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Pakistan needs a robust energy policy

The new elected government will get the reign in control in less than a month. Pakistan Tahreek-e-Insaf (PTI) has contest the election to bring change in Pakistan and masses have given the party a big nod. While some of the analysts may not agree with the narrative that Pakistan’s biggest problem is not the inadequacy of energy products, but the real issue is prevailing gross mismanagement at the regulatory as well as players’ level. Policy planners completely fail in understanding the issues and in turn fail in coming up with appropriate policy. While five year term may not be enough to completely change the landscape, but a solid foundation could be laid for building an energy sufficient country.

Over the decades the successive governments have been saying that the country is capable of producing 40,000MW electricity from Mighty River Indus but what has been achieved. The last mega dam/hydel project, Tarbella was completed in 1976 and since then no other dam has been constructed. The country has spent billions of dollars on preparing Kalabagh Dam feasibilities; in that amount at least couple of medium size dams would have been constructed. The project has been doomed due to political controversies and it seems most probable that it would never be built, even in distant future. Kalabagh location is not the last word and other sites should have been selected during the last four decades and minimum four dams of Tarbella could have been constructed. The moral of the story is that ‘oil lobby’ is very strong and in case a couple of dams are constructed they would go penny less. This lobby is so strong that one after another thermal project is coming on line but little is being done to construct dams. According to a conspiracy theory, the resistance against construction of dams is also aimed at not allowing the country to attain food security.

Exploration and Production (E&P) sector, mainly dominated by state owned companies are also not allowed to play its due role. According to a sector analyst Pakistan has less than a dozen drilling rigs which certainly do not allow drilling 100 wells per annum. One completely fails to understand why the country has not been able to bring even 50 rigs from the United States. According to the information available publicly more than 800 rigs are standing idle in the United States since the end of drilling boom in 2014. The copy book reply is ‘working conductions are not conducive for foreign companies to operate in Pakistan’. This may be half-truth because the law enforcing agencies have not been able to catch miscreants. These miscreants mostly operate in Balochistan and certain quarters term the acts of these terrorist ‘a struggle’ of freedom fighters. Those operating in Balochistan are not the locals but agents of other countries. Their main purpose was to sabotage Iran-Pakistan-India (IPI) gas pipeline project. The sole purpose of demolishing IPI was to keep the country deficient in gas and pave way for the import of LNG.

Pakistan needs nearly half a million barrels crude oil per day to keep local refineries operating. At present the country produces around 100,000 barrels crude per day. Let it be known to all and sundry that over two dozen foreign E&Ps have their presence in Pakistan, but more than 50% crude is being produced by one company, OGDCL. A question may arise, what is the contribution of these two dozen companies in Pakistan’s crude oil production?

 

State owned companies suffer from another dilemma. Though, these companies have independent Board of Directors but they seem subservient to Ministry of Finance. Every year these companies pay huge dividend to help the government bridge budget, which adversely affect their drilling activities. Even a little probe can indicate that the companies drill half of the planned wells. As stated earlier the slow pace of drilling in because of presence of limited number of rigs in the country.

Pakistan is also deficient in production of POL products and a substantial quantity has to be imported costing billions of dollars. The sector suffers from two contentious problems: 1) inadequate refining capacity and 2) higher cost production. It is on record that Pakistan’s largest oil marketing companies PSO and Hascol import huge quantities of motor gasoline. These largest quantities produce furnace oil in the largest quantity, but cost of production is high because of outdated refineries. Over the years, these refineries have failed in undertaking BMR and expansion, which renders them uncompetitive in the international markets. It may be recalled that the government stop operations of furnace oil based power plants, which gave two jolts: 1) country suffers from long outages of electricity and 2) there was no capacity to store furnace oil. In the end PML-N government has to allow power plants to use furnace oil.

Electricity generation, transmission and distribution need introduction of proper policies. Creation of IPPs has put the cart before the horse. It is true that power plants operating under state control are inefficient, but the real culprits are distribution companies. Over the last three decades the government has not been able to privatize even one distribution company. The average T&D losses, which mostly comprise of theft, adds to the financial loss of the distribution companies. During its tenure, PML-N government paid one trillion rupees to reduce the weight of circular debt and has also left the load of another one trillion rupees, as it handed over the charge to the caretaker government took change.

If the next government is serious in boosting exports it has to ensure uninterrupted supply of electricity at affordable cost to industrial consumers. The regulatory authorities pertaining to energy sector i.e. NEPRA, OGRA are not autonomous. Their sole responsibility seems to be increasing tariff, to improve cash flow of distribution companies. However, it has failed in protecting the interest of consumers.

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