The Power Division has directed public distribution companies (Discos), including K-Electric, to forge service-level agreements (SLAs) with industries relying on gas-based captive power generation. This move aims to incentivize industries to abandon their off-grid power solutions and reconnect to the national grid, addressing declining grid demand and optimizing the utilization of substantial idle capacity.
The nationwide self-generation capacity of industries, primarily concentrated in Punjab and Sindh, is estimated at 2,150MW. The government projects significant financial benefits if a substantial portion of this capacity is shifted back to the grid. Shutting down 70% of in-house generation could potentially slash capacity payments on surplus generation by a staggering Rs240 billion and reduce consumer tariffs by Rs2 per unit.
This initiative comes as the government has already increased gas prices for captive power plants from Rs3,000 to Rs3,500 per mmBtu, a measure implemented as part of its $7 billion agreement with the IMF, designed to discourage self-generation.
Captive power remains a popular choice among manufacturers, particularly textile producers, due to a confluence of factors. Pakistan’s energy infrastructure is plagued by frequent power outages, voltage fluctuations, and other reliability issues that can severely disrupt industrial operations. Furthermore, in-house generation often proves more cost-effective than grid electricity, affording businesses greater control over their energy expenses and ensuring uninterrupted production.
The proposed SLAs are intended to address these concerns by guaranteeing “stable, reliable, and high-quality electricity supplies tailored to their specific needs.” Stringent penalties will be imposed on distribution companies in cases of supply disruptions or grid fluctuations. The agreements will also establish clear mechanisms for resolving technical issues and disputes related to electricity supply.
However, the feasibility of these SLAs hinges on the ability of Discos and K-Electric to deliver on their promises. While these entities possess extensive distribution networks, particularly in Punjab and Sindh, these networks are frequently unreliable and riddled with inefficiencies stemming from years of underinvestment and lack of necessary upgrades. This very unreliability is the primary reason industries opted for captive power in the first place.
Unless distribution companies prioritize and invest heavily in upgrading their networks, successfully attracting industries back to the grid will remain a significant challenge. The critical question remains: do these companies possess the financial resources necessary for such extensive infrastructure improvements? The success of this initiative, and its potential to significantly impact the nation’s power sector finances, rests on the answer to this question.
