Mar 31 - Apr 06, 2008

With crude oil prices filtering around US$ 100 per barrel and growing concerns about depleting gas reserves, Pakistan seems to be plunging deeper in the energy crisis. It has failed in developing low cost alternative energy resources, particularly renewable resources. Its foreign exchange reserves are proving paltry in sustaining rising current account deficit. For the new government the most contentious issue to resolve is ensuring uninterrupted supply of energy products at affordable prices.

Over the years Pakistan's economy has become more and more dependent on fossil oil and gas. Bulk of its power generation is based on furnace oil. Lately, effort was made to revert power generation back to gas but it failed. During this winter northern parts of the country had to endure long hours of electricity as well as gas load shedding. The gas may be there but transmission and distribution networks are incapable of handling additional quantities. Industries had to pay the highest price because neither electricity nor gas was available and productive activities came to a grinding halt.

Rise in energy cost and inability of utility companies to ensure uninterrupted supply at affordable cost is eroding competitiveness of the local manufacturers. Long outages disrupt production activities and continuous process industries are the worst sufferer. In case they opt for stand-by generation not only that they have to incur additional capital expenditure but also have to bear extra fuel cost. On top of this utility companies also charge a fee for using generators.

One of the reasons for switching over power generation to gas was to reduce cost of generation. However, KESC and WAPDA could not benefit from it because of huge transmission and distribution (T&D) loses, exceeding 40 per cent. This has resulted in a vicious circle where utility companies try to improve cash flow by increasing electricity tariff but each hike also proliferate power theft.

On top of this distribution companies suffer from mounting receivables. While distribution companies are bound to pay for the power purchase, the poor cash flow does not allow them to pay for fuel supplies. This has resulted in billions of rupees "circular debt". One of the exhibits of this problem was halt of power supply to KESC by WAPDA/PECO. Though, the supply has resumed on certain conditions there seems to be no plausible solution. It is a long drawn process because unless KESC gets the outstanding receivables it cannot pay for fuel supplies and PECO for power purchase. There seems to be no possibility of getting this amount unless the federal and governments pay the bills on behalf of these government, semi-government and autonomous bodies. With the installation of new government it is expected that the issue will be resolved. However, the federal government seems to be suffering from inadequate revenue collection over the last many months and settling this amount could be very difficult.

There was also effort to popularize CNG use in transport to curtail motor gasoline consumption. Auto assemblers started rolling out cars with factory-fitted CNG kits. Motorists also opted for conversion. Permissions were granted for establishing over 7,000 CNG filling stations. Out of these nearly 2,000 have already commenced operations. However, this winter gas supply to CNG stations was curtailed to meet the demand for gas of the domestic consumers.

The real point of concern is that public transport has not started consuming CNG as yet but meeting gas requirement of private cars is becoming difficult. Most of the taxis and rickshaws use LPG but have to face a similar trauma. Black marketing and profiteering is a norm among the LPG producers, distributors and dealers but no one is ready to accept its misdeeds and the blame game continues. Even the government seems helpless.

Since mini buses, coaches, buses and trucks consume diesel, with every increase in POL prices, fares and freight charges are increased. The upward revision in fares and freight charges may be necessary but the overwhelming consensus is that if OGRA increases price of diesel by one rupee per litre fares are raised by one rupee per passenger. It is outrageous and transporters continue to fleece the passengers and authorities keep their eyes close.


It is evident that energy supply and its enormous cost are hurting economic activities as well as purchasing power of individuals. Therefore, three-tier program has to be prepared on war footing and has to be implemented in letter and spirit. To begin with energy use has to be optimized through energy conservation and waste controls. In fact the government should impose penalty on industrial units found guilty of energy wastage.

At the same time circular debt issue of the energy sector should be resolved at the earliest. Supply of gas and electricity to chronic defaulters should be disconnected immediately if they fail in committing to a payment plan along with payment of 25 per cent of the outstanding amount as down payment. In case they fail to abide by the mutually agreed payment plan supply should be disconnected immediately and should not be restored without full and final settlement of the outstanding dues.

The government should also come up with a phased plan of reducing dependence on imported furnace oil and diesel and promote use of gas. The key prerequisites to this plan are 1) implementation of Iran-Pakistan gas pipeline project by excluding India. As a back up to gas pipeline project necessary infrastructure should also be developed for import and handling of CNG. These can ensure uninterrupted gas supply to power plants, industrial units and CNG stations. Gas is not only a better fuel but also creates less pollution.

Meanwhile, gas distribution companies should also revamp and expand their gas transmission and distribution networks. Profit of these companies is linked to their operating assets, higher the operating assets higher is the profit. Keeping in view the growing requirement for gas, it should be binding on the gas distribution companies to increase their operating assets by 25 per cent per annum over the next five years to qualify for the prevailing guaranteed rate of return. In case gas distribution companies agree to work under a mutually agreed program, the benefit of guaranteed rate of return should be withdrawn.

As a long-term plan the government should also promote use of coal in power generation. In fact effort should be made to switch over entire power generation to coal and gas should be used as an alternative fuel. Some of the coal-fired power projects are in doldrums. Government should remove all the impediments to bring these projects in operation as early as possible.

The ongoing hydro electric projects should be completed at the earliest. This would yield two benefits 1) ensuring smooth supply of water through out the year for agriculture and 2) generating low cost electricity.

All the sugar mills should also be given status of IPP to avail the prevailing generation capacity of over 3,500MW and given incentive to expand the capacity. They should be offered the same rate being paid to IPPs to begin with and a condition that it would be revised after five years. However, a cut-off line should also be given for qualifying this benefit.

Distribution of bio-fuel (petrol blended with ethanol) should be made mandatory for the oil marketing companies. This will help in containing use of motor gasoline and prove to be an alternative for CNG.

The government should also provide incentive for promoting use of locally assembled buses and trucks with CNG kits. To ensure this CNG stations with higher filling pressures should also be established in phases. CNG buses should be introduced first in large cities to overcome growing problem of pollution.

Introduction of air-conditioned CNG buses in large cities can also help in overcoming traffic jams. It is believed that if quality public transport is provided at least 50 percent cars will go off road. It will also help in containing fuel used by the cars due to smooth flow of traffic.

It is believed that the new government is sincere in ensuring uninterrupted supply of energy at affordable price. It may look like a jigsaw puzzle but facets are clear and easy to putting together.