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Mr Akhtar Ali, Member Energy, Planning Commission of Pakistan recently spoke with BR Research on matters related to different aspects of energy issues in Pakistan. He is an eminent energy expert. He has authored a number of books on energy policy, investments and tariff issues. He is a visiting Professor of Energy at IoBM and teaches energy management. He was also a Research Fellow Energy at Harvard University's Kennedy School of Government. Besides academic sector, he has also worked as a Chief Executive Officer of Proplan Associates; Managing Director, Karachi Pipe Mills; General Manager, Heavy Mechanical Complex and several other organisations. He has an MS degree from METU Turkey, and BE from NED, Karachi.

<B>BRR: Tell us about the role of the Energy Wing in the Planning Commission.</B>

<B>Akhtar Ali:</B> The Planning Commission has three roles; one is to approve the PC1s. Sometimes the financial outlay of the provinces for these PC1s crosses the limits; that is where the Planning Commission steps in. Secondly, all ECC summaries come to the Planning Commission, which give its view. PC's third role is planning and advice.

"Planning" has acquired a bad name. Nowadays, the new intellectual regime says that planning smacks of communism. In America, there is no planning at the central level for energy as such. Yes, they have an EIA, which releases reports every month, quarter, etc that makes market projections, so that decision makers have the right kind of data to base their decisions on.

We used to have five-year plans, but that kind of planning is no more. Now the five-year plan is kind of like an advisory plan; it is an indicative document that makes projections. It's more of a forecast than a plan.

<B>BRR: What impact has the 18th Amendment had on integrative planning? Do the provinces have sufficient capacity?</B>

<B>AA:</B> We have meetings on the integrative issues with the provinces. We call provincial representatives. It is more of a consensus building exercise.

The provinces' capacity is very low, no doubt. The 18th Amendment does hinder consensus. For instance, LNG; they want to bring in the CCI and are making it a provincial issue. But RLNG projects have been established on the basis that LNG is imported, making it a federal matter - like oil imports. Oil produced is subject to the province where it is being produced. But the import of oil or any resource is in the federal domain. This is being problematic.

We have to learn to interpret the 18th Amendment. It shouldn't be so extreme as to kill the rights of the provinces, nor should it give them an undue share.

<B>BRR: What justifies the long-term contract of LNG imports? At a time when the world is opting for short-term solutions, particularly when there can be a reversal in Brent prices?</B>

<B>AA:</B> If the price was fixed, then there could be an objection against the long-term contract, because you don't know what will happen to international price. In the contract, the long-term price is linked with Brent crude oil; if Brent goes up, gas goes up. The formula is fixed, not the price.

<B>BRR: What if there's a divorce between Brent and LNG five years down the line?</B>

<B>AA:</B> There will always be competition between LNG and oil. The alternative to oil is gas and vice versa. There used to be fixed oil linkages, but the conceptual linkage can never finish because one is the substitute of the other. Linkage with oil is not a bad thing. This is just a theory that oil linkage with gas will end. It hasn't happened.

pc1There's another misconception that needs to be cleared out: that India's gas is cheaper than ours. India's multiplier is 12.66 and Pakistan's is 13.35. That means that for Pakistan, 13.35 percent of the Brent price in USD per barrel gives you the LNG price in USD per mmbtu. But India's multiplier is lower -12.66 - so people think India's price is lower. However, the Indian formula is actually y=mx PLUS c. There is a constant - $0.66. Add that and the price becomes the same.

And that isn't even the delivered price; you need to add $0.33 for transport. Pakistan's is the delivered price. So, our prices are 15 percent lower than India's.

<B>BRR: Why is Pakistan relying on coal at a time when renewable resources are being emphasised and climate change has come to the forefront?</B>

<B>AA:</B> For a considerable foreseeable future, coal will remain a very important element of the energy mix of all the nations. Right now, we are installing 10,000-20,000MW at max. India produces 200,000MW on coal and adds 15-20,000MW each year. America, despite all its big talk, produces 300,000MW on coal.

I was very worried that getting funding for even 1000MW would be impossible, particularly from IMF as they impose so many conditions and have a hundred concerns. But CPEC has done wonders; our interests align with the Chinese, and we've got the funding from them.

