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Dr Miftah Ismail
Wednesday, March 20, 2013
Reliable and reasonably priced energy is vital for the economic and social development of Pakistan. Yet, after 65 years of independence, the nation is facing a shortage of over 6000MW and at least 40 percent of Pakistans population does not have access to electricity. Those that do have access only get sporadic supply with frequent power outages.
The situation for natural gas is even more worrisome, where only a fifth of the population has access to piped natural gas, and there are long and sustained periods in winters when gas is not available in many parts of the country. The curse of loadshedding in electricity was a legacy from the previous dictatorial regime, but loadshedding in gas has started under the present government.
With current trends the total gas production will fall from the present level of around 4000 MMCFD to only 1000 MMCFD by the year 2024-25. This will require import to cover 80-85% of the gas required in the country. Urgent steps are therefore needed to develop new gas fields and import infrastructure.
Pakistan is blessed with enormous natural energy resources. The Thar Desert contains, at 175 billion tons, the worlds fifth largest coal reserves, enough to fuel power plants with 100,000MW of capacity for over 100 years. Pakistan also has proven oil reserves of 300 million barrels, and natural gas reserves in the deeper layers of existing fields in Balochistan are reported to be larger than those currently being exploited. Also, if sustainable marshalled, our rivers have potential hydropower capacity of at least 40,000 MW.
Despite all these resources, our energy crisis continues to worsen and has become an impediment to our economic development and is causing unbearable suffering to the common man. The annual cost of loadshedding was estimated in 2010 at Rs500 billion, a loss of a million jobs and at least $2.8 billion reduction in exports. It will be difficult to identify another example of collective national failure of policies and governance of this magnitude.
Both the most glaring cause and effect of our energy crisis is the so-called circular debt, which is now not so much circular and more just a straight shortfall in revenue. This year, according to Planning Commission of Pakistan, our energy sector deficit will be Rs499 billion. This is more than what we spend on our armed forces or civil administration, and just by itself adds 2.5% to the deficit to GDP ratio.
A two-pronged strategy is therefore required to resolve our energy crisis. First, to end the revenue deficit in the power sector that gives rise to the circular debt. And second, to increase generation capacity. To do so, PML-N has formulated a far-sighted and game-changing plan. This involves:
Creation of a Ministry of Energy and Natural Resources through the merger of ministries of Water and Power and Petroleum and Natural Resources.Reform of NEPRA including organizing upfront tariffs for wind, solar, small hydel, and biomass projects, mandatory wheeling and net metering (sale guarantee) for small producers/consumers. More importantly, deregulating and decentralizing the energy sector by allowing small power producers to sell power directly to consumers through the distribution systems of DISCOs with NEPRA (or regional regulators) to regulate prices.
Reform of distribution companies (DISCOs) including corporatisation and privatisation of DISCOs, bringing transmission and distribution losses to be under 10%, collecting close to 100% of electricity bills, and introducing prepaid billing to improve bill collection and reduce bad debts.
Reforming of Generating Companies (GENCOs), including corporatisation under independent boards and eventual privatisation of all thermal units, supplying gas to all GENCOs that can run on natural gas, replacement of all furnace oil boilers by coal fired boilers and upgrading of equipment to ensure that thermal efficiency is raised to the original specification.
Moreover, PML-N sees the need to need to aggressively develop the Thar coalfields and set up of at least 5000MW of new coal fired power plants under the IPP mode around Karachi. This will both create employment in rural Sindh and help solve our energy crisis.
The plants should be designed on lignite quality coal and at first run on imported coal and when Thar coal is available, the plants can be switched to domestic coal.
Similarly we need to harness our water resources, and for that we need to develop a consensus among the various stakeholders to facilitate setting up hydropower projects by the federal and provincial governments. This will conserve our water resources and also generate less expensive and clean electricity.
