ISLAMABAD: The Asian Development Bank says that the upcoming 10 gigawatts generation capacity under the China-Pakistan Economic Corridor which is expected to be commissioned before 2019, will increase greenhouse gas emissions substantially that will worsen the climate change mitigation concerns.

Moreover, ash handling and disposal problems will also exacerbate negative impacts on the environment, says an evaluation report of the power sector of Pakistan released by ADB.

The report says that future increase in fossil-fuel power generation will contribute to climate change and environmental degradation.

The bank itself is funding 600MW coal plant in Jamshoro

Currently, more than 60 per cent of the utility electricity generated in Pakistan comes from fossil fuel-based generation, inclu­ding gas, coal and furnace oil.

This level of dependence on fossil fuels, plus the sector’s operational inefficiencies with high technical losses and low generation efficiency impact the environment, is contributing to climate change due to high greenhouse gas emissions.

The ADB is itself helping fund a 600MW super critical coal-fired power plant in Jamshoro, Sindh. The agreement for the $900 million project was signed in March last year.

The CPEC initiative aims at promoting bilateral and regional construction, investments and trade between China and Pakistan. Currently, there are various coal-fired, hydropower, solar and wind-power projects under construction, and approximately 10GW of generation capacity is expected to be commissioned before 2019, contributing to a power supply surplus in the short term.

However, the associated investments in manufacturing industries will also increase the load rapidly, reducing the generation surplus. Further, it is not clear whether the current grid system would be able to manage the increased generation and load capacity effectively, with limited sub-stations and transmission lines capacity, a supervisory control and data acquisition (Scada) system (which is yet incomplete), and archaic operational procedures, report points out.

A review of ADB’s assistance to Pakistan’s power sector shows the bank approved $7.13 billion during 2005 and 2017, for investment projects and other support to the power sector of the country.

After a lull in ADB support for about five years, the first ADB power sector operation was $37 million private sector loan to the New Bong Escape hydropower project in November 2005. Since then and up to 2017, ADB has approved 48 operations, including 28 sovereign guaranteed loans, 11 non-sovereign operations and nine technical assistance projects, amounting to $7bn, of which $0.7bn was non-sovereign operations financing.

The evaluation report says that disbursements to-date have been low, largely due to slow progress in two multi-tranche financing facility (MFF) programmes.

In particular, the renewable energy financing facility has disbursed 21pc of the approved amount in 10 years, and the energy efficiency financing facility disbursed only 4pc of the approved amount in eight years.

Nonetheless, the transmission and distribution MFF investment programmes, approved in 2006 and 2008 respectively, have progressed well.

The second transmission and distribution MFFs, approved within the last two years, are in the process of starting procurement, so no major contracts have been awarded yet.

The $4.7bn approved for MFFs substantially reduces the headroom for further investments in Pakistan.

Referring to the issue of circular debt, the evaluation report says ADB could contribute towards addressing the causes that underlie circular debt and the problems caused by it.

Substantially, addressing Pakistan’s power sector challenges calls for achieving the outcomes of increased reliability of power supply, share of clean energy, procurement/payment transparency, access to affordable electricity, supply and demand-side efficiency, and competitiveness among power producers, in addition to reduction in subsidisation, circular debt, technical and commercial losses.

For achieving these outcomes, ADB could support Pakistan’s power sector at three levels: legal and regulatory framework; governance and capacity development; and investment in power sector infrastructure.

The nature of ADB assistance should be synchronised with the needs of the power sector, and in close coordination with other development partners’ support.

A broad range of assumptions and risks underlie this theory of change, which are closely related to the country’s changing political and economic landscape, the report says.

Circular debt, the chronic shortfall between cash inflows and outflows for power sector participants, is the singular symptom of several problems that underlie Pakistan’s power sector’s performance.

Discos’ inflows are insufficient to meet all their costs for a variety of reasons.

Although transparency in tariff determination has improved in recent years, the actual tariff levels remain below cost of service.

The extensive demand-supply capacity gap of over 5GW in the past decade until recently has led to frequent loadshedding and prompted consumers to invest in and rely on captive back-up generation, report says.

Published in Dawn, February 4th, 2018