Journal of Political Studies, Vol.

24, Issue - 1, 2017, 407:431

Major Trends and Policies in Pakistan’s Energy Sector Management

Asia Mukhtar and Iram Khaild*

Abstract

Energy sector in Pakistan is facing disastrous decline from almost one

decade. There are multiple reasons behind this phenomenon. In order to find
out genuine causes of this decline and workable solution it is dire need to hold
a comprehensive study of three aspects of energy sector; energy generation,
energy management and issues and problems in overall energy sector. The
underlying purpose of this article is to bring out not only the causes of energy
sector’s dilapidation but also suggest some workable solutions as well.

Key Words: Energy Crisis, Water distribution, Thermal power projects,

Nuclear power projects, Power management

Introduction:

Energy has become one of most crucial element among all elements of state
power. Economic development, social standards and defense of a state
completely depends on the energy base of the state. In order to measure the
socio-economic prosperity in a society per capita energy consumption is used
as a set standard. Energy prosperity is strongly associated with Human
Development Index (HDI)(Asif,2012, p.1) of a country. As a matter of fact the
aggregated global civilization is not only depending on energy but also it is
increasing dependency on energy. United Nations anticipated that the
population of world will increase up to 9.1 billion by 2050. A great part of this
population is estimated to be grown in the developing world- Asia and Africa.
(Asif,2012, p.3)This growth in population shall inevitably increase
dependency on the energy sector. Growing economic growth shall also
demand advanced and adequate energy provision as well. Overall energy
scenario suggests a sustainable energy base for each nation in order to
sustain its economy and maintain impressive stand in the committee of
nations.

As Asia and Africa are marked as the region that will have to bear most of the
burden of population and economic activity till the mid of this century, it has
become vital for the regional actors to take energy sector as their top priority
in order to secure their position as the key player in all economic and strategic
matters of the region.In Asian region China has merged as key competitor
with other regional and global powers. In South Asia India occupies a pivotal
position by its potential to influence the regional actors. Although Pakistan is
__________________________________
*Authors are Ph.D. Scholar and Professor at Department of Political Science,
University of the Punjab, Lahore - Pakistan
 Asia Mukhtar and Iram Khaild

included in the nuclear club and possesses viable deterrence in the region, yet
it is facing serious energy crisis. As far as ratio of population growth and
increase in economic activity is concerned, Pakistan is in dire need of strong
and sustainable energy base. At present, Pakistan is going through severe
energy crisis and it is in dire need of new energy resources. Development in
energy sector is significant not only for the prosperity of the state but also for
the strategic strength of the state.

Growth of Energy Sector in Pakistan

Pakistan took off as very fragile state with meek resources and infrastructure.
Energy sector was also in a quite dilapidated condition. At the time of
inception, Pakistan inherited worth Million 1.2 tonne of oil equitant (MTOE) for
the population of roughly 33 million. The installed electricity capacity was
around 50 MW approximately. This energy was quite challenging. Pakistan
was facing quite serious and immediate issues like Defence and refugee
settlement problems at that time. The energy sector got primacy with the
growing economic activity and population increase. Pakistan explored
different sources of energy by and by with the availability of resources,
technology and manpower. This article will explore all energy trends and
scenarios taking in view their efficiency, effectiveness and implication.

Part I: Major Trends and Policies towards Energy Generation

First choice available to Pakistan was hydropower resources. At the time of

independence Pakistan had only two hydropower projects; Malakand Power
Station with the capacity of 9.6 MW and Renala Power Station with the
capacity of 1.1 MW. (Sajjad Zafar, personal communication, June 11,
2015)The gross capacity of these two power stations was not more than 10.7
MW. In the entire decade of 50s the development in hydropower sector
remained sluggish. There were many factors behind this slow progress.
Beside Pakistan’s serious defense and rehabilitation issues financial
constraint and water disputes with India also served as main factors regarding
slow development in the energy sector. Pakistan adopted different measures
in order to resolve the water distribution issue with India. Water distribution
issue resolution took more than a decade. Pakistan, meanwhile took some
steps to enhance its hydropower generation. Water and Power Distribution
Authority (WAPDA) was created in 1956(Asif, 2009). WAPDA under took
several hydropower projects. In the initial phase the energy sector of Pakistan
remained focused on two energy resources; hydropower and thermal power.
The progress in each sector can be assessed separately in detail.

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1. Hydropower

Pakistan, basically inherited hydropower energy generation projects at the

time of inception that is why Pakistan kept its focus on the hydropower in the
initial phase. Hydropower is comparatively cheaper source of energy as
compare to other energy resources. At the same time installation of this power
project is a multi-million dollar project. Water is a natural resource, but this
resource requires a smart planning for proper utilization for agriculture and
power generation purposes. In order to take advantage from this natural
resource Pakistan exerted to resolve water distribution issue with in India.
Consequently, Indus Water Treaty was finalized between India and Pakistan
in 1967, under the aegis of World Bank. Indus Water Treaty is a landmark in
the hydropower sector in Pakistan. Indus Water Treaty made it possible to
take up mega projects like Mangla and Terbela dams. Total benefits acquired
from the Indus Water Treaty are given in detail in the table given below

