Energy imperatives for Pakistan

Noted nuclear scientist Dr Samar Mubarakmand has quite rightly underscored the need for developing indigenous resources - coal, natural gas, hydel, wind or solar - to meet growing energy needs of the country. Obviously, Pakistan does not have the required capital to simultaneously develop all the sources. The government can and should develop a policy framework to entice both domestic and overseas investors. But private sector investors will only be attracted provided the existing independent power producers as well as the public sector companies in the oil and gas sectors are seen to be making adequate return on their investment. The present state of affairs is a very poor reflection. The stop-and-go method or a plan of action characterized by or involving frequent stopping and restarting to tackle circular debt is profoundly hurting the economy. Circular debt bill already mounted, needs to be paid off in one go because macroeconomic policy associated primarily with Keynesian methods of demand management during the post-war 'collectivist' period in Britain is no longer a solution. To undertake structural changes in the power and energy sector is time-consuming. It will not happen overnight. But paying the existing circular debt - at the taxpayers expense - will help in keeping the wheels of economy moving at a faster speed than it is at present. Further, at least 20 to 25 percent, if not more, of the Rs 600 billion, paid off to clear existing debt, will come back to the exchequer as taxes and public sector entities' dividends. This proposition is therefore worth considering. It increasingly appears from Dr Mubarakmand's address that the government wants him to sell his technology of extracting coal gas for producing power and supplementary natural gas output from Thar to private investors who, in turn, will obtain the funding from a banking consortium. He will have to have outside experts certify that his drilling hole approach and firing embedded coal will work and is commercially feasible. However, even after the good doctor gets his pilot verified, there will be other obstacles. Do we have venture capitalists in Pakistan? Certainly not. Can we attract venture capitalists from abroad to undertake the risk on a novel technology claimed to have been introduced and harnessed by the eminent scientist? There may be. But with added risks emanating from political and economic uncertainty as well as a precarious law and order, the chances are very slim. But then eminent personalities like the good scientist are also to blame. Dr Mubarakmand was responsible, albeit partly, for misleading the highest decision-makers in relation to mining prospects in Balochistan. The treatment provided to a mining giant Reko Diq in Balochistan is not going to attract investment from overseas. We often forget that you can't have the cake and eat it too. Although, copper and gold are in Balochistan for centuries, we do not have the required expertise and capital to extract these precious commodities. In fact, it was the Chilean-Canadian consortium that had to sink $350 million to provide the assessment that extraction is possible on a massive commercial scale. It increasingly appears that we just do not seem to learn from our past mistakes. The way we shabbily treated National Power (the UK-based investor) in Hubco and later other IPPs is very much etched in investor's memory. It has resulted in a paralysis of fresh investment in the power sector. We managed to kick-start the economy with global help after 9/11, but lost valuable time with demand rising at a faster pace while the supply not catching up. The situation, therefore, has accentuated people's sufferings from brownouts to complete blackouts across Pakistan. The decision to purchase a bankrupt LPG decanting facility at Port Qasim by Southern Gas Company should be an eye-opener. The facility is now handling four vessels a month instead of three in the five years. What does this prove? In underdeveloped countries, including Pakistan, the government has a major role in business through public sector enterprises. Privatisation of PSEs is needed only to stop misuse by politicians at the helm of these businesses and not for any other reason. If each PSE can be listed and provided with independent Boards of Directors with the freedom to pursue the interests of the company instead of being a handmaiden of the line ministry - only then can public enterprises play their due role in economy. Civil service pay-scales cannot be applied to attract the right expertise to PSEs. Only above market price pay structure with a merit based induction and proper accountability to the respective boards of directors will work. Asking a PSE to compete with private sector companies in the same field is like asking a camel to run in a horse race. This is at least true in the case of Pakistan. Clarity requires that providing the base load in the power sector has to be the responsibility of government. Private sector can only supplement to meet the peak load through higher efficiency. The investment required in generating power through hydel, nuclear, coal and natural gas requires public-private partnership under a government to government umbrella like in Saindak. We need to increase the supply of natural gas - both domestic or through imports - as Pakistan has the largest piped network outside North America. Technology for extraction of shale gas is now a commercial reality. Substitution of gas (whether domestically produced or imported) for imported oil is desirable from point of view of our large network and emissions of greenhouse gases and other pollutants. Gas emits only half as much of carbon dioxide as coal and 70 percent as much as oil per unit of energy output. The dash for gas is however, not without some other dangers. Horizontal fracking geologic formations particularly shale formations require enormous volume of water and chemicals. Huge water ponds are needed to store the chemically-laden 'flow back water' that comes back from the hole after wells have been fractured. Critics of this new technology argue that it threatens severe pollution of ground water which is a major source for irrigation in non-canal areas of our agri-belt. Thought still not proven, this charge still needs to be strictly monitored. Canadians have developed Propane-Gel technology to overcome this Faustian bargain. Copyright Business Recorder, 2012