IT appears the
bouquet of power-sector projects under the China-Pakistan Economic Corridor has
hit a number of road blocks of late. The latest in a series of snags that these
projects have run into is the Matiari to Lahore transmission line, the first private-sector
initiative in power transmission that Pakistan has seen. The line is vital to
the overall CPEC vision because it will carry additional power to be generated
under numerous other CPEC power-generation projects in Sindh, including
Tharparkar and Hub in Karachi. If the line is not built, that additional
generation capacity will have no means to get to load centres in Punjab,
rendering it redundant. Given the $2.1bn cost of the line, the Chinese were
asked to build the project, but the tariff that they wanted was higher than
what the regulator, Nepra, could allow. The net result has been a stalemate of
sorts for almost a year now. In August, Nepra approved a tariff of 71 paisa per
unit, but the Chinese want a tariff of 95 paisa instead, 30pc higher, and the
government is spinning all its wheels to persuade the regulator to grant the
revised tariff.
This is not the
first time that we have seen a large CPEC project run into financial
difficulties. Earlier, the complex of power plants envisioned at Gadani was
scrapped because of the costs of building the jetty. Many investments in the
Quaid-i-Azam Solar Park in Punjab have landed up in litigation because the
government cannot honour the upfront solar tariff it offered to woo the
Chinese. A large coal-fired power plant to be built in Kallar Kahar has also
been scrapped due to an escalation in cost, while the Thar coal plants have
landed up in litigation because of the costs of compliance with environmental
regulations.
The fact that all
of these were scrapped at advanced stages of execution shows the lack of
foresight while highlighting the abundance of triumphant rhetoric under which
these projects were being carried out. In almost every case, it is being
discovered that the hidden costs are large enough to erode whatever cost
advantages the projects are supposed to bring. Accommodating these costs in every
case runs the risk of creating a separate class of investor in the power sector
that enjoys privileged access to the sector’s resources, from revolving funds
to dollar-denominated settlement and a special security force. This situation
must be avoided to safeguard the future integrity of power-sector investments.
And the temptation to simply pass all these costs on to the consumers must also
be resisted. If the investment coming under CPEC cannot justify itself on
financial grounds, then it is worth considering why we should go down this path
rather than walk the hard road of power reforms to promote competitiveness
instead.
Published in Dawn October 4th, 2016
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