Corruption part of public sector projects: Khawaja Asif

Electricity in Pakistan – or the lack of it – has proven to be an issue dominant enough to determine the fate of elections. And with the next one coming up in 2018, facing one of the biggest electricity shortfalls in the history of the country is the last thing the ruling Pakistan Muslim League-Nawaz needs. In April, unscheduled power outages of 12 hours at the fore of the first summer heat wave caused pandemonium nationwide, drawing the wrath of the prime minister who promised to make the officials responsible pay dearly.

The chaos may have been temporarily quelled for now, but the Sharif government has struggled with its promises of bringing an end to load-shedding. As the political noose tightens, the Herald met with one of the most important members of the federal cabinet, the dual Minister for Water & Power and Minister for Defence, Khawaja Asif, to ask his view on the past, present and future of Pakistan’s electricity woes.

Danyal Adam Khan. If you are to trace back our current energy crisis to its roots, where would you say things started to go wrong?

Khawaja Asif. We were generating more electricity in 1998-99 than we needed and were even planning to export it. This impression continued until about 2002, when another policy was created, but the government at the time didn’t pay adequate attention to generation. They took a relaxed approach because they thought we had electricity to spare, but we were just breaking even.

That is when the shortages really started and had peaked by 2006-07. The rate of consumption also increased significantly during this time, while the generation had stalled to zero growth between 2007 and 2013. Even in urban centres, load-shedding of 12 hours was common, which is why this was one of the core problems over which the elections were contested in 2013.

Another thing that I can point out in hindsight – but may have been hard to foresee at the time – was the effect of us massively shifting to oil-based generation after 1994. This completely inverted our energy mix and we’re trying to correct it even today. The prices of oil may have dropped at the time, but you have to take a long-term view with such policy measures.

Khan. One of the major components of creating an energy policy is taking a forward-looking approach. When this was being done in the early 2000s with such a high load growth, how was this future planning not incorporated into policy making?

Asif. Under the 1994 policy of the Benazir government, there was about 2,500-3,000 MW extra generational capacity installed. I don’t necessarily think this was a bad thing; if the pace of the economy is right, any such excess will be consumed in a year or two. Having said that, I do feel that they could have staggered it more equally.

Even now when we are planning to add 10,000MW to the grid next year to meet the deficit, a part of our policy is to keep in mind how much more we will be needing each year to meet the growing demand, which is about 2,000MW per year at the moment. Calculating this growth pattern requires a comprehensive approach, where the ministry of planning, finance, economic affairs, water and power all have to work together. This method should have been used in the past as well.

Khan. How did you approach this challenge when you took office in 2013?

Asif. We really had to wrestle with it in the first couple of years. The problem was so deep-rooted that there was apathy in the system towards it. Corruption was rampant, and it was visible at the top level in the energy sector. When people are so used to making money through government projects, you face a lot of resistance when you are trying to move projects forward while removing corruption at the same time.But, thankfully we have reduced corruption in the energy sector and not let any major scandals take place. People criticise us for projects like Nandipur, but they forget that these are projects we have inherited. All we want is for them to kick off one way or the other and give something back in return compared to the amount of money that has already gone into them.

Khan. Many Wapda officials have claimed the sector took a turn for the worse once independent power producers came into the picture at the turn of the 1990s. They say while Wapda was put on the backseat and deprived of funding, the sector was hijacked by independent power producers who were not delivering on the thermal energy they were supposed to create, and even when they did, generated expensive electricity through inefficient means and were mired in corruption throughout. What would you say about this?

Asif. To an extent they are right. But you cannot say that corruption is rampant only in IPPs; Wapda itself has been a corrupt institution and this was one of the reasons for its unbundling. Unfortunately, the same environment has continued under the same people even after the unbundling. So I think the public sector has its own share of the blame to carry.

