National Electricity Policy (NEP) has been recently approved by CCI (Council of Common Interest). It is a requirement under the Nepra Act. Apart from meeting a statutory requirement, this is a useful and welcome instrument to apprise the readers (which may include a variety of interests) of the overall policy framework of the Electricity (Power) sector under one cover, instead of being spread over a variety of documents. Investors, particularly foreign investors, FDIs would specially benefit from it. In this space, we will seek to evaluate the strengths and weaknesses of the policy and attempt to make some recommendations.
NEP has adopted three policy goals: 1. Assuring access to affordable energy for all. 2. Energy security through utilization of local resources and alternative energy; and 3. Sustainability both in physical environmental and financial terms. Six guiding principles have been adopted: efficiency, transparency, competition, financial viability, indigenization and R&D, and environmental responsibility, which naturally flow out of the policy goals. This indicates ideological maturity of the policy planners and authors.
NEP does not replace the existing Power Policy 2015 as the former is a general framework. The Power Policy 2015 will continue to operate and a new policy may come up in due course (one year probably) with some changes as have already occurred in the recent Independent Power Producers (IPPs) agreement and may be more with respect to a competitive market. There are several sub-policies that are expected to be released in the area of transmission, distribution, system operations while Market Development and Energy Conservation are already under development under NEECA (National Energy Efficiency & Conservation Authority) and CPPA-G (Central Power Purchasing Agency-Guaranteed).
The most important point and something new in NEP is emphasis on R&D, indigenization and technology development which has been hitherto ignored. In recent years, there was a power crisis and capacity had to be added to the system rather quickly. Indigenization takes time which may not have been possible earlier. But now that there appears to be a surplus for quite a few years, one can afford to invest some time on the issue and provide into the projects’ time schedule and finance. One would have expected that something concrete was added to the policy in this respect. Both Turkey and India have provided tariff incentives for local content in the power equipment. Even Germany provided feed-in tariff, although it was to promote renewable energy.
Pakistan severely lags in technology, know-how and local content in the power sector. Turkey, India and Iran have made great progress in this sector. They can manufacture large capacity generators, motors, turbines and transformers. Those companies which have the capability and know-how are in a pretty bad shape. New products and machinery have to be introduced under joint venture (JV) and licencing agreements. And new plants should come up. This has added to their defence capabilities as well. Civil technology aids defence technologies and vice-versa. One would wish that some institutional mechanism had been proposed to achieve these objectives. Perhaps a full-fledged policy for this purpose may be required which may be released along with other sub-sectoral policies as has been planned.
However, the policy (NEP) falls short of breaking new grounds and new initiatives and ideas. Smart Grid, Electrical Storage, Distribution Automation, Peak and Reactive Power, etc. Many developing countries have taken initiatives in this regard. NEP could have afforded to take some space in terms of intent and resources to be committed in this respect. Nonetheless, it can add these aspects to the second version or add these components to sub-sectoral policies.
NEP discusses competition and power market at length. The current frame-work as proposed in CTBCM (Competitive Trading Bilateral Contract Market) has been adopted and reproduced in NEP. However, it is as clueless as NEPRA/CTBCM is as to where will the liability free power come from. Most power plants are under Take or Pay (TOP). Power market requires unattached plants under Take and Pay (TAP). However, TOP can be converted into TAP agreements with a formula and mutually agreed framework. Some or all TOP PPAs (whose debt has been retired) can be paid off at the present value of the remaining RoE (return on equity) and financed through a bond which in turn is financed through market proceeds. All of this operating under a market fund. Simply speaking, this would enable recouping the surplus created by the difference between expected market price and the regulated price under which PPAs have been signed. Otherwise, if one is ready to award a windfall to IPPs, all 15 years or so projects can be inducted under TAP market system without all these complexities. A market exchange can be built where double-sided bidding takes place to result in an equilibrium price. A park of 10,000MW of power plants should be enough to start a market exchange. Not all power plants have to initially undergo this conversion from TOP to TAP. Some genuine effort is required in this respect.
NEP has prematurely lent support to CTBCM. A third-party evaluation is required for a truly effective and competitive power market. CTBCM, in a number of ways, is a replay of the existing system of economic dispatch cost-based pricing as a fait-accompli. Bilateral agreements, without reference prices discovered through market exchange, may open a Pandora box of corruption. CTBCM will take years in bringing an effectively competitive power market as the proponents have finally admitted. All hopes are being tied to inefficient captive power plants to provide tradable electricity, while the Petroleum Division wants to close down all such captive power plants.
They have started quoting large lead times that have been taken in other countries. They forget to appreciate that those were the learning period. We have the benefit of hindsight and fully developed and tried and tested models and approaches are available. Today, one does not have to start riding on a donkey in order to build or use a car or an aeroplane. Either, we should stop talking about a competitive market which may take decades or adopt a serious approach.
Wheeling Policy has been challenged in the High Court by Discos by the support of the Power Division. Discos have opposed Wheeling elsewhere also. There are several legitimate arguments of Discos. They have argued, among other things, that they are exposed to unfair competition. Power marketers are to pay a mere Rs.1.50 per kWh for distribution while Discos’ real costs are Rs 5.00 per kWh allowing for various factors. Ironically, the regulator approved Wheeling Policy with the support of only two interveners – both of which had a conflict of interest; the determination brief reproduces their desires. This raises the question of separating wire from commodity. Separating wires from Electricity selling business is an almost an essential requirement of competitive power market. Something more definitive should have been provided in the NEP regarding the fate of Discos. Perhaps a detailed sub-sectoral policy would deal with it. Separating wire from electricity selling would relieve the government from the onerous and possible job of privatisation of State-Owned Enterprises (SOEs). Privatisation of monopolies, many people argue, may not be a panacea or even a remedy. We will discuss Disco provisions in the NEP later.
Then there has been a recent controversy about IGCEP (Indicative Generation Capacity Expansion Programme) wherein Grid Code has been violated and executing agencies have provided their project list which have been adopted by IGCEP with a pretense of having used a renowned software PLEXO. NEP has dealt with it but what is the guarantee that the same would not be repeated and NEP is violated with the same disdain or ease as Grid Code has been. Some strong provisions in NEP should attempt to prevent it.
Overall, one would like to appreciate the efforts of the NEP authors. NEP provides for monitoring and review which would enable dealing with the above-mentioned issues and bring about the required adjustments. We will continue this policy evaluation in Part-II of this series and discuss Integrated Energy Planning, tariff, Disco revival, governance, provincial issues and more.
(To be continued)
(The writer is former Member Energy, Planning Commission and author of several books on the energy sector)
Copyright Business Recorder, 2021
