Assessing National Power Policy 2013

:Saeed Shafqat & Raheem ul Haque

There is growing consensus and realization among scholars, policy makers, energy experts, private entrepreneurs that without harnessing energy crisis, no meaningful economic growth and sustainable development is likely to occur in Pakistan. Energy is critical for political stability, survival and economic growth of Pakistan. The Woodrow Wilson International Center put out a study in 2006 titled “Fueling The Future: Meeting Pakistan’s Energy Needs in the 21st Century.” The study had contributions from Pakistani and American experts and covered almost all dimensions of the subject. The study underscored that for growth and economic development, Pakistan needed to plan energy conservation, ensure stable and cheap supply and invest in human resource capacity to improve governance of the energy sector. The study drew attention towards renewable energy sources, regional cooperation with South and Central Asian States, and incentivizing the national and international private sector to invest in the energy sector 1 . However, the analysis and wide ranging recommendations of this study went virtually unnoticed in the country. Now, time is running out for ‘fueling the future’—the energy needs must be addressed based on the immediate, medium and long term goals as the costs indicated by Table 1 are unbearable for Pakistan with its growing population needs.

The manifestos of almost all major political parties issued before the May 2013 elections were unanimous in recognizing energy crisis as a major impediment for socioeconomic development. Yet they remained vague and nebulous in providing any policy framework for managing the energy crisis. For example, the PML-N manifesto recognized that the energy crisis was ‘causing unbearable suffering to the common man’ and asserted: “The annual cost of load-shedding was estimated in 2010 at Rs. 500 billion (US$ 5 billion), a loss of a million jobs and at least US$ 2.8 billion reduction in exports”. The Manifesto claimed that Pakistan had the second largest coal reserves in the world, over 300 million barrels of proven oil reserves, sufficient gas and “our rivers have potential hydropower capacity of at least 40,000 MW.” It promised reforms of National Electric Power Regulatory Authority (NEPRA), Distribution Companies (DISCOs), Generation Companies (GENCOs), Oil and Gas Regulatory Authority (OGRA) and “permanent elimination of circular debt”. While the issue of reforms is yet to be addressed, the PML-N government revealed its intent within 60 days of coming to power by clearing the circular debt worth Rs. 480 Billion 2, thus kick starting power production to the relief of citizens.

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In haste and without sufficient consultation with stake holders, provincial governments and experts, the Government announced the National Power Policy 2013 (NPP2013). It envisions “Pakistan will develop the most efficient and consumer centric power generation, transmission, and distribution system that meets the needs of its population and boosts its economy in a sustainable and affordable manner”. It is ironic that the PML-N government had been in power (2008-2013) in Punjab—the largest province and yet little preparation and home work seemed to have been done while announcing the NPP 2013 and other policies. There are significant gaps between the electoral promise on resolution of energy crisis and the actual energy policy. The PML-N election manifesto promised to merge the Ministries of Water & Power and Petroleum & Natural Resources into a single Ministry of Energy and National Resources but NPP 2013 shied away from that declared position. Instead it proposed an Internal Coordination Committee between multiple Ministries for integrated planning to be overseen by the Council of Common Interests (CCI).

Energy Mix: Resource Constraint or Bad Policy?

It is ironic that an energy crisis has erupted in a country which has the world’s second largest coal reserves amounting to 480 billion barrels of oil worth $25 trillion 3, a potential for 100,000 MW hydropower generation 4 and untapped gas and oil reserves in Baluchistan. Evidently, the problem is not dearth of resources but bad policy choice, mismanagement, lack of vision and planning. Over the past three decades privatization and de-regulation of the energy sector led to an energy mix that has escalated the energy production costs; the current primary energy mix (inclusive or power) is 49% Natural Gas, 11.7% Hydro and Nuclear, 7.3% Coal, and 32% Crude Oil, POL, LPG 5 . Thus it has a significant expensive oil component, 82% 6 of which is imported leading to the actual cost of Rs. 14.667 per power unit. This current mix is an outcome of both non-implementations of the various energy plans (1992, 1994, 2004, 2011) based on indigenous and cheaper fuels as well as of the 1994 Energy Policy. The 1994 policy invited investments irrespective of fuel while providing a cost plus margin sovereign guarantee to the investor. This clearly indicates that the issue is not dearth of resources but an inability to plan, manage and band together human resources capability. The NPP 2013 does not spell out any clear strategy or plan as to how the current injudicious energy mix will be rectified.

