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HOW FAR DID THE LIBERALIZATION OF THE ELECTRICITY INDUSTRY IN PAKISTAN ACHIEVE ITS OBJECTIVES: CASE STUDY OF A CAPACITY

SHORT COUNTRY?

Asghar Khan

ABSTRACT: Pakistan is a typical case of a capacity short country with widespread blackouts
prevalent since 1980s. The Government of Pakistan embarked on a limited scope liberalization program by introducing a Power Policy in 1994, creation of regulator (NEPRA) in 1997 and unbundling of the vertically integrated state utility. The liberalization program of the mid 1990s resulted in substantial private investment coming into Pakistan and the country became self sufficient in generation capacity for a short period. The paper will discuss how liberalization was introduced in Pakistan and how the initial gains of liberalization were not consolidated and Pakistan is again facing the scourge of blackouts and load shedding since 2007. The paper will also give some recommendations for coming out of the present situation.

The author holds a Bachelors Degree in Chemical Engineering and an MBA (Finance) Degree complemented by 12 years of work experience in Power, Oil & Gas and Fertilizer Sectors. Currently he is working as a Marketing Manager in BHP Petroleum (Pakistan) Pty Ltd a subsidiary company of BHP Billiton. He has practical experience in project analysis, contracts and commercial negotiations in the Energy sector of Pakistan. He is enrolled on the LLM Petroleum Law & Policy distance learning program at CEPMLP - University of Dundee. Email: aha_khan@hotmail.com

TABLE OF CONTENTS

LIST OF ABBREVIATIONS....................................................................................iii 1 INTRODUCTION.....1

2 ELECTRICITY INDUSTRY STRUCTURE IN PAKISTAN: PRELIBERALISATION.....3 3 LIBERALISATION OF ELECTRICITY INDUSTRY IN PAKISTAN: CASE STUDY OF A CAPACITY SHORT COUNTRY..........................................5 3.1 Power Policies of Pakistan6 3.1.1 Power Policy 1994....................................................................................6 3.1.2 Policy for New Private Independent Power Projects 1998......................7 3.1.3 Policy for Power Generation Projects 2002.............................................8 3.2 Regulatory Structures Introduced for Liberalisation.9 3.3 Structural Problems in Liberalisation..11 3.4 Liberalization Outcomes.13 4 PRIVATIZATION OF ELECTRICITY SECTOR IN PAKISTAN: LINKAGES WITH LIBERALISATION.................................................................14 5 BACK TO BLACKOUTS: LIBERALISATION FAILURE OR GOVERNMENT INACTION?.................................................................................16 6 CONCLUSIONS AND RECOMMENDATIONS18

BIBLIOGRAPHY

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ABBREVIATIONS AEB BOO DISCO FESCO FSA GENCO GoP IA IPP JPC KANUPP KAPCO KESC LOS MYT NEPRA NTDC OGDCL PAEC PC PEPCO PPA PPIB PPP PPS PSO SBP T&D WAPDA Area Electricity Board Build Own Operate Distribution Company Faisalabad Electricity Supply Company Fuel Supply Agreement Generation Company Government of Pakistan Implementation Agreement Independent Power Producers Jamshoro Power Company Karachi Nuclear Power Plant Kot Addu Power Company Limited Karachi Electric Supply Company Letter of Support Multi Year Tariff National Electric Power Regulatory Authority National Transmission and Distribution Company Oil and Gas Development Company Limited Pakistan Atomic Energy Commission Privatisation Commission Pakistan Electric Power Company Power Purchase Agreement Private Power Infrastructure Board Public Private Partnership Pakistan Power Sector Pakistan State Oil State Bank of Pakistan Transmission and Distribution Water and Power Development Authority

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INTRODUCTION

Pakistan is a country of 162 Million people with only 55% of population having access to electricity. Since independence in 1947 the entire electricity sector including generation was state owned. Pakistan is a typical case of a capacity short country and the nation has been living with blackouts since mid 1980s. This is despite the fact that the country is endowed with enormous potential for Hydro power generation.

In 1992, Government of Pakistan (GoP) decided to liberalize the electricity industry and the first Power Policy was announced in 1994. Some of the reasons for the country embarking on the course of liberalisation were poor reliability of state utility, inadequate expansion of service to broader population, low collection rate, high network losses, reduction of subsidies etc1. Liberalization of power industry was also advocated by the international funding agencies.

