Pakistan is a fortunate country where every citizen has an opinion on topics ranging from politics to the economy. However, their opinions are swayed mostly by their opinion leaders, amongst whom media is the most effective.

If there is a discussion on what is the biggest issue of the country, there would be voices claiming ‘corruption’ as the biggest issue. Others would argue that ‘incompetence’, ‘misgovernance’ or ‘delays in justice’ are the biggest issues. So on and so forth.

However, the media has almost succeeded in convincing the masses that currently the most disturbing issue in Pakistan is soaring commodity prices or inflation’ The media is arguably right. But then comes the question of what causes the inflation? Again, all sorts of opinions can be framed. Those nearer to power corridors might like to blame the previous rulers, who in their turn may like to claim incompetency of the current ones as the biggest reason causing inflation. Whatsoever the reason for inflation is, the need remains that there must be a solution or a set of solutions to control it.

One of the underlying contributors to inflation is the high cost of electricity, which is predominantly dependent upon imported fuels bought through expensive dollars. But apart from imported fuels and certain other factors, much is to blame for misgovernance in the power sector. Pursuant to the reforms program, started in the early 1990s, the power sector is now a regulated one overseen by National Electric Power Regulatory Authority (Nepra).

The economic impact of getting additional units of 7,865 gigawatt-hours without consumption of additional gas is a strong argument to shift cheap gas from inefficient power generating plants to efficient ones

Since its creation, Nepra has churned out a voluminous treasure of rules and regulations, one of which also results in regular monthly Fuel Cost Adjustment (FCA) proceedings, which often result in an increase in electricity cost. However, any astute observer observing these proceedings would notice that there is a lot of improvement in the governance of Pakistan’s power sector.

Besides many other important aspects, one would notice Nepra concerns on out-of-merit operations of power generating units. Whereas the directives of Nepra about following the merit order and their apparent non-compliance in subsequent FCA proceedings speak tonnes of much-needed governance improvement, one wonders on the very basis of ‘merit order’ itself that Nepra advises following.

The merit order that ranks power generating units based on their fuel-related costs for generating a single unit (kilowatt-hour or kWh) of electricity, is available and updated monthly on the website of the National Electricity Despatch Company (NTDC). It starts with some private and public sector power generating units. Despite their lower efficiencies, these power generating units claim higher rank on the merit order by virtue of getting their fuel (gas) from low-cost dedicated gas fields that cannot be injected into the system of the two Sui distribution companies or diverted to efficient power plants without incurring additional pipeline costs.

But after these power generating units operating on dedicated gas fields, there follows several gas-fueled (indigenous pipeline quality) power generating units, mostly owned by public sector generating companies (Gencos), that are high in ranking on the merit order despite their lower net efficiencies (maximum up to 32.51 per cent).

Since their primary fuel is indigenous gas, which is cheap, they remain higher on the merit order than the high-efficiency power generating units operating on RLNG (regasified liquefied natural gas). Since the RLNG is imported and expensive, the plants at Haveli Bahadur Shah, Balloki and Bhikki, despite their higher efficiency as high as up to 61.60pc, found their place on merit order way below the inefficient units of Gencos and others, at ranks 34, 35 and 36.

Indigenous pipeline quality gas is scarce now, and the inefficient power plants placed high on the merit order are not being operated. However, in past, they had ruthlessly guzzled the precious natural resource of this country. Unless some very huge gas recoveries are made, this unscrupulous usage of natural gas has led us to a position where we can see only a bleak gas future for the country’s economy.

Read more: Pakistan will have no gas in a few years, says Fawad Chaudhry

But even if new cheaper gas recoveries are made, the criteria of dispatching power generating units based on their merit order ranking would lead to misallocation of that resource again. The financial and economic impact of this anomaly (provided gas is available) can be understood by a simple mathematical example.

As per the merit order effective for the month of February 2022, the fuel cost component of unit number four of the Muzaffargarh power complex (rank 18th on the merit order) is Rs9.4689/kWh based on indigenous pipeline quality gas. This fuel cost component is based on its best net efficiency of 32.51pc. In comparison, the fuel cost component for Quaid-e-Azam Thermal Power Limited (QATPL) Bhikki (rank 36th on merit order) is Rs13.154/kWh based on the usage of subsidised imported RLNG.

QAPTL Bhikki has a net efficiency of 61.60pc. If instead of RLNG, QAPTL Bhikki is operated on pipeline quality natural gas, its fuel cost would be reduced from Rs13.154 /kWh to Rs4.997/kWh. Whereas the difference would be Rs8.1567/kWh [13.154 minus 4.997], the actual saving would be Rs. 4.4716/kWh [9.4689 minus 4.997] — being the replacement advantage of inefficient unit-4 of the Muzaffargarh power complex.

The saving difference of Rs4.4716/kWh might not attract the attention of many. But with some more simple calculations, the difference is enormous enough to warrant serious attention. Consider allocating 300 MMCFD (million cubic feet per day) gas to power plants with 61.6pc efficiency instead of 32.51pc. Not only this gas would replace 7,865 gigawatt-hours generated by inefficient plants in a year but would also produce additional 7,038 gigawatt-hours electricity based on 90pc annual plant availability.

This economic impact of getting additional units of 7,865 gigawatt-hours without consumption of additional gas, is a strong argument to shift cheap gas from inefficient power generating plants to efficient ones. But the financial impact is simply eye-opening. The total impact of saved Rs 4.4716/kWh when multiplied with 14,902.5 gigawatt-hours results in a whopping annual saving of Rs66.6 billion.

The inefficiencies in the system, however, are far beyond 32.51pc and the actual difference would be much more prominent. Nevertheless, since indigenous gas reserves are depleting fast, the saving calculations based on merit order might not be relevant in the end. But these calculations and savings point out two very important aspects: (i) the merit order, which is always referred to by Nepra in fuel price adjustments, needs rationalisation, (ii) the gas allocation policy of the country needs to be revised altogether.

Some suggestions for the outline of revised gas allocation policy maybe; (i) wherever possible, gas for the process industry, heating and cooking be replaced with surplus electricity in the country (ii) allocations of gas for power production should base strictly on the criteria of net efficiency (combined and integrated — considering heating as part of net efficiency) without differentiation of public, private, captive or any other categorisation (iii) fertiliser feedstock be shifted from gas to local coal: Thar and others, (iv) paradigm shift of transportation sector from CNG reliance to electric vehicle (EV) charging stations for electric cars: existing CNG station owners be given tax holidays and priority in issuance of licenses for EV charging stations.

The writer has served Wapda, PPIB, Hubco and CSAIL.

asifabro@hotmail.com

Published in Dawn, The Business and Finance Weekly, January 14th, 2022