Electricity Reforms: Going Beyond Pricing – BR Research

Pakistan has received nearly $1 billion in loans from the Asian Development Bank and other donors over the past three years – for energy reform projects alone. The most important program was the AfDB’s Energy Sector Reforms and Financial Sustainability Program – in two parts. The much-talked-about Circular Debt Management Plan has also been at the heart of all energy-related “reforms” in the recent past.

I don’t know if much has changed in the industry, in fact things have gotten worse. Apart from the usual revenue-driven measures to rationalize energy tariffs, everything else fell flat. The regulator’s latest report on the state of the industry once again provides the annual reminder of the health of the sector. Among many shortcomings, let’s just talk about fuel supply management and the ill-conceived load management plan, which haunts the industry like no other.

While T&D losses and poor collection monopolize most of the highlights, and rightly so, these aren’t the only inefficiencies plaguing the system. FY22 saw the highest Partial Load Adjustment Charge (PLAC) at Rs 42 billion. Recall that most power purchase agreements authorize claims in lieu of the PLAC when the system operator operates thermal power plants at partial load.

Pakistan has some of the most efficient electric motors on RLNG, but they almost never achieve this. Operating plants at part load, mainly due to distribution losses and collection-based load shedding, means that part load demands increase, despite sufficient power demand in the system and loss of efficiency for the plants electrical. All of this ends up feeding into the final fuel price component.

The utilization factor of some of the large thermal power plants has remained close to 40%, while the availability factor of gas-fired power plants worldwide is above 92%. In addition, the continuous operation of Combined Cycle Power Plants (CCPP) in open cycle keeps the final consumer tariff higher. Under usual circumstances, open cycle production is 50% more expensive. The Guddu Power Plant problem alone, despite a dedicated allocation of cheap gas, resulted in a marginal cost of no less than Rs 55 billion.

The Take or Pay thermal plant utilization factor in FY22 remained at a very low level of 46%. This essentially means that the capacity charges for the remaining half must be paid by consumers. The need is to have an optimal combination of Take or Pay and Take and Pay to mitigate uncontrollable factors, which often lead to lower than desired utilization of factories, most of which have Take or Pay clauses.

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