the EU, and even for liquid fuel,and gas plants - the "effective" return,is subject to market risk - and the minimum return, is way below,what Pakistan offers.dindooohindoo
It is assumed that the APM,is subject to tax/WHT etc.,subject to sectoral holidays.In other words,over the life of the project - it should not be that the APM in USD,is tax free,at point of profit,or at the point of repatriation.That would be a disaster,as the US/EU conventional power sectors,have no absolute tax waiver.
So the Dollar peg,has to reduce.In addition,the RPP and IPP cannot have the same APM rates ,in USD,for the same or different fuel,at the same or co-terminus times - as the RPP has a practical and technical exit option,from the PPA and the Pakistani nation.
Solution No.2 to Doom No.1
However,the IPP/RPP will state that they have factored Country and Grid Risk,in the APM. The Risk premiums on soverign paper,and semi-soverign paper of Pakistan,is known,and the co-terminus, risk premium is traded and known,on several Risk Exchanges all over the world.
So the APM has to be the minimum assured yield,on thermal power plants,for base load and peak load,in USD,in the USA/EU, PLUS,the risk premium for Pakistan
The soverign debt of SBP,in USD,net of US G-sec yields,for co-terminus tenor,is the country risk for Pakistan,in BPs.The Risk Premium loaded by the IPP/RPP,cannot exceed this BP spread.
Solution No.3 to Doom No.1
Unilever has invested in Pakistan - w/o an APM in PKR or USD.People can live w/o food for 3-5 days,but not w/o power.However, Unilever has an effective ROE of 30-50%,which cannot be given to a power plant.Also,Unilever has no soverign exposure, or guarantee,from the Pakistani Government.
Therefore,at a USD-APM,of 12-16%,after,say 6 years,when the entire equity is recovered,then either the APM is to be in PKR,or the USD-APM in USD has to be halved - as there is no empirical credit default,and the USD equity is recovered from the project.
Solution No.4 to Doom No.1
Even assuming an APM at 12-16%,in USD,the Risk premium,has to be on a floater mode,and cannot be fixed throughout the PPA tenor.The difference can be adjusted,in the 1st quarter, of a FY,for the previous FY,based on monthly or weekly averages,of the risk spreads , converted into Basis Points.Risk premiums,per se, and Country Risk premiums change over time - and an IPP,cannot claim a valid bet,on implicit soverign risk.
The Solution to the Pakistani Power Imbroglio - Part 2
Solution No.5 to Doom No.1
If all the above solutions,were not thought of,at the stage of the MOU/PPA, AND it was on account of coercion,corruption and /or fraud - then the PPA and MOU,is void ab initio.
Basically,the minutes of meetings by bureaucrats,will prove the fraud.In any case,any fundamental vulnerability or inequality or inequity or foolishness, in any contract,is a sign of fraud and coercion.
Power Demand will crash, during and post COVID.
CPEC will have its own Gwadar based CPP.A SEZ needs CPP, as a pre-requisite - and the PRC,will not buy power from the IPP/RPP - but they may buy,from the state grid - but only,at levelised rates.
IN ANY CASE,COVID is MORE THAN a Force Majeure event,as a Force Majeure event - after it occurs - has an ending and a quantification.For COVID,there will be NO CURE,and there MAY BE a vaccine - but only,after a long time.Hence,power demand,will disappear - and that is the basic premise,of a power project.Hence the IPP/RPP,have to re-negotiate,or exit and go,to the Hague.
Several nations will terminate PPAs and Fertiliser plants, on APM and Capacity charges - as even if a vaccine comes,BILLIONS will NOT Take the shot.
Doom No.2
In nations like Pakistan - IPPs use multi-fuel power plants,and bill the grid, for fuels which they do not have,or which do not exist,in that specification.So a liquid fuel RPP,on a ship,or an IPP on land - can use several types of liquid fuel.So they have paper and tank stocks of various fuels - whose ACTUAL stocks,are NEVER checked by the state - and the clown auditors,do not have the technical skill,to check the stocks,from several angles.In addition,the shipping documents,and the ship draft and tank meters,and dips etc.,are all fudged,within a tolerance limit.
So,in a compromised or inept systen,WITHIN A CERTAIN LIMIT, the IPP can bill for expensive fuel,which it did not have,or claim that the demurrages were paid,as the tanks were full,as the state did not have facilities,for power evacuation etc.Even a coal based Power plant,at a point in time,will have several grades of coal,in different storage conditions,and of different specifications.
Solution to Doom No.2
INTENSIVE,SYSTEMIC,ONLINE,TECHNICAL - BUT NON INTRUSIVE PHYSICAL VERIFICATION OF STOCKS,and the entire supply chain,from load port of fuel port to discharge port,evacuation to port tanks,port tanks to IPP/RPP tanks,meters,pressure and temperature gauges,sludge tanks etc.
Doom No.3
The FX loss on IPP/RPP PPA.The concept of keeping the FX position,on the IPP/RPP unhedged,especially since the SBP,in effect,affixes the PKR float - with no NDF trades - makes no sense at all.It is assumed that the IPP/RPP.,do not get the USD index gains on the retained earnings,at all - as the IPP/RPP,should have the dollar index frozen,on the date of the retained earning (which would be,the end of the FY)
If the PKR declined by 100%,in say 4 years,then the USD-APM of 16% or 12%,is 32& or 24%,in PKR
If the world economy is doomed,PKR exports will fall,manufacturing and power demand will crash,PKR will crash and THE CAPACITY CHARGE IN USD will be paid to IPP/RPP - which is a dead loss to the state.At the minimum,the state can hedge the USD Risk - as Imran Khan cannot revive the world economy.
Solution to Doom No.3
The Pakistan state has to HEDGE THE ROE-APM in USD,as the SBP knows the daily IBR,in the morning and the evening - before the sun rises,and before the sun sets.Irrespective of the nature of the project (BOO/BOOT etc.),the IPP has to forfeit the power plant salvage and sale value,at any stage of the project,except when the state is in default.dindooohindoo
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