EDITORIAL: A new government has been formed. The first step for Prime Minister Shehbaz Sharif is to form his cabinet. Ideally, the cabinet should be small; but it may not be possible to have a small cabinet as it is a coalition government. Energy and finance are two areas where the Prime Minister should not make any compromise; he must bring in the best and most capable available people.
The colossal problems that the energy sector is beset with demand an end to fragmented responsibility within this sector. There is, therefore, a need to have a federal minister for energy, who should be simultaneously responsible for petroleum and power divisions.
The old architecture of two separate ministers for petroleum and power has long lost its grandeur. Until the 1970s there was only one ministry for industries, fuel, power and natural resources.
Later, the portfolio split into several portfolios. It’s time to introspect and get back to what is right. There are deep linkages between the petroleum and power divisions. From past experiences, it is crystal clear that the lack of coordination between the two divisions has brewed more inefficiencies and contradictions.
The country appears to be in a state of emergency insofar as the economy is concerned. The two ministries — finance and energy — have linkages as well. One of the prime reasons for slippage in the fiscal deficit (below the line) is the circular debt spawned primarily by the energy sector. The power sector circular debt has soared to over Rs2.5 trillion.
The gas sector’s circular debt is nearing the Rs700-800 billion mark. And though it falls under the petroleum division, it cannot be separated from the power sector since the deficit is mainly due to inefficiencies in the LNG procurement and failure to pass the cost on to consumers.
Also, a big chunk of LNG demand comes from the power sector, and timely decisions are impossible due to untimely demand generated from the power sector where merit order changes with the price.
The point is that the circular debts (gas and power) are intertwined and interlinked. There are payables and receivables between Pakistan State Oil (PSO), Pakistan LNG Limited (PLL), Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited (PPL), Sui Southern Gas Company Limited (SSGC), Sui Northern Gas Pipelines Limited (SNGPL), Independent Power Producers (IPPs) and Discos. These are all different entities within the energy sector.
Some of these sectors/companies are under the petroleum division while others fall in the domain of power division. How can these remain separated and function independent of each other?
Globally, gas and power are largely under one umbrella. The majority of the fuel in Pakistan — be it furnace oil, LNG or coal — is imported to generate power. The power sector determines the merit order. Fuel import and management belong to the petroleum division. It waits for the power sector to generate demand and then place orders for procurement.
Power sector merit order is a function of price. The price changes every day. For such scenarios, quick decision-making is needed. And for that, coordinated efforts under one leadership are imperative. Then there are decisions of expanding infrastructure and altering the fuel mix. All these decisions need coordination.
There should not just be one energy minister, but there should also be one federal secretary for the energy sector, and there could be two separate additional secretaries for petroleum and power divisions. In the past, the tussle between bureaucrats and ministers in the two divisions had cost millions of dollars to the national exchequer due to delayed and unnecessary decisions. The coming days are difficult.
The global energy prices are high, and there are shortages of specific fuels. Pakistan needs to make a tough decision to increase petroleum and electricity prices and import LNG at skyrocketing spot prices. The circular debt has to be tamed and negotiations with 2015 IPPs must be undertaken to spread out the debt-paying portion of IPPs from the first 10-12 years to throughout the life cycle of the projects.
These are tough decisions and require negotiations with international lenders and bilateral partners. There is little or no room for making mistakes. The first right thing to do is to have one capable minister in the ‘energy ministry’.
Copyright Business Recorder, 2022