 ”…the problem is not dearth of resources 
but bad policy choice, mismanagement,
lack of vision and planning.”

 NPP 2013: Assessment and Critique

We would assess and evaluate the NPP 2013 under the broad umbrella of Governance, specifically focusing on four components; Regulation, Policy Framework, Human Resource Capacity and the Culture of Theft. It may be underscored at the outset that the PML-N Government has announced a policy without an accompanying strategy or an execution plan. Thus based on the analysis, findings, interpretations and recommendations of experts, our evaluation is confined to the above four components.

Regulation:

The public sector utilities had dominated the regulation of energy sector in the country from the 1950’s to early 1990’s. Following de-regulation and de-concentration of Water and Power Development Authority (WAPDA), the National Electric Power Regulatory Authority (NEPRA) was created in December 1997. NEPRA was to be an autonomous and independent regulatory authority and the expectation was that it will improve the regulation, management and delivery of energy supply in the country 8 . However, over the past fifteen years the gap between the promise and reality has widened. Instead of improving regulation, management and service delivery, NEPRA has deepened energy crisis in the country through misgovernance. Lodhi persuasively argues that NEPRA has not performed its regulatory functions; which include evaluation of the annual performance of DISCOs. Decision making at NEPRA has been poor, which causes inordinate delays in tariff pricing further contributing to the circular debt. Zaidi observes that this is just the tip of the iceberg; he is correct in pointing out that the unbundling of WAPDA (which encompassed all functions from Planning, Generation, Transmission, Distribution and Regulation) was done in haste and without sufficient research and consultation. What kind of relationship will the more than dozen new independent companies have with each other and NEPRA was not fully thought through. Lodhi agreeing with Zaidi gives a more nuanced explanation of NEPRA’s ineffectiveness and slackness; he contends that the plan was not properly implemented because of a lack of institutional memory. The new members of NEPRA had no memory of the original plans about the energy sector, regulatory roles of WAPDA and KESC, and were least equipped to deal with new realities that confronted the de-regulated power sector in the country.

In addition to personnel management and regulation issues, NEPRA’s functioning has been hampered by persistent political interference by the politicians, and civil and military governments. Thus, domestic and international pressures have constrained efficient and smooth functioning of NEPRA. As noted above, the NPP 2013 boldly acknowledges the need for reforming NEPRA & OGRA, but identifies only two concrete steps – (1) reducing the establishment period of base tariff from 8-10 months to 90 days and (2) the creation of an independent board. The lofty claim to ‘develop a world class regulatory authority’, sounds hollow. Contrary to the promise in its manifesto, the NPP 2013 is also less forthcoming and convincing on plans for decentralization of the energy sector as the policy only suggests a possibility of wholesale market with regional networks for multiple buyers and sellers whereby DISCOs can buy directly from the generation companies. Instead the main thrust of the NPP 2013 appears to be privatization of DISCOs and GENCOs. Here two points merit attention. First, decentralization, de-regulation and privatization require prudent regulation and effective enforcement. Unless, the current haphazard institutional mechanism is streamlined with the role of each organization (including the Government) brought under the regulatory framework, any steps towards privatization would remain unfruitful. Second, privatization before decentralization of the power sector may not be a good idea as the experience of lingering disagreement of 700 MW 9 between the state and KESC clearly indicates.