Indus Water Treaty Benefits

(Michel,1967 pp.169)
Indus Water Treaty made possible for Pakistan to construct viable enegy
projects. WAPDA has taken up these projects with great responsibility.
Tarbela dam provides total installed capacity of 3478 MW, Mangla 1000 MW

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and Chashma 184 MW . beside these mega projct many other projects are
also completed. As fara as energy managementt is concerned, it is important
to keep the pace of energy with the increasing population and and growing
economic activity. Unless energy sector keep abreast with these indicators of
social development no prosperity can ever be achieved.Currently the hydro
projects completed under the WAPDA patronization are listed below

(WAPDA Energy Year Book 2012-13, p. 13)

Besides these projects, most crucial and controversial project is the

construction of Kalabagh Dam. This project has generated such a prolonged
controversy and discord among the stakeholder that the palnned sketch as yet
not seen a formal ground breaking. This project was actually conceived in mid
80s in order to fine out some viable solution for the future energy
requiremnets. Kalabagh dam is mega project with diverse specifications. This
dam would be ground filled with overall height of 79m (259 ft) and length of
3,350 m. This dam is planned for a place called Kalabagh in the district
Mianwali, Punjab. Overall, insalled power of the Kalabagh Dam is expected ti
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be 3600MW. its estimated annual electricity generation is just about 11,400

GWh. Presently, Pakistan is procuring this same amount of electricity from the
IPPs at the price of Rs. 131.5 billion. However, Kalabagh dam would be able
to provide the same amount at the expenditure lower than 6.5 Rs billion.
Water distribution among the provinces is the main issue behind delaying this
project.

(www.pildat.org/Publications/.../ConstructionOfKalabaghDamBackgroundPape
r.pdf)Although resolution of such task of national interests are the reponsibility
of Council of Common Interests (CCI) but council remained dorment for longer
period of time. It was only in March 1991 that an Accord was signed by the
four provinces over the problem of water division. The key figures of this
Accord are presented below:

Water Distribution Accord 1991

(Bisht, 2013, p.53)

Water distribution has remained the major bone of contention behind the idea
of the construction of Kalabagh Dam. All provinces except Balochistan have
serious concerns over the water disribution issue. However, WAPDA rejects
all such concerns over the manufacturing of Kalabagh dam. Many experts
favour the construction of the dam. However, some experts have objections
on the Kalabagh dam project as well. But the impartial studies propose that
Kalabagh dam would have more merits as compared to its demerits.
According to the experts, dams serve to be the source of harnessing both
surface and underground water that is usually remained under utilized. Most
of surface water remain unused in case of Pakistan. This is a bleak reality that
most of surface water of Pakistan is under utilized and drains into sea without
procuring any benefits. The construction of dam can offer enhanced
probability for beneficial consumption of water. It can serve as major factor in
eradication of floods that cause multiple losses of life and property. The
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problemresolution mechanism described in the South Asian Journal regarding

this project is given as under;

(Feyyaz, 2011, p. 16).

Construction of Kalabagh Dam and resolution of issues over this projects can
easily be dealt by virtue of good governance. Among all the projects under
construction the proposed Kalabagh dam of much worth as far as its benefits
are concerned. The biggest drawback of this project is the plitical influence
and maladministration. If stakeholders are able to overcome mutual
differences and they are able to develop consensus, the proposed Kalabagh
dam can bring a considerable change in energy sector of Pakistan.

2. Thermal Power Projects

Basis of thermal power development in Pakistan are found in the decade of

60s. The fundamental rationale behind the development of thermal power
sector was to provide back up to the hydopower capability. the seasonal
fluctuation in the in the hydropower generation capacity was a solid reason
behind the progression of thermal power development. Hydropower
resources are require some typical site specifications that are mostly
improvised in the Northern areas of the country . In lieu of these
circumsatnces, Transmission lines losses become inevitable. Thermal power
was integrated in the system to assist and support the areas which are
complicated to be served by hydropower. Thermal power sector is chiefly
supervised by three major institutions:

a. Water and Power Development Authority (WAPDA)

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b. Independent Power Producers (IPPs)

c. Karachi Electric Supply Company (KESC)
The above mentioned three institutes have their own specified projects,
managerial system and maintainance methods. A brief discussion of
effectiveness and efficiency of these institutes is going to be discussed in
the coming paragraphs

Thermal Power of WAPDA

Thermal power, the second supply of energy, had the full amount of installed
capability of roughly 67MW at the time of the inception of Pakistan. Since the
hydro based sources of Pakistan were not in a formidable position and a clash
with India on water division was also in the process, the energy secter was
developing at dawdling pace. The climate and season of Pakistan make it
inveitable to extend thermal power provision for the support of hydropower
base in the season of water deficiency. While considering all these comlicated
factors, Pakistan developed thermal power resources at a striking rate. The
overall installed capacity of thermal power reached upto 441MW during
1960s. In the 1970s, this capacity increased to 650 MW. Water and Power
Development Authority (WAPDA) patronized the growth of the capacity of
energy generation in Pakistan. Gas, Furnace oil and High Speed Diesel are
the most frequently used fuels. As compared to natural Gas, both fuels are
are very expesive commodities in the power generation sector. It is not
advantageous in any way to rely on these luxurious resources. Till 1990s,
WAPDA supervised and set up all thermal power projects. After 1990s,
WAPDA was immobilized. Until 2008, WAPDA produced 4, 899 MW with its
thermal power projects. This power generation comprised 24.4 % of country’s
sum energy production. WAPDA initiated around 13 projects of thermal power
in various appropriate locations all over the country. Prior to the orientation of
independent power producers, WAPDA accomplished all projects initiated
under its supervision. Below is given a tabulated version of power facility in
MWs, fuel choice and date of commissioning.