As part of the liberalisation effort National Electric Power Regulatory Authority (NEPRA) was created in 1997 to regulate the Pakistans Electricity sector. Unbundling of state utility into Generation, Transmission and Distribution segments was also started as part of this process.

Liberalization resulted in substantial foreign investment coming into Pakistan in the decade of 1990s and 14 Independent Power Producers (IPPs) were established under the Power Policy 1994. Private Power & Infrastructure Board (PPIB) was established in 1994 to act as one window facility for investment in the power sector. Power
1 Saleem Muhammad, Technical Efficiency in Electricity Generation Sector of Pakistan The Impact of Private and Public Ownership. 1

Purchase Agreements (PPAs) were signed with the IPPs whereby the power purchaser took the off take risk.

Critics of the liberalisation process argued that PPAs were signed at exorbitant tariffs and were a burden on the national economy. Subsequently, due to problems faced by the IPPs regarding payments from the power purchaser, inaction of Government to sustain the liberalisation gains and failure of the subsequent power policy in 1998 to attract foreign investment the country is back to the days of blackouts and load shedding since 2007. Privatization of the newly created entities carved out of the state monopoly has also seen negligible progress.

This research paper will analyze the liberalisation process in Pakistan and try to evaluate its results. It will also try to analyze the subsequent situation that has emerged and the causes leading Pakistan back to the days of blackouts. The paper will also give some conclusions and recommendations on how the liberalisation process can be carried forward to realize its original aims and objectives.

ELECTRICITY INDUSTRY STRUCTURE IN PAKISTAN: PRELIBERALISATION Electricity industry in Pakistan comprised of two vertically integrated public utility companies i.e. Karachi Electric Supply Company (KESC) supplying electricity to the city of Karachi and some parts of Balouchistan province and Water and Power Development Authority (WAPDA) to all Pakistan excluding KESC supplied area 2. Besides WAPDA and KESC, electricity was also generated through Karachi Nuclear Power Plant (KANUPP) owned by Pakistan Atomic Energy Commission (PAEC)3 and Transmitted and Distributed (T&D) by KESC. Figure 1: Vertically Integrated Industry Structure -Pre-liberalisation
Generation (WAPDA) Generation (KESC, PAEC)

Transmission (WAPDA)

Transmission (KESC)

Distribution (WAPDA)

Distribution (KESC)

Customers

Customers

KESC was established in 1913 and nationalised in 19524. It was re-privatized as a vertically integrated utility in November 2005. WAPDA was created in 1958 for unified development of water and power sectors. Both the transmission systems are connected by a 220 KV transmission line through which WAPDA exported power to KESC. Being public sector entities both WAPDA and KESC were regarded as highly bureaucratic, overstaffed and lacking professional management.

Hamid Tariq, Role and Vision of WAPDA in Restructuring Electric Power Industry in Pakistan, June 2005. 3 http://www.paec.gov.pk/kanupp/kanupp-index.htm (last visited 17th Mar 2010). 4 http://www.kesc.com.pk/en/article/ourcompany/whoweare-1.html (last visited 9th Mar 2010). 3

By mid 1980s there was an increasing supply demand gap due to lack of funds for installing additional generation capacity and investing in the transmission system 5. In 1992 i.e. the year GoP decided to restructure the electricity industry in Pakistan the demand gap has increased to approx. 2,000 MW at peak load levels and the total generation capacity in Pakistan at the time is summarized as follows6: Year 1992 WAPDA 7,463 MW (79.9%) KESC 1,738 MW (18.6%) PAEC 137 MW (1.5%) Total 9,338 MW (100%)

Malik Afia, Effectiveness of the Regulatory Structure in the Power Sector of Pakistan, Pakistan Institute of Development Economics, 2007 at page 1. 6 WAPDA-Power System Statistics Twenty Ninth Issue 4

LIBERALISATION OF ELECTRICITY INDUSTRY IN PAKISTAN: CASE STUDY OF A CAPACITY SHORT COUNTRY Liberalization is introduction of competition in any sector of an industry. In electricity industry Transmission and Distribution segments are natural monopolies while Generation, Supply and Metering are considered more suitable for liberalisation7. Privatization, Liberalization and Competition were the objectives for the global energy policies of 1980s and 1990s8. Liberalization schemes are usually country specific but have some common characteristics.

