WEDNESDAY APRIL 13: Concern over power sector politicising: government asked to deregulate gas pricing, privatise marketing

ISLAMABAD: While expressing concern over politicising the power sector and use of state control on natural gas for political leverage, the Petroleum Institute of Pakistan (PIP) has proposed to the government to deregulate the prices and privatise natural gas distribution and marketing to improve its performance. In 'Pakistan Energy Outlook', released by it the PIP said.
"All energy sector functions should be consolidated under a single Ministry of Energy to facilitate long-term investment along with creation of a single Energy Regulatory Authority to manage the proposed de-regulation of the energy market in Pakistan". It has also been observed in the report that the government-controlled power sector has become heavily politicised, making the government unable to improve its poor performance. Creation of a competitive power market has been proposed through open access to the distribution grids for all power suppliers.
"If the current gas policies persist, Pakistan's natural gas supply is expected to decline from 4 billion cubic feet per day (bcfd) in 2010/11 to less than 1 bcfd by 2025/26, leading to a growing gas/energy shortfall of 8 bcfd (over 50 million TOEs) by 2025/26 that will depress Pakistan's average GDP growth rate over the next 15 years," Energy Outlook said.
PIP has recommended that the existing gas utilities be unbundled and a single state-controlled natural gas transmission company be created for transmitting gas on open access basis. The PIP has proposed that the natural gas pricing be made compatible with pricing of replacement fuels in different sectors (LPG, fuel oil, LNG/pipeline imports) via an enhanced gas surcharge. Also, the pricing for new natural gas supplies, both domestic and imports, be de-regulated.
It has been observed in the report that Pakistan will be unable to substantially develop its other indigenous energy sources of hydel power and coal by 2025/26 under current policies. According to a report, the energy import requirements of the country may grow from the present 30 percent to over 75 percent of the energy mix by 2025/26, costing over $50 billion per annum in foreign exchange. The report says that Pakistan's energy sector is in a state of crisis, and over the past few years has negatively impacted the social and economic development of the country.
According to the report, primary energy consumption in Pakistan has grown by almost 80 percent over the past 15 years, from 34 million tons oil equivalent (TOEs) in 1994/95 to 61 million TOEs in 2009/10 and has supported an average GDP growth rate in the country of about 4.5percent per annum. However, since 2006/07 energy supply has been unable to meet the country's demand leading to shortage. Meanwhile per capita energy consumption in Pakistan at under 0.5 TOEs/capita remains only one-third of world average.
The report says that the indigenous natural gas is the largest source of energy supply in Pakistan, contributing 27.7 million TOEs (45.4 percent) in 2009/10, followed by oil products, mainly imports, at 21.3 million TOEs (34.9 percent), hydel power at 7.5 million TOEs (12.3 percent) coal, mainly imports, at 3.7 million TOEs (6.1 percent), and nuclear power at 0.8 million TOEs (1.3 percent).
The Outlook says that the consumption of indigenous natural gas has grown rapidly in all sectors of the economy (residential, commercial, industrial, transport and power) over the past 15 years, driven by growing availability of gas and a low, government-controlled gas price as compared to alternate fuel prices.
Pakistan has developed a vast natural gas transmission and distribution network across the country. However, Pakistan's indigenous natural gas reserves are declining and a low gas price has become a significant disincentive in attracting new gas supplies and for efficiency and conservation creating licensing and quota culture, either through increased domestic exploration activities or via imports of liquefied natural gas (LNG) or regional gas pipeline imports.
The report observes that the government-controlled power sector in Pakistan, one of the largest consumers of primary energy, is facing growing problems due to an unrealistic power tariff, high inefficiencies, low payment recovery and the inability of the government to manage its subsidies mechanism. This has led to a serious "circular debt" issue which is becoming a barrier for future energy sector investment.
'Pakistan Energy Outlook' identifies a set of energy 'Blueprints' which, if implemented, could allow the energy sector in Pakistan to thrive and grow and become the engine for the social and economic development of the country, allowing accelerated GDP growth rate. As with all reform processes, the 'Blueprints' will require significant political will for execution and it is hoped that the present and succeeding governments in Pakistan would rise to the occasion.
The report says that Pakistan's current credit rating of below investment grade is not conducive for long-term LNG contracts, in which the LNG suppliers require payment securities as Pakistan does not possess LNG import infrastructure and current port conditions are inadequate for large-sized LNG vessels. The report says that Pakistan's power generation capacity of 20,000 MW (effective 13,400 MW) will require to be at least doubled in the next 15 years.