Pakistan Business Council (PBC), a business advocacy body, recently convened roundtable meetings in Islamabad and Lahore to review progress and recommend actions to secure energy and promote competitiveness. The roundtables were led by Khalid Mansoor, CEO of HUBCO, a member company of the PBC. Experts from PBC''s energy panel, senior government officers and representatives of key players in energy participated.
At the Lahore roundtable, the Punjab Government was represented by Punjab Minister for Power Chaudhry Sher Ali. Ehsan Malik, CEO PBC, presented the lens through which PBC viewed any policy impacting business. The three key objectives to be achieved were: jobs, value-added exports and import substitution. In the area of energy, PBC views cost competitiveness with regional competitor countries as vital. Exports and import substitution are paramount as both these impact the external account.
It said Pakistan has had to resort to the IMF on twelve occasions in the last 28 years. Energy is a major component of imports. It is therefore desirable to minimize reliance on imported fuels and to promote, to the maximum possible extent, the use of indigenous alternatives. Both roundtables congratulated the government for the significant progress towards energy security. It stressed on need to factor and address poor efficiency of older plants, auxiliary and maintenance shutdowns, which together reduce available capacity by 30 percent. Additionally, seasonal peaking has to be taken account of as also the 5,000 mw of captive capacity that may switch to the grid when reliability and costs permit.
The roundtables also recognized the difficulty to gauge true demand. Pakistan has lower per capita electricity usage than sub-Saharan Africa; 27 percent of the population is not connected to the grid; the population growth rate is amongst the highest in the world; the energy policy need to factor higher GDP growth rate than the current 5.6 percent annually; and that several industrial units that are presently closed may be revived. It felt that the demand estimates used for planning may be underestimating the need. The lag time to meet unanticipated demand is 5 years. Pakistan has suffered from energy shortfall for almost ten years. Hence it was essential to continue to invest in capacity.
The roundtables noted that whilst the change in the fuel mix, with greater reliance on cheaper coal, would bring down the cost of production, but capital and capacity related payments will offset it, resulting in little or no impact on tariffs in the foreseeable future.
Reduction in Transmission and Distribution (T&D) losses, at 19 percent were considerably higher than the 10 percent average for non-OECD countries. However, this would require investment. Of the nearly 12.5 cents/KwH average cost of electricity in Pakistan, besides the 19 percent impact of T&D losses, a further 20 percent was on account of taxes. The average cost of electricity in India was 7 cents/KwH. With no prospect of reduction in delivered cost of electricity, the government would need to consider reduction in taxes and subsidy to industry, especially exporters to enable them to compete against Bangladesh and India.
The roundtables observed the growing reliance on LNG as the fuel of choice to replace the currently more expensive RFO. Whilst that was a pragmatic move, planning needs to take account of the likelihood of increase in cost of LNG as more countries, especially China and India switch, to this cleaner fuel. The RFO generation option should therefore be retained and plants be restructured to make them more efficient.
Pakistan has substantial untapped tight and shale gas reserves. Exploration and exploitation of these would be encouraged by a well-head price closer to or even higher than the imported LNG cost, presently $11 per mmbtu. The exploitation of tight gas in Pakistan has already begun and the need to exploit more tight & shale gas reserves was stressed. The roundtable appreciated that the success rate in Pakistan for oil and gas exploration was 33 percent of wells dug, amongst the highest in the world. It recommended for trying to bridge the gap between supply and demand of gas was to "right-price" it, especially to domestic users, where the element of waste was highest.
The projects announced so far in Thar only scratch the vast potential of the reserves which is equivalent, in oil terms, to the combined reserves of Saudi Arabia and Iran, it noted. The roundtables recommended that the Federal Government join the Sindh Government in funding the infrastructure investment required to tap this vast potential for the nation.
The roundtables felt that much more needed to be done to promote conservation. It was encouraging to hear that the Punjab Government had started rating equipment for energy efficiency and intended to promote green building standards. Marriage hall times had been curtailed. Other provinces could follow.
The opening hours of commercial centres also need to be regulated. A high percentage of present consumption of fuel is by motor vehicles and motorcycles. An integrated approach to containing consumption and imports therefore needed to be taken.
The roundtables noted that there was a common perception that the shift to coal was environmentally retrogressive. It was also noted that even with the planned projects, Pakistan''s reliance on coal would be far lower than India, China or the USA''s. The environmental impact could be contained by an integrated approach covering all sources of pollution.
The roundtables noted that 88 percent of Pakistan''s 60,000 MW of hydel power potential remained untapped. In addition to large dams, it recommended that storage-based small hydel projects be used to feed communities not connected to the grid. There was 132 GW of wind and 2,900 MW of solar potential. Cost of solar in particular is declining and net metering could exponentially expand the adoption of this energy source. Solar is also appropriate for agricultural pumps, mainly used in the day.
In conclusion, the roundtables agreed that whilst Pakistan was making good progress towards energy security, greater reliance on indigenous fuel had to be encouraged to reduce the pressure on the external account. More has to be done to conserve energy. Solutions such as reduction in taxes, increase in subsidy and rebates and levelling of the tariff differential with domestic users have to be found to make industry more competitive.
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