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Privately energizing the power sector

The country is facing a serious crisis with respect to perennial shortages of electricity, no respite in the near future likely. While the common man’s life may be disrupted by frequent loadshedding, of greater importance is the adverse impact on agriculture and industry, an unfortunate cycle leading to economic despair. Though the government is committed to increasing the power output, the development of this crucial sector is not keeping pace with our socio-economic needs. It is ridiculous to speak about foreign or private investment in any sector of agriculture or industry unless we can give a reasonable assurance of uninterrupted provision of energy, therefore it stands to reason that the maximum attention of the government should be directed towards increasing electricity generation on a priority basis concentrating on hydel power and those based on fossil fuels available locally. In the long-term nuclear power stations as well as solar and wind energy must be brought into the power mainstream.

Water and Power Development Authority (WAPDA) was conceived and brilliantly modelled on the Tennessee Valley Authority (TVA). Whatever else may be said about errant bureaucracy, by the building of the two massive earth-filled Dams, Mangla and Tarbela, not only are large caches of water saved for use by agriculture at the right time but cheap electricity (Hydel Power) is made available to the national economy without recurring cost of fossil fuels inherent in other forms. At the same time a massive Transmission and Distribution network has spread over the country’s grid, given the fact that the vast WAPDA bureaucracy actually works is remarkable by itself.

Governments may have changed in Pakistan but WAPDA has remained a kingdom into itself. Lt Gen (Retd) Zahid Ali Akbar, the present WAPDA chief was General Ziaul Haq’s first choice for Vice Chief of Army Staff (VCOAS), being a part of “The Family”, four top army generals in Zia’s regime related to each other through inter-marriage of their off-springs, Generals Akhtar Abdul Rahman, Rahimuddin and Zia himself being the other three. Only the persistence of then Prime Minister Junejo ensured that General Aslam Beg became VCOAS, the rest is democratic history but those knowledgeable have often asked the inevitable question, what if the present WAPDA Chairman had been the VCOAS on Aug 17, 1988? Almost two years later the good general keeps on clinging to his chair, a remarkable display in survival and adaptability. Having seen through the PPP era, he will have to change step smartly again. Over the years various fiefdoms have been carved out within WAPDA, down the line malfeasance of varying degree has become routine. From kickbacks in big projects of various nature at the higher levels to the connivance of the lineman in the stealing of electricity, residential or commercial, very few WAPDA officials can keep their head naturally high. The revenue loss has ensured that WAPDA has become an unmanageable loss-making colossus, instead of being able to finance further development through its own revenues. The government has issued redeemable WAPDA Bonds to finance expansion, a domestic debt that will be difficult to redeem. Why WAPDA is euphoric about the rapid sales of the Bonds defies economic description!

During Zia’s regime (or rather Junejo’s tenure as PM), our economic planners came to the conclusion that it was imperative for future development to involve private resources in the energy sector. With the help and advice of US AID, a Private Power Cell (PPC) was set up under the Ministry of Water and Power and a former Member (Power) of WAPDA, Akram Khan, was brought in as Advisor to the Ministry with the rank of Additional Secretary to oversee this process, despite the penchant of WAPDA officials to keep power in the public sector and their fascination with the Kalabagh Project in supercession to other proposals. Rumour has it that Akram Khan when Member (Power) WAPDA had said that the private sector would enter into energy projects in Pakistan over his dead body, this development was akin to putting the fox to guard the chicken coop. The long and short of it was that while many private sector entities, both foreign and domestic, came forward with various proposals, they have got involved in protracted fruitless Catch-22 negotiations over several years, many have just given up their proposals because of the endless filibustering and headed for greener pastures. With the shelving of the Kalabagh project due to political reasons and western apprehension about our nuclear intentions, various thermal and hydel projects in the private sector have gained importance. Akram Khan, for reasons best known to him, became the advocate of only one project in the private sector, the Hub River Xenel Project, in exclusion to all other private sector projects.

With the long awaited retirement of Akram Khan in Oct 1989 ensured by the political government because Ms Benazir, the then PM, was pressing the Ministry about the progress, the reins were taken over by Daud Beg as Additional Secretary. GM Ilias, who under Akram Khan had been completely emasculated as Director General Private Power Cell, was rejuvenated and effective steps were taken to rectify the situation to Pakistan’s advantage. Concerted efforts have been made to make a swift assessment of the 17 or 18 proposals as soon as possible, there is a definite positive ambience within the PPC to quickly bring some of the projects to fruition in the shortest possible time. No projects have actually started being built in the private sector at least of any magnitude, but a number of Letter of Intents have been issued for various proposals after the submission of Pre-Feasibility Reports. In short, while Akram Khan sat on all the private sector projects (except the Xenel one) so that they could die a natural death, some of them have come back to life after his exit though the procedures initiated by Akram Khan were of Catch-22 nature. With the exit of the PPP Government, we expect Akram Khan to come in through the revolving door.

