ISLAMABAD, Sept 17 (Reuters) - The Pakistani government has recently approved a controversial plan to hire power plants to overcome severe electricity shortages, despite opposition from its finance minister.
Aides of Finance Minister Shaukat Tarin said he almost resigned after failing to persuade the cabinet against renting, an option he considered expensive and inefficient.
Here are some questions and answers about the plight of the power sector in Pakistan and leasing plants.
WHAT IS THE PROBLEM?
Pakistan has about 20,000 MW of installed power production capacity, but that falls short of demand by roughly 4,000 MW. Lengthy power cuts, dubbed load shedding, have become commonplace.
Past governments failed to anticipate the growth in demand and delayed clearing power project proposals and big dam projects that would have boosted hydro power.
Lack of investment in existing plant, outdated grids and rampant electricity theft mean that some grid companies experience line losses of up to 30-40 percent, analysts say.
Many independent power producers (IPPs) operate well below capacity because they cannot pay their fuel bills regularly as grid companies owe them money.
The crisis has crippled industry, notably textiles, the main export sector and largest employer in the manufacturing sector.
There have also been violent protests that some analysts see as a bad omen both for the government and democracy in a country struggling to contain the growth of Islamist militancy.
WHAT IS BEING DONE TO BOOST SUPPLIES?
The 18-month-old civilian government has vowed to increase supplies but needs huge finances.
It recently reached an agreement with the World Bank and Asian Development Bank to phase in power tariff increases.
The government is working on a multi-pronged strategy to address the problem through building new dams and setting up new permanent power plants. It sees Rental Power Plants (RPPs) as the “only solution”, while completing medium and long-term projects.
WHAT IS RENTAL POWER PLANT?
Countries can hire power units from overseas manufacturers that can be shipped in kit form and installed.
It takes four to six months to set up a rental unit, while two to five years may be needed for an Independent Power Producer to build a plant.
Surging emerging economies like China and Turkey have gone the short-term rental route to bridge power supply gaps. And Pakistan, according to official documents, had two rental units commence operation in 2007.
Under the new plan, additional RPPs would be set up to generate 2,250 MW by the end of the year.
HOW WILL RENTAL POWER PLANTS IMPACT FUEL DEMAND?
The rental power plants would increase the Pakistani power sector’s furnace oil needs by 29 percent, driving up its import bill and adding to pressure on the rupee and currency reserves.
Pakistan requires 35,000 tonnes a day to feed its thermal power plants and the installation of the RPPs will increase demand to 45,000 tonnes, officials say.
The country imports about 80 percent of its oil. It spent $9.5 billion on the import of 10.6 million tonnes of petroleum products and 7.8 million tonnes of crude oil in the 2008/09 (July-June) financial year.
WHAT ARE THE PROS AND CONS?
Rental plants can provide breathing space for Pakistan to focus on medium- and long-term projects.
Advocates say rental plants are efficient, will help quickly meet growing needs, and end-consumers will pay the same or a bit less for their electricity.
Opponents say the mostly second-hand equipment will be less efficient and that the tariff will rise. They argue that the government would be better off spending money on upgrading and using idle existing capacity.
Some opponents also say the option is being supported by corrupt politicians hoping for kickbacks. (For more Reuters coverage of Afghanistan and Pakistan, see: here) (With reporting by Faisal Aziz; Editing by Simon Cameron-Moore and Ron Popeski)
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