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Figure 1- Thermal Power Plants under Wapda (www.wapda.gov.pk)

a. The Independent Power Producers (IPPs)

Till the decade of 70s Pakistan successfully managed to balance between

growing demand and supply of energy. Till mid-80s, due to negligence
towards initiating new energy projects Pakistan faced serious energy shortfall.
This shortfall further increased in next decade. So much so in that in 1994
Government of Pakistan established Private Power Infrastructure Board
(PPIB). The purpose of the establishment of this board was to facilitate private
sector in the field of power generation. Government gave a new power policy
in 1994. The policy gave following points for the IPPs;
1. IPPs were free in choosing location, plant range, equipment and fuel.
They were given liberty to choose any kind of fuel ranging from diesel
oil, LAPG, natural gas, furnace oil and so on.
2. The supply and transmissionn of fuel was gaurenteed by the
Government of Pakistan.
3. IPPs were allowed free repatriation of equity and were exapted from
most of the taxes
4. Government of Pakistan gaurenteed the provision of oil and payments
of power purpaches.

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5. Govrnment of Pakistan developed a mechanism for the indexation of

certain portions of tariff based upon Rupee/Dollar exchnage rate,
international fuel price variations, interest rates and variations.(Aziz,
1994).
Private sector was generously encouraged to invest in the energy sector.
Energy policy of 2000 further facilitated private energy sector. IPPs are
operating independantly under the directions, term and condition of
government of Pakistan.Currently IPPs are dispensible part of Pakistan’s
energy sector and they are contributing more than 6296 MW of the totall
installed capacity of electricity. The following table highlight details of
major thermal projects, their capacity, nature of technology and date of
their commissioning.

Figure 2- Independent Power Plants(WAPDA Yearbook, 2012-13-

www.finance.gov.pk/publications/YearBook2013_14.pdf)

a. Karachi Electric Supply Company

KESC is another independent thermal power company. KESC was developed

in 1913. It is an older power company of Pakistan. In 1952, Pakistan’s
Government acquired greater part of the shares of KESC. As a result, KESC

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came under the control of the Government. KESC is engaged in all aspects of
power generation; generation, transmission and distribution. Total area comes
under its jurisdiction is almost 6000 sq km. its consumership is around 2
million. In 2005 Governmnet of Pakistan tranfered 73% shares of the company
and it was made privatized. From then on the management of KESC is under
the control of new owners. KESC generates all its electricity from thermal
power plants. Total installed capacity of the company is around 1756 MW. The
detail of this energy installation is given below:
KESC Thermal Power Stations

Figure 3 - KESC Thermal Power Stations (www.kesc.com.pk/en)

3. Nuclear Power Projects

Nuclear Power Projects

In the overall Pakistan’s energy mix nuclear power is a trace element with the
meger contribution of 2.3% of total installed energy capacity. Pakistan’s
nuclear program remained limited and slow till 1954. A deal with Canadian
firm General Electric was signed for the installantion of 137 MW capacity
nuclear reactor in 1965, almost a decade later of the initiation of research in
the Atomic Energy sector. This reactor was named as KANUPP (Karachi
Nuclear Power Plant). This plant was finally commissioned in 1972. For the
next thirty years this plant provided almost 10.2 billion kWh. As each nuclear
power plant has its own commissioned life, the KANUPP also retired in 2002.
In 2004 KANUPP was reconditioned for further working. This plant was
enabled to work for the next 15 years but with less output capacity. The
second nuclear power plant is CHASNUPP (Chashma Nuclear Power Plant),
it is located in chashma. Total energy generation capacity of CHASNUPP is
around 325 MW. It was commissioned in 2000. KANUPP and CHASNUPP are
the only operating nuclear power plants with combined insatlled capacity of
462 MW. Proposal for the construction of thid nuclear power plant is also
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under operation. Totall installed capacity of proposed CHASNUPP is

estimated is around 325MW. (http://www.paec.gov.pk)

4. Renewable Energy Sector

Pakistan is bestowed with ideal climatic conditions that are, beside other
benefits, are quite conducive for energy generation. All renewable energy
resources like wind, solar and tidal are in abundance in Pakistan. The history
of renewable energy resources not quite new in Pakistan but some serious
work has been done in this regard quite recently. Although some small-scale
wind turbines were installed on pilot project basis but it was in the decades of
70s and 80s that some 4000 biogas units were set up in total. It was lack of
proper patronization from the pertinent authorities that these projects could not
proliferate into mega projects. (Sajjad Zafar, personal communication, June
11, 2015)

Part II: Management of Energy Sector

‘Ministry of Water and Power’ is managing the Energy sector and it is dealiing
mainly with water and electricity. strategic and fiscal planning for long-term
plans also comes under the jurisdiction of this ministry both in the public and
private sectors. WAPDA, along with its corporations is handling long-term
projects in the energy sector. WAPDA was established as semi-autonomous
body in 1958. Its major obligation was the construction of mega projects.
Operation and maintenance, power transmission and distribution of the mega
projects was also the responsibility of this institution. WAPDA has performed
effectively in the energy sector of the country till its disintegration during
Musharraf Era. There are many project at the credit of WAPDA. Several
energy policies are responsible for the working and managemant of energy
sector. Some notable policies are discussed below that have shaped the
current situation of the energy sector in Pakistan.

