OVERCOMING ENERGY CRISIS
APPROPRIATE POLICIES HAVE TO BE IMPLEMENTED TO CONTROL BALLOONING OIL IMPORT BILL.
SHABBIR H. KAZMI
June 11 - 17, 2012
There cannot be two opinions that Pakistan's GDP growth has been pegged between three and less than five per cent due to looming energy crisis. Experts are of the consensus that the crisis is due to highest disregard to good governance, patronization of inefficiencies, and above all management failure in taking the remedial steps. Policy planners and economic managers are fully aware of the problems, the root causes, and even the solutions. However, no measures are taken to rectify the situation. Some of the cynics say that the problem has been created and allowed to aggravate only to weaken Pakistan's economy.
Enemies of the nation are not happy that despite their best efforts Pakistan has been able to achieve modest GDP growth rate, make enough exports, and above all live without the support of the international monetary fund (IMF).
Over the years, Pakistan has become heavily dependent on fossil oil and gas but failed in increasing production of local energy products. The result is oil import bill has become unsustainable. Not only country's foreign exchange reserves have been depleting faster lately, but the rising cost of energy products is too eroding competitiveness of local manufacturers. Despite colossal increase in electricity and gas tariffs, durations of load shedding are getting longer. Due to cash crunch, power producers cannot buy the full-required quantities of fuels.
Circular debt is because of the failure of electricity distribution companies to contain pilferage and ensure recovery of outstanding dues. According to a power sector analyst, distribution companies receive payment for 30 per cent of the units dispatched because 40 per cent is pilfered and another 30 per cent goes to accounts receivables. Therefore, if the government is serious in resolving circular debt issue, it has to help the distribution companies in containing electricity pilferage and recovering outstanding dues. Constant rise in tariffs encourage electricity and gas thefts.
To overcome rising cost of energy products, Pakistan has to come up with short, medium, and long term policies. To overcome cash crunch, pilferage has to be minimized and recoveries to be maximized. With the improvement in cash flow of the companies belonging to energy chains, overall availability of electricity and gas can be improved. In the medium term the country has to switch over to other cheaper fuels i.e. coal and nuclear power. The prime focus of long-term policies should be hydropower generation. The mighty River Indus alone has the potential to produce 40,000MW electricity. The gradual increase in hydropower generation will on one hand help in reducing cost of generation and minimizing reliance on fossil oil on the other. The added advantage will be availability of irrigation water throughout the year.
In the short term, the country must ensure maximum gas allocation for fertilizer and CNG pumps.
At present, motor gasoline consumption has grown to 250,000 tons per month as compared to 80,000 tons in 2007. This is mainly because of use of motor gasoline in smaller standby generators and cars using motor gasoline instead of CNG. The country at the best can produce 115,000 tons motor gasoline and the remaining quantity has to be imported. Curtailing of gas supply of fertilizer units led to import of over 1.2 million tons urea, despite the fact that the industry has the capacity to produce over one million tons exportable surplus urea.
Motor gasoline consumption can be reduced by using E-10 (petrol blended with 10 per cent alcohol). The beauty of this fuel is that no additional gadget has to be installed in vehicle as against installation of CNG/LPG kits.
At present, some of the quarters are promoting use of LPG without the realization that bulk of this has to be imported whereas alcohol can be produced from molasses currently being exported at throwaway price. Local production of motor gasoline can also be increased by installing additional machinery for better utilization of naphtha, also being exported at a throwaway price at present.
Utilization of Thar coal has suffered from controversies. While one group recommends open-pit mining, the other group considers coal gasification a better option. It seems the controversy has been created only to derail the project. Some international leading companies are ready to invest in open-pit mining as well as establishing mine-mouth power plants. Maybe, opponents are surprised by the global response and insisting on coal gasification, which is economically unviable.
As compared to solar generation, installation of windmills seems more attractive. Pakistan can replicate Indian model by entering into joint ventures with producers of windmills for producing these locally. Installation of windmills is a better proposition especially for Pakistan's coastal areas where wind speed is good and housing units are scattered. However, solar panels can be installed in areas where sunshine is available for longer duration and housing units are scattered.
Still a better option is to grant IPP status to sugar mills, which are capable of delivering 3,000MW minimum to the national grid. There are nearly 85 sugar mills mostly located in Punjab and Sindh. Since these mills are located in rural areas or close to the consumers currently facing the worst load shedding, granting these mills IPP status would be a win-win situation. These units mostly use baggase, as fuel therefore, these would not add too much to oil import bill.
Production of E-10 or electricity is directly dependent on availability and price of sugarcane. Indigenous production of sugarcane can be doubled without bringing additional area under cultivation. Yields should be increased. If the policy is adopted, sugar mills become a major source of molasses and electricity and cost of sugar production would reduce substantially.
Achieving all these objectives may look difficult but they are certainly achievable. To attain the objectives, appropriate policies have to be prepared and implemented. The groups having vested interest are likely to create hurdles because moving away from oil and gas would hurt their interest but the initiatives are highly needed to make lives of millions of people easier and control ballooning oil import bill.