It is generally said that man proposes and God disposes, the
saying seems to prove as true in the case of power generation policy
of the government. The two major power generating organizations
especially WAPDA and the KESC had a policy to cut down their cost of
power generation by shifting from oil fired system to gas fired system
in the KESC and Hydro Power generation in the WAPDA systems.
WAPDA is a major producer of hydel power by using the dams
especially Tarbela, Mangla and the newly constructed Ghazi Barotha
In all, the three dams generate over 5000 MW of power, which
is a significant contribution in the energy sector of
However, the policy of reducing the reliance on oil-based
thermal power generation where cost of generation is increasing
rapidly due to increase in oil prices, WAPDA has no option but to go
for oil-fired thermal power generation due to drastic cut in water
flows from rivers into the dams. As a result of decline in river
flows, the water level in the dams is declining below the desired
level, which has its impact on power generation by these dams.
Federal Minister for Water and Power had recently said that
river flows have been decline due to shortage of rain and change of
weather in the mountain regions where the snow was melting at a much
low rates due to climatic conditions bringing down the temperature in
the Northern region of the country.
If the government decides to go by the proposal of WAPDA to
import fuel oil for shifting its generators on oil-fired system,
obviously the import bill for POL products may have an additional
burden of around dollar one billion at the end of the year.
The government circles have estimated that the exchequer to
suffer a loss of around $1 billion at the end of the current financial
year due to rising world oil prices. The loss due to increase in oil
prices has to be born by the government as it did not pass on the
increase in prices to the consumers.
The government capped oil prices at $40 a barrel with effect
from May 2004 last and a loss of $380 million had been recorded from
May to September this year as well prices have surpassed $52 per
barrel during the period. Every month the federal government is
absorbing $70 million to $80 million loss on account of abnormal
increase in the international oil prices. Had the increase passed on
to the consumers, it may be had severe impact on the general prices
besides triggering the inflationary pressures and depreciation of
rupee again the dollar may make things unbearable for the general
According to informed sources, the issue of increase in oil
prices was discussed at the highest level where it was decided that
the government would continue to absorb the losses instead of passing
it to the consumers to check the inflationary pressures and the
general price hike especially on essential items.
The government, sources said, was of the view that any
increase in domestic oil prices would have much greater loss to the
national economy as it would open a new chapter of price escalation
and disturb the key economic indicators during the current financial
year. One of the major impacts in case the government decides to
withdraw the oil subsidy would be on rupee-dollar parity, which may
even go beyond Rs61 a dollar from the prevailing rate of Rs59.60.
It is, however, surprising that why the government quarters
are estimating the oil price increasing on New York crude prices while
Pakistan has nothing to do with the New York crude as our entire
import is linked with the Arab oil market where the oil prices are
well around the benchmark of $40 as set by the government at the
beginning of the financial year.
It is, however, important to note that the economic managers
should have visualized the volatile oil market soon after the
US attack on Iraq
which is a major contributor to the world oil market. No doubt the
increasing cost of oil was realized much earlier say about a decade
ago when the governments in the past had decided to import natural oil
either from Iran or Central Asian States especially from Turkmenistan
besides speedy development of alternative energy resources especially
natural gas. It is said that Pakistan has a huge gas reservoirs, which
can be sufficient for next 25 years.
There is no second opinion that
afford the luxury of consuming the costly fuel oil to run its power
sector or another oil consuming segments of the economy. In this
record almost the entire cement sector has already been shifted to
coal based system, the Karachi Electric Supply Corporation was also
shifted from oil to gas and currently the entire KESC generation is
running on gas-fired system.
We have already lost much of the precious time in holding
meetings, and traveling of large delegations for discussing the gas
pipeline projects, due to uncalled delays in the implementation of the
gas pipeline project, the estimated cost of the project has been
escalated from $2 billion to the current estimates of $3.5 billion
dollars. If the time was allowed to slip out of the hands, not only
the cost of the proposed projects would further escalate but oil
imports would also increase formidably in the years to come.
It is high time that instead of lingering on, a final shape
should be given to the projects to save the hard earned foreign
exchange of the country.