The state of affairs in the energy sector is getting messier and the country is digging itself into a deeper hole as the PML-N government has miserably failed to turn the corner by addressing the root causes.
Private sector was expected to lead the way; however, a policy was needed to be framed to create an enabling environment. But, by the middle of this government’s term in office, investors, domestic as well as foreign, are shy to invest in this country’s future.
The package to attract investment in the power generation field has been disfigured due to non-payment to IPPs and other Gencos by the power distribution companies (Discos).
Unless a solution is found to make timely payments with regularity to the existing IPPs, no investor would invest a penny and no one will be able to achieve a proper financial close. The shoddy treatment received by IPPs despite sovereign guarantees assuring cash flows and the poor security environment are the principal factors behind outflows of investment than inflows.
The Liquefied Natural Gas (LNG) import, from Qatar, continues to be a can of worms despite its lower cost than imported furnace fuel oil; but it is dearer than domestic gas. The liquidity issues faced by Pakistan State Oil, the designated importer, and high losses of Sui Southern Gas Company remain the root cause of uninterrupted supply of LNG to Sui Northern Gas Pipelines Limited.
Furnace Fuel Oil (FFO) trade was deregulated. However, forcing PSO to maintain FFO stocks and sell FFO to power units against promissory notes has marred the benefits that deregulation provides. We have also created two regulatory bodies: Nepra & Ogra.
The law for both regulators is different. Nepra Board comprises provincial representatives while Ogra board consists of professional members in accounting, law, petroleum, and natural gas.
Ogra’s board has been incomplete for a long time and the regulatory body is unable to play an effective role. The job of a government (Ministry) is policymaking while the task of the regulator is to monitor, regulate, oversee implementation, workout tariffs, and develop the sectors under them.
Both the regulatory bodies have miserably failed in their mandated tasks and lost trust of the people – as merit has not been the criteria for manning them. Instead, sycophancy and nepotism have been the hallmark of selections. The energy sector requires investment in infrastructure. The issues of governance and regulatory framework need to be tackled.
Water and Power Ministry needs to swap the water section with petroleum in the Petroleum and Natural Resources Ministry. An effective Planning Cell needs to be created for power sector planning ensuring timely investments for production as well as transmission and distribution of electricity. Nepra and Ogra should be constitutionally empowered to function as proper independent and forceful regulators.
All the Gencos and Discos should be privatised. It is the regulator’s job to ensure that these privatised companies do not ruthlessly exploit the users. Timelines need to be fixed for restructuring and privatising these Gencos and Discos. Security and safety be provided to persons working in these sectors. The entire national grid that frequently trips causing breakdowns needs to be upgraded. Stiff penalties need to be provided in law for gas and electricity theft.
And, a multi-seller distribution model should be created for unbundling of distribution network of electricity and gas – so consumers have a choice and there is competition among the distributors enjoying a monopoly status at present. Regulators need to additionally create tariff research cells in conjunction with educational institutions to evaluate tariff restructuring to minimise subsidies.
These cells need to work with overseas regulators to benefit from their expertise and modelling capability.
As greater reliance on indigenous fuel would provide more sustainability and competitiveness, thus, exploitation of Thar coal is a priority or else Pakistan will continue to import large quantities of hydrocarbons.
The pipeline infrastructure for transportation of liquid fuels across the country needs to be laid to meet future demand of energy supply.
A well thought-out pricing policy is required to be developed that protects all stakeholders and provides a clear-cut incentive to investors. Such a policy once promulgated needs to be adhered to and not be subjected to ad hoc changes. But above all else, the issues to settle the circular debt need to be undertaken since it is a critical hindrance in growth and investment in this sector which could sink us all.
We have spent a lot of money (trillions of rupees) during the tenures of successive governments for its elimination. However, the causes that give rise to it are: delays in determination and notification of tariff differential, shortfall in collection of bills, higher than permissible transmission and distribution losses, default in payment of GST by Discos, delays in recovery of fuel price adjustments, non-payment of late payment surcharges; and delays in payment of subsidy by the government.
These failings still plague the power and gas sectors, and contribute to pulling down the country’s potential.