However, I do feel the IPPs have been granted unnecessary leverage and are not being regulated properly. They enjoy many advantages and have made countless amounts of money, even though some of these plants are inefficient. The tariffs they receive are high and will continue to be so until their contracts expire in the next two to five years.

They charge interest from us at exorbitant rates, yet complain about how they are being affected by circular debt. They are not affected whatsoever, because we have given them a sovereign guarantee on payments and no government has ever defaulted. In my opinion, and I don’t want to use the word, but its highway robbery.

By our government’s policies, we have used a more even-handed approach with the private sector. We’re not doling out public money in the form of tariffs as was being done previously. Most of the investors in the upcoming 10,000MW are foreigners – especially Chinese – because the Pakistani investors in the private sector realised they won’t get the same tariffs like they did under the previous policies.

There are many who were selling expensive electricity when the country was in a crisis, but haven’t contributed a single megawatt under the new policies. These people have made ten times more money than what they invested, but all they’re looking for even now is easy money.

Khan. Many reasons have been given for the unbundling of Wapda such as increasing efficiency, reducing corruption, and so on. How well or how badly do you think that process has turned out?

Asif. The unbundling made a lot of sense then as part of the bigger initiative of privatisation and inclusion of the private sector in generation, transmission and distribution. The plan was then, as it is today, to unbundle and privatise Wapda, but that didn’t happen. We never got to the objective that we were trying to achieve and that is what created a lot of anomalies in the system.

We feel that Wapda also needs to be more active to get itself out of the position it is in. There should be a healthy competition and partnership between public and private sector institutions, as well as collaboration with foreign partners. For example, we have already created a policy for the private sector to involve itself in laying down transmission lines and have even begun a project with Chinese investors in Lahore.

Khan. Wapda seems to have been left in a lurch since the 1990s. They don’t produce thermal power anymore and don’t have enough money to generate sufficient hydropower. What role will this institution be playing going forward?

Asif. We are investing heavily in hydel energy now and Wapda is at the forefront in all these projects. They are building the reservoir at Diamer-Bhasha, they are involved in Mohmand Dam, in Neelum-Jhelum and most other projects that are being built along the Indus. I think with the completion of projects like Ghazi-Barotha, and now Neelum-Jhelum and extensions of Tarbela, they will generate a fair bit of finances to keep themselves afloat. Then they will be able to support additional hydel projects with their own money.

Maybe they can get involved in private-public partnerships, since there are many investors in Pakistan now willing to work in this industry, or they could team up with foreign investors. With the initiative that the Chinese have taken in Pakistan, many international players from Korea, the Gulf and Europe are also now interested in investing here.

Khan. The energy mix of Pakistan has inverted in the past few decades from an approximately 70:30 ratio in favour of hydropower to thermal power, to a 30:70 ratio. Which way do you see our energy mix going in the future?

Asif. We have shifted a lot of our focus towards hydel, because it is a renewable source that will not drain our foreign exchange reserves. Most of these projects are already underway, like the 1,000MW Sukki Kinari project, which is a part of CPEC and has achieved a financial close. The 2,600MW Tarbela IV and V extensions should be online by next year. Then there is Gulpur, Karot, Kohala, Patrind, Golen Gol, and so on. Some of these projects are in the planning stage and others are under construction, but they will add enough electricity to the grid to re-balance our energy mix.

We have also taken a policy decision to only set up coal plants in the future that are based on local sources. Other than the ones that are already in the pipeline which will be completed in this year or the next, those coming up after the next three or four years have all been shifted to local coal.

Khan. What role do you see alternative renewable energy sources playing in the future?

Asif. We already have a significant amount of electricity being added to the grid through renewable sources. 880MW is coming from our wind plants in Jhimpir; bagasse is contributing about 255MW; solar will be giving 600MW in the next few months. But I want to point out that these are not enough to cover our base load, which is our priority right now. Even hydel power is not sufficient by itself because it is a seasonal source which drastically drops in the winter, but we still prefer it because it provides electricity when we need it most in the summer.

