In the medium-term, several measures can be taken. Cheaper energy resources such as natural gas are running out and being increasingly replaced by expensive oil. More gas resources can be developed, existing and remaining ones put on the fast track and abundant cheaper resources be put into the energy-mix. CNG had been found to be a great way to, at least, partially insulate from high oil prices.
Conventional wisdom popular among bureaucracy today is that CNG is to be discouraged, because we are running out of gas. I have a slightly different perspective. There is hardly any substitute to oil for the transport sector except CNG, while other sectors like industry and power can have alternative sources like coal, nuclear etc.
OIL AND GAS POTENTIAL Many reliable sources have indicated that there is much more gas potential, as much as six times greater, than has been discovered already. Exploration activities have been hampered by the poor law and order situation and lethargy and inefficiency of our companies like OGDC and PPL etc. Gas exploration and development is no secret or rocket science. If we put our house in order, activate and energise these companies and apportion some investment (almost the same as we would be spending on subsidies and higher oil prices).
One should not become complacent with the profitability of these companies, which is natural in high oil price environment. Their original mandate is Exploration and Development. Technology is changing. Those oil and gas resources that were marginal and were abandoned are suddenly becoming productive. In the US, gas prices have plummeted recently due to the advent of new technology. The technology is available and can be further facilitated through the USAID programme.
There are many options even with the old technology. Thus with more gas and more CNG, the required insulation from higher oil prices for the transport sector is very much on the cards. More gas can also go into power sector. But there are other more appropriate options as we shall see in the following. Some crash action is required.
I am not the only maverick privy to all this information. In 2005, a presentation was given by the then chairman of the Planning Commission, to the then President and the PM in the presence of all the who-is who's of the scientific and petroleum bureaucracy. The presentation is available on the internet. One of the major conclusions of the study/presentation was the gas potential. It was projected then that there was enough gas potential to generate 80,000 MW of electricity by 2030, as opposed to 5-6000 MW of gas-based electricity generation today. Even if the projection is dubbed as an overshot, there is consensus that much more gas potential is there. Instead of developing local potential we are running after imported options, for which neither the government nor the people will have the resources to pay for. Be it LNG from Qatar or pipeline gas from Iran, the sellers are linking the gas price to 75-85% of the oil price and are in no mood to entertain floors and slabs, limiting the damaging peaks in prices. The imported gas will be more than twice as expensive as locally produced gas, and as much expensive as oil. Let us have a serious look at our domestic options.
THE THAR COAL I will bring in the oft-repeated Thar coal issue, which is on the table for at least a decade. Almost all major experts and consultants have prepared reports on it and have found it feasible. Thar coal is almost equal to the combined total of oil and gas resources of Iran and Saudi Arabia put together, in terms of its energy content. World-wide coal-based electricity is less than 50 percent cheaper. Imported energy will continue to be expensive than local resources, despite the role of all the rentiers classes. No serious move seems to be in the offing. If the 10-point agenda deliberations only manage to find out a way for a breakthrough on Thar, it would in itself be a major achievement.
The bureaucratic circles tend to show that there is progress on Thar coal. But the fact remains that there is almost none. Allocation of blocks, MoUs and even feasibility studies do not mean much, as many such things have been done in the past. Underground coal gasification project has raised false hopes among the public. Without casting doubts on the scientific credentials of its eminent promoters and on the technological potential of the route adopted, the problem of scaling up would remain for which there is no capability in the country of a level that would be acceptable to the lending banks. While the existing gasification would yield useful data, we would be back to square one, which is of requisite financing.
The bad news is that under criticism and pressure from international Green lobbies, the World Bank has discontinued its technical assistance program on Thar coal, amidst news that the government of Sindh has persuaded them to renew it. Even if they do renew it, it sends us ample signals on difficulties that we are going to face towards financing Thar coal. With time, the opposition to coal would increase. Our problem is immediate and the renewables are still to be perfected and improved to be cost-effective and competitive. In any case, renewables are projected to have a share of 20% even by the year 2050. What are we to do in the meantime? The threat is that by the time we put our act together, although fossil based power age may not be over, the financing regime may become too difficult and hostile against coal.