Part- II: Power Management Policies From 1994 till 2013

From inception till the end of 80s WAPDA served as a institution taking under
its supervision all departments pertaining to energy from generation,
transmission and distribution. It was in mid-80s that after serious energy
shortfall, GoP palnned to developed a viable energy policy in order to atttract
the multinational investment in energy sector. The underlying idea was to
generate an atmosphere suitable and conducive to bulk of electricity
generation facilities without affecting the government resources. GoP initiated
BOO policy which offered facilities to the private sector for the concessional
period of 20 years to Build, Own and Operate (BOO). In 1987 Government
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announced financial policy for the private sectorin the field of energy
generation. Some vital features of this policy are sumed up below;

1. Creation of PSEDF (Private Sector Energy Fund) to finance the

private sector power projects.
2. Finances for the PSEDF were proposed to be arranged by GOP
through USAID (US Agency for International Development) and
loans from WB (World Bank), JEXIM (Japan Export Import Bank),
Governments of Italy, France and Nordic Investment Bank.
3. NDFC (National Development Finance Corporation) was created to
manage these funds on the behalf of the GOP.
4. GOP guarantteed to offer required security and confort to the
commercial lenders in order to make them for financing these
energy projects.
5. PPC was created under the Ministry of Water and Power to
facilitate the entire process.

Responding to the offer of the Government presented in 1985, two companies

XENEL (Xenel Industrial Limited) of Saudi Arabia and HSPE (Hawker
Siddeley Power Engineering Limiited) of UK submitted their proposals. Both
comapies proposed two 600MW stations. Xenel proposed 2 × 300 MW units
and HSPE proposed 4 × 150 MW units. Both companies submitted a
readjusted joint proposal to GOP for a 1200 MW (4 × 300) steam oil fired
power. GOP issued latter of intent to both companies separately on 27 April
1988. At that time GOP has not completed fisiablity study of both projects. In
the absance of tariff mechanism and standardised agreements these projects
saw difficult stages which affected a smooth working by both parties. After
almost a decade these projects were ultimately ready for the commissioning
by HUBCO. HABCO was established to replace HRPG (Hub River Power
Company) in 1991. This project was the landmark project in private energy
sector in Pakistan. Afterward, new developments in this regards came forward
in 1993-1994. (Policy Framework and Package of Incentives for Private
Sector Power Generation Project in Pakistan, GOP, 1994)

Power Policy of 1994

In 1993 Government constituted a twelve member Task Force on Energy. This

task force was given the following tasks to meet; reduction of load-shedding,
mobilization of energy resources, promotion of the investment from domestic
and foreign private sector and recommendations for the development of
indigenous oil and gas production. This task force recommended that some
special steps are required to attract the foreigne investers in field of energy
due to extensive global competition in this regard. Task force suggested few
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significant measures that consituted the main point of 1994 energy policy. A
constitution for the Private Power Board (PPB) was also suggested, so that
one window operation could be further facilitated.

The power policy of 1994 is the outcome of the reccommendations made by

the Task Force. This power policy facilitated both domestic and foreign
invester aand their donners without putting proposed plans into tedious rounds
of discussions and conferences. Investors were offered substential
concessions and protections against their investment, systematized
agreements, power purchase agreement (PPA), fuel supply agreement (FSA)
and bulk power tariff.

These incentives were other than quite attractive fiscal and financial
incentives. ‘Balancing of Risks’ involved in private power generation were the
basis of these incentives. The projects with ‘Risk’ factor were appointed to
those parties who were in better position to mitigate these risk factors. The
private power investors were expected to deal with the risks in volved in power
project concieving, designing, arrangement of funds, construction of fuel
obtaining and operations and maintenance for the term of the project were
provided protection from the GOP from market risks like they were not bound
to sell their product to one buyer.

Private sector was also protected against currency fluctuation risk, foreign
exchange availablity risk, natural calamities, fuel price fluctuation, unstable
political situation and administration change and most crucial, payment
avoidence of power purchaser. All these agreements were given the
protection of enforceable laws.

1994 power policy met huge success and many investors approached
government. 127 applications were received of total capacity of 26,000MW, 82
letters of interest were issued of gross capacity of 19,662 MW, 34 letter of
support were issued wwith the gross capacity of 9,062 MW and 14 projects
were commisssioned of gross capacity of 3,021 MW. These 14 projects were
based oil and gas consuption. Most importantly, under the power policy of
1994 PPIB (Private Power and Infrastructure Board) was created.

