It is true that despite an abnormal increase in
international oil prices, the increase has not been passed on to the
consumers as the government has absorbed the additional cost estimated
to the tune of Rs24 billion so far.
The oil prices in Pakistan are determined by the Oil
Companies Advisory Committee (OCAC) by every fortnight. The OCAC was
obviously asked by the government to restrain from any increase in oil
prices to protect the economic cycle on one hand and to avoid
inflationary pressures in the wake of the increase in oil prices.
The power sector in Pakistan is the major oil
consumer for generating thermal power, the costliest way of power
generation which is being discouraged even by the developed economies
around the world. Though the economic managers in Pakistan too have
decided not to issue any new license for thermal power production, yet
the existing thermal power generation both in WAPDA and Independent
Power Producers naturally require fuel oil to remain in the business.
In order to offset the growing financial impact on
the economy due to increased cost of oil imports, the World Bank, which
effectively monitors the movement of the economy especially in the
developing economies, has recommended upward revision of power tariffs
It is an intriguing situation for the economic
planners because on one hand they realize that the power rates in
Pakistan are already on higher side and any addition to the existing
power charges may cause a serious impact both on economic and social
life in the country. The situation was further aggravated by the
declining hydel power generation due to drastic fall in water flows from
the rivers into the dams generating around 500mw of power for WAPDA.
The difficult situation created by the high flying
international oil prices has forced the developing economies in a tight
situation while the common man would be the ultimate sufferer. It is the
high time that the oil price issue should also be included in the agenda
for talks in the world forum and the developed economies especially the
United States should come forward to provide assistance to mitigate the
worst impact of the oil prices on the developing economies.
Another option for the economic managers in Pakistan
can be to speed up the exploration of the alternative energy resources
to get rid of the nasty oil prices, posing a serious threat to the
growing and under developed economies. Natural is kind to Pakistan and
has bestowed with plenty of alternative energy resources like natural
gas and huge coal deposits estimated to the tune of 184 billion tons.
Out of the total coal deposits, the bulk of proved coal deposits i.e.
175 billion tons were identified in Thar, 1.32 billion tons in Lakhra,
over 7 billion tons in Thatta and other deposits in Jhimpir and Badin
Although, the Chinese friends have already started
working on Thar coal project, yet the situation calls for inviting more
international investors both in natural gas and coal to reduce the
impact of costly oil imports.
Recently, the World Bank has asked the government to
increase power tariff to offset the impact of Rs24 billion additional
burdens on WAPDA producing thermal power with higher furnace oil prices.
WAPDA is facing an unprecedented cost-overrun of
around Rs24 billion owing to purchase of power from IPPs because of
lower hydel generation and skyrocketing oil prices in the international
This is a conservative estimate, since it is based on
current domestic fuel oil prices and the full impact of the increase in
the international oil prices during the past 6-8 months which has not
been passed on to the consumers.
The World Bank is of the view that a clear plan was
needed to deal with additional costs. It also asked the government to
consider raise in power tariff to deal with the present situation.
According to reports, the World Bank was working with
the government on the appropriate subsidy policy, which was a key input
to the Financial Recovery Plan, as it would help determine the actual
price push that would be followed. The privatization process of power
sector, which is also on the priority of the economic agenda of the
government also requires clear subsidy policy as early as possible, the
The ministry of finance, it is learnt, had proposed
that the draft subsidy policy would be ready soon but power ministry
failed to finalize it mainly due to differences with the NEPRA on tariff
Sustainability of the power sector would require
planning out of some of the subsidy over a realistic timeframe, with a
possible move to greater use of capital grants, specially relating to
rural electrification, the World Bank feels.
In the World Bank's opinion, the investment in the
power sector was substantial, both in transmission and distribution
systems. The estimate investment in transmission was Rs34 billion for
the next five years which includes investment for 500/220kv transmission
lines and sub-stations, evacuation lines for proposed power projects and
strengthening of the system. In distribution the estimated requirement
was Rs96 billion for the same period.