Energy Conference — will it work in an election year? (The News)

Yet another conference on elusive energy woes of Pakistan is being held by the government. The difference this time is that this Energy Conference will be attended by the Chief Ministers of the four provinces and Gilgit-Baltistan. According to the media reports “all the stakeholders have been invited to attend this important Energy Moot, to be hosted by the Punjab Chief Minister Shahbaz Sharif. The meeting will find ways and means to overcome the energy crisis, facing the country.”  

Undoubtedly no progress can be made towards solving the complex energy problems of the country without developing a consensus between all the major political players of the country. This is extremely important and at the same time a very difficult task in the election year of any country. The host of the conference Chief Minister Shahbaz Sharif not only the most vociferous critic of the federal government, buthe has been supporting the street protests on energy issues openly. His Law Minister and his son have been leading street demonstrations which have turned violent on some occasions. While the political energy is being wasted in frivolous and obnoxious exchange of words, the conference is most likely going to fail. Instead of addressing energy issues serious both PML (N) and PPP would be addressing to the Bhatti Gate voters. Sad but that’s what electioneering is all about.

Will this conference help in devising a short-term and medium term policy to overcome the energy shortage in the country? Pakistanis would be lucky if it does. Why? Because there are a number of reasons that the political stakeholders might not come to a consensus: this is the year of scoring points on each other keeping an eye on the forthcoming elections; bitter unpalatable decisions are required to get over the problem and nobody wants to take the responsibility of this prescription; different sectors of consumers have been lobbying hard to claim priority over the limited energy pie; and the experience shows that most of the recommendations of the previous energy sector stakeholders were shelved on the dusty racks of the ministries. In the last Pakistan Energy Conference a year ago, the Prime Minister announced that an Energy Council should be formed with representation from all stakeholders. The industry was overjoyed as that’s what they wanted. But till this date no progress on it has been made.

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; unattractive oil & gas exploration policy; lack of security in oil & gas prospective areas; inefficient power generation and distribution systems; 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 a 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. Fortunately, after a year, this bill was passed by the parliament recently.

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 users 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 to the 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 a 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.

Unfortunately hopes that Thar Coal power project would take off were dashed last week when a good company like Engro is considering pulling out this project. According to Engro President, Asad Omer, failure of the government to meet its commitments and guarantees with IPPs and Engro fertiliser plant would make it difficult to raise money for the coal project. This would be a pity as much progress was made by Engro in preparing economic, environmental and social impact studies and even locking the prices of machinery.

If Prime Minister is serious about the coal project he should be resolving this dispute with the sponsors urgently. Work on this crucial energy project should continue as gestation period of coal-based energy projects is 3 to 4 years.

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 of 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 a 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.

Short-term solution was rental power, but the scandalous handling of agreements has led to the Supreme Court’s intervention. Ironically, NAB has put former Finance Minister Shaukat Tarin on the ECL along with the people who are allegedly involved in the dubious deals. Shaukat was the one who got the deals referred to the ADB for vetting and eventually brought the number of agreements down.

So there are no quick fixes except that gas distribution priority is reassigned keeping in view the economic benefit of using this precious domestic energy resource. According to energy sector experts’ view, first priority should be given to the power generation, second processing industries, third normal industry, fourth domestic and lastly CNG. At present the policy keeps changing under duress from each of these sectors.

It is also imperative that gas prices are brought closer to the oil prices as this would encourage exploration and production companies to invest in Pakistan. In any case there has to be parity between imported LNG or piped gas and the local gas pricing. The only way to give some relief on pricing is that the government cuts down its taxes on oil and gas and relies on direct and consumption taxes. The provinces can help by levying a small withholding tax on the sales of major agriculture produce which are procured by the government, rice mills, sugar factories and ginning mills. All are difficult decisions and suggesting them in the election year is wasting our breath. Nevertheless it’s worth trying to talk economic sense to our politicos.

The political leaders who are meeting at the Lahore Conference should not play politics with the energy issue. They have to realise that energy prices in the world would remain high in the foreseeable future and the people of Pakistan will have to bear this brunt. The choice is between having energy at its real cost or having no energy. It sounds heartless doesn’t it? But economic realities are cold, can’t help it.


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