Once our base load is ensured through thermal and hydel, we can massively go into other renewables. Due to evolving technology, the efficiency of these alternative sources is increasing and their cost is decreasing day by day. We want to take advantage of this. If we make all our investment into this sector at a time like this, we won’t benefit as much and will be stuck with a high tariff for the next 20 years. For example, the solar we have installed a few years ago is now available for half the price.

Khan. Critics still point out projects like Neelum-Jhelum and the huge expense in time and money that has gone into them without any return. How do you respond to this?

Asif. I think Neelum-Jhelum is quite hyped up and not understood well enough. The dam had a completely different design before the 2005 earthquake hit and a completely different one afterwards. The project cost may have gone up from 80 billion rupees to 500 billion rupees, but you have also had to build 70 or 80 kilometres of tunnels which can facilitate trucks and tunnel boring machines.

These machines have not only lined the tunnels with concrete, but with steel so it can withstand earthquakes. The water will be passing through those tunnels 3 or 4 kilometres under the mountains, and actually under another river, before it is discharged. It is an engineering marvel. There are people that say this won’t remain feasible, but I can assure you that it will.

I admit that the project has been delayed, mainly because the amount of funds that were required was not available. When we took over, we had severe cash constraints, but we still funded Neelum-Jhelum because we could not have abandoned it given the stage that it was at.

Khan. What about the corruption allegations regarding Neelum-Jhelum, including $74 million just concerning the procurement of tunnel boring machines?

Asif. Unfortunately, the situation in Pakistan is such that corruption has become a part of public sector projects. The private sector can complete a project in one-half or one-third the cost of the public sector because there are numerous cushions that are kept from day one in the latter, of which corruption is one major factor.

Khan. A frequent critique from those working on the technical side of this industry is that there would be a huge difference in policy if a technocrat were calling the shots instead of a politician who has limited technical knowledge and will be prone to making politicised decisions What do you have to say about that?

Asif. The decisions we make are based on the technical expertise that is available to us and the data provided by them. When I receive a file, it has passed through several different hands and all the negatives and positives of the situation have been added to it.

The extent of our politicised decision-making is that we know we need a certain amount of electricity, in a given time, with a particular energy mix and at the cheapest possible tariffs. These are the major policy guidelines that we create, but that are obviously followed by people with technical knowhow. They will decide which kind of plant can be built at which location and whether it is feasible, after which the matter is debated between technocrats with varying opinions before informing the minister or cabinet committee.

I can vouch on any platform that there has been absolutely no political interference in the energy sector during our government. My bureaucracy will vouch for it; the distribution companies will vouch for it; the generation companies will vouch for it. We try to protect the honest people working in this sector and we move around the dishonest ones, but it is hard to achieve 100% success when the system has been so corrupt for so long.

Khan. It is frequently said, considering the massive amount of line losses and electricity theft, that the real issue is not generation but transmission. Do you think even if the requisite amount of electricity is created, we do not have a strong enough transmission network to distribute it?

Asif. There are huge investments going into upgrading our transmission lines and grid stations. The improvements we have seen in the energy sector in the past two or three years have actually been because of this. More electricity than before is reaching the end consumer instead of being lost on the way.

In order to curb losses for distribution companies and reduce theft, we have started using mobile phones to take metre readings and even show a photograph of it on the bill. This initiative was resisted in the beginning, but it is available almost all over the country now. We had started smart-metering at a grid and feeder level earlier, but are also now launching it at a consumer level, which will ensure zero electricity theft. The process has started at Lesco and Iesco and is being funded by the Asian Development Bank and World Bank.

We want to develop a plan that will make us the first in this region to automate and computerise the entire electrical process from beginning to end. It will take 10 or 12 years for this to happen, but we can manage it and will also receive a lot of international support. The energy sector can finally be beyond the reach of thieves then.

The writer is a staffer at the Herald