The proposal for PPIB also came from the recommendations of the Task
Force established in 1993. PPIB, which was established under an
administrative order, was given the task of the development of private
participation in the energy sector, provision of one window facility on the
behalf of Government, execution of “Infrastructure Agreement” in the name of
Government and monotering and helping IPPs in completion “WUL (Water
Use Licence)” with relevent Government agencies. The functions and
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development of PPIB shall be discussed in detailed afterwards.(Policy

Framework and Package of Incentives for Private Sector Power Generation
Project in Pakistan, GOP, 1994)

1995 Hydel Policy

Hydle power is most reliable source of energy production. It is not only cheap
in cost but also it is most atmosphere-friendly. In 1995, for the promotion of
private sector, governmentalso announced Hydel Policy. PPIB was assigned
this task. “Total 41 letter of interest were received with gross capacity of 1385
MW, 44 letter of support were issued of gross capacity of 444MW and there is
1 project under development of 132MW gross capacity. There is only one
commissioned Hydel power project of 84MW gross capacity by the name
‘New Bong Escape Hydro Power Project”. (http://www.ppib.com)

Power Policy of 2002

On the “Human Development Index (HDI)” Pakistan remained quite deficient

in energy prosperity level. Keeping in view these facts, government of
Pakistan annpunced Power Policy of 2002. Several amendments have been
made in this policy as per emerging requirements.Tremendous reponses were
received for this policy. PPIB facilitated this policy in the following way.
Against this policy PPIB received 33 letters of interests of the 9998 MW
capacity, 4 ICBs were processed of 4000MW, 19 Letters of support were
issued of 3788 MW capacity, 13 proposals were received of 2677 MW. Under
this policy 12 projects of 2530MW capacity are under construction. 20 projects
of 8969 MW are under development. (http://www.ppib.com)

National Policy for Power Co-Generation by Sugar Industry

Government appoved a policyby the name “Policy for Power Co-Generation

by Suger Industry” in November 2007. The under lying purpose of the policy
was to utilize the ‘waste of suger cane’ for the power generation. It was
suggested that this project should be completed by PPIB. PPIB remained
succesful in attracting seven suger mills. The registerd sugar mill under PPIB
having gross capacity generation of around 550 MW.

Both 1994 and 2002 Power Policies have their specific remifications. The
power projects undertaken by virtue of these policies mainly used costly fuels
like Gas, HSD, RFO ect. As a result the cost of energy increased and actual
relief never come by as it should be after this much energy generation. In
2006 a few amendment were made in 2002 Power policy. GOP banned RFO,
HSD, and Gas fired projects. Secondly WAPDA was allowed to Thermal
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Power Generation on case to case basis due to slow response of IPPs. When
private sector is involved in a mega projects with concessional and mtivating
perspective, there is a need of an astute legal framework in order to keep the
risk balancing alongwith the provision of incentive mechanism. An all
encompassing home work on the policy making, imlementational hazard and
availble alternates beside a firm grip over fiscal and financial issue.
(http://www.ppib.com)This much homework was missing on the policy and
implementational side. The 1994 Power Policy was recived overwhelmingly
but mismanagement and lack of confidence in HUBCO project undermined
the confidence of the investors. 2002 Power Policy could attract less foregn
investors, dometic inverstor remained at the top. Political instability also
affected the opportunities of foreign investment in Pakistan. Detailed
comparison of both landmark Power Policies is given below;

(Workshop on “Challenges in Energy Sector” conducted by WAPDA, 4-11-12)

Pivate Power sector grew impressively but the incentive package given by the
governmnet of Pakistan was not well evaluated and it lacked foresightedness
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as far as tarrif and fuel management was concerned. At the end of the day the
electricity acquire through furnis oil and gas fell heavey on the energy budget.

Private Power Infrastructure Board (PPIB)

PPIB was proposed by the task force set up for energy in 1993. When energy
policy of 1994 was announced PPIB was also created through administrative
orders for the following purposes;
1. “Promotion of private investment in power sector
2. Provision of one window facility to the investors in the energy sector on
the behalf of GOP, its Ministaries and Departments.
3. Execution of IA and provision of gaurentee on the behalf of GOP.
4. Assistance and monitoring of IPPs in executing PPA, FSA, GSA (Gas
Supply Agreement), WUL (Water Use Licence) with relevant agencies
of the GOP.
5. Technical, financial and legal support to the Ministry of Water and
Power, Provinces/ AJ&K.”

PPIB has established itself as an expert body over all sectors of energy from
invertments proposal till their execution packages to the investors both from
local and foreign countries. It was only due to the expertise of PPIB well
trained professionals that Power Policy of 1994 proved to be a mega success.
“Gross investment PPIB attracted towards the Pakistan’s energy sector is
around $9.7 billion both from local and foreign donners. PPIB has on its credit
29 Independent Power Plants (IPPs) with the technology based on the RFO
(Residual Fuel Oil), HSD (High Speed Diesel) resources. IPPs are currently
providing 42% of total installed capacity of the coutry.” (Workshop on
“Challenges in Energy Sector” conducted by WAPDA, attended by the scholar
on 4-11-12)