The Hub River Xenel Project is proposed as a 1,200 MW plant fired by furnace oil, to be based in Balochistan near Karachi, as the name suggests, adjacent to Hub. It is an ambitious project conceived by some former employees of Bechtel Corporation, the large US origin multi-national construction conglomerate (a nation within a nation) that gave the Reagan Administration two of its former employees as Secretary of State (George Schultz) and Secretary of Defence (Caspar Weinberger) and as such great political clout when dealing with countries of the Third World. Brilliant in theoretical conception, the practicality of the scheme has been seriously eroded by a sorry mixture of Principals in the Consortium, an extremely wrong choice of location and the fact of the project being totally dependent upon imported furnace oil. The promoters showed great political pragmatism in adaptability in the various changes in administration starting from the Junejo Government (though it must be said the WAPDA Chairman, Secretary Water & Power, Arahim Mahsud and Akram Khan remained in place all along). With the PPP Government’s penchant for private entrepreneurship and Akram Khan’s amazing change of heart from public sector to the private sector (if only for Xenel) this became a show-piece example. Since the Power Tariff structure was not acceptable to the Consortium members, a revision was requested for in the Letter of Intent (LoI), was not done till the end of 1989 at the insistence of Ms Benazir herself to hurry up the decision one way or the other as it was holding up all the other projects down the line. The fact that Shahid Khan, whose wife was close to the PM was made Advisor to the Ministry helped. At least he could cut through red tape, whether his intent was to cut ice with the crap was another matter. Within a month or so of the revised LoI the Consortium fell apart as two of the Japanese members opted out, the official reason being that delay in finalisation had led to increase in prices not reflected in the Rs 1.03 per Kw/hrs. The Hub River Xenel Project has held up progress in the private sector for 2 years, it seems it will go on for another 2 years at this rate before coming to any serious culmination leading to the start of construction. More and more it is looking like the Eiffel Tower is about to be sold to Pakistan, this time not by Henry Wilson.

Experts say that the Hub River Xenel Project is too ambitious a project (a white elephant) for the private sector, likely to absorb all the credit available in the World Bank established energy window in the NDFC leaving nothing behind for other potential projects. In light of the fact that the Promoters seem to have overcome the reluctance of three different governments one gets worried as to about this sudden consensus, it seems to be more of a lobby effort involving “paid consultants”, some technical, some not! Let us see what happens in the Fourth Government that the promoters of the Xenel Project have to satisfy.

One feels that the procedure for application for private sector energy projects can be suitably amended. In the first instance, any private entity proposing a project should fill a detailed questionnaire (to be formulated by the PPC) and give it along with a short Project Summary to the PPC. If the PPC feels that the project is economically feasible it can write a “Letter of Support” to the sponsors in lieu of Guarantee of 0.1% of estimated value of the project e.g for Hub River Xenel Project (estimated value US$ 1,200 million), the value of the Guarantee would be US$ 1.2 million. This will bind the Sponsors to submit a detailed feasibility prepared by recognized Consultants within 24 calendar months thereafter. Only at the end of this Report will the Tariff structure be worked out and negotiated, the agreed rate can then be included in the Letter of Intent to be issued by the PPC with the usual safeguards. The aforementioned procedure may not be completely suitable, the idea is to have a workable and effective mutual commitment. The PPC could work a suitable mechanism themselves, one without Catch-22 portents. In the meantime since Xenel Project continues to invite unfavourable reaction among power experts, it may be much less of a problem to let the project die a natural death now rather than be made to pay through our noses later. Given the track record of the Consortium partners till now there will be definite cost overruns as well as huge recurring expenditures. In the meantime the many millions of US dollars being spent in recurring Consultancy fees will add to Pakistan’s debt, somebody somewhere is having a free ride. The other private sector projects should be allowed to see the light of day from under this great Banyan Tree!

The Government must streamline its procedures for re-energizing the power sector, to their credit the PPP Government did try. The maximum emphasis must be laid on creating more power projects as soon as possible within the private sector. Without energy, our industrial analysis are doomed right at that start.

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