Imagineering implementation of energy reforms–Vl

There is no doubt that our energy sector needs to be reengineered to meet the foreseeable challenges in the upcoming decades. This is the key moment to bring about reforms, take measures to rectify issues and not continue to linger on as our vulnerability demands differentiating ourselves with excellence; it is an existential necessity to be carefully designed as an energy poor country cannot be a rich country.

There is learning from how the EU took on the challenge and in a few years has ensured a diversified gas supply chain through the European Natural Gas Demand Reduction Plan in 2022 with about 15 percent reduced consumption by households and industry versus 2019-21.

Europe’s addiction with Russian LNG is under focus: an opportunity for Pakistan to exploit as our demand increases this summer.

Energy sector reforms: Earnest intentions for structural changes necessary – V

Surprisingly, energy conservation started as a USAID project in 1985! How much have we reduced energy usage with the help of National & Provincial Energy and Conservation Authority (ENERCON in 2016) or under the Energy Conservation Policy 2006?

As a nation we need to appreciate the benefit and success of a vertical utility; K-Electric plans to invest Rs 484 billion by 2030, install 30 percent RE of 1182MWs consisting of hydel, solar, and wind generation capacity, increase in improvements and reliability and customer service.

Energy sector reforms: Earnest intentions for structural changes necessary – IV

The company has reduced T&D losses from 34.2 to 15.8 percent over last 17 years, with a reduction target of 12.8 percent by 2030.

For generating and distributing affordable power, it should focus on diversifying its energy portfolio; suggestion is to also include hybrid solar/wind farms, hydrogen production (join the E&P MoU) and a CSR (corporate social responsibility) project, facilitating waste to energy in their plans.

Energy sector reforms: Low-hanging fruit rotting – III

The energy sector’s deregulation needs to be expedited by the Privatisation Commission and MoE (Ministry of Energy) to improve competition.

PSO (Pakistan State Oil) needs to compete and a pending proposal since 2017/18 of unfreezing 25 percent PSO shares, changes in the Marketing of Petroleum Products Act 1974 and implementation of the Musharraf regime’s ordinance draft is a low-hanging fruit that requires immediate review.

Energy sector reforms – II: low-hanging fruit rotting

Price and IFEM deregulation and positioning PSO for partnerships with major players such as ARAMCO (Arabian American Oil Company), ADNOC (Abu Dhabi National Oil Company) and Refiner Investor are the next steps. Despite resistance from retailers and haulers the challenges are surmountable with benefit of development of 45 days’ strategic storage. The recent plan of Shell to increase franchise fee is commendable.

Our policymakers also need to understand that residential PV cost is double of a 100MW utility scale PV (@AAHSoomro) and Nepra (National Electric Power Regulatory Authority) needs to review. Net metering billing needs to follow fuel charges adjustment before taxes, not post.

Energy sector reforms — I

As citizens, we need to recognise that additional surcharge of Rs 3.39 per unit in addition to existing PKR 0.43 and subsequent PKR 1 per unit (total Rs 1.43 per unit) will not reduce circular debt (Rs 2.6 trillion). Actual cost needs to be recovered and extended subsidy of Rs 905 billion during current fiscal year (0.7 percent of GDP), whose burden the government cannot withstand any longer. It requires imposing additional taxes. The poorest get only 23 percent of these.

Pakistan can be categorised as a low-income developing country. Structural reforms based on productivity pay-off, therefore, need prioritization: starting with agriculture, the banking and fiscal systems, and infrastructure followed by labour market with focus on correcting gender imbalance, business regulations and ending with capital market development, legal system and property rights, technology & innovation.

For that to happen Pakistan needs bipartisanship and parliamentarians to lead change by evolving and agreeing on key economic reforms in energy, SOEs, agriculture, taxation, exports with commitment to deregulation, economic and political stability and harmony for attaining a consistent sustainable 7-9 percent GDP growth over the next 30 years.

This must be encouraged by the federation, providing policy continuity, bidding for power contract award with changes effective prospectively and payments made per obligation, and regulator interfering only when self-monitoring fails.

The federation should also provide staged and limited investment incentives, including reduction in the number of permissions. What is needed is a defined role of judiciary in commercial matters with viable and timely contract dispute resolutions and no judicial activism as seen in past, strengthening of defamation laws with retribution for fake news and discouraging media trials.

In urgent need of confidence-building measures, public and private decision makers require the ability to experiment with unexpected outcomes. However, the ongoing review since Aug 2022 of the NAB law by the Supreme Court has created uncertainty and diluted positive sentiment. This has led to losses for the country During COVID-19 recession, for example, out of box approaches necessitated procurement of LNG/Oil, using long-term contracts.

The previous regime’s focus on corruption allegations hindered the freethinking views. Its flawed approach, therefore, resulted in missed opportunities. The recent passage of the Foreign Investment (Promotion and Protection) Bill, 2022 following the Reko Diq award highlights increased protection demand for FDI (foreign direct investment).

The known solutions to our current problems start with merit-based governance and justice system adhering to our Constitution.

Structural changes need to be made to existing layers of governance of local bodies, assemblies, Senate, and at divisions; redefining roles and setting bounds for direct election of President, Governors and Prime Minister.

This will ensure a government that delivers solutions, reduces overheads burdening our annual budget and increasing provincial revenues. A competitive business environment with a “hands off policy by GOP” is necessary for growth as current growth is not sustainable and survival increasingly challenging.

(To be continued)

Copyright Business Recorder, 2023