Private Power and Infrastructure Board Act 2012

Till 2002 PPIB was operating under “Administrative Order”, rendering its
operation on the behalf of the Government its Ministries and Departments.
The board was re-established considering its ever expanding functions. PPIB
was re-established under a new statute. This statute reinterating its on-going
functions and establishing its new aims and objectives. The process of giving
PPIB a status of legal entity was initaited through proper channel. The process
was initiated through the Cabinet, CCI, National Assembly and Senate. The
“Private Power Infrastructure Board Act, 2012” was passed by the Parliiament
and it received retification of the President on March, 2012. It was published in
the Gazette of Pakistan on 6tth March 2012. Hence, the legal standing of
board established in discharge its broad-spectrum functions.
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Functions of PPIB

Under the act of 2012, following are the powers and functions of PPIB;
1. Recommnedation for the development of viable energy policy.
2. Prior to the construction of a hydro-electric power station, consultation
with the concerned Provincial governments It will also consult the
Provincial authorities on the matters pertaining to the power projects
set up by private sector or through public- private partnership and
other mascellinious issues pertaining thereto.
3. Building up acoordination network with Provincial Government, Local
Governments, Government of Azad Jammu and Kashmir and
regulatory bodies for the implementation of power policies, if so
required.
4. To coordinate and facilitate the sponsors in obtaining licences ans
consents from various agencies of the Federal Government, Local
governments and Governmnet of AJ&K.
5. To play effective role in policy implementation in private sector or in
public private partnership as per power system requirements.
6. To perform the functions as one-stop organization in facilitatating the
private power companies, their sponsors and lenders on the behalf of
Federal Government, Ministries and Departments by all necessary and
appropriate ways and means.
7. To draft and negotiate the security package documents. And to
documentation of agreements and to dfart gautentee the contractual
obligations of entities under the power policies.
8. Excute, administer and monitor contract like prescription and receiving
of fee and charges for processing applications and deposit and
disburse or utilize the same, if required.
9. To obtain security instruments and encash or return charges from
sponser or private power companies as deemed appropriate.
10. To act and perform as an agent for development, facilitation and
implementation of power policies and related infrastructure in AJ&K
and Gilgit Baltistan.
11. To open and operate bank accounts in local and foreign currencies as
permissible under the laws and regulation of Pakistan.
12. To provide complete mechanism to commence, conduct, continue, and
terminate litigation, arbitration. To provide alternate dispute resolution
mechanisms at all levels may be necessary or appropriate. To hire and
pay legal services and expertise of the lawyers therefore.
13. Appointment of technical, professional or ther advisers, agents and
consultants. This includes accountatts, bankers, engineers, lawyers,
valuers and other persons.

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14. Hiring of technical and supportive staff and to determine their

emoluments, terms and conditions of their employment. To make sure
that at no stage of their service these terms and condition regarding
their emoluments shall not be reduced as determined in the contract
of their job.
15. To perform any other function or exercise any other power as may be
accidental or consequal, or some task may be entrusted by the
Federal Govt to meet the objectives of this act.

The power and function of PPIB speaks of its singnificance for the promotion
and generation of IPPs in Pakistan. Right from its establishment PPIB has
rendered impressive services and facilitate several projects of“Independent
Power Producers” in Pakistan. Few significan proposals that are facilitated by
the PPIB are given below;

a) “Power Generation Policy 1994 (this is beside HUBCO with 1292 MW

capacity, which was processed prior to 1994).
b) Hydle Policy of 1995
c) Power Generation Policy 2002
d) National Policy for Power Co-Generation by Sugar Industry January-
2008
e) Guidelines for Setting Up Private Power Project under Short Term
Capacity Addition Incentive- August 2010” (Workshop on “Challenges
in Energy Sector” conducted by WAPDA, attended by the scholar on 4-
11-12)

PPIB has played a vital role in the power generation, especially in the absence
of major hydle power projects. Although energy generation by oil and gas is
quite high in cost but still it is the only availbale alternative. Beside sevaral
administrative and financial issues, IPPs have filled the energy gaps that could
have cause a great damage to the economy of the country otherwise. In the
major patterns of energy sector in Pakistan PPIB has a vital role to play. This
obvious role of PPIB can be assed by evaluating future targets of PPIB for
private power generation. (Malik, 2012). Future Targets of PPIB adds into the
major energy patterns in Pakistan. Alongwith public sector, it is facilitating and
attracting the private sector in the energy circle of Pakistan in order to fulfill the
growing energy needs in the social, economic, domestic and cmmercial
sectors.

Future Vision of PPIB and Growth of Energy Sector in Pakistan

PPIB has focused on the energy generation through relatively cheap energy
resources. It has planned to develop hydro and coal resources rather than
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furnis oil and gas. There are few key plans under the keen focus of the Board.
The datails of them is as following;

1. Creation of Development Fund

PPIB has a plan to initiate Development Fund in order to attract Foreign Direct
Investment (FDI) in the sectors with high perceived risks. This fund is
proposed to be used in two important fields; i) in puttin equity in Engineering,
Procurement and Construction (EPC) and in arranging loans in shape of
supplies (F7). ii)- Subordinated loans for the projects. Previously development
Fund have played a significant role in the development of energy sector. The
prime example is the Private Sector Energy Development Fund (PSEDF) that
was created with the help of World Bank (WB) and administer through Private
Energy Division (PED) under the National Development Finance Commission
(NDFC). IPPs actually found their basis through these arrangements. As
compare to 90s finding and attracting financing opportunities have become
difficult. PPIB is determiined to find conerned and to create Energy Funds.

