AIRLINK 62.48 Increased By ▲ 2.05 (3.39%)
BOP 5.36 Increased By ▲ 0.01 (0.19%)
CNERGY 4.58 Decreased By ▼ -0.02 (-0.43%)
DFML 15.50 Increased By ▲ 0.66 (4.45%)
DGKC 66.40 Increased By ▲ 1.60 (2.47%)
FCCL 17.59 Increased By ▲ 0.73 (4.33%)
FFBL 27.70 Increased By ▲ 2.95 (11.92%)
FFL 9.27 Increased By ▲ 0.21 (2.32%)
GGL 10.06 Increased By ▲ 0.10 (1%)
HBL 105.70 Increased By ▲ 1.49 (1.43%)
HUBC 122.30 Increased By ▲ 4.78 (4.07%)
HUMNL 6.60 Increased By ▲ 0.06 (0.92%)
KEL 4.50 Decreased By ▼ -0.05 (-1.1%)
KOSM 4.48 Decreased By ▼ -0.09 (-1.97%)
MLCF 36.20 Increased By ▲ 0.79 (2.23%)
OGDC 122.92 Increased By ▲ 0.53 (0.43%)
PAEL 23.00 Increased By ▲ 1.09 (4.97%)
PIAA 29.34 Increased By ▲ 2.05 (7.51%)
PIBTL 5.80 Decreased By ▼ -0.14 (-2.36%)
PPL 107.50 Increased By ▲ 0.13 (0.12%)
PRL 27.25 Increased By ▲ 0.74 (2.79%)
PTC 18.07 Increased By ▲ 1.97 (12.24%)
SEARL 53.00 Decreased By ▼ -0.63 (-1.17%)
SNGP 63.21 Increased By ▲ 2.01 (3.28%)
SSGC 10.80 Increased By ▲ 0.05 (0.47%)
TELE 9.20 Increased By ▲ 0.71 (8.36%)
TPLP 11.44 Increased By ▲ 0.86 (8.13%)
TRG 70.86 Increased By ▲ 0.95 (1.36%)
UNITY 23.62 Increased By ▲ 0.11 (0.47%)
WTL 1.28 No Change ▼ 0.00 (0%)
BR100 6,944 Increased By 65.8 (0.96%)
BR30 22,827 Increased By 258.6 (1.15%)
KSE100 67,142 Increased By 594.3 (0.89%)
KSE30 22,090 Increased By 175.1 (0.8%)

Imran has finally taken oath. The public now awaits the announcement of his key cabinet positions of people who are competent and free from corruption allegations. Ministry of Finance is one of the most important portfolios, and the party had nominated Asad Umar much earlier than even the winning of elections. He has clearly showing his plans and choices to handle the external crisis within six weeks time.

That is good and is pivotal to bring stability in the short to medium term. However, there is no clarity on the personnel of the most important ministry where bringing efficiencies have higher gains than any other sector. Yes, that is the energy ministry including water & power, and petroleum and natural resources portfolios.

Half of the issues relating to falling competitiveness, growing imports bill and surging fiscal deficit revolve around the energy sector. The total energy imports bill stood at roughly $16 billion in FY18 (according to PBS data - Petroleum group imports: $14.4 billion plus coal is assumed at $1.5 billion) which is over one fourth of total import bill.

It is imperative to reduce reliance on energy imports that accounts for almost half of the country’s prime energy needs and two fifth of power generation. It is utmost important for sustainable reduction in current account deficit. The spillover of energy mismanagement on fiscal account is in the form of mounting circular debt where outstanding amount has crossed trillion rupees mark with overdue receivables of IPPs fast approaching 12 months - full one-year cycle versus norm of one-month cycle. These are old problems which have exacerbated in the past two years. The new issue emerged lately is growing capacity payments. There is a case of massive capacity expansion with all the new power plants coming online are on take-or-pay policy. According to NEPRA state of the industry report 2017, the aggregate amount of capacity payment increased by 75 percent in the past two years to stand at staggering Rs490 billion in FY18.

