Federal Finance Minister Ishaq Dar has stated that the government is according high priority to the energy sector as it is the key to overall economic progress in the country. No one can deny the veracity of this statement though there are considerable differences over the feasibility of the government’s strategy to deal with the ongoing energy crisis and its success in making a difference since June 2013 elections after the PML-N was swept to power.
The energy crisis is multifaceted and includes: (i) the resurfacing of the circular debt that today is higher than what the government inherited accounting for a severe liquidity crisis of the sector disabling Pakistan State Oil from opening letters of credit periodically requiring injections from the Ministry of Finance; (ii) heaviest transmission and distribution losses within the region; (iii) raising tariffs for domestic users including the industrial sector to meet sector inefficiencies and rising receivables which in turn raises the cost of production with implications on domestic sales as well as exports; and (iv) CNG stations throughout the country supplying cheap domestic gas for vehicles to low and middle-income consumers are compromising the productive capacity of the country.
The PML-N government’s solutions have focused on raising generation capacity which, according to many analysts, is a flawed policy given that utilisation of existing capacity is less than half and initial focus needs to have been on ensuring capacity utilisation that would require reducing sector inefficiencies. In addition, the transmission system requires extensive maintenance and replacement in line with the admission by the former Secretary Water and Power that the existing transmission system of the country has the capacity for 15000MW.
The government also inherited a rising demand-supply gap of gas and analysts advised the government to shut down the CNG stations. In their defence, the CNG industry, with many political influentials having ownership of CNG stations, argued that suspension of supply would not only increase the burden on the lower to middle-income earners – logic that was effectively employed when international price of petrol was high but its applicability is considerably diminished with the fall in prices – but also increase unemployment given the large number of people employed by CNG stations throughout the country. The government’s solution to date has been to negotiate import of gas from Qatar and the Punjab Chief Minister together with the relevant minister has visited Doha on numerous occasions but there is an ongoing debate in the country namely whether to negotiate a short-term contract which presupposes that the price of fuel would decline further in the international market or to have a long-term contract which presupposes that the price of fuel has hit bottom and will rise in future. One would hope that those concerned would heed the advice of specialists and not follow flawed policies including the policy to set up coal power plants away from the place of availability of coal – be it imported or domestic coal.
Given the decline in the international price of oil and as a consequence given the massive increase in the sale of petrol in January in this country the obvious short-term policy must be to prioritise gas supply to industry. In this context, it is relevant to note that the federal government did take the decision to divert gas to industry in Punjab – a policy that should also be followed in other provinces, including Sindh, where the subcontinent’s first organised industrial area SITE, which provides jobs to around 2.5 million people, is facing imminent closure. In other words, the government must suspend supply to 38 CNG stations that are the root cause of suspension of gas to this industrial area. The government needs to meet all stakeholders and come up with a solution to this problem which may include the industry compensating CNG station owners for their profit to ensure that not only is scarce gas used productively, it also protects and preserves jobs of millions of people.
To date, the government does not appear to be looking at the energy crisis in a holistic manner. It is required to follow its manifesto commitments namely to consolidate the energy sector into one ministry to focus on sector inefficiencies to provide tariff relief.