Finally, the PML-N wants the development of alternative renewable energy sources, such as solar, wind, biogas, bagasse, and other biomass projects, especially for off-grid applications. All of these steps, if implemented properly, with end the deficit in the power sector of both revenue and electricity.
To properly address closely related issue of natural gas shortage, the PMLN proposes, among other things, a blanket ban on the setting up of new CNG stations until the gas crisis is resolved, giving priority to public transport and small vehicles in the use of CNG, narrowly targeting subsidy to the poor using LPG, and a serious effort to reduce gas theft and loss that have grown to unprecedented levels in the last 5 years. Finally, introducing solar-thermal water heaters for domestic and industrial use.
Besides the above mentioned efforts to reduce the usage of natural gas, there is of course a need to increase supply, as a growing economy needs more and more natural gas and other forms of energy. Here the PML-N proposes, as the best option, aggressive wellhead pricing for oil and gas exploration, which would substantially increase production of our own oil and gas. But because of the negligence over the last 15 years of exploration activities, we now have no choice but to import gas to supplement our domestic production.
There are two ways of doing it, and we should pursue both, viz., through an international pipeline and in liquid state (LNG) through a specialized terminal. The good news is that gas is becoming cheaper because of huge new finds internationally, and as liquefying and transporting technologies also improve, imported gas will become cheaper albeit not as cheap as the domestic gas.
If the PML-N gets a chance to implement its plan, heres what we can expect. Circular debt to be contained within a year or so, forced loadshedding to end in 3 years and in 5 years there will be a market for wholesale trade of electricity and most importantly consumers, using the distribution network of the local DISCOs and the transmission network of the national grid, will be able to buy electricity from their preferred producer anywhere in Pakistan. And thats where the real benefits kick in, as once there is enough competition in the market, neither government guarantees nor government subsidies will be required and prices will start to go down as they have in the mobile telephone market.
The writer, a PhD in Public Finance from the Wharton School, was head of the Punjab Board of Investment and Trade and a member of the PML-N Manifesto Committee.
PML-N
Wednesday, March 20, 2013
Reliable and reasonably priced energy is vital for the economic and social development of Pakistan. Yet, after 65 years of independence, the nation is facing a shortage of over 6000MW and at least 40 percent of Pakistans population does not have access to electricity. Those that do have access only get sporadic supply with frequent power outages.
The situation for natural gas is even more worrisome, where only a fifth of the population has access to piped natural gas, and there are long and sustained periods in winters when gas is not available in many parts of the country. The curse of loadshedding in electricity was a legacy from the previous dictatorial regime, but loadshedding in gas has started under the present government.
With current trends the total gas production will fall from the present level of around 4000 MMCFD to only 1000 MMCFD by the year 2024-25. This will require import to cover 80-85% of the gas required in the country. Urgent steps are therefore needed to develop new gas fields and import infrastructure.
Pakistan is blessed with enormous natural energy resources. The Thar Desert contains, at 175 billion tons, the worlds fifth largest coal reserves, enough to fuel power plants with 100,000MW of capacity for over 100 years. Pakistan also has proven oil reserves of 300 million barrels, and natural gas reserves in the deeper layers of existing fields in Balochistan are reported to be larger than those currently being exploited. Also, if sustainable marshalled, our rivers have potential hydropower capacity of at least 40,000 MW.
Despite all these resources, our energy crisis continues to worsen and has become an impediment to our economic development and is causing unbearable suffering to the common man. The annual cost of loadshedding was estimated in 2010 at Rs500 billion, a loss of a million jobs and at least $2.8 billion reduction in exports. It will be difficult to identify another example of collective national failure of policies and governance of this magnitude.
Both the most glaring cause and effect of our energy crisis is the so-called circular debt, which is now not so much circular and more just a straight shortfall in revenue. This year, according to Planning Commission of Pakistan, our energy sector deficit will be Rs499 billion. This is more than what we spend on our armed forces or civil administration, and just by itself adds 2.5% to the deficit to GDP ratio.
