HIGH GROWTH NOT POSSIBLE WITHOUT EFFICIENT ENERGY SECTOR
SHABBIR H KAZMI
Oct 18 - 24, 2010
Experts have the consensus that Pakistan can also achieve double digit GDP growth rate and the first step towards achieving the target is to make the energy sector players vibrant, efficient and financial stronger. Ensuring uninterrupted supply of energy products at affordable cost is the key to success. They also say whatever has happened is history, which cannot be changed, but a new chapter could be written by following an elaborate plan involving the key and also the sub-sectors.
At present energy sector of Pakistan comprises of exploration and production companies; refineries; oil marketing companies; gas marketing companies; power generation, transmission and distribution companies. However, if one looks at the balance sheets and annual accounts of the listed companies, some common contentious issues mar the performance. Poor cash flow and non-availability of funds for balancing modernisation and replacement (BMR) and expansion not only enhance cost of doing business but also push the companies deeper into problems.
Despite rich in fossil reserves (oil, gas, and coal) the country remains heavily dependent on import of crude oil and finished products. LNG and gas import projects have been far behind the schedule. A cursory look at each of the sub-sector indicates that they mainly suffer from 'self-inflicted' problems. It is true that government policies have not been very supportive, but can the corporate sector say it has been efficient? Years of operation of energy companies in the public sector, heavy reliance on government funding and lack of good governance have made most of the entities 'white elephants'.
On top this appointment of 'party activists' often lacking professional qualification and required expertise have plunged these entities deeper into the problems. Pakistan has an enviable oil and gas discovery history. Though Balochistan was the first to hit the headlines with the discovery of natural gas, over the years its share in country's oil and gas production is on the decline. The only cause is 'precarious law and order situation'. Constant conflict of tribal leaders with the state and emergence of militant groups seeking independent Balochistan does not bode well for exploration and production activities. There may be difference but ongoing rift is affecting economic development of the province and depriving its people of the modern day facilities. The situation forces exploration and production to undertake operations in other provinces. There are discoveries but of relatively of smaller sizes. Sindh and Punjab seem to be contributing lion's share in keeping the country self sufficient in the production of gas but Balochistan and Khyber Pakhtunkhwa just cannot be ignored.
Oil marketing sector is dominated by Pakistan State Oil but has become victim of inter corporate debt. Gas marketing companies, also the victim of circular debt, have not been able to contain unaccounted for gas losses.
Inability to revamp transmission and distribution network has also become a bottleneck. Delay in import of gas through pipeline forces the country to undertake extensive and intensive gas load shedding. This winter gas shortfall is estimated around 1,000 mmcfd leading to extensive load shedding. The only regret is that the situation has gone from bad to worst as compared to last year because supply failed to match demand. Gas load shedding would force the country to import more petroleum products that would add to oil import bill of the country.
Worst has been the performance of power generation and distribution companies. As against an installed generation capacity of around 20,000 megawatt, actual generation has been hovering around 15,000 megawatt. The key reason cited for the dismal condition is 'inability of generation companies to operate power plants at optimum capacity due to liquidity crunch, not allowing purchase of gas in required quantity. The prevailing condition is the outcome of following outrageous policies over the last three decades.
This could best be understood by looking at KESC. In nineties, it used to export electricity to Wapda but now faces a shortfall of up to 3,000 megawatt. The subdued demand is because many of the industrial units have opted for self-generation. It was only after the privatisation that some effort has been made to add new generation capacity. However, the process is moving at snail's speed because of failure in reducing transmission and distribution losses.
The country has also failed in adding any mega dam after seventies. Mangla came online in mid sixties and Tarbela commenced operations in mid seventies. Ghazi-Brotha is a good and 'run of the river' type project.
Pakistan also failed in exploiting its coal potential as well as nuclear generation option. It was only recently that China extended a helping hand for constructing coal-based as well as nuclear power plants. US and India expressed their reservations on the project. The US has also been opposing Iran-Pakistan-India gas pipeline. India has virtually taken an exit after entering into an agreement with the US for the supply of nuclear technology for the civilian use. While the US pressure is still on Pakistan to quit the gas pipeline project, it is not willing to offer Pakistan the option it offered to India.
To achieve double-digit GDP growth Pakistan will have to add 10,000 megawatt power generation, enhance gas production by 2000 mmcfd and execute gas pipeline and LNG terminal projects expeditiously. To achieve this Pakistan has to come up with an elaborate energy policy providing right incentive for ensuring adequate investment in each of the sub-sectors. If India can set a target of 10 per cent growth, why cannot Pakistan do the same?