Load-shedding may ease, but will not go away
Pakistan is faced with many crises. While terrorism is on the top of the crises list that has to be dealt with by the government, the second place in this list is being competed by energy shortages and inflation. Any way both are closely linked with each other.
Much has been written on the on-going terrorism and rising challenge to the writ of the state by the Jihadi Hydra and for quite many years this will remain a hot topic.
The Minister for Power Naveed Qamar was right that the government doesn’t have a magic wand to bridge the yawning gap between the power demand and supply overnight. He is right because over the years the problem has become too complex. Some of the major factors that have led to the present heavy load-shedding are: bloating circular debt; high cost of fuel; non-availability of cheaper fuels; slower investments in the new projects; inefficient power generation and distribution systems; and power theft and non-payment of electricity dues.
Circular debt issue in the energy sector is nothing new. Previous governments also faced this problem. Once the circular debt crosses the danger line the government comes and injects a booster. But a booster is a booster and not a panacea of the actual disease. Why do we have the circular debt? Prominent reasons are: at average Rs3 subsidy is being given by the government on per Kwh. The electricity purchase and distribution companies face this loss because at an average 20-30% of the electricity is stolen and the government departments do not pay in time. All this adds to the per unit value of the electricity making it expensive for the end-consumer. Now the theft and payments in time can be organised if the government adopts zero tolerance for electricity theft and supply discontinuation in the case of default no matter whether the defaulter is the Senate or the President house. A good suggestion given at the recent Pakistan Energy Conference 2011 was that electricity theft should be declared a criminal and non-bailable offense.
Other reason for the high price of electricity is that the share of fuel oil is increasing in the power generation fuel mix. Indigenous natural gas share stands at almost 32%, oil 35%, hydel 30%, coal 0.1% and nuclear 1.8%. Electricity generation is thus mainly dependent on natural gas and imported furnace oil.
This is because the country is short of natural gas and the available resources are being exploited to the maximum. The electricity producers claim that they should have the first right over natural gas, domestic user burns it as a cheap fuel and want it even in the remotest village whether it is economically feasible or not. The fertilizer industry has its own claim also on the pretext that they supply essential agriculture input. Other industries are way down in the gas supply priority list.
Other cheaper sources have been neglected in the past or have been bogged down by the petty center versus provinces tussle of power. Coal contributes just 0.1% of our power generation needs in sharp contrast to the world’s 41%. It is not that we don’t have coal; it is for years that the federal government did not let the provincial government of Sindh to harness the vast Thar Coal reserves. I have personally seen federal bureaucracy claiming that as electricity is the federal subject Sindh government cannot move on the Thar coal project for power generation without their approval. However, now the much-maligned present government has resolved this issue and sufficient progress has been made to employ coal for electricity production. For the first time I am not cynical about the future of this project, where a good company like Engro has taken the lead in signing a joint venture with the Sindh government. But as gestation period projects is less than 3 to 4 years, it is possible that the benefit of Pakistan shifting to coal-based energy in a big way would go to the government that would be sworn in 2013.
Another cheaper source of energy in Pakistan is Hydel. It contributes to almost 30 % of the total production. But the problem of its availability is dependent on the flow of water in the rivers which makes its supply inconsistent. For example these days Hydel energy production in the country is around one-fourth of its capacity because low water flows. The temperature in the North has not risen enough to melt the glaciers which are a major source of water in our rivers. New investment in hydel should be in the mini run of the river power generation projects so that there is no political opposition, which we have seen in the case of Kalabagh. The Bhasha Dam which is to be inaugurated shortly is also a long gestation project. Here another problem is that not many foreign investors are keen to come to Pakistan for long term investment in a capital intensive hydel project. The deal has to be made on government to government level provided our superior judiciary realises the economic implication of shooting down such deals in the name of transparency. Tied loans are not fair for the borrowing countries but some time they are better than having no loans and investment.
Coming back to circular debt, it has to be noted that they are also becoming a red herring for the foreign investors. Take the case of Hubco; it has receivables close to Rs100 billion – which is more than its equity. “In a business environment where the payments which are guaranteed by the government are delayed for months who in their right mind will venture a new project?” One IPP executive asked me at the conference. Now that the government is thinking of floating some kind of exchangeable bonds to raise money for retiring close to Rs300 billion circular debt, the question is what is the guarantee that once this deck is cleared another will not be back on the table? Perhaps none. Because we are not focusing enough on removing the cause of this problem. (email@example.com)