The aims of introducing liberalisation in countries having sufficient capacity and capacity short countries are different. Industrial countries with sufficient capacity have aims to reduce electricity prices and promote economic efficiency. In capacity short developing countries liberalisation is aimed at attracting foreign private investment to provide the needed capacity and thus attain sufficient capacity9. The later is true in the case of Pakistan as GoP was constrained to invest in the power sector due to high levels of national debt and persistent budget deficits10.

Liberalization in Pakistan has been partial in scope aimed at attracting foreign and local private investment in the generation sector and limited to competition for the right to build a power plant. In 1992, GoP approved the strategic plan for restructuring of the Pakistan Power Sector (PPS)11. In 1993, an Energy Task Force was constituted to look at the power sector situation in the country and come out with its recommendations. The Power Policy 1994 was based on its recommendations duly
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Dow Stephen, Downstream Energy Law and Policy Study Guide, Unit 5 Electricity Trading, Privatization, Liberalization and Contracting. 8 Helm Dieter, The New Energy Paradigm, 2007 at 18. 9 Dahl Carol A, International Energy Markets: Understanding Pricing, Policies and Profits 2004 at 131. 10 Power Sector Situation in Pakistan by AEDB and GTZ, Sept 2005. 11 Supra 2. 5

approved by GoP12. Prior to announcement of 1994 policy, Hub Power Company had started construction in 1993 based on a negotiated tariff based on the cost plus approach. 3.1 Power Policies of Pakistan

3.1.1 Power Policy 1994 Power Policy announced in March 1994 was the first comprehensive policy of its kind in Pakistan. There was previously a policy for setting up private sector power plants on Build, Own and Operate (BOO) basis but was unable to achieve any success13. The main aim of this policy was to include the private sector in power generation. The salient features of 1994 power policy are summarized below: Investors were given the choice of site, technology and selection of fuel source for power generation. A bulk power tariff of US cents 6.5/kWh for the first 10 years and a levelized tariff of US cents 5.91/kWh over the project life was offered. The tariff was comprised of two components capacity price and energy price (with fuel cost as a pass through component). Exemption from corporate income tax, customs duty and other import taxes. Free repatriation of equity and dividends. Foreign exchange risk insurance provided by State Bank of Pakistan (SBP). Model agreements and contracts prepared for ease of negotiations. Fuel supply and power off-take performance guarantees provided by GoP.

The 1994 power policy was successful in bringing foreign investment into Pakistan worth US$ 4.0 Billion. It also resulted in 14 Independent Power Projects (IPPs) being
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Policy Framework and Package of Incentives for Private Sector Power Generation Projects in Pakistan, 1994 13 Ibid 12. 6

installed having a combined capacity greater than 4,500 MW14. These projects were applied for in 1994 and commissioned during 1996-2000. This resulted in a brief period of surplus power in Pakistan in the late 1990s.

In 2002 the year 3rd power policy was announced, IPPs commissioned under the 1994 policy were contributing 1/3rd of Pakistans installed capacity base as shown below15: Year 2002 WAPDA 9,749 MW (54.2%) KESC 1,756 MW (9.8%) PAEC 462 MW (2.6%) IPPs 6,007 MW (33.4%) Total 17,974 MW (100%)

3.1.2 Policy for New Private Independent Power Projects 1998 One of the aims of this policy was to create a competitive power market in Pakistan. It talked about restructuring and privatizing the electrical power generation units in the public sector along with the newly yet to be formed distribution companies while the transmission company was to remain in the public sector. It also envisaged the creation of the regulatory body NEPRA16.

The main differences between 1998 policy versus 1994 policy were as follows: Introduction of competitive tariff regime based on lowest tariff offered through international competitive bidding instead of an upfront tariff as in 1994 policy. Focus of GoP shifted to indigenous coal and hydro resources instead of oil/gas. Removal of blanket exemptions from all duties and taxes.

