EDITORIAL: This winter is coming with a huge energy crisis. The weather prediction is of a somewhat harsh winter. Successive governments have failed to do anything meaningful to solve this problem that has persisted for years and has aggravated with the passage of time.
The media debate has largely revolved around procurement of imported RLNG and its rates besides oil and its products and energy mix for producing electricity. The elephant in the room is the woefully declining local gas production, and growing reliance of households on imported RLNG in winters. That is feeding into the gas circular debt.
The debt started in the previous PML-N (Pakistan Muslim League-Nawaz) government and kept growing in the PTI’s (Pakistan Tehreek-e-Insaf’s) government. Now the PML-N is having a taste of their own medicine. With over Rs100 billion expected growth in the gas circular debt due to mixing imported gas into the domestic sector the overall gas circular debt is likely to cross the Rs1 trillion mark.
The country is on a tight leash under the IMF (International Monetary Fund) programme. The Fund is asking for fiscal consolidation by imposing new taxes.
The recent trip of Finance Minister Ishaq Dar to Washington has not yielded any relief. The demand is to ‘do more’. However, the government’s focus is on reviving the dwindling political capital of PML-N. In this milieu, the ‘long march’ being undertaken by PTI has possible portents of further worsening of the economic morass that the country has found itself in.
In the gas sector, the main issue is non-acceptance of the core problem. Every political government desires to provide gas through pipeline to households at dirt cheap rates. In case of failure, every winter, media and opposition bash the incumbent government. And the sitting governments often have to take unwise decisions by displaying populist approach to politics.
The solution is to either increase the indigenous supply or move away from piped gas. The core of the Pakistan energy problem is growing share of imports in the country’s prime energy supply. The share of imports was 30 percent in 2006 and it is on the rise since then approaching almost 50 percent as of now.
The increase in imported energy in the mix is correlated with the decline in the domestic gas share in the total primary energy supply: it was 50 percent in 2005 and is below 30 percent today. This is simply unsustainable — both fiscally and externally.
The growing share of imports in energy supply is putting pressure on current account and making the external account unsustainable. Supplying expensive imported energy at lower rates (especially gas) is making the energy circular debt (and subsidies) to grow. This issue is choking the economy silently. And the debate continues on ensuring imported gas which the country simply cannot afford.
The overall energy policy, therefore, needs a rethink. The plethora of power projects (IPPs) — mostly based on imported fuels — began in the previous PML-N tenure. With these coming online, the pressure is increasing. The consideration back then was political. There were numerous unwise decisions such as having power plants based on imported coal in Punjab. A higher number of power plants based on RLNG were initiated. And now all these are haunting the economic managers. And even today, there are talks of having an IPP in Gwadar for political reasons. When will our politicians learn?
In case of gas supply, a one-third of the country’s households have pipeline connections as compared to four-fifth having electricity connections. The majority of vulnerable segments don’t have pipeline access. Yet, the government provides gas at dirt cheap rates while it keeps on increasing electricity prices. In July 2022, the electricity produced on domestic gas (due to low price) was Rs8-10 per unit as compared to Rs28 per unit on imported RLNG. The higher fuel cost is being recovered from consumers as Fuel Price Adjustment (FPA). Does it make any sense? The line losses and thefts in the pipeline are phenomenal.
The infrastructure is old and hard to repair. The cost of installing gas pipeline is never recovered while the cost of IPPs is frontloaded with capacity payments. Still, every government attempts to increase the domestic gas connections to win votes. In the previous PML-N regime, the supply was extended to Murree, the mountain resort hometown of the then Prime Minister, Shahid Khaqan Abbasi. The GIDC (gas infrastructure development charge) claims have remained pending since long. Big companies, including fertilisers and textiles, are not paying the due amount despite a final verdict by the apex court.
It is important to note that there is less focus on recovery while the efforts are on supply without consideration of the costs. The sector is now completely unsustainable, to say the least. This winter would not only contribute to the highest addition in the gas circular debt, but the shortage could be the highest as well.
Copyright Business Recorder, 2022
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