Energy crisis to deepen

The energy committee under the chairmanship of Federal Finance Minister Dr Hafeez Sheikh reportedly submitted its proposals during the cabinet meeting of 12th October 2011. The report itemized 5000MW planned generation enhancement during the next year and a half: 1000MW from improved efficiency of old plants, 2000MW through four new power projects and 2000MW from eliminating the inter-circular debt which has fluctuated from 250 billion rupees to 400 billion rupees since 20th November 2008. The date is relevant given the government's formal acknowledgement in its Letter of Intent (LoI) submitted to the International Monetary Fund board that eliminating inter-circular debt was a critical component of any power sector reform plan because this debt debilitated the entire sector compromising its ability to operate at full capacity. Various measures have been taken to deal with the debt since, including the establishment of a holding company, but the debt has remained intractable. There have been various suggestions, including a reported verbal commitment from the Asian Development Bank (ADB) on 30th September 2011 that it would assist in resolving the inter-circular debt through creating a special purpose vehicle which would buy the entire debt for cash with one proviso: energy sector reforms be carried out forthwith. The precise nature of reforms are contained in a detailed report available with the government titled Integrated Energy Sector Recovery Report and Plan October 2010 prepared by Energy Sector Task Force Friends of Democratic Pakistan (on the ADB website) that recommends five key areas of reforms with the immediate objective of ending loadshedding over the next three years: (i) establish a ministry of energy to ensure integrated sector policy development, planning and effective energy regulator by establishing a central power purchase agency (scheduled by the end of this month however many maintain that this would simply imply renaming Pepco) with the objective of ending existing institutional fragmentation that is blocking a holistic approach to the crisis and is creating disequilibrium among the sub-sectors; (ii) rationalising pricing and energy subsidies which may well account for the cabinet mulling over the proposal to indicate the cross subsidy paid in individual electricity bills; (iii) developing energy finance capacity through resolution of circular debt and prevention of its recurrence, developing investment plans, supporting corporate debt market by eliminating distortions in the financial markets caused by higher and guaranteed returns offered by government-operated national savings schemes (which may account for last month's downward revision of rate of returns) and establishing an energy sector development fund; (iv) mainstream energy efficiency into energy policy; and (v) fast track investment projects for energy security which includes reducing transmission and distribution losses to save 700MW. The total cost of the above package: 7.7 billion dollars for three years. Three and a half years down the line the PPP-led government continues to appear to flounder in terms of implementing a comprehensive and integrated energy policy. That the policy was formulated and made available to the government by FoDP as noted above is not in question. Granted that while the government has taken some measures identified that include increase in electricity rates, setting up a holding company to deal with the circular debt, announcement that Pepco would be disbanded by the end of this month, the announcement of new board members of the energy, yet these measures have not been far-reaching enough to have placed our energy sector on the road to recovery. In addition, recent reports also indicate that this winter an even more severe gas shortage that would further cripple the country's economy is expected. At present, the gas shortage is estimated at 700 MMCFD, which during the peak winter months would escalate to 1.9 BCFD. Part of the reason for the shortfall is poor domestic demand management; an example being the Prime Minister's directive to SNGPL and SSGCL to complete 3200 and 750 expansion schemes mostly to residential areas, schemes that were considered economically unviable especially given the growing gas shortages, as well as failure to proactively explore gas, including tight gas, which many argue is attributable to lack of resources. There is little doubt that the government's deficit is inching towards unsustainable levels - a fact that militates against its ability to support fast track generation projects. Be that as it may, the government must support efforts to contain the circular debt by cutting the bills due of various defaulting ministries and departments, as well as provincial defaults, at source. In addition, transmission and distribution losses need to be vigorously pursued and last but not least the government can and must arrest its politically motivated expansion schemes at present. The total cost to the economy as well as job opportunities is tremendous - it is critical to implement reforms forthwith. Copyright Business Recorder, 2011