14 15

http://www.ppib.gov.pk/CommissionedIPPs.htm (last visited 9th May 2010) Supra 6 16 Policy for New Private Independent Power Projects, 1998

1998 power policy was a failure as only one of its stated aims (i.e. creation of NEPRA) materialized. The privatization of generation and distribution segment can at best be categorized as stalled which shall be discussed in detail in the next chapter. The creation of a wholesale competitive market is many years away as only a despatch order is currently in vogue which despatches generation plants based on lowest variable cost. 3.1.3 Policy for Power Generation Projects 2002 After the failure of 1998 policy the Power Policy 2002 aimed to provide new incentives for investors and to keep the consumer prices at affordable levels17. Its main objectives are summarized as follows18: To provide sufficient capacity for power generation at least cost through competitive bidding (solicited proposals) and negotiation with NEPRA (raw sites). To ensure maximum utilization of indigenous resources. To look after the interest of all stakeholders To safeguard the environment.

This policy covered both private and public sector projects as well as Public-Private Partnership (PPP) projects. Investors response to the 2002 policy was better than 1998 policy but there were a lot of procedural delays. The policy stipulated a schedule from pre-qualification to issuance of Letter of Support (LOS) of 490 days for solicited proposals (with feasibility studies provided by GoP) and 465 days with additional 1224 months for conducting feasibility study for raw sites.

17 18

Policy for Power Generation Projects 2002 Ibid, at 8 8

Three IPPs have been commissioned till Dec 2009 under this policy with a combined capacity of 611 MW. 13 additional projects have achieved financial close having a combined capacity of 2,660 MW19. By 2009, including KESC ~41% of generation capacity was in the private sector. Year PEPCO ExWAPDA 2009 11,343 MW (56.8%) 1,756 MW (8.8%) 462 MW (2.3%) 6,421 MW (32.1%) 19,982 MW (100%) KESC Privatized PAEC IPPs Total

3.2 Regulatory Structures Introduced for Liberalisation PPIB was established in 1994 to act as a one window facility for private sector investors interested in establishing power projects in Pakistan20. It also facilitated in the negotiations of Implementation Agreement (IA), Fuel Supply Agreement (FSA) and Power Purchase Agreement (PPA). PPIB also provided guarantee for the performance of state owned entities e.g. power purchaser (WAPDA/KESC) and fuel suppliers Pakistan State Oil (PSO) and Oil and Gas Development Company Limited (OGDCL).

The government created NEPRA in 1997 to regulate the electricity sector in Pakistan. NEPRA was authorised to grant licenses and determine tariffs for generation, transmission and distribution, prescribe and enforce performance standards and protect the interests of the consumers and companies providing power services21.

GoP amended the WAPDA Act in December 1998 which established Pakistan Electric Power Company (PEPCO) for unbundling of WAPDAs Power wing into 08
19 20

http://www.ppib.gov.pk/fc_ia_status.htm (last visited 9th May 2010) http://www.ppib.gov.pk/aboutppib.htm (last visited 21st April 2010). 21 Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 9

Distribution Companies (DISCO) successors of former Area Electricity Boards (AEB), 03 Generation Companies (GENCO) and a National Transmission and Distribution Company (NTDC)22. It was planned that these companies except NTDC shall be privatized but all of them are still operating in the public sector. DISCOs are regional monopolies and also perform the supply and metering functions. The Hydro wing of WAPDA has been kept as state owned.

Liberalization of the electricity market was also envisaged in two phases. In phase 1, the system would be a single buyer market (i.e. NTDC) which would buy all the electricity from GENCOs, State owned hydro units and IPPs. In phase 2, the system would transform to a multiple buyer/seller type in which large consumers would have a choice to select the generating company to buy electricity from 23. The progress on this front has been minimal as only a dispatch order based on variable costs has been implemented with the creation of wholesale market still many years away. Figure 2: Current Electricity Market Structure in Pakistan

WAPDA / PEPCO

IPPs + KESC

22

Violeta P. Corral, ADB & Pakistan Power, Public Services International Research Unit (PSIRUAsia) June 2005. 23 Ibid at 2 10

Source: Technical Efficiency in Electricity Generation Sector of Pakistan (Modified) 3.3 Structural Problems in Liberalisation Historically, the power sector in Pakistan was both centrally planned and vertically integrated, characteristics which are considered as barriers to liberalisation. Even after unbundling of WAPDA and creation of 12 new corporate entities some vital functions e.g. Power System Planning and Backbone Transmission Systems were retained within WAPDA and not transferred to the new entities24. This provided WAPDA with an opportunity to exercise control over these newly created entities.