2. Simplification of the Implementation Methods of Hydro Power

Projects

Again with purpose of facilitation and convenience to the investors, PPIB has
aimed at to make the implementational methods of Hydro Power Projects
more simple and easy to comprehend. The proposed hydro power projects
were prepared earlier with the consultation of all stakeholders. PPIB in its 90th
meeting has decided that “”the proposed framework for Fast Track
Development of Hydro power projects be further studied and modified in
consultation with the stakeholders to bring clarity”. Such acts are a positive
act towards the completion of hydro power projects and towards the further
facilitation of the sponsors and lenders for the aforesaid projects.

3. Public Private Partnership in Hydropower Projects

This is further a smart move in puttingg efficiency in building the power project
on a fast pace. WAPDA has completed the feasibility studies of two projects
proposedly located in Kohistan Valley (KPK); Lower Palas Valley Hydropower
Project (665MW) and Lower Spat Gah Hydropower project (496MW)in 2010.
Basically these two projects were in public sector but in 2010 WAPDA has
decided to complete these projects in Public Private partnership (PPP). An
Expression of Interest (EOI) is invited by WAPDA I July, 2011 for this purpose
under the provisions of “Policy for Power Generation Project 2002” . in
response to EOI WAPDA received proposal from private sector firms. After a
careful evaluation two proposals of two separate Korean Consortium were
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selected. A Memorendum of Understanding (MOU) has been signed between

WAPDA, Govt of KPK and the Korean Consortium on 24th December 2012
and a joint agreement has also been signed. Under the provisions of power
policy of 2002 PPIB will cntinue the processing of these projects.

Conversion of Existing IPPs to Cheaper Fuel

In the era of 90s, when IPPs got established, furnis oil gas were taken as the
best affordable options. With the passage of time these two resources
bacame quite costly. In the last decade an exorbitant increase is witnessed in
the prices of oil and gas in the world open market. With that high increase in
the fuel price, pakistani rupee has also seen a record devluation. It is
witnessed that furnis oil price has increased 527%, Gas price 40% and
devaluation of pakistani rupee is recorded in this time period aroung 53%.
Alongwith other reasons this national and global economic scenario has
added in the turmoil of energy sector in Pakistan. Keeping in view these facts
and figures, PPIB also planed to bring IPPs to the cheaper fuel. PPIBhas
drafted guidelines for the IPPs to assist them convert their power plant to the
cheaper fuels. Although no such suggestion is materialized yet but PPIB is
keen to persue these guidelines.(Source: General Manager Planning Power
National Transmission & Dispatch Company (NTDC)

Energy management sector of Pakistan has its own history. Intially WAPDA
handled all energy sector under the Ministery of Water and Power. All hydle
and thermal power generation took place under the patronization and
vigilance of WAPDA authrorities. It was in mid 80s that the Private Power
Generation sector was introduced for the first time. Form that time onwards, is
it working and handling IPPs impressivly. Another significant move is verticle
disintegration of WAPDA in the Musharraf era, that has a far reaching impact
on the power generation and management sector of Pakistan. After exploring
the energy generation history and energy management sector, it is equally
important to under stand the issue and problem in the energy sector of
Pakistan. Part III of this article is dedicated to the issues of energy sector in
Pakistan.

Part: III Major Issues in Energy Sector

Enrgy sector in Pakistan is suffering form several problems and issues. These
issues and problems are pertaining to policy, governanace, technical and cost
issues. Each of these issues is quite serious in nature and has multiple
implications on the energy sector. At the same place if these issues are not
resolved on meritt and in time, it will cause a serious desastor not only to the

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econmic sector but also it will affect the social fabric of the country. The detail
of these issues is given as under;

1. Policy Issues:
 Energy infrastructue od Pakistan was depending heavily on Hydle
resources since inception and there were serious water issues
bewteen India and Pakistan. Due to serious economic delapidation
Pakistan coiuld not form an effective and all encompassing energy
policy in the early years of independence. In the coming decades,
even after the signing down of Indus Water Treaty with India, Pakistan
could not manage to create and implement a comorehensive energy
policy that coud match the pace of economic development and
growing domestic needs due improved life standards in both rural and
urban areas. Only a few policies, that are discussed earlier, could be
made with the purpose to meet some urgent needs in the short-termed
span. Absence of a comprehensive energy policy that could cover all
aspects of enrgy requirements, geneeration, transmission, distribution,
and energy resouce selection areas.
 Energy sector of Pakistan lacks synergy between various institution
pertaining to energy generation, transmission and distribution. This
situation has adversly affected both policy formulation and
implementation procedure. It is highly desireable that the energy
sector, for the purpose of coherence should work under one single
department with one patronizing entity.
 As far as deisions and policies regarding preferences of major
resources, till 1970s hydle source was making up almost 70% of
Pakistan’s energy sector and nearly 30% was being generated through
thermal resources and to some extend nuclear resources. The
estimated hydle power of the country is upto 45000MW. No effective
policy is found in the entire energy generation history of pakisan that
show the will of utilization this potential. Some make shift policies are
their and others are highly controversial like Kalabagh Dam. In this
connection there is serious lack of effective policy and planning. The
consequent reliance on thermal resources has made electricity a very
costly comodity. Beside this creation of IPPs and heavy reliance on
them has worked as a double edged sword that at one hand provides
relief of problem and on another hand adversly affect the cost
effectivness of the energy sector. (Asif,2012, pp. 135-38)