The residual issue as it stands today is not the financing issue of the mining and power parts of the projects, however difficult it may itself be, it is the financing of infrastructure part, which is proving to be a stumbling block. Various estimates put these requirements to between 1 to 2 billion US dollars. More money is required for infrastructure, than the first coal mine and power plant itself. The government of Sindh, obviously would not have such resources, nor would the federal government. And in these days of emphasis on provincial autonomy, where is the appetite for common projects? There are also issues as to the technical and management capability of the provincial bureaucracy, as the project continues to be run from the narrow confines of the Sindh secretariat. Apparently, there is no shaft of light at the end of this tunnel, although it is not the only one.
In all humbleness, this scribe makes the following proposals. There are two options. One is to tender for a large project of 5000 MW or so, which may be able to assume the infrastructural development costs. The cake becomes big enough to absorb all kinds of interests. This is not new in India, this size of coal projects are being planned already. The feasibility of this proposal in Pakistan context can only be tested once it is actually tendered. The second option would be to float tenders for establishing a mining development company that undertakes to develop and finance the infrastructure and manages the Thar coal operations on behalf of the Sindh government, within the framework of the relevant rules and regulations. The company recoups its investments by granting mining leases and charging a fee on coal production by individual companies. Obviously such a company would be a multinational, which may have a joint venture with local private sector and government of Sindh's share in it. Such a company would offer many advantages. First of all, to bring in finances, which appear to be well-nigh impossible for the Sindh government to finance? Secondly, the operations would be more commercial-like and would be on fast track. Ironically, I have made a case of yet another feasibility study? Not necessarily.
THE 18TH AMENDMENT Certain issues related to the 18th Amendment need to be sorted out. After the amendment, the electricity sector becomes a federal-only subject, as there is no concurrent list any more. Earlier Electricity was in concurrent list. Coal was and is a provincial subject. If I understand correctly, federal responsibility and role in the electrical power sector should be larger than it was prior to the amendment. Thar coal power development, therefore, ought to occupy a higher priority in the federal budgeting system. It may not be a bad idea considering some kind of linkage between investments in Hydro and Thar coal power; one project in hydel, and one in Thar coal. There is a technical requirement to balance hydel power as well. Gas being no more and oil unaffordably expensive and imported, thermal energy in future should mean Thar coal energy. Politicians from Sindh can suitably make a convincing case, provided they are also prepared to readily agree to federal involvement.
WIND POWER There is a 20,000 MW resource lying unutilised close to Karachi near Gharo. Wind Turbine prices are coming down for the last two years. There apparently is no move in this direction. If at all, it is quite likely that Nepra would be approving projects at previously held high rates, as has been the case with a few other projects. India has been able to install 11000 MW of wind power capacity, at 50% cost of the international prices utilising its low labour costs and other advantages. The same could have been done here, utilising the under-utilised capacities in the country's major projects like the HMC and Karachi Shipyard, and the private sector as well.
INADEQUATE REGULATORY STRUCTURES AND PROCESSES Energy costs and prices cannot be reduced by mere pressurisation of the political government or the regulatory agencies. However, they can be made more efficient and responsive. The whole energy sector is worth more than 20 billion USD in terms of output runs under a cost-plus system, requiring efficient regulatory structures, mechanisms and processes. It is a common knowledge that there is a considerable padding in capital costs of energy projects, especially electricity. It is not just the rental power alone. There is much more to that. Nepra lacks the competence to deal with it, nor does it seem to be interested in going any deeper into this. It restricts itself to browbeat the proponents and perfunctory adjustments without recourse to independent advice and recourse to data sources. It is following an ill-advised policy of making profit and investments in construction projects, instead of spending adequately on scrutinising cases.
The situation is even worse in the oil and gas sector. Ogra has not been given any powers by the relevant ministry and it acts hardly more than a bureaucratic calculator, without scrutinising the underlying data. The reader can gauge the lack of regulatory process by the fact that it calculates/regulates the price of LDO only, which is not more than 1% or less than the total diesel consumption. The prices of the real diesel (HSD) used by the public transport is surreptitiously posted on the PSO web-site without any due process. To talk of the due process, Ogra does not go into the pretense of holding public consultation, except the two gas companies. In the US, which is an oil producer, oil prices are lower than the International prices by a good margin, often of 10%. In Pakistan, although there is an explicit policy in this respect; Ogra has been kept at bay from scrutinising payments to the companies. All oil transportation pipeline companies are beyond any worthwhile regulatory process, despite cost-plus payments. In a country, which has consistently earned high ranking in the corruption indices of the Transparency International, one can only guess what may be happening. It certainly does not generate confidence.
(To be continued tomorrow)