<B>BRR: Is there any investment taking place in upgrading the transmission and distribution side, or is it all just generation projects?</B>

<B>AA:</B> There is investment in transmission and distribution as well funded by ADB. Transmission investments for all the projects are in the pipeline as well. Around $8-9 billion is budgeted for transmission alone. But it's generation that gets the news.

<B>BRR: A report by the SBP suggests that generation isn't the main issue; it's transmission and distribution system. What are your thoughts?</B>

<B>AA:</B> I'm sorry, I don't agree. I respect the SBP, but such statements are outside their domain. Transmission losses are very low in Pakistan. The real losses come from distribution. When electricity is handed to distribution companies, and it goes from their lines to industries and users, there is loss and there is theft, which is a major component.

<B>BRR: Do people steal natural gas? How?</B>

<B>AA:</B> They take a pipe and connect it to the main line. It's the same as with electricity; just make a connection. Yes, it is difficult but it is not impossible. Many factories run on stolen gas. As for manipulating the meters, that is child's play.

<B>BRR: Why has the privatisation process of the DISCOs slowed down?</B>

<B>AA:</B> Because right now, the preference is on expanding the sector. The government has slowed down the privatisation process in favour of more urgent objective of increasing the capacity.

<B>BRR: The private sector says NEPRA is corrupt, incompetent, and a potential impediment to privatisation. They see it as a weak regulator. What are your thoughts?</B>

<B>AA:</B> As a regulator, NEPRA is fairly strong as far as technical capabilities are concerned. I don't know how NEPRA is an impediment against privatisation. In my view, NEPRA is sufficiently strengthened, and they have sufficient experience. For privatisation, take the example of K-Electric; it has improved its performance and losses have gone down tremendously.

<B>BRR: CPEC is quiet about hydel power. Why?</B>

<B>AA:</B> That's true. Firstly, the government wants to finance it from its own resources and International Financial Institutions (IFIs). Secondly, hydel takes ten years on average, whereas the government wants to add 10,000MW immediately. Imported coal on the other hand is fast track. That doesn't mean that hydro will not come under CPEC. It's a big part of phase 2 of the corridor. Discussions are ongoing with the Chinese. They are interested in financing Bhasha and other power plants.

Bhasha is now a serious contender for Chinese financing. But politics has crept in; India has told multi donor agencies that Bhasha is in disputed region. The ADB once told us to get a NOC from India. However, if IFI is slow-track, Chinese CPEC would be available. However, a formal proposal hasn't been developed yet.

<B>BRR: What is the government doing with regard to energy conservation?</B>

<B>AA:</B> Conservation is not "sexy," as the Americans would say. Generation makes the news. You might as well consider conservation like an unsaid good deed! Conservation is a social process, rather than an economic process. That being said, the government is playing its part; offices incorporate energy-saving bulbs, RLNG plants have improved their efficiency from 40 percent to over 60 percent. One of our projects is SE4ALL - sustainable energy and efficiency for all. Its aim is to promote efficiency at the user level. Price itself is a big incentive. Pricing is a big driver for efficiency.

<B>BRR: There is a lack of transparency regarding CPEC, even in Planning Commission. Why?</B>

<B>AA:</B> Planning commission's role in implementation is almost zero. Infrastructure is being done by NHA, power sector by Ministry of Water and Power. So, the Commission does not have any such secret of CPEC. Now that things are in implementation, it's beyond us. All power projects are being implemented through the PPIB process. The Chinese are investing under a very transparent pricing regime determined by the NEPRA.

<B>BRR: What about Nuclear energy?</B>

<B>AA:</B> Under the nuclear program, we're looking at 8000MW. Near Karachi there's a 1000MW project with the help of the Chinese. There will be problems however; it's very expensive. Capital cost is very high at around $4 million per MW - same as Neelum-Jhelum, but that's due to mismanagement.

The standard cost is $4 million per MW, so I don't see a lot of future in it. The tariff for nuclear will be around Rs10-12/kWh or even more.

Copyright Business Recorder, 2016

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