Energy crisis continues unabated

The energy crisis is continuing unabated. The government continues to lay the blame for the demand-supply gap on Musharraf era's flawed policies that failed to undertake projects required to meet the shortfall. Long-term projects, government ministers are loudly proclaiming, have a gestation period of between four to five years and would come on board within the next year or two. The unrest in North Africa and the Middle East, government ministers further legitimately proclaim raised international oil prices (including LPG prices) and therefore the government has no option but to raise electricity and LPG rates to match their international rates. The fact that the government was unable, not unwilling but unable, to raise tariffs as required and agreed with the International Monetary Fund under the stalled and later suspended 2008 Stand-By Arrangement was a reflection of the government's commitment to ensure a national energy price instead of one based on performance of various discos. This, they further maintain, accounts for around 25 billion rupees of monthly subsidy at present. However, the subsidy also takes account of not only the tariff differential claims but also non-payment of bills by government departments/ministries as well as line losses which are around 19 percent instead of the acceptable 16 percent. At present, Pakistan's energy mix relies heavily on furnace oil, an expensive fuel, and with domestic gas shortages, especially in the winter months with domestic demand rising significantly, the government has been compelled to increase gas shedding as well. And as correctly stated by Dr Asim Hussain, the Minister for Petroleum and Natural Resources, Pakistan needs to equate the price of all fuels based on energy unit output, and has rightly been engaged in narrowing the price differential between furnace oil and the much cheaper domestic gas. The question that the public has been asking for over three and a half years is what is the solution? And it is here that the government is very much on the back foot for three major reasons. First and foremost, the inter-circular debt has not been dealt with fourth year in a row which, in turn, accounts for periodic inability of the liquidity-strapped Pakistan State Oil to import fuel for the generating plants leading to over 16 hours of loadshedding. It is only when the people come out on the streets that the cash-strapped Ministry of Finance releases the bare minimum required to import the critical fuel for a short period of time. Second, the government has not yet focused on reducing line losses which could reduce the energy shortfall. Third and the most publicised reason relates to the controversial rental power projects (RPPs) that were to meet the short to medium-term energy needs of the country. That the RPPs are clearly flawed is now well-acknowledged especially given that the government continues to pay, as per agreement, for optimum capacity of an RPP, rather than what the RPP generates, an example being Karkey that has been unable to produce at even one-fourth capacity because the government has been unable to provide the plant with the necessary fuel. None of these three major causes of continued energy shortfall can be laid at Musharraf's doorstep. The solutions are all available with the Ministry of Water and Power and the Ministry of Petroleum and Natural Resources in terms of short, medium and long-term in the form of reports that are gathering dust. In the long run, the government has to change the energy-mix to ensure that the more expensive furnace oil contributes the least to meet our energy needs. The medium-term, around three to four years during which the present government has been in power, requires elimination of the inter-circular debt, ensuring that the line losses are minimised, bill collections are 100 percent and subsidies slashed to include only the life-line consumers. The short-term, well past for the present government, should have devised a load management plan that ought to have prioritised the industrial sector at the cost of the commercial sector (with shops opening at 9 am and closing by 5 pm as in the rest of the world) in an effort to ensure that growth was not held hostage to energy shortfall. The government has claimed that it has undertaken hydel projects that would ensure 26,000 MW in 10 years time. This increase is based on support from bilateral (specifically the US) and multilateral entities. A word of caution is in order here: the suspension of the IMF programme has led many a bilateral or multilateral to suspend aid for budget support. However so far this has not impacted on project support. Be that as it may, the government must understand that until and unless it meets the donors' conditions with respect to reforms in the energy sector, their support would be niggardly at best. The time for action, as this newspaper does not tire of pointing out though the government appears not to heed the advice, is now. Copyright Business Recorder, 2011