“…the NPP 2013 is also less forthcoming and convincing
on plans for decentralization of the energy sector”

Policy Framework:

Within the Policy domain, an integrated energy policy is required which includes Power, Gas, Nuclear and Alternate Energy. This clearly demands an improved level of institutional collaboration; however, the current institutional landscape is inundated by multiple ministries as well as multiple regulatory bodies. The very title National Power Policy 2013 evokes lack of clarity of vision and does not rouse confidence in Government’s commitment to an integrated energy policy. Due to this inherent weakness, the policy glosses over another crucial aspect and that is the changing energy consumption pattern in the country. It is pertinent to note that domestic power usage in Pakistan has risen to 47%, while the industrial has declined to 27% 10. This is an alarming trend as domestic consumption is rising faster than industrial consumption. This consumption pattern needs to be rationalized if not reversed, to ensure that industry drives the economy in terms of employment and growth rather than only satisfying the domestic consumer. Recognizing this as the “fundamental problem” of our economy, Kaiser Bengali has aptly observed, “Pakistan has become a consumption society, without a corresponding production base to support the desired level of consumption… we cannot consume what we do not produce”. 11

Figure 1: Electricity consumption by sector (in GWh) 1975-2010

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It is noteworthy that the NPP 2013 aims to shift CNG usage from transport to power generation. Yet the policy hardly identifies any mechanism that would lead to such a smooth shift as gas is still heavily underpriced. More importantly, conservation initiatives also need to be integrated along with cross rationalization of fuel prices to ensure that power tariff rates are in line with rising gas rates.

Managing Human Resource Capacity:

It is disturbing to point out that the NPP 2013 glosses over the need for improvements in human resource capacity in the power sector. The policy alludes to managing these HR needs through a combination of Energy Services Company audits and improvement, and Performance Contracts in the name of efficiency. Human Resource capacity has not correspondingly increased with de-regulation and privatization of power sector in the country. Ahmad draws attention towards this by focusing on poor project management. He contends that the lack of effective project structuring, planning, financing and implementation are serious issues plaguing the energy sector and demands investment in building human resource capacity to ensure successful completion of various ongoing projects. Zaidi is equally forceful in pointing out that the DISCOs don’t have the capacity to write an Energy Purchase Agreement (EPA) thus holding back investments. Lodhi is skeptical about the professional skills of those who manage the DISCOs. He contends that the DISCOs could not be run professionally because the staff lacks the thinking, attitude and capacity required for it. As noted earlier the issue of human resource capacity is a direct outcome of the breakup of WAPDA in haste and without adequate thinking on who will build the capacity of Area Boards (departments), which would become independent corporations overnight without a capacity building exercise. Supposedly, the subsequent governments and the DISCOs were expected to fulfill this responsibility. Were they trained or prepared in any way to take on new responsibilities?

It is ironic and unfortunate that NPP 2013 is also glaringly oblivious of building human resource capacity in the energy sector. The NPP 2013 does pay attention to technology and infrastructure development. It propounds to install smart meters and online monitoring; both are important and welcome initiatives but no substitute for building human capacity. For example, the policy envisions Relationship Managers providing One Window Operation to the customer, however, they will be able to facilitate only if the back office staff is professionally trained, qualified and effective.

“PML-N Government has announced a policy without an
accompanying strategy or an execution plan”

Institutionalization of a Culture of Theft and Non-Payment:

The NPP 2013 provides better regulatory framework to plug theft, corruption and non-payment. The Policy provides for a feeder level technical solution whereby the Executive Engineer (XEN) can be held accountable for recovery, instituting performance contracts, conducting external professional audits of companies, and holding non-paid amounts of provincial government departments from the National Finance Commission (NFC). Similarly, websites as envisioned in the policy can help in terms of improving communication. However, a much more important task would be to provide accurate and credible data for select stages of the business process as agreed with independent experts. This would be a critical element in ensuring accountability and transparency.

“The PML-N election manifesto promised to merge the
Ministries of Water & Power and Petroleum & Natural Resources
into a single Ministry of Energy and National Resources
but NPP 2013 shied away from that declared position.”

Ahmad has pointed out that theft in power and gas sector constitute about 45% of the Circular Debt, while nonpayment by the provinces 18%, and government departments and private sector another 7% 12. While the policy lays out good principles and best practices to curb theft, corruption and mismanagement, we want to reiterate that professional management and improved company processes are more important in countering a culture of corruption in DISCOs and other organizations. Thus, there is both room and need for improvement in NPP 2013 in this direction.

