OIL IMPORTS MAY INCREASE THIS YEAR

Low river flows compel Wapda to rely more on thermal

By AMANULLAH BASHAR
Oct 11 - 17, 2004

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 dam.

In all, the three dams generate over 5000 MW of power, which is a significant contribution in the energy sector of Pakistan.

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 public.

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 Pakistan cannot 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.