The slow growth rate of electricity demand in the country, together with the rapid commissioning of new base-load power plants implies that the capacity payment obligations, which stood at Rs642 billion in 2018-19 will rise to Rs1.455 trillion by 2022-23. As a result, the average consumer tariff has been increasing and is to further increase as per the recently concluded agreement with the International Monetary Fund and multilateral development partners (MDPs). The Pakistani public is already strongly voicing its dislike of the rapid rate increases and one wonders how long it will take for this building lava of anger to burst out.

Between 2014 and 2018, the generating capacity increased by 10GW and an additional 17GW capacity will be commissioned by 2025. In this scenario, the high capacity payment formula to the power generators is not sustainable and the government should consider increasing the energy demand, particularly base-load through an industrial expansion which can lower the average supply cost. Pakistan also needs to look outside its border to assess the possibility of exporting its surplus generation capacity. In the absence of any grid links with the neighbouring countries, investing in a new transmission link from Pakistan to Afghanistan might be a viable way to export power.

Winter demand in Pakistan is nearly 35pc of the summer peak which is converse to the demand pattern in Kabul and hence offers a good supply-demand match between the two countries

Afghanistan pays $280 million annually in return for purchasing up to 670 megawatts of power from Iran, Uzbekistan, Tajikistan and Turkmenistan. Ironically, Pakistan is Afghanistan’s only neighbour with which it does not have import arrangement of electricity. Afghanistan’s winter demand is 150–180 per cent of its summer consumption due to space and water heating needs. Power outages and load shedding have occurred in Kabul as well as in at least 12 provinces in Afghanistan this year due to a technical failure at Uzbekistani power plants. The North East Power System (NEPS), which covers Kabul, is the largest demand centre and offers the prospects of import of electricity from Pakistan to improve energy security.

The power system outages occurred right in the middle of the winter season and it would be in Afghanistan’s interest to diversify its sources of imported power. With its diverse mix of power plants, Pakistan is in a position to contribute to Afghanistan’s efforts to overcome its seasonal shortages and time-of-day deficits on a sustainable basis. Winter demand in Pakistan is nearly 35pc of the summer peak which is converse to the demand pattern in Kabul and hence offers a good supply-demand match between the two countries.

The Central Asia-South Asia Regional Trade and Transmission Project’s (CASA-1000)transmission line from Kyrgyzstan-Tajikistan to Pakistan through Afghanistan was originally meant to provide 1GW to Pakistan and 300MW to Afghanistan for which it was planned to build a DC-AC converter station at Kabul. However, later on, Afghanistan omitted the converter station in Kabul as it already has an import arrangement with Tajikistan using an existing transmission line. A back-feed AC line to Kabul from the final terminal point of the CASA line at Nowshera was also studied and considered a viable alternative to installing the converter station in Kabul. It is this transmission line which can meet not just Kabul’s future need but also the demand in the city of Jalalabad.

A preliminary and very rough cost estimate of the proposed 270km long, 220kV double circuit AC line from Nowshera to Kabul via Jalalabad is $105m. Of this, roughly one-third of the cost will be incurred inside the Pakistani border while two-thirds will be for building the infrastructure on the Afghan side of the border. The investment on the Pakistan side would increase in case a Back-to-Back Converter Station arrangement at Nowshera is required for grid isolation. The author has a strong reason to believe that some of the MDPs would be interested in participating in such a project.

A long and protracted negotiation between the two countries will be needed before mutually acceptable terms of trade can be agreed on. Firstly, as the agreement must extend several years into the future, a reliable assessment of expected surplus in the Pakistani system and shortage on the Afghan side will need to be made. Also, Pakistan must provide comfort that the electricity exports will continue to be available on a long-term sustainable basis, while Afghanistan must demonstrate the ability to pay for the purchased electricity. There may be a concern about whether the transmission line can be built under the prevailing security environment, however, one can take comfort from the fact that the 550km segment of the CASA-1000 line is inside Afghanistan and it is already in the construction phase.

Afghanistan imports from its neighbouring countries at rates that are far below the average production cost in the Pakistani system and it would like to adhere to a similar benchmark tariff. From a Pakistani perspective, it remains to be what is the minimum tariff rate it can accept so that it can offset at least a part of the idle capacity charges that it otherwise has to pay to producers. Both sides must negotiate with good intentions and aim to achieve a mutually beneficial settlement. Trade is a way towards achieving political normalisation among neighbouring countries and the need for that is more relevant for Afghanistan and Pakistan considering the geopolitical situation of the region.

Given the experience of developing the multi-country CASA-1000 project, the process of agreeing to the new Pakistan-Afghanistan interconnection can take a few years. A beginning has to be made on an urgent basis because the earlier the transmission link between the two countries is successfully commissioned the sooner its benefits will start accruing to the two neighbouring countries.

The writer is the former Director of Energy at Islamic Development Bank who has steered the financial close of the $1.2 billion CASA-1000 Project that is presently undergoing construction

Published in Dawn, The Business and Finance Weekly, May 17th, 2021