Traditionally the liberalisation of the electricity sector in any country is usually a long drawn process one which has not been fully completed anywhere in the world25. Even by these standards the power sector reforms have been slow in Pakistan and are far from taking root despite the passage of 17 years since their introduction. None of the WAPDA unbundled entities have been privatized so far.

The tariff paid to IPPs under the 1994 policy was higher than that received from electricity sold to the end-users. This created substantial financial burden for the public sector off-taker. In 1997, GoP started proceedings for alleged corruption against some IPPs e.g. Hubco was especially targeted. International Power of UK was its main project sponsor. At the intervention of donor agencies and UK government, GoP dropped its case and a revised price was agreed between the parties in 2000. The revised price was lower than the tariff agreed under the PPA26. This however, gave a negative signal to the international investors about the sanctity of contracts.
24 25

http://www.pepco.gov.pk/index_2.php (last visited 27th April, 2010). International Energy Agency, Lessons from Liberalised Electricity Markets, 2005 26 Supra 22. 11

Both PEPCO and the privatised KESC are making financial losses and lack funds for investment in the T&D sector of Pakistan. One reason for this is the circular debt (cross receivables between various government entities) prevalent in the industry. PEPCO is also dependent on yearly budgetary allocation from GoP.

The independence of the regulator NEPRA is debatable as it directly attached to the Cabinet Division and all its decisions e.g. tariff determination and performance standards needs government approval. NEPRA Chairman and its four members are also appointed by the government which hinders the image of its independence27.

The tariff structure in Pakistan divided by consumption levels (tariff slabs) and for industrial consumers is further divided into peak and off-peak rates28. Cross subsidies are provided to some segment of consumers e.g. industry and commercial sectors subsidise the household sector. This subsidy varies from Rs 1.44/kwh (IESCO) to Rs. 5.04/kwh (QESCO) with all DISCOs giving various levels of subsidy29.

There have been tariff disputes between government and NEPRA. Both PEPCO and KESC are also not fully satisfied with their tariff determinations. All the DISCOs are charging at the tariff notified by GoP and not at the tariff determined by NEPRA.

27 28

Supra 5, at 10 Ibid at 12 29 http://www.pepco.gov.pk/subsidy.php (last visited 27th April, 2010).

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3.4 Liberalization Outcomes There have been some positive outcomes after introduction of liberalisation in Pakistans electricity industry. During the decade of 1990s it resulted in investment of approx. US$ 4.0 Billion in new generation capacity which resulted in Pakistan overcoming the supply shortages in the short term.

In 2002, NEPRA introduced a Multi Year Tariff (MYT), CPI-X based for KESC for a period of seven years. In 2004, a similar exercise was carried out for Faisalabad Electricity Supply Company (FESCO) one of the better performing DISCO and a five year tariff was determined. In the generation sector MYT has been determined for one of the three GENCOs i.e. Jamshoro Power Company (JPC). This is a change from rate of return regulation to performance based regulation in Pakistans power sector30.

The cross subsidies have also been reduced gradually by increasing the rates of the subsidised categories of consumers with NEPRA aiming to eliminate them completely in future. The elimination of subsidies has been advocated by the international donor agencies for a long time.

This has resulted in reduced budgetary subsidy support to WAPDA and KESC, in FY 2009-10 budget (KESC: Rs 3.8 Billion & WAPDA: Rs 62 Billion) as compared to FY 2008-09 budget (KESC: Rs 18.8 Billion & WAPDA: Rs 92 Billion)31. Privatisation of KESC has also contributed in reducing the burden of budgetary support over the years.

30 31

Supra 5 at 13 Power Sector Outlook in Pakistan, Challenges and Issues (KESC Presentation May 2010) 13

PRIVATIZATION OF ELECTRICITY SECTOR IN PAKISTAN: LINKAGES WITH LIBERALISATION As part of the unbundling of WAPDA the aim was initially to carve out and ultimately privatize the new entities (i.e. 3 GENCOs and 8 DISCOs) created in 1998. Currently four of the original eight DISCOs and one GENCO are on the active list of Privatization Commission (PC) to be privatized on the basis of Public-Private Partnership (PPP)32. The privatization effort has seriously lagged and despite first being put on the privatization list in 2002 none of these companies have been privatized so far.

