ISLAMABAD: The government has finally formulated the much-awaited National Energy Policy 2013-18. It will be presented to the Council of Common Interests for approval on Tuesday.

Under the policy, a copy of which is available with DawnNews, power sector subsidy will be phased out by 2018 and loadshedding will be ended by 2017. It aims at generating surplus electricity in 2018, privatising government-owned power plants and a few power distributing companies (Discos), bringing the double digit cost of power generation to a single digit, restructuring the water and power ministry, National Electric Power Regulatory Authority (Nepra), Oil and gas Regulatory Authority (Ogra), adjustment of outstanding dues owed by public and private organisations through federal adjusters and formation of regional transmission and power trading system.

The policy has been prepared by the Ministry of Water and Power to support the current and future energy needs of the country. It comprises seven points envisions a profitable, bankable and investment-friendly power sector which meets the nation’s needs and boosts its economy in a sustainable and affordable manner while adhering to the most efficient generation, transmission and distribution standards.

According to the policy, the power sector is currently facing a number of challenges — a yawning gap between supply and demand which far outstrips the current generation capacity (up to 4500-5000MW), highly expensive generation of electricity (Rs12 per unit) because of increased dependence on expensive thermal fuel sources (44 per cent of total generation), an inefficient power transmission and distribution system which currently records 25-28pc losses because of poor infrastructure, mismanagement and theft of electricity.

Goals

To achieve the long-term vision of the power sector and overcome its challenges, the government has set the following goals:

Build a power generation capacity that can meet the country’s energy needs in a sustainable manner; create a culture of energy conservation and responsibility; ensure generation of inexpensive and affordable electricity for domestic, commercial and industrial use; minimise pilferage and adulteration in fuel supply; promote world class efficiency in power generation; create a cutting edge transmission network; minimise financial losses across the system; and align the ministries involved in the energy sector and improve governance.

Policy principles

The efficiency will be predicated on three pillars of merit order, transparency/automation and accountability. The merit order will be privilege fuel allocation on the basis of efficiency and set a tariff structure which encourages efficient technology and management, optimises dispatch and payments and retire high cost power in favour of lower cost sources.

Transparency will be achieved by easing access to information through a public website and by optimising transmission through technology/automation. Accountability will be ensured by hiring solely on the basis of competency, signing performance contracts with heads of all entities and exercising zero tolerance towards corruption and poor performance.

Similarly, competition will be built on three pillars — upfront tariff, competitive bidding and key client management.

Infrastructure will be developed and incentives provided to attract greater private sector investments. The government will set the foundations of energy cities and corridors and sponsor public-private partnership for coal and run-of-river projects.

The government will redesign and strengthen the national grid transmission network and build a regional transmission and power trading system. The tariff and competitive bidding process will be controlled by a world-class regulatory authority. Upfront tariff will be set for low cost fuel and competitive bidding will be used to further reduce the cost.

Sustainability will be grounded on three pillars of low cost energy, a fair and level playing field and demand management.

Low cost of energy will be ascertained by altering fuel mix towards less expensive fuels such as hydro, biomass and coal. The power sector will be afforded a privileged access to gas allocation. Investments required for the low cost fuel mix will necessitate rationalisation of electricity tariff.

Similarly, fairness will be ensured by protecting the poor and cross-subsidising their consumption from affluent domestic, commercial and industrial users.

Strategy

Within the framework of energy policy principles, the government has designed strategies for each of the goals mentioned above to actualise its vision and overcome the power crisis. These focus on attracting and directing local and foreign investments towards rapidly expanding the power generation capacity. Investments can only be encouraged if the sector is made attractive and bankable by treating the subsidy to the abject poor and clearing it out through cross-subsidisation mechanism.

Demand management strategy

The strategy focuses on setting energy conservation and product labelling standards while banning the import of inefficient electronics. The local industry will be granted a three-year exemption period to bring its production to the required level of power efficiency.

The strategy may impose timing restrictions for evening commercial activities and introduce time of use metering to discourage utilisation during peak hours by charging different rates for on and off peak timings. Solar and alternative power solution will be encouraged for end users, street lighting, electronic billboards, neon lighting, shop front signage, etc.

Affordable power strategy

The strategy focuses on shifting energy mix towards low cost sources such as hydel, gas, coal, nuclear and biomass. Local and foreign investment will sought for small- and medium-sized run-of-river hydel projects. Selected hydel projects under development will be positioned for privatisation.

Multilateral agencies will be invited to partner in large infrastructure hydel projects. LNG terminals will be developed in collaboration with friendly countries such as China.

Supply chain strategy

The strategy focuses on redirecting the supply of fuel from inefficient Gencos (generation companies) to the most efficient IPPs (independent power producers). This reallocation alone has the potential of saving Rs3 billion per month and generating an additional 500MW.

At the same time, the water and power ministry will sign performance contracts with Gencos, PSO and fuel transporters and hold them accountable for the quality and theft of oil.

Generation strategy

The strategy focuses on establishing plant efficiency through external heat rate testing, building a merit order accordingly and allocating fuel to the more meritorious plants. Allocations will be made public to improve transparency. The strategy calls for privatisation or O&M based leasing of Gencos.

Transmission strategy

The strategy is based on installation of upgrade SCADA software to optimise transmission and monitor its losses. Dispatch will be based on economic order and internal/audit control will be established on dispatch and payment. Plants will be built closer to load centres, high voltage transmission lines will be expanded and 220kv rings around cities will be strengthened.

Distribution strategy

In the short-term, performance contract will be signed with the heads of distribution companies and their respective boards focused on reducing distribution losses because of technical reason, theft and lack of recovery/collection. Smart meters will be installed at the feeder level, profit and loss accounts will to be managed at the feeder level and the accountability will be appropriated to the executive engineer.

Financial efficiency strategy

The strategy focuses on collecting outstanding receivables from the provinces and government departments. Federal adjuster will be appointed to settle disputes. GST refunds will be collected from the FBR and a mechanism will be built to avoid future build-ups.

The strategy is geared towards punishing private defaulters and proposes severing the electric connection of defaulters after 60 days of non-payment and only reconnecting them to the grid with pre-paid meters.

Governance strategy

The strategy calls for the notification of an official coordination council comprising the ministries of water and power, petroleum and finance and the Planning Commission. The council will ensure information integration between these ministries and will assist in policy formulation and decision making related to energy.

Impact

The government hopes that implantation of the energy policy will lead to enormous improvement within the power sector. The gap between demand and supply will be eradicated by 2017 and the country will have surplus power by the end of 2018.

The cost of power generation will be reduced to a single digit per unit and efficiency improvements in transmission and distribution will reduce the burden of power for end-consumers.