The government is taking measures on a fast-track basis to create new power generation capacity with a view to effectively tackling the menace of electricity load shedding. The federal planning minister recently said over the next five years 22,000 MW are expected to be added to the national power grid.

Options being utilised include enhancing hydropower production, expediting the Thar Coal project and exploring renewable resources.

While some of the potential investors have signed MOUs with concerned institutions and departments, the actual execution of projects would take time.

The fast-track mega energy projects are proposed to be procured from tied sources without any competitive bidding process. There could be problems, and the projects may face snags

Measures for new generation capacity, particularly those based on hydro, coal, nuclear, solar, and renewable resources, should ideally be justified on the basis of a number of parameters: technology, suitability/efficiency and desirability of a mega project, along with environment assessment; reasonable comparability of capital costs of different plants procured through international competitive bidding process vis-à-vis single country procurement under tied credits; project-wise average agreed tariff and the contribution of each such project to reduce overall tariff for the entire sector; financing eligibility/potential by IFIs for part of the funding requirements on reasonable terms, and for early completion of financial package; potential and the basis of public-private partnership on long-term basis; debt servicing capability, level of foreign exchange profit/dividend remittances; imported fuel or other requirements etc, and extent of government guarantees and obligations.

The parameters could best be defined by sound broad-based institutions and energy policies to assess and clear the projects in a transparent manner. However, there are gaps both in institutional setups and the portfolio of policies. Some of the areas needing attention are touched here.

Developing countries normally lack the capacity to appropriately bring a number of mega projects simultaneously to fruition, and our country may not be an exception. Capacity is of paramount importance, particularly when it involves international investors who engage best legal and technical experts, to negotiate long-term concession agreements with the government. Institutional disarrays and outdated governing policies make things difficult for the government. While a number of ministries are entrusted with one or the other segment of the energy sector, the proposal for a single energy ministry awaits decision. Fragmentation is also seen at regulatory levels. Efforts are understandably afoot to enhance the level of expertise in these institutions, whether at federal or provincial levels.

Public sector mega energy projects usually move towards fruition at a leisurely pace. It is felt that the energy or other projects on the fast-track list can be implemented at a quicker pace if the usual slack at various stages is eliminated. These projects would have enough time to fully comply with the PPRA procurement rules and other such requirements and yet would have the potential to be completed in much shorter time.

The mega energy projects on fast-track implementation are proposed to be procured from tied sources without any international competitive bidding process. Owing to disregard of applicable rules or lack of transparency, there could be allegations/problems, and the fast-track execution may face snags. In such a situation, is it not appropriate to proceed as per rules, taking care to avoid crucial mistakes, when agreements and contracts are to be executed with binding obligations for a long time to come.

The government appears to be thinking of moving on fast-track on privatisation of Gencos and Discos. A detailed study on KESC (now K-Electric) sale transaction and the associated contracts/ agreements could possibly provide valuable lessons for considering phased privatisation of other Gencos and the Discos.

It is said that our energy scenario is not properly understood. Our existing power generation facilities, energy-use by industries and commercial buildings are inefficient. Without improvement in all these areas and without controlling theft of electricity and high line losses, it may take a very long time to eliminate the electricity shortages/loadshedding. One unit of energy saved is more valuable than the generation of one additional unit.

The average tariff for electricity is very high. Higher capital cost of plants would require higher tariff. Further, the tariff is not going to come down if we ignore adding hydro capacity on a fast-track basis.

As regards energy/electricity policies, the Power Policy 2002 is in vogue as it has been amended from time to time. Now, a full-scale revision of the policy is justified for revisiting the provisions pertaining to the following: pass-through items; indexation of various costs/ROE; concession period of 25 years; minimum guaranteed ROE; exemption of project profits from income tax; tax exemption of interest on foreign loans to be repatriated; provision of concessionay finance/subordinated loans; sovereign guarantees for fuel supply and other purposes, etc.

Moreover, the Power Policy 2014 should incorporate various amendments considered appropriate in the present circumstances. There is a need to also specify the agency for final approval of international long-term agreements and guarantees involving huge payments in foreign exchange spread over many years in the future. Moreover, ways and means for promotion of energy projects other than on conventional technology may be specified so that local entrepreneurs are encouraged to develop local technologies for producing gas or electricity or both.

The execution of proposed mega energy projects would require building of allied physical infrastructure (i.e. roads and transmission lines, etc.) to be useful. Such infrastructure projects would need large funding for execution. The institutional framework existing at present for approval of such projects and the associated long-term guarantees may perhaps need revamping/major capacity building. The institutions/departments as well as the parliamentary committees on energy overseeing such mega projects may be provided technical/legal support for proper scrutiny of the issues in a transparent manner, and for ensuring value for money in all such transactions.

Published in Dawn, Economic & Business, June 23rd, 2014