Energy woes

"We believe that electricity exists, because the electric company keeps sending us bills for it, but we cannot figure out how it travels inside wires." Dave Barry (American Writer and Humorist). It is not clear when Barry occasioned to visit Pakistan as the quotation aptly characterises Wapda, our very own electric company. Unfortunately things have deteriorated further and the mystery today is not how but if electricity travels inside wires at all!
Pakistan is fast approaching, if it hasn't already, the dubious distinction to be the world's case study of how not to manage energy resources. A quick scan of newspapers over the last few months highlights numerous views and proposals from technocrats and analysts to address the current energy crisis. Critically we continue to pump CNG into vehicles, are procrastinating overdeveloping our coal resources and appear to be crawling towards alternate energy resources.
As a layman, one remains curious about the truth behind various assertions regarding the prospects of generating power from Thar coal, oodles of oil in Balochistan and capacity for hydel generation upstream. In the best interest of Pakistan it would, in my opinion, be extremely beneficial to have some sort of national debate amongst technocrats to once and for all confirm or dispel these assertions. In case it transpires that this is all hear say, than we must accept the fact that we have scarce resources to generate cheap electricity. After all only problems have solutions, faced with facts, strategies are dramatically different.
There will be those who will retort that a debate to build national consensus on the larger politicised dams is more critical, and I concur with them. However until that happens, let's at least keep the ball rolling in other directions.
Consider that in the event we are faced with dearth of future options, the strategy of continuing with subsidies on power will appear to verge on insanity. Even on political grounds, subsidies on power under this scenario are synonymous to slow poisoning. In substance we are borrowing to pay for our current life style and will pay dearly when our creditors come a knocking. Looking at our annual debt servicing, our creditors are apparently breaking down the door already. Pragmatically, in the short run, a better strategy may be to subsidise the poor through higher tariffs for the rich.
Over the medium-term, while steps are being taken in this direction, there needs to be a greater focus on creating awareness on energy conservation at the grassroots level. Freeloaders will continue to be defiant, nonetheless dividends will eventually accrue. The public sector, probably one of the largest consumer of energy, should actively consider alternate options such as solar powered streetlights. The capital expenditure on this count will initially be burdensome but this will arguably be optimisation of the development budget.
In the long run, everyone will agree, we need to generate more energy. "It is difficult to say what is impossible, for the dream of yesterday is the hope of today and the reality of tomorrow". Robert H. Goddard.
What is disturbing for the citizens of Pakistan is that we have been hearing about and suffering due to the energy crisis for at least 5 years now and the bigger concern is that there still appears to be no light at the end of the tunnel. Whether we have resources for cheap energy or not, our economic growth and quality of life are fundamentally dependent upon energy. Evidently, there was awareness of the ensuing energy shortfall way back in 1996 when the first independent power policy was announced. While successive governments may have challenged that policy they invariably ended up trying to pursue the private sector for power generation, in one form or the other, with less than the desired results at best.
Offering exciting tariffs and/or higher returns apparently is insufficient today. While the initial investor interest was more than encouraging, the tide seemingly has turned. Whatever the reason, be it the regulators, be it the politicians or the bureaucracy, be it the security situation, be it the circular debt, private capital is just not interested anymore. Kudos to a few Pakistani and international entrepreneurs who still have or are in the process of setting up power projects, unfortunately these may not be enough.
Of all the constraints stated above, the circular debt is probably the key hurdle. It is irrational to expect that private capital can be motivated in any manner when an impediment of such nature and magnitude is so visible.
Acknowledging that circular debt is an offshoot of the policy to provide subsidy on power to the poor, one remains clueless about the governments envisaged way forward. If we continue to prescribe tariffs at less than the cost we incur for power generation, we will need the services of a Houdini to make circular debt disappear! The government can, through short gap arrangements, park the debt with the financial sector but the truth of the matter is that we will eventually have to pay for it through higher taxes. If we continue on this path, we may reach a point where the government will be better off acquiring the entire circle rather than meet its obligations!
Our policymakers are today confronted with "the pitfalls of free market economy". A key attribute of free markets is that supply will equate demand. When demand increases resources will automatically realign to enhance supply. But why is the free market not reacting in the case of demand for power in Pakistan. Unfortunately, the famous "invisible hand" comes into play only when it is in its own selfish interest. Additionally our power sector operates under a hybrid mechanism. Minus regulation, tariff structure under a pure free market economy will most likely ensure that electricity is outside the reach of masses. Privatisation experience of telephony may suggest lower tariffs for power under competition as well, however this definitely will not be the case for far-flung areas and can we really afford to test another theory?
Privatisation is the global buzzword for the last three decades. All across free market economy is projected as a panacea for economic woes. The World Bank and IMF have systematically imposed conditions upon their clients in the developing world to open their markets and ease related currency regulations. Today there are opposing views on the benefits of this theory specifically in the case of the developing world. After all none of the developed nations today, can brag about having achieved their current state under a free market economy. Developed nations owe their historic growth to protectionism and public sector support.
Having been skeptical about liberal democracy, I was never fascinated by the phrase "It is not the business of the government to be in business". In my view it is the government's business to ensure provision of key utilities to the populace.
Lack of credible options entails trail blazing. It is high time we revisited, at least in this case, public ownership of power generation. Interestingly most utilities continue to be under public domain; power distribution, gas distribution, oil and gas exploration (largely), railways, airline, irrigation and water. While it is more than evident that these corporations are incurring heavy losses which are subsidised by the government, but should not the arguments offered in their defence also apply to power generation. Curiously, even today, majority of power-generating activities are under the public sector and probably they produce the cheapest electricity.
We must accept that the private sector is not proactively responding to the government's overtures for power generation projects. We must also consider that in a lot of cases almost 80% of private power is financed through domestic resources which in essence are the bank deposits of the very population to whom electricity is then sold, albeit at a higher cost. We can continue to try to excite prospective investors with even higher tariffs and more lucrative incentives, increasing the burden on the economy and the consumers, or we can take the proverbial bull by the horn!
Amongst the many hindrances quoted for the failure of the public sector entities, bureaucratic procedures and corruption top the list. But we must accept that mega infrastructure projects continue to be completed under the same set up. Interestingly personnel considered inefficient in public service, start performing reasonably well when they transit to a private sector employer. There are solutions to this enigma and the positive sign is that the petroleum ministry is already exploring an option to blend private sector experience with its own publicly held corporations. If all else fails, we can probably request the Chinese to let us in on the secret of success of their public entities.
At this junction, it is more than advisable that the government takes up the task of developing those hydel and alternate energy projects where private sector interest is either lacking or waning. One proposed structure can be a holding company under a diverse supervisory board comprised of key officials, leading businessmen and technocrats. The board should be alienated from any financial or operational interest, which should entirely vest with key executives hired on merit from the private sector. The equity component can be financed in entirety from the budget allocation for power sector subsidy.
Debt can be contracted from domestic or foreign banks at arm's length. The management should operate under a pre-approved work plan, which ensures fast track projects development and remuneration should be performance based on achieving milestones. Having proposed the unthinkable, setting up another public entity, I expect a volley of criticism. In defence, I would suffice to say that something, even as radical as public entity is acceptable to keep the bulb lit!