Petrol saga - the domino effect

Energy economics is complex; any mismanagement could create a crisis. Recent petrol shortage is manifestation of poor planning and monitoring. Expect diesel to be short in the last week of June as hoarding is to peak in anticipation of hefty price increase in July. The impact is cascading down the entire energy value chain. A case of acute electricity shortage in Lahore and Faisalabad is brewing up. The load-shedding due to it might not be significant; but it's worth pondering on the issue of energy shortages at a time when there is excess capacity (or supply). And when the international prices are at their multiyear low. Heads should roll in the energy ministry.

The NTDC grid system has capacity of around 33,000MW and current generation is around 21,000-22,000MW. Still red flags are being raised in northern and southern Punjab that a few plants may stop production due to shortage of fuel. A few plants have less than a week of fuel inventory. They are contractually bound to have 30 days of inventories.

Furnace oil (FO) is short. It is produced domestically and at dirt cheap price. Its import is banned. In winters, there is excess FO and in summers it's short. Similar issues are in RLNG. At times, pipes are bursting due to excess supply while there are other instances that show pipes are rusting due to absence of supply. RLNG import vessels were delayed and now it is short. How can these things happen when the country is paying a huge cost on excess capacity?

The sorry story of affairs is that there has been excessive investment in the power generation capacity; but not much heed is given on improving the grid transmission capabilities. There are grid constraints. Excess efficient production in one pocket cannot be transmitted to the other in need. That is why low efficiency FO-based plants are required to run in North in peak demand season. Some of these plants are running too low on FO inventory and NTDC has warned of 150-200 MW load management in Lahore and Faisalabad areas.

Not surprisingly, this is linked to the petrol crisis. It has cascaded to the entire energy chain. The regulated petrol prices are at steep discount to prevailing international prices. Refineries are making around Rs17/ltr loss. They are operating at 40-50 percent capacity to lower the losses on petrol. FO is a byproduct. If less petrol is produced, less FO is produced.

Since FO prices are low, industries having FO-based captive power plants are preferring it over expensive grid electricity. Cement companies are opting for FO over coal for production at plants as former is cheaper. In both examples, inefficient methods are being deployed due to price anomalies. They are buying FO from refineries operating at sub-optimal levels. The FO is not available for grid-based plants. Why didn't the energy ministry anticipate it? Now they may allow imports of FO; but that might take too much time. Pray for rains to avert load shedding in Punjab - heavy rainfall will not only improve hydel capacity; but the demand will reduce too due to fall in temperature.

Anyone having some idea about functioning of energy chain in Pakistan could have predicted the petrol shortage in advance. But still that happened under the nose of energy regulators. How can petrol demand be at all-time high in Pakistan when the consumption is clearly not. How can there be electricity shortage when the system has thousands of megawatts of excess capacity. There is something terribly wrong in management.

Had there been investment in grid upgradation, this problem would not have occurred. Had there been active management and monitoring of inventories, the problem could have been averted. Ministry of energy officials are mesmerizing in talks; but that articulation is missing in management. The country is suffering in the process.

There is a committee formed on the petrol saga headed by DG Oil and members from departments responsible for the mess. How can those who were to ensure adequate supply are looking for the culprits. There appears to be a clear conflict of interest. There should be an independent committee to evaluate the performance of Ogra and energy ministry along with industry players. Regulators have to be accountable. Nobody should get a free pass.