Not all what has been done is wrong. But the lack of coordination and too investor friendly policies have resulted in higher cost of future generation and created some unintended consequences too. There has been deliberate, rightly so, efforts on shift power generation from furnace oil to RLNG and coal. The latter are more efficient, and coal has domestic production potential too. However, sudden shut down of FO based power plants have adverse impact on energy supply chain - local refineries produce 3 million ton FO per annum which is primarily used in power generation.

If we phase out FO production, domestic production has to be either consumed somewhere else or to be exported. But there is no contingency plan and the problem is that refineries cannot stop producing FO without shutting down the overall production which would result in shortage of petrol and jet fuel and it will disrupt entire oil and gas production chain. There is neither any work on having FO storage capacity nor on building infrastructure for its exports. It triggered a crisis in last winters and another one is in offing this winter too.

Then there are problems in pricing which are resulting in suboptimal usage of energy. Exporting industries in Punjab are at disadvantage to industries in other provinces (KPK & Sindh) as Punjab consumers are paying international rates for imported RNG while others are paying less than half price for domestic natural gas.

The problem is also visible on the merit order of power plants where inefficient power plants getting domestic natural gas are ranked higher than efficient power plants relaying on imported RLNG. The problem is even higher in case of captive power generation on natural gas in KP and Sindh - there is no data of how much captive generation is; but one thing is for sure that it is highly inefficient resulting in wastage of scarce resource.

These issues are just glimpses of problems the incumbents have to face. The energy minister and his team have to be on the top of these problems and should have well rounded plans to address the anomalies. Unfortunately, unlike the case of fin-min, till the time of penning down this piece, there is no energy advisory team or minister announced. The PTI government should take the energy related issues more seriously for lowering twin deficit and bringing competitiveness in the economy.

The foremost challenge is to improve governess in the energy chain. The need is to merge two regulators (OGRA & NEPRA) into one. The sector hosts majority of big PSEs where the losses are huge or the potential to improve profitability is visible. The need is to bring efficiencies in discos and gencos by making them responsible for the losses they create without affecting the entire energy chain. After the 18th Amendment, most of energy sector is part of federal legislative list part II which is implying both provinces and federal government have joint control on energy. It is imperative to have strong coordination between provinces and federal government. PTI is the first elected government in decades that have representation from across the country with government in two provinces, ally in the third and a strong opposition in the fourth. The need is to effectively use the CCI for better coordination on energy issues between federation and federating units.

Then there should be a clear cut energy plan encompasses all the interrelated issues where the short to medium term and medium to long term strategies to be mapped out. The idea is to cut down on imported fuel reliance by focusing on domestic energy resources. The focus should be both on conventional energy resources including oil, gas and coal with equal importance to untapped sources such shale and tight oil and gas. Apart from that the future is in renewable resources that are also environment friendly,

the need is to tap the huge potential in hydro, wind and solar energy. Then there is a huge potential in energy savings which is required to be administered through better pricing and policy directives. For example, the need is to follow the steps of India and the country should announce the timeline by which vehicles production should move towards electric and hybrid options. There are energy savings by bringing changes in production, transformation, transmission, distribution and consumption. All are required to tap simultaneously. Since there is excess supply in the grid, the first step is to retire the old inefficient gencos.

The efficiencies can also be gained through removing price anomalies. There should be uniform (weighted average) price of gas for all industries and power generation. Then to bring competitiveness in the production sector, the energy prices should be competitive to the region. And the pricing policies should incentivize captive power producers to move towards NTDC for consuming higher system production where capacity payments are made invariably. Last but not least, the energy sector is highly regulated with dominant role of public sector which is resulting into higher cost of energy for end consumers. The need is deregulate the energy markets, especially distribution, with a strong regulator to check consumers’ interest.

Copyright Business Recorder, 2018

Comments

Comments are closed.