Dilemmas: oil and gas policies

Introduction:

In the intricate interplay between energy policy and national security, Pakistan finds itself ensnared in the repercussions of short-sighted decisions within the oil and gas sector.

Designed as the linchpin of economic and territorial security, some of these hastily crafted policies have birthed inefficiency and the mindless depletion of public resources.

This article reviews Pakistan’s energy policy formulation, shedding light on its short-sighted nature, evaluating its impact on national economy and security, drawing insightful regional comparisons, and ardently advocating for a dynamic, environmentally conscious paradigm shift.

Short-sighted policies in oil and gas:

A glaring weakness in Pakistan’s energy strategy lies in the myopic realm of policymaking. Many of our public policies are based upon ‘brain waves and new ideas’ by super bureaucrats or other political officeholders, which are put into practice without much deliberations and due diligence. The results are generally devastating as the policies hardly generate the desired results due to lack of proper thinking and effects of the policies at the conception stage. One such glaring weak policy or lack of it was how the untapped potential of vast natural gas reserves discovered in Sui in 1952 turned into a squandered opportunity, with successive governments offering this precious resource to domestic consumers at unreasonably low prices.

Another stark example of short-sighted policy measure was the promotion of natural gas in the transport sector, resulting in the proliferation of thousands of CNG stations.

The subsequent abrupt halt in gas supply to these stations, specially in Punjab, post the depletion of local natural gas, inflicted severe financial losses on investors in the CNG business, including the motorists who switched to this fuel at a considerable cost.

Chronic shortages now plague the nation, exacerbated by the absence of significant gas discoveries in over half a century. The freshly coined 2015 policy to import LNG seemed to be a progressive idea to address the situation. However, the imported gas was not deemed to be ‘gas’ and was priced differently than the indigenous gas.

This price discrimination built in the LNG Policy has spawned the duplication of gas prices for various consumers in the country.

Ideally, the imported gas should have been added into the basket of locally available gases for determining the price on the weighted average cost basis for a uniform price for all consumers subject to merit order.

The cardinal mistake of ring-fencing LNG prices for the power sector forced the diversion of expensive LNG to domestic consumers at rates intended for cheap local gas.

This skewed policy has spawned a substantial circular debt, undermining the economy and compromising the safety and security of the country. Even after the promulgation of required legislation by the parliament in March 2022, we have not been able to introduce the WACOG system of gas pricing, which is a continuation of policy failure at a big cost to energy consumers with negative impact for the economy and security of the country.

Similarly, our failure to introduce a competent policy for least-cost electricity generation, despite having substantial potential for hydroelectricity, further exacerbated the issue. Although we had a great start when we built mega dams in Mangla and Tarbela, creating big reservoirs of water for irrigation and also generating cheap electricity as a byproduct.

But subsequently this emphasis was lost, giving way to short-term solutions of engaging private investors to set up power plants to produce electricity in the country. Lopsided policies such as inviting the private sector to set up Independent Power Production projects at hastily negotiated terms resulted in elevated electricity prices and drained precious foreign exchange.

Ironically, while the government introduced policy after policy since 1994, offering big incentives to private power producers, it overlooked to develop the electricity transmission and distribution network. Consequently, despite having the capacity to generate electricity at a high cost, the country lacks the infrastructure to transmit and distribute it efficiently nationwide.

Learning from mistakes

The current quagmire in Pakistan’s energy sector underscores the necessity for a paradigm shift. Policies must be meticulously crafted, considering all relevant issues and consulting all stakeholders. Short-term political gains should not dictate policy decisions; instead, they should be rooted in financial due diligence with a focus on long-term sustainability.

Historically, reliant on fossil fuels, particularly oil and gas, Pakistan’s import-driven energy policy, importing nearly a third of its energy resources, is unsustainable. This vulnerability not only depletes foreign exchange reserves but also exposes the economy to international energy price shocks, threatening the nation’s stability.

Comparisons with regional players

A comparative analysis with regional counterparts, especially India, reveals stark differences in approaches to energy policies. India’s strides in diversification and renewables contrast with Pakistan’s heavy reliance on fossil fuels. This disparity necessitates contemplation on the adaptability of Pakistan’s energy policy in evolving geopolitical landscapes.

In contrast to Pakistan’s challenges stemming from short-sighted policies, India’s energy policy emerges as a beacon of success, marked by strategic diversification and foresighted initiatives. The key to India’s achievement lies in its commitment to a diverse range of energy sources, including robust investments in renewable energy like solar and wind power.

This proactive approach not only contributes to environmental sustainability but also ensures stable and competitive electricity prices. India’s example extends beyond source diversification to encompass an efficient transmission and distribution infrastructure that minimizes losses and facilitates smooth electricity transmission.

Moreover, regulatory reforms and market mechanisms drive competition and efficiency, containing electricity prices and attracting private sector participation.

Importantly, India’s strategic energy policy extends to the oil and gas sector, where initiatives promoting refining and production efficiency address challenges comprehensively.

In summary, India’s energy policy stands as a reflection of strategic planning, offering a blueprint for nations seeking to balance growth, security, and sustainability.

Redemption: a roadmap for implementation:

To fortify economic and territorial security, Pakistan must draw lessons from its policy follies and regional best practices. Implementing a diversified energy portfolio, incorporating renewable sources and strategic partnerships, can enhance resilience.

Strengthening regulatory frameworks, promoting technological innovation, and fostering international collaborations are imperative steps.

In the face of rapid environmental changes, a static energy policy is akin to sailing uncharted waters without a compass. Recognizing the symbiotic relationship between energy security and environmental sustainability is crucial. Pakistan should actively integrate renewable energy sources into its policy, aligning with global efforts to mitigate climate change.

Conclusion:

As Pakistan grapples with the intricacies of its energy policy, the imperative is clear – striking a balance between economic, territorial security, and environmental sustainability.

Learning from regional counterparts and embracing dynamic, responsive strategies will guide Pakistan towards a future where energy becomes a catalyst for sustainable national development.

The redemption lies in a comprehensive and strategic overhaul of our energy policies, ensuring resilience and prosperity for generations to come.

Copyright Business Recorder, 2023