Energy mess to get messier

BR Research August 6, 2019

When a mistake repeats too many times, the authorities should be held responsible. There is another energy sector crisis looming due to lack of coordination between petroleum and power divisions, within one energy ministry. Even if there were no mala fide intentions, sheer incompetence resulting in colossal losses should not be tolerated.

It is the third year in a row when an energy crisis looms as the demand forecast – by power sector does not match supply of energy sources – responsibility of petroleum division. Back in 2013, PMLN government had it in manifesto to have one energy ministry and later it was done on letter, but never implemented in spirit. The situation is no different in PTI tenure – even today, according to sources, petroleum division people do not attend meetings on invitation of power division, and vice versa.

There are independent secretaries and their offices whom are working, forecasting and deciding in isolation, and later when a crisis emerges, no one takes the responsibility. The huge cost the country is incurring in quest of bringing macroeconomic stability will be of little use, if the energy sector mess is not taken care of.

The current problem started when the power division demanded higher import of RLNG and FO without taking into account the consideration of economic slowdown, increased water availability and higher supply due to new energy generation sources. Now with excess fuel being imported, the question is deployment, and the demurrages charges are to be paid in the process.

The usual response is – that we were not expecting more water, and lesser use of electricity due to mild summers or falling manufacturing production. Did they not know that there would be more snow melt due to higher snowfall this winter? Did they not simply see the LSM dip? Could they not have coordinated with the Met department on the forecast of weather this summer? Did they not know that Tarbela extension and Neelum Jehlum were coming online? The story of crisis is simple – the power division asked for higher RLNG import to meet supposedly high demand – based on certain percentage increase in demand from previous year. The RLNG is being imported and is pumped into the system; but the demand is not there.

Concurrently, three cargos of FO are being imported – jus to remind, there is a recent history of two FO oversupply crises in past two years (Nov17 and Nov18), and local refineries, especially in North, were almost closed. Expect a crisis, earlier than November this year. Yet, there is no alternate plan to consume FO produced by local refineries, if it is not deployed by IPPs. When will we learn? What kind of governance is this?

The imports are being done, and the story is unfolding now. The SNGPL has written a letter on August 2, 2019 to petroleum division (Ministry of Energy) stating that average RLNG consumption during July remained at 714 MMCFD versus demand (by power division) of 828 MMCFD – this has resulted in the system packing. The demand as of today (2nd August) is of 550 MMCFD and if this continues, further packing is expected which could jeopardize whole RLNG supply chain. The demand may reduce further in Eid holidays. The company has raised red flag.

Another letter is written on the same date by PSO to petroleum division that SNGPL is defaulting against committed off takes. The new cargo arriving on terminal today (2nd August), was expected to discharge at one fourth of the normal discharge rate. This would cascade into delays of future cargos as well. Thus, cargo arriving on 15-16 Aug may attract ‘take or pay’ charges as well – another circular debt.

Now an emergency system re-order is taking place with two cheaper coal power plants (Sahiwal and Port Qasim) closed to run RLNG plants for letting the imported gas to be used. A similar solution will soon be offered for FO consumption to not let local refineries shut down.

These are temporary solutions and could be termed as fire-fighting. The permanent central planning is missing. The problem is twofold – within central planning in Islamabad, there is lack of coordination between ministry divisions sitting in the same building, but at different floors. The other problem is of competency, to gauge supply and demand, by government officials, and their stake in decision making. Such decisions should be taken by private parties and the risk be borne by businesses, not government (taxpayers’ money). However, all these take and pay policies – be it IPPs or now RLNG terminals, at the end create circular debt.

Copyright Business Recorder, 2019

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