2. Managerial and Governance Issues

 Electricity provision is considered as basic public service on the behalf of
government. In this connection generation and provision of electricity

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comes in the realm of governance. In the presence of private power

suppliers effective regulatory mechnism becomes all the more important.
Poor delivery of electricity has direcy bearing on the quality of
governance and ratio of corruption in the system. It is seriously required
in the energy sector of Pakistan not only to improve governance
standards but also curb prevailing corruption in the system. (Malik, 2012).
 Power theft is another serious issue which is refered in general term as
line losses. Weak control over the electricity theft and line losses is the
clear manifestation of poor governance. These line losses ultimately
become burden either on the budget of consumer or these losses are
made up through subsidy by the government. These issues pertaining to
the governance are big set back in the energy sector of Pakistan.
3. Technical Issues
 In technical field energy sector is suffering from inadequate
maintenance and repair of public sector power generation plants.
Financial restraints coupled with sheer neglect is drastically reducing
the operating efficienc of these plants.
 Most of the line losses are only because of delapdated maintenance
conditions. Timely replacement of transmision line would have reduce
the line losses and could have reduce the energy cost.
4. Cost and Affordability Issue
 Poor governance and weak managerial structure coupled with much
reliablity on furnis oil and gas, has made the electricity quite an
expensive comodity in Pakistan. Public sector power plants are in
delapidated conditions due poor maintenance issue. All this scenario
has made the cost of electricity high and level of efficient provision of
electricity quite low.
 Circural debet is huge reality in the cost and affordibility issue of energy
sector. Energy production on highly expensive fuels and management of
energy sector under a weak structure ruined by orruption has generated
this vicious circle of circular debit. Only in last few years government has
injected 1.4 trillion in shapre of different subsidies in the energy sector.
Although IPPs have provided a short-term and rather easy alternative but in
current scenario both publis and private energy projets are running short of
fuel and finances and they functioning and surviving on day to day
provision of relief by the government. All these factors have generated a
severe chaos in the finance structure of these projects in particular and in
the entire system in general.

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An Assessment

Enrgy sector has become a lifeline of the developmeny of nation. Power of a

state is mainly relying on the strength of energy sector as no economic and
defense prowess is possible without a sustainable and reliable energy
availablity. Keeping in view the significance of this sector each state is striving
to preserve its energy resources and tryingg to yeild them in best of its
interest. In this regard Pakistan is facing quitte an alrmingg situation. Energy
crisis of pakiatan has multiple reasons behind it. Hydro resources are not
utilized to the best of their potential. Thermal and nuclear power projects have
not proved that cost effective as the hydro resources are generally. Beside
this, management sector is also sufferringg from huge administrative gaps that
have generated further isue in the preservation and utilization of energy
sector. There are several issues and problems that are highlighted and
analyzed in this work. There is serious need to attend all these factors on all
levels from policy formulation till policy execution. Unless the competiblity
between the supple and demand side is created through long-termed and well
articulated policies, it is futile to hope for some batterment in the energy sector
of Pakistan.

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References:

Asif, M. (2009). Sustainable energy options for Pakistan. Renewable and

Sustainable Energy Reviews, 13(4), 903-909.

Asif, M. (2012). Energy Crisis in Pakistan: Origins, Challenges, and

Sustainable Solutions. Karachi: Oxford University Press.

Bisht, M. (2013). Water Sector in Pakistan:Policy, Politics, Management. New

Dehli: Institute for Defence Studies and Analyses.

Construction of Kalabagh Dam, Pakistan Institute of Legislative Development

And Transparency (PILDAT), Paper: 170611
www.pildat.org/Publications/.../ConstructionOfKalabaghDamBackgroundP
aper.pdf

Feyyaz, M. (2011).Construction of Kalabagh Dam. Islamabad: Pakistan

Institute of

Interview with Mr. Sajjad Zafar Irfani, DG, HR. WAPDA

KESC website, http://www.kesc.com.pk/en

Legislative Development and Transparency.

Malik, A. (2012). Power Crisis in Pakistan:. Islamabad: Pakistan Institute of

Development Economics.

Michel, A. A. (1967). The Indus rivers: A study of the effects of partition (p.
67). New Haven: Yale University Press.

Pakistan Atomic Energy, http://www.paec.gov.pk

Policy Framework and Package of Incentives for Private Sector Power

Generation Project in Pakistan. GOP, 1994

PPIB official website, http://www.ppib.com

Sajjad Zafar, personal communication, June 11, 2015)

Sartaj Aziz, The Perils of High Cost Imported Energy, The Nation,28-29
November 1994.

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Source: General Manager Planning Power National Transmission & Dispatch

Company (NTDC)

WAPDA website,www.finance.gov.pk/publications/YearBook2013_14.pdf
(accessed on 25 May 2015 )

Workshop on “Challenges in Energy Sector” conducted by WAPDA, attended

by the scholar on 4-11-12

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