NationalVOLUME 17 ISSUE # 1

ENERGY SECTOR REFORMS

Reforms in the power sector are long overdue but neither the previous governments nor the present Pakistan Tehreek-i-Insaf administration have taken any coordinated measures in this direction. In this context, Special Assistant to the Prime Minister on Energy and Petroleum Tabish Gauhar, in a letter addressed to Energy Minister Hammad Azhar, has urged that strategies be chalked out and “holistic and structural reforms” made to address energy sector challenges.

According to media reports, the letter titled “Beyond the Firefighting – Proposed Strategic Work Streams In the Energy Sector”, has also been sent to Prime Minister Imran Khan, Finance Minister Shaukat Tarin, Planning, Development and Special Initiatives Minister Asad Umar and petroleum and power secretaries. The letter has underlined the need for early completion of the 1,100 kilometre-long gas pipeline, running from the Port Qasim in Karachi to Lahore in order to ensure Pakistan’s energy security. “In my humble opinion, this gas pipeline project should be financed by the Rs 321 billion Gas Infrastructure Development Cess funds already raised from the public for the purpose and not from third party debt and equity that will add on to the gas consumer bill,” he suggested.

Another issue raised in the letter relates to improving the demand-supply position. Needless to say, the recent supply-side challenges fully exposed the “fragility” of the energy ecosystem during peak times despite excess capacity. In this regