WASHINGTON: Pakistan needs to go beyond “crisis management” and look for a durable solution to its energy crisis, argues a new book on the subject.

The book — Pakistan’s Interminable Energy Crisis: Is there a way out? — reminds the country’s policymakers that “the crisis is too complex to be solved overnight”. And that’s why Pakistan needs to “avoid the tendency to restrict its policy responses to … short-term ‘continuous crisis management’”.

The book, which includes set of essays read at a seminar at the Woodrow Wilson International Centre for Scholars, Washington, warns that even the expected $35 billion Chinese investment in the energy sector cannot end the crisis overnight.

The first proposal focuses on energy markets and pricing. It urges the government to: Reduce its involvement. Scale back subsidies, but retain support for the poor. Limit price controls. Do not let geopolitical considerations trump economic opportunities.

The next proposal urges the government to adjust gas prices, aligning it more closely with wholesale prices in Europe, where they run from $8 to $10 per million British thermal units (mmbtu). The gap in prices between compressed natural gas and diesel/gasoline should be narrowed.

Gas tariff policies should be adjusted so that industry consumers bear a larger brunt than residential ones. Finally, the industrial gas tariff should be doubled.

The book urges the government to abolish the petroleum development levy, a tax on petrol, diesel, and kerosene — three fuels that are more expensive than gas, and that are used disproportionally by the poor for cooking and transport.

It also advises the government to continue the gas infrastructure development cess (GIDC), which has increased natural gas prices. The book argues that higher prices may encourage less wasteful consumption.

The book also suggests reducing transmission and distribution losses immediately. Pakistan’s initial target should be reducing the current loss rate — more than 20 per cent — to around 16pc, and then eventually to 10pc.

Another proposal advises the government to take energy theft more seriously, and enforce existing laws against the practice and institute more punitive measures.

It urges local communities to form electricity user associations that monitor energy use, conduct audits, and identify and report electricity thieves. But the poor’s inability to pay should also be considered.

Pakistan should adopt more rob­ust maintenance regimes to ensure that power plants, transmission lines, and other key infrastructure do not fall into serious disrepair.

It should boost collections rates by having budget adjusters help recover arrears in the provinces. Improve bill collection by issuing credible threats to disconnect those who refuse to pay. Additionally, monthly financial planning in the power sector should be strengthened.

The book also suggests ramping up Pakistan’s capacity to explore and develop indigenous hydrocarbon resources. It notes that so far less than 4pc of probable oil reserves and 19pc of gas reserves have been confirmed, while just 1pc of coal reserves have been proven.

According to data in the book, Pakistan’s energy savings potential is estimated at 2,250MW — about half of the country’s total power shortfall.

To achieve this goal, the book urges the government to enact an energy conservation law, establish economic incentives for consumers to use less energy, and institute stricter building codes that promote more efficient energy use.

Institutional reforms

Establish a new energy ministry or department with overarching responsibility, and with full access to top policy levels. Pakistan should also consider creating a chief energy adviser’s office with multi-ministry jurisdiction. Privatise, but slowly and in phases. While generation companies should be privatised, distribution companies should be reorganised into smaller firms and restructured through the use of franchising.

Focus on making two key energy regulators — National Electric Power Regulatory Authority (Nepra) and the Oil and Gas Regulatory Authority (Ogra) — more effective. One option is to integrate them into one institution.

“Organisational and institutional weaknesses” have spawned bad management and corruption, says Nargis Sethi, a former secretary for water and power and one of the contributors to the book.

Ms Sethi recommends that the water and power ministry’s largely administrative role become more policy-focused. She also calls for reforming the structural aspects of Pakistan’s energy sector regulatory bodies so that they are more autonomous and effective.

Musadik Malik, the prime minister’s former energy adviser, proposes three major changes in Pakistan’s power market structure: less bureaucracy and more efficiency, less regulation, more competition and a more balanced and cheaper energy mix — one that does away with the current heavy dependence on expensive imported oil.

Khalid Mansoor, chief executive of the Hub Power Company Limited, describes coal as “the only solution” to the country’s unworkable energy mix.

He argues: Hydro is not always available. Solar and wind cannot support base-load demand. Meanwhile, liquefied natural gas costs double than coal.

But World Bank senior natural gas consultant Robert M. Lesnick argues that “in the short and intermediate term, natural gas is the most viable choice for alleviation of Pakistan’s growing energy gap.” He proposes fast-tracking development proposals to encourage more drilling.

Energy consultant Akhtar Ali agrees and urges Pakistan to target new gas prices of $8 to $10 per mmbtu and proposes that the industrial gas tariff be raised from the present $5.60 per mmbtu to about $10. He also recommends that Pakistan explore indigenous natural gas alternatives such as tight and shale, along with biogas, more robustly.

Javed Akbar, chief executive of an energy-consulting firm, recommends across the board privatisation, including public sector thermal power units and distribution companies.

Ziad Alahdad, a former director of operations at the World Bank, advocates for institutional reform throughout Pakistan’s energy sector, and not just within its individual entities.

Shannon Grewer, managing director at EMI Advisers LLC, blames Islamabad’s policy of offering guaranteed returns to private investors, regardless of the performance level, for the current crisis.

Published in Dawn, July 7th, 2015

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