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Introduction:
Economic policymakers have expressed serious concerns over the high cost of electricity generation by K-Electric (KE) and are seeking measures to reduce production costs. Discussions held at a recent meeting of the Economic Coordination Committee (ECC) focused on the need for a detailed plan to slash the cost of electricity generation and alleviate the fiscal burden.
Gas Allocation Policy Violations and Low Gas Pressure:
One of the reasons for the high cost of electricity generation by KE is attributed to the violation of the gas allocation policy. The Federal B Area Association of Trade and Industry highlighted this violation, accusing Sui Southern Gas Company (SSGC) of diverting gas flow to less efficient captive power plants. The association emphasized that SSGC is not supplying indigenous gas to KE, while influential owners of captive power plants continue to receive significant gas volumes. This violation has led to adverse consequences, including increased load-shedding, high fuel charges adjustment (FCA), and discrepancies in tariffs.
Impact on Karachi’s Electricity Bills:
As a result of the gas allocation policy violation, KE receives approximately 70 million cubic feet per day (mmcfd) of re-gasified liquefied natural gas (RLNG), leading to increased load-shedding and high FCA for residents and industries in Karachi. The association highlighted a significant tariff differential, with captive units generating electricity at a cost of Rs14 per unit while the rest of Karachi is billed at Rs42 per unit due to the consumption of expensive fuels like imported LNG. The total tariff differential subsidy claim of KE due to the use of expensive RLNG and furnace oil was substantial, impacting the federal government’s budget and foreign exchange reserves.
Inefficiency of Captive Power Units:
The association further noted that most captive power units are highly inefficient, consuming a large amount of gas to produce a unit of electricity. In comparison, KE’s most inefficient plant, Bin Qasim Power Station (BQPS) 1, consumes a relatively lower amount of gas. The association pointed out that captive power units often impede efficiency checks by the National Energy Efficiency and Conservation Authority (NEECA) through legal means.
Efforts to Address the Issue:
To tackle the challenges faced by KE, the prime minister has formed a task force to resolve pending issues, and a separate committee is working on KE’s expression of interest in running Jamshoro unit-1 on Thar coal. The task force has concluded its recommendations and will present a roadmap to the ECC, aimed at addressing the concerns related to production costs and gas allocation.
Conclusion:
The high cost of electricity generation by K-Electric has raised concerns among economic policymakers. Violations of the gas allocation policy, low gas pressure, and inefficiency of captive power units have contributed to the elevated production costs. Efforts are underway to reduce these costs and ensure compliance with the gas allocation policy. Addressing these challenges is crucial to alleviate the fiscal burden and provide affordable electricity to the people of Karachi.
