Conversion is the key
The new government of Prime Minister Nawaz Sharif aims to save billions through converting furnace oilbased power plants to coal-fuelled units. This is expected to address the issue of circular debt and also spare resources for upgradation of transmission and distribution systems in the power sector.
Savings will be made through the reduction of furnace oil imports, saving $8.4 billion by converting 4,272 MW. Among the reasons for financial woes in the power sector are high costing furnace oil along with corruption, incompetence and the inability to collect bills.
The intended conversion will take about 18 to 20 months, which aims at savings of around Rs. 800 billion from the conversion and it would address circular debt and transmission and distribution systems of the power sector.
The steam-based thermal power plants are currently producing electricity from Rs. 15.5 per unit to Rs.23 per unit, against the average power tariff of Rs.9 per unit. Senior PML-N leader Sartaj Aziz says conversion will be of around two billion dollars. However, the debate currently is more on which power plant should be given conversion priority.
Thus far, SABA power an independent power producer could be picked for conversion to coal due to the land available at the plant site where the setup can be made. This coal plant will take up to six months to come into operation.
The fear of corruption and incompetence still looms over the public sector power plants, and hence after the coal conversion is made the government does not wish to hand it back to the old management and wishes to take precautionary steps through transparency and fair mechanisms to run these newly converted power plants so the decisions are not challenged in court.
To this day, experts point out that at least 3000MW of thermal power generation capacity remains idle due to the lack of funds. They have the capacity to produce up to 17,500 MW during the peak summer season.
They are also taking into account that coal power plants would have to be imported and since many of these power plants and IPP’s are located 300 to five hundred miles from the sea, the cost of coal transportation will also be taken into consideration.
The aim is to save money through conversion. The electricity cost from these plants will be low which will be transferred to other parts of the country through the national grid.