A couple of transactions in power sector e.g. Kot Addu Power Company (KAPCO) and KESC have materialized and their salient features are tabulated below33: S No 1 2 3 4 Name KAPCO KAPCO Escrow A/c KAPCO IPO KESC Total Shares Sold (%) 36% Not available 18% 73% Sales Price Transfer (Rs Million) Date 10,151.0 Nov 1996 900.7 4,814.8 15,859.7 US$ 258 MM 31,726.2 Apr 2002 Apr 2005 Nov 2005 Buyer National Power Kot Addu Limited -doGeneral Public Thru Stock Exchange Hassan Associates Consortium

KAPCO is the largest IPP in Pakistan having a capacity of 1,600 MW. After Privatisation the management control of KAPCO has been transferred to the buyer (International Power group) but still the majority shareholding remains with WAPDA i.e. 45.7% which is recently been announced for privatization34.

32 33

http://www.privatisation.gov.pk/power/power.htm (last visited 23rd April 2010). http://www.privatisation.gov.pk/about/Completed%20Transactions%20(new).htm (last visited 23rd April 2010). 34 http://www.privatisation.gov.pk/power/KAPCO.pdf (last visited 23rd April 2010). 14

The privatization of KESC on the other hand has been both controversial and failed to bring any significant change. Initially KESC was privatized in Feb 2005 and bought by Kanooz Al-Watan group of Saudi Arabia by offering Rs. 1.65/share. The group failed to deposit the token money and the transaction was subsequently offered to the second highest bidding consortium of Hassan Associates, Al-Jomaih Holding Co. Saudi Arabia and Premier Mercantile Services with the condition to match the bid of the initial successful bidder35.

After privatisation KESC remained as the only vertically integrated utility in Pakistan having 2.1 Million consumers36. KESC has remained problematic with high T&D losses amounting to 34.12% (2008) and is dependent on PEPCO which exports ~500MW to KESC. There has been talk of re-nationalisation of KESC due to its continued sub-par performance but there is little concrete evidence that government will reverse its decision which would be seen as a major setback to its privatisation program.

In September 2008, Abraaj group took over management control of KESC from Al Jomiah group with fresh equity injection amounting to US$ 361 MM over three years in KES Power the holding company of KESC37. Taking into account GoPs 25.5% shareholding and proportional equity the total investment shall be US$ 500 Million38. This investment has come at a time when it is desperately needed by KESC as it has been facing problems like obsolete transmission system and heavy financial losses due to theft of power and non payment of dues by customers.

35 36

http://www.privatisation.gov.pk.htm (last visited 27th April, 2010). http://www.kesc.com.pk/en/article/ourcompany/whatwedo-1.html (last visited 26th May 2010) 37 http://www.abraaj.com/mediacenter/Files/KESC_15Apr2009_05.pdfl (last visited 26th May 2010) 38 http://teabreak.pk/kesc-starts-new-220-megawatts-plant-253/33009/ (last visited 26th May 2010) 15

BACK TO BLACKOUTS: LIBERALISATION FAILURE OR GOVERNMENT INACTION? Private investment was attracted by 1994 policy but gains from liberalisation were not consolidated. GoP solely relied on the private sector and no new public sector project came online between 1994-2003. GoP was aware of the looming supply shortages as evidenced by its own projections but no investment was made for about a decade. Figure 3: Generation Capacity & Demand Forecast

A second failure was to harness the enormous hydro potential of Pakistan ~40,000MW of which 24,000MW is considered exploitable. Only Ghazi Barotha hydel project (1,450MW) started production in 2003 in last two decades. In 2009 hydro capacity was 6,444MW (27% of exploitable resource).

Liberalisation also suffered because of non-economic tariff set by NEPRA (due to subsidies), government inaction in face of circular debt currently amounting to Rs 216 billion (~US$ 2.5 billion), large T&D losses and failure to create a liberalised market. All this resulted in a return to load shedding and blackouts being faced by the people since 2007. The current shortfall is ~3,500MW. Faced with the prospects of 8-10

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hours of daily load shedding people with resources have resorted to expensive micro self generation by installing petrol/gas generators.