A two-pronged strategy is therefore required to resolve our energy crisis. First, to end the revenue deficit in the power sector that gives rise to the circular debt. And second, to increase generation capacity. To do so, PML-N has formulated a far-sighted and game-changing plan. This involves:
Creation of a Ministry of Energy and Natural Resources through the merger of ministries of Water and Power and Petroleum and Natural Resources.Reform of NEPRA including organizing upfront tariffs for wind, solar, small hydel, and biomass projects, mandatory wheeling and net metering (sale guarantee) for small producers/consumers. More importantly, deregulating and decentralizing the energy sector by allowing small power producers to sell power directly to consumers through the distribution systems of DISCOs with NEPRA (or regional regulators) to regulate prices.
Reform of distribution companies (DISCOs) including corporatisation and privatisation of DISCOs, bringing transmission and distribution losses to be under 10%, collecting close to 100% of electricity bills, and introducing prepaid billing to improve bill collection and reduce bad debts.
Reforming of Generating Companies (GENCOs), including corporatisation under independent boards and eventual privatisation of all thermal units, supplying gas to all GENCOs that can run on natural gas, replacement of all furnace oil boilers by coal fired boilers and upgrading of equipment to ensure that thermal efficiency is raised to the original specification.
Moreover, PML-N sees the need to need to aggressively develop the Thar coalfields and set up of at least 5000MW of new coal fired power plants under the IPP mode around Karachi. This will both create employment in rural Sindh and help solve our energy crisis.
The plants should be designed on lignite quality coal and at first run on imported coal and when Thar coal is available, the plants can be switched to domestic coal.
Similarly we need to harness our water resources, and for that we need to develop a consensus among the various stakeholders to facilitate setting up hydropower projects by the federal and provincial governments. This will conserve our water resources and also generate less expensive and clean electricity.
Finally, the PML-N wants the development of alternative renewable energy sources, such as solar, wind, biogas, bagasse, and other biomass projects, especially for off-grid applications. All of these steps, if implemented properly, with end the deficit in the power sector of both revenue and electricity.
To properly address closely related issue of natural gas shortage, the PMLN proposes, among other things, a blanket ban on the setting up of new CNG stations until the gas crisis is resolved, giving priority to public transport and small vehicles in the use of CNG, narrowly targeting subsidy to the poor using LPG, and a serious effort to reduce gas theft and loss that have grown to unprecedented levels in the last 5 years. Finally, introducing solar-thermal water heaters for domestic and industrial use.
Besides the above mentioned efforts to reduce the usage of natural gas, there is of course a need to increase supply, as a growing economy needs more and more natural gas and other forms of energy. Here the PML-N proposes, as the best option, aggressive wellhead pricing for oil and gas exploration, which would substantially increase production of our own oil and gas. But because of the negligence over the last 15 years of exploration activities, we now have no choice but to import gas to supplement our domestic production.
There are two ways of doing it, and we should pursue both, viz., through an international pipeline and in liquid state (LNG) through a specialized terminal. The good news is that gas is becoming cheaper because of huge new finds internationally, and as liquefying and transporting technologies also improve, imported gas will become cheaper albeit not as cheap as the domestic gas.
If the PML-N gets a chance to implement its plan, heres what we can expect. Circular debt to be contained within a year or so, forced loadshedding to end in 3 years and in 5 years there will be a market for wholesale trade of electricity and most importantly consumers, using the distribution network of the local DISCOs and the transmission network of the national grid, will be able to buy electricity from their preferred producer anywhere in Pakistan. And thats where the real benefits kick in, as once there is enough competition in the market, neither government guarantees nor government subsidies will be required and prices will start to go down as they have in the mobile telephone market.
The writer, a PhD in Public Finance from the Wharton School, was head of the Punjab Board of Investment and Trade and a member of the PML-N Manifesto Committee.
PML-N
