TIME TO REDEFINE ENERGY MIX FOR PAKISTAN

SHABBIR H. KAZMI
(feedback@pgeconomist.com)

Dec 10 - 16, 2012

Over the last three decades Pakistan's energy mix has become unsustainable. This can be partly attributed to the change in the policy followed by the multilateral lenders but more importantly due to failure of the successive government to manage energy sector prudently. This can be best understood from two points: 1) multilateral lenders refusing to finance projects proposed by WAPDA and 2) encouraging the entry of private sector in power generation. Even at that time some of the analysts had said, "Power policy had put the cart before the horse". The experience over the years has proved that those cynics were right. It is still not too late; there is an urgent need to change the energy mix of Pakistan at the earliest.

Some of the analysts still say that it is the entry of private sector in power generation that has saved the country. However, they completely fail to understand that the persistent hike in electricity and gas tariffs has pushed the country into a black hole and coming out of it is becoming almost impossible with the passage of time. Despite hike in electricity and gas tariffs uninterrupted supply can't be ensured. The fallout is that each hike in tariff provides an incentive to pilfer electricity and gas. Transmission and distribution losses of electricity distribution companies hover around 40%, which is nothing but blatant pilferage. The UFG of gas marketing companies has gone up, almost double of the permissible limit. Added to these are mounting receivables.

Since the country has not been able to produce enough fossil oil, natural gas is being used indiscriminately. Instead of using it for producing value added products, gas is being burnt as fuel by domestic, commercial and industrial consumers. Nearly one-third of total gas produced in the country is being burnt by power plants. Despite being fully cognizant of diminishing gas reserves, no efforts were made to explore alternative sources of energy. No dam has been constructed after the completion of Tarbella in mid seventies and most of the power plants established over last two decade are running on gas or furnace oil.

As regards to power sector, hardly any effort was made to contain transmission and distribution losses but a myth was created that burning gas can help in bringing down electricity tariff. Time has proved that the policy of running power plants on natural gas was the worst decision. It has not helped in keeping electricity tariff low but depleted gas reserves at much faster pace. Poor law and order situation in oil and gas rich areas also didn't allow the exploration companies to work there. The result is that now bridging the gap in demand and supply of gas has become almost impossible without importing gas.

Experts have been saying that Pakistan has to construct hydel plants as well as coal-fired power plants. They say that existing power plants also have to be switched over to coal. A lot has been talked and written about Thar coal potential, capable of delivering 50,000Mw electricity over the next 150 years. However, some of the experts say it is 'bad coal' that can't be used in power generation plants. The initial plan was to construct 'mine mouth' power plants because Thar coal is 'lignite' type that catches fire quickly and can't be transported to long distances.

While things were moving smooth, though at snail's speed, some of the experts suggested using 'coal gasification' technology rather than 'open pit' or 'hole' mining. Millions of rupees have been wasted and more are being demanded but experts reject coal gasification process. Some suggest deploying 'open pit' mining and locating power plants closest to the mine.

Another suggestion is to switchover to imported coal, which is as bad as imported fossil oil, the reason being a separate infrastructure will have to be created for the import, handling and transportation of imported coal. Some experts, thrilled by the recent reduction in coal price, are pleading this case but tend to forget that the situation may not remain the same in the longer term.

Therefore, construction of hydel plants becomes the last option. Experts say there should be no more discussion or spending of money on Kalabagh Dam. If three of the provinces have rejected the project, it should not be constructed to please Punjab. One of the allegations is that Punjab often pilfers water of other provinces and after construction of this disputed project it will get control over the discharge of water. Kalabagh Dam became controversial soon after release of details. The country has wasted 50 years on discussing pros and cons and spent millions of dollars on preparing revised plans. In that amount a dam of almost same size could have been constructed at any other location.

The time has come to construct run of the river type hydel projects. Interestingly multilateral donors are willing to lend funds for such projects but those at the helm of affairs at WAPDA and Ministry of Water and Power seem least interested. The beauty of these projects is that no storage facilities have to be created. Normally, creation of water storage facility eats up a lot of fertile area. One of the examples of this technology is Ghazi-Brotha project, producing around 1450MW electricity.

It is also said that if multilateral financial institutions are not ready to finance a hydel plant. Financial experts say this myth is totally wrong and funds can be mobilized from domestic as well as global markets by issuing Sovereign Ijarah Sukuk, in local currency and dollar denominated. Lately, the Government of Pakistan has mobilized nearly Rs300 billion from domestic market by issuing Ijarah Sukuk. Since the product has special attraction for Islamic financial institutions mobilizing funds from the global market does not pose any problem.

The only thing required is commitment and coming up with a financial product that can convince the global investor. Some critics say that Sukuk cost is high but they don't realize that at present Pakistan's industrial plants are operating at less than 50% capacity utilization. Achieving exportable surplus will also make Pakistani exporters completive in the global market, earn extra foreign exchange and pay off the liability within the agreed period.