Cost of generation

It is true that Transmission & Distribution (T&D) losses in Pakistan are higher than in 117 other countries in the world. Our transmission lines, cables and copper parts of transformation are all old with little or no maintenance resulting in awfully high variable technical losses. Fixed technical losses are also extraordinarily high because of problems with transformer cores.

It is also true that non-technical losses – theft, inaccurate meters and illegal connections – are also among the highest in the world. The world average for T&D losses is 8.8 percent while our losses stand at a tall 25 percent. It is true that a one percent loss roughly equates to a loss of Rs6 billion. And what that means is that Pakistan loses Rs100 billion a year over and above the world average.

It is true that the default rate in Pakistan is one of the highest in the world. What is also true is that the federal government is the highest defaulter. What is also true is that the four provincial governments are also mega defaulters. The federal government owes an estimated Rs80 billion and the provincial governments an additional Rs75 billion.

Yes, the private sector is stealing electricity. Yes, the government ought to bring down T&D losses. Realistically, bringing down technical losses means multibillion dollar investment into transmission lines, cables and transformer cores. The truth is that stopping theft requires a strong writ of the government. The truth is that the public sector does not have the billions to upgrade the infrastructure.

What is also true – but is hardly ever mentioned – is that the mother of all evils is the awfully high cost of generation. Yes, public sector generation of electricity is extremely inefficient and private sector generation is only marginally better. Our gas-fired plants are gas-guzzlers and our oil-fired plants are oil-guzzlers.

The truth is that our private sector power plants consume up to twice as much gas to produce 1 kWh of electricity compared to Indian plants. The truth is that our private sector power plants consume 40 percent more furnace oil to produce 1 kWh of electricity compared to plants around the world. The truth also is that the private sector has absolutely no incentive to improve efficiency.

And if our power plants are grossly inefficient regardless of whether we feed them coal, gas, furnace oil or Iranian gas they are going to produce expensive electricity. And no matter how high the tariff is it isn’t going to have any impact on the efficiency of the plants. What is true, however, is that the higher the tariff the higher would be the incidence of theft.

Pakistan can save upwards of Rs200 billion a year merely by making the private sector power plants more efficient. We can produce the same amount of electricity with about half the gas supply only if the private sector works on improving the efficiency of their power plants. We can produce 40 percent more electricity with about the same amount of furnace oil only if the private sector works on improving efficiency of their power plants.

The mother of all evils indeed is our high cost of generating electricity. And the cost is high because our Independent Power Producers (IPPs) are so inefficient. ‘Sacred cows make the tastiest hamburger’ – not in Pakistan.