Nov 02 - 08, 2009

Pakistan is among few countries in the world perhaps that despite having vast internal resources such as low-priced coal and wind, and high insolation rate across the coastal hinterland-that relates to solar energy-greatly depend on thermal resources to produce electricity. Part of the reason reclines in the magnitude of investment power sector requires and that is why integrated power production is pushed to the second place in the energy deficient countries of not only Asia but also Africa whenever there emerges a plan of meeting the energy shortfall.

Rather, short-term power production measures are brought in to action to overcome the power shortfall. Rental power plants are not different from any other fuel-combusted power plants except that their EPC (engineering, procurement, and construction) is less time consuming. The net effects are further deterioration of consumer's buying power since high priced fuel- and gas-ignited electricity makes tariffs bulged outward income bracket of common persons. People of Pakistan are reaping double-edged impacts: power load shedding and high tariffs therefore. The other side of the picture is not good as well.

A chain reaction ensues due to lack of initiatives on the part of the government and high share of thermal sources in the energy mix. Pakistan's external account position depends on prices of oil and commodities. If international prices go downward, reduction in current account deficit is perceptible and vice versa. With decline in prices of oil in international market, the oil import bill decreased to $2.18 billion in July-Sep this fiscal year as compared to $3.86 billion previously, translating into 36 percent decline in headline imports in September year on year (mainly driven by fall in oil payments). The current account entered in surplus ($174 million) end September because of lower imports and unprecedented surge in remittances. Too, surplus was attributed to 14.2 percent decline in exports in September.

Now, it is not hidden facts that inter corporate debts are increasing because of inability of governments' departments to foot their bills. Oil marketing companies are the main victims of the inter-corporate circular debts owing to repayments' inability of power generation companies. Fuels purchase is a main component of expenditures of electricity production companies. For instance, Kesc registered Rs37 billion as fuels expenditures last year. While power producers owe payments to independent power producers, they run operations on credit cycle underpinned by oil marketing companies, which have payables to other stakeholders such as refineries, banks. etc.

Pakistan State Oil had to face rising receivables of Rs100 billion during the first quarter financial 2009-10. However, the partial payment of Rs41.3 billion was accumulated through term finance certificates worth Rs82.4 billion issued by the government owned Power Holding (Pvt.) Ltd in mid of September. The non-payment had made the oil marketing company to approach bank's loan to settle bills of oil refineries and graduate letter of credit payments against oil imports. According to its financial result, PSO recorded Rs1.6 billion financial charges because of bank borrowing. PSO's total market share stood at 72.1 percent at the end of the quarter.

The demand of furnace oil is increasing day by day due to its consumption in furnace-combusted power plants in the country. Government's focus to rid power crisis by deploying short-term actions of captive power plants is also likely to amplify demands of furnace oil, a second consumable fuel in power generation after gas. As gloom of winter is fast enveloping the country and gas consumption is climbing, unfortunately furnace oil remains a practical substitute for power generation. Constriction in gas supply would also increase the black oil's demand. Gas shortage is expected to be high this winter, unusual to seasonal shortage during November-February with a shortfall exceeding one billion cubic feet per day in January 2010, according to finance ministry's quarter report.

As far as monetary affairs are concerned, rising demand will imply more outlays this time than nine months back when international price of crude was hovering around $42 per barrel. Now when the price has leapt to $80 per barrel, a 15 percent rise since July, and there is a logical reason of why it would stay above that level, the oil bill of Pakistan would not mirror what it was in the quarter of this year. In view of recovery in economic fundamentals of United States, a biggest energy consumer and resumption to live mode of Chinese economy all indicate towards upswing in international oil price, which according to some analysts, will remain within the current level throughout 2009.

What is in store then for Pakistan that sees darned flight of its foreign exchange outside the country due to oil payments and it is in dire need of external supports to inject fiscal stimulus in the economy? The slow materialization of external pledges is making government to borrow from banks to stabilize budgetary position. Overexerted however may be the development that government's demand of liquidity crowds out private sector from the formal credit market, noted the finance ministry's report.

Both gas and oil reserves are on decline in the country. Once rich in gas reserve, which is a customary source of power generation, Pakistan stands on the point to reckon with prospects of falling gas reserve. Oil on the other hand that is another source of power generation is imported in the country and the country saves not much reserves of residue oil to make electricity after meeting the other domestic requirements. A study reveals power consumption growth in domestic and commercial sectors over the five years has outpaced that in industrial sector. According to the estimate, power consumption in domestic and commercial sectors grew 62 percent while only 16 to 17 percent growth was recorded in industrial and agriculture sectors.