Lack of electricity supply has started hurting the economic growth of the country since last two years. A drastic rethink is required as situation will only get worse keeping in view the current demand forecast. Figure 4: Demand Forecast Country

Source: NTDC Report

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CONCLUSIONS AND RECOMMENDATIONS In order to sustain the long term viability of the industry, government needs to take consistent and bold measures to support its liberalisation policy: The GENCOs and DISCOs should be privatised in a transparent manner to create efficiency in the power sector. Tariff subsidy policy of the government needs to be changed as it is not in line with economic trends. GoP has slowly reduced electricity subsidy it needs to provide indirect subsidy for the life line consumers as income support instead of direct subsidy which distorts the tariffs. NEPRA shall play its role in a more efficient and predictable manner. It should assert its independence and the government should realise that only an independent regulator can provide assurance to the investors regarding arbitrary changes in pricing etc. IPPs installed under the 1994 and 2002 policies have signed PPAs having a term of upto 25 years. The competition in the generation sector will be restricted till the term of the PPA expires as it segments the market. Growth in demand indicates that investment would be required not only in generation but also in T&D which have been neglected over the years which would help in reducing the high level of losses. Exploit the hydro potential of the country by embarking on all major hydro power projects. In the end Jaskow words ring true for Pakistan Electricity restructuringis likely to involve both costs and benefits. If the restructuring is done rightthe benefitscan

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significantly outweigh the costs. But the jury is still out on whether policymakers have the will to implement the necessary reforms effectively39.

39

Jaskow, Paul L. Restructuring Competition and Regulation Reform in the U.S. Electricity Sector. The Journal of Economic Perspectives 1997 at Page 136 19

BIBLIOGRAPHY PRIMARY SOURCES National Legislation Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997: ACT NO XL OF 1997. Policy Framework and Package of Incentives for Private sector Power Generation Projects in Pakistan, March 1994. Policy for New Private Independent Power Projects, July 1998 Policy for Power Generation Projects Year 2002 SECONDARY SOURCES Books / Publications Helm Dieter, The New Energy Paradigm, 2007 Dahl Carol A, International Energy Markets: Understanding Pricing, Policies and Profits 2004 International Energy Agency, Lessons from Liberalised Electricity Markets, 2005.

Articles / Papers Saleem Muhammad, Technical Efficiency in Electricity Generation Sector of Pakistan The Impact of Private and Public Ownership. Hamid Tariq, Role and Vision of WAPDA in Restructuring Electric Power Industry in Pakistan, June 2005. Malik Afia, Effectiveness of the Regulatory Structure in the Power Sector of Pakistan, Pakistan Institute of Development Economics, 2007. Dow Stephen, Downstream Energy Law and Policy Study Guide, Unit 5 Electricity Trading, Privatization, Liberalization and Contracting. Jaskow, Paul L. Restructuring Competition and Regulation Reform in the U.S. Electricity Sector. The Journal of Economic Perspectives 1997.

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Reports Power Sector Situation in Pakistan, by Alternate Energy Development Board and GTZ Germany, September 2005. Violeta P. Corral, ADB & Pakistan Power, Public Services International Research Unit (PSIRU-Asia) June 2005. Power Sector Outlook in Pakistan, Challenges and Issues (KESC Presentation May 2010) WAPDA-Power System Statistics Twenty Ninth Issue

OTHERS Internet Sources http://www.paec.gov.pk/kanupp/kanupp-index.htm (last visited 17th Mar 2010). http://www.kesc.com.pk/en/article/ourcompany/whoweare-1.html (last visited 9th Mar 2010). http://www.ppib.gov.pk/CommissionedIPPs.htm (last visited 9th May 2010) http://www.ppib.gov.pk/fc_ia_status.htm (last visited 9th May 2010) http://www.ppib.gov.pk/aboutppib.htm (last visited 21st April 2010). http://www.pepco.gov.pk/index_2.php (last visited 27th April, 2010). http://www.pepco.gov.pk/subsidy.php (last visited 27th April, 2010). http://www.privatisation.gov.pk/power/power.htm (last visited 23rd April 2010). http://www.privatisation.gov.pk/about/Completed%20Transactions%20(new).htm (last visited 23rd April 2010). http://www.privatisation.gov.pk/power/KAPCO.pdf (last visited 23rd April 2010). http://www.privatisation.gov.pk.htm (last visited 23rd April 2010). http://www.kesc.com.pk/en/article/ourcompany/whatwedo-1.html (last visited 26th May 2010) http://www.abraaj.com/mediacenter/Files/KESC_15Apr2009_05.pdfl (last visited 26th May 2010)

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http://teabreak.pk/kesc-starts-new-220-megawatts-plant-253/33009/ (last visited 26th May 2010)

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