Improving Governance of the Energy Sector:

Overall, the NPP 2013 correctly identifies the issues at hand but it relies heavily on a technical solution. The underlying problem was rooted in governance and management of human resources at all levels. It constitutes regulatory, institutional, cultural and behavioral aspects. Yet in the policy the technical component is given preference over human resource capacity; formulation of standards is equated with conservation strategy; independent boards are considered sufficient for good governance of organizations and the internal coordination committee comprising of various government departments is presented as a means for integrated energy policy. The Government’s panacea for good governance seems to be privatization, which could be a disaster in a non-regulated and imperfect energy market of Pakistan. This implies that privatization should be followed by prudent regulation— a regulation that protects the rights of private investor, ensures justice and fairness to the ordinary consumer and maximizes consultation with stakeholders and experts. The NPP 2013 does not have an associated strategy or plan of execution, which could jeopardize the efficacy of this policy like its predecessors. At this stage when the policy has been announced and implementation processes are still being worked out, the Government would be advised to involve Pakistan’s energy experts to deliberate on the policy and incorporate the work done on earlier energy plans. Such an exercise could help improve the implementation plans for NPP 2013.

“…involve Pakistan’s energy experts to deliberate
on the policy and incorporate the work done on earlier energy plans”

In our assessment, there is a dire need for integrated energy sector governance so that policy, planning and management act in concert rather than in competition across various ministries, government departments and associated bureaucracies. A coordination committee for tasks envisioned in the Policy would not make much of a difference in meeting Pakistan’s 21st century energy needs. This requires collaborative research, analysis and implementation of an integrated energy plan having a broader national consensus and stake holder’s ownership rather than the shared decision making and responsibilities of a committee. We recommend that the following steps could strengthen and streamline the implementation of NPP 2013:

1. Establish competent Board of Governors, which reflect a mix of professionals, technical experts and practitioners and not ones filled with political appointees and retired bureaucrats.
2. Fill all open positions with professional management with security of tenure.
3. Ensure merit and non-interference by the government and bureaucracy.
4. Accountability based on service contracts and performance based on achievement of targets/goals.
5. The Policy’s wording of instituting independent boards is too general; it is advisable to constitute the composition of the board.
6. Address issues of institutional memory by creating staggered tenure of the board and senior management.
7. Ensure affordable energy price keeping in view of IMF conditionalities.
8. Design and plan reforms of energy sector’s governance and management.

End Notes

1. Robert M. Hathaway, Bhumika Muchhala, Michael Kugelman, Fueling The Future: Meeting Pakistan’s Energy Needs in the 21st Century (Woodrow Wilson International Center for Scholars, 2007)
2. Khaleeq Kiani, “Govt clears 480bn circular debt”, http://dawn.com/news/1031180/govt-clears-480bn-circular-debt
3. Munawar B. Ahmad, “Testing times for Pakistan’s Energy Sector”
4. Akmal Hussain, “Institutional Bottlenecks and Management Issues in the Energy Sector”
5. Munawar B. Ahmad, “Testing times for Pakistan’s Energy Sector”
6. ibid
7. Abid Lodhi, “Regulatory Framework of the Power Sector”
8. Reem Hasan, Assessing the Governance of IRA’s in the Power Sector: A case study analysis of Pakistan’s electricity regulator NEPRA distinguishing between formal and defacto independence. Dissertation submitted to the Department of Government, the London School of Economics and Political Science, in part completion of the requirements for the MSc in Public Policy and Administration, (Unpublished: August, 2011)
9. Rab Nawaz, “Resolving Electricity Crisis in Pakistan: What Punjab Can Do?”
10. Hassan Jaffer Zaidi, “Institutional Bottlenecks and Management Issues in the Energy Sector”
11. Kaiser Bengali, Agenda for Sustained Economic Revival (SPDC Working Paper No:7 Draft for Public Discussion) (Karachi: Social Policy and Development Centre,2013) pp1&11-12
12. Munawar B. Ahmad, “Testing times for Pakistan’s Energy Sector”