Handling the energy crisis

The relentless rise in electricity prices in Pakistan has taken a severe toll on domestic consumers, large-scale manufacturing, traders, and small and medium-sized enterprises (SMEs). The situation has reached a point where protests and threats of business closures have become a common sight.

To avert a looming threat to socioeconomic and political stability, immediate solutions are needed to address this pressing issue.

1. Utilise cheap natural gas for electricity generation: The government must urgently consider redirecting the use of cheap natural gas from households to electricity production. Privileged domestic consumers currently benefiting from inexpensive natural gas can transition to alternative heating and cooking methods, freeing up this valuable resource for more efficient electricity generation in gas-fired units.

This will require reordering of the Merit Order through which the Federal Government accords priority to various consumer categories of natural gas. Presently, the domestic sector is at the top slot being accorded the highest priority for gas consumption in the country.

Although politically challenging to handle but this situation cannot go on as we need to provide gas to those consumers who are more economically productive and also pay for their gas with lower incidence of theft and other losses.

2. Cease natural gas supply to captive power producers: The practice of providing natural gas to captive power producers should be halted promptly. Encourage these producers to switch to grid electricity, which is now abundantly available.

These captive power plants have an efficiency value of 30% as against new plants with an efficiency of over 60%. This measure will not only conserve natural gas for more efficient users but also reduce capacity charges borne by the government, as the higher the electricity is consumed the lower will be the capacity charges eventually reducing the monthly bills to the consumers.

3. Implement WACOG law: The immediate enforcement of the Weighted Average Cost of Gas (WACOG) Law is crucial. This measure will help lower the unit price of Re-gasified Liquefied Natural Gas (RLNG) charged by efficient gas-powered plants like Haveli Bahadar Shah, Balloki and Bhikki having a combined capacity of over 3600 MW.

This highly needed adjustment will also standardize gas pricing in the country, specially across Sindh and Punjab, providing a much-needed nation-level boost to industrial growth and production. This initiative will again require a serious push from all concerned in view of political backlash from provinces where the gas is being produced.

4. Shift to local coal in power plants: To reduce the strain on foreign exchange reserves, coal-fired power plants should transition to locally sourced coal, replacing expensive imported coal. This shift to local resources promises long-term sustainability and economic benefits. The switch to local coal will save us precious foreign exchange.

5. Negotiate extended debt amortization with IPPs established under the 2015 policy: Leverage diplomatic relations to engage with Chinese Independent Power Producers (IPPs) and negotiate extending the debt amortization period from ten to thirty years.

The same arrangements can be carried out with the nuclear power plants for which we just need to engage the relevant stakeholders. This measure can offer immediate financial relief to electricity consumers in Pakistan.

6. Address electricity theft and losses: As Discos’ privatisation or provincialization of their effective running and control may take time, provincial governments must take immediate action to curb electricity theft and losses within their regions.

Provinces should either ensure strict measures to prevent theft or bear the costs of theft and non-payments incurred by the companies operating within their territories.

The 18th Amendment to the Constitution grants provinces an overwhelming share of federal tax revenue making them complacent in terms of tax imposition on agriculture and other sectors while at the same time provincial governments do not play any active role in checking the theft of gas and electricity in their jurisdictions as they have nothing to lose in case of loss or theft of gas or electricity.

Thus, the provincial governments must ensure proper recovery of dues from gas and electric consumers or they must pay the amount not recovered. Some percentage of the unrecovered amount must also be paid by the employees of the gas and electricity distribution companies in order to stop their collusion for facilitating the theft of the two commodities creating a big financial hole for the companies.

7. Enforce accountability for distribution companies: The competently constituted professional Boards of Directors of distribution companies should hold senior management accountable for transmission and distribution losses. Penalties should be imposed if desired results are not achieved.

8. Urgently seek support from E&P companies to bring gas in the system: It is an established industry fact that a considerable amount of natural gas can be immediately inducted into the system if some genuine concerns of the E&P companies are addressed.

Most of these concerns are related to the pricing of the gas at a rate which is economically feasible for these companies. Ironically, the E&P companies in Pakistan are paid a fraction of imported LNG and a significant amount of the prices received by these companies are ploughed back as reinvestment in the country or given back in the form of taxes, royalties and other social obligations.

In case of purchase of LNG our precious foreign exchange is transferred to the accounts of the foreign supplier companies/traders in the flash of an eye. It is, therefore, high time that we offer realistic pricing to our E&P companies to make them pump the much-needed gas in our system to ease out reliance on imported fuels, which will ultimately reduce the consumer prices of energy products, including electricity, in the country.

In the long run, it is essential for Pakistan to invest in renewable energy sources, improve energy efficiency, and diversify its energy mix.

However, immediate action on the outlined steps can provide relief to the people of Pakistan while laying the foundation for a more sustainable and affordable energy future. The government, provincial authorities, and industry stakeholders must come together to address this crisis and secure a brighter future for the nation.

Copyright Business Recorder, 2023