Looming energy crisis and possible corrective measures

With the onset of Covid-19 in Pakistan in March 2020 and subsequent lockdowns, the Pakistan government together with the State Bank of Pakistan (SBP) offered many incentives to various industries to spur business activity in the shape of subsidized loans for new machinery, decreased interest rates and finances to help with payroll.

Fast forward to mid-2021, with higher than expected large scale manufacturing numbers and other positive economic indicators, it seemed as though Pakistan economy was on the cusp of growth. In June 2021, a pro-growth budget for FY22 was rolled out which was hailed by all and sundry. The vibes coming from Islamabad were positive and GoP was confident of turning the economic tide.

The year 2021 has been a roller coaster ride as far as the prices of energy commodities are concerned.

What started off as a slow year for those involved with the energy sector, with frequent lockdowns, restrained travel and subdued economic activity, is now turning out to be like a dream which is too good to be true.

Energy commodity prices have increased manifolds, be it Regasified Natural Gas (RLNG), crude oil or coal. With the global vaccination drive picking up pace and countries returning to Pre -Covid routines, there has been a surge in energy demand resulting in supply chain disruptions which has been continuously pushing the commodity prices up.

Pakistan’s Energy Woes

For a developing country like Pakistan, already going through a tumultuous economic period since the past couple of years and barely getting up on the path of growth off late, the surge in global commodity prices has serious ramifications.

One of the reasons why we are prone to international price fluctuations is because of our high dependence on imported fuels. The gush in global energy prices has left the economic managers in quandary.

Energy sector has always been the Achilles’ heel for the government with a multitude of variables sometimes with issues of overcapacity and other times with too littleRLNG to fire power plants.

With exports showing some growth momentum over the past few months and with new machinery coming online, an energy crisis is the last thing we need.

Pakistan’s indigenous gas production is on a declining trend for the past many years which has in turn increased its dependence on imported RLNG. With Pakistan LNG Limited’s (PLL) failed bids for 8 RLNG spot cargoes for winters due to a very tight international RLNG market last week, one can expect a very tricky few months as far as the energy supply chain of the country is concerned.

Less gas to fire power plants would obviously increase dependence on Furnace Oil (FO) to make up for the energy shortfall, bulk of which would have to be imported through Port Qasim. Additionally, FO imports could even cause congestion at the port.

Possible corrective measures

Pakistan’s external account is already facing the heat due to increased import bill (last 3-month import average of $ 6 billion) and pressure on Pak Rupee (depreciation of around 12% in the past 5 months).

With falling real disposable incomes due to a high inflation number, people of Pakistan should brace themselves for further headwinds in the near future as electricity and everything associated with it gets more expensive.

However, timely actions from the government could bring in some respite. The government, in my opinion, should take the following steps:

• Maximise coal based power generation (to keep the fuel cost component in check). • Ration indigenous gas to domestic users and divert it to more efficient uses i.e. power plants and industry. • Promote Liquefied Petroleum Gas (LPG) for urban, affording domestic consumers and market it as a fuel of choice to reduce burden on local gas. • Manage electric load to domestic users during daytime through load-shedding. • Waive duties and taxes on electric heaters and geysers thereby making them affordable.

All these measures could maybe bring in some relief for the already burdened Energy consumer but time is of the essence and the time to act is NOW!

The article does not necessarily reflect the opinion of Business Recorder or its owners