The government, especially finance minister, has to be smart in allocating scarce fiscal and energy resources. The need is to focus on gaining maximum from what is on the plate. The finance minister’s idea of supporting exporting industries in Punjab is right; problem lies in the execution, which is not optimal. For instance, Asad’s statement of supplying subsidised gas to Punjab export oriented industry is not the right approach in the current scenario. What industry needs is an uninterrupted power supply at rates that are comparable to regional competitors. Concurrently, the country needs to maximize the gird electricity to minimize the impact of additional capacity payment to existing consumer. Plus, the gas is required to be used where the returns are highest.
A massive increase in capacity payments from new power plants added and to be added to the NTDC is the biggest challenge for the government. According to NEPRA, the capacity payments are increasing by around Rs400 billion; and to distribute the burden on around 100 billion units consumed today, it is recommended to increase tariff by around Rs4 per unit.
To contain the quantum of consequent increase in electricity tariff, the government must maximize generation in the NTDC system so that capacity payments are distributed over a bigger number of units. The quickest way to do so is to increase supply from NTDC to KE and industry currently using captive power generation.
The new power plants are more efficient than captive plants operated by the industrialists. The policy should be designed such that the use of inefficient captive power plants is minimized and the gas is used where there is either no other alternative (such as fertiliser), or where the usage is efficient (such as IPPs).
On the flip, the exporting industry’s need for natural gas is predominantly for electricity generation. Most captive power plants have lower thermal efficiency rates. The best solution in the current situation would be to supply electricity directly to the industry at competitive prices rather than supplying heavily subsidised natural gas. This would be a win-all situation for industry, government and the country.
Similarly, in Sindh about 190 MMCFD gas is supplied by SSGC to captive power plants. NTDC already supplies about 650 MW to KE. It can substantially increase supply to KE and industry, given higher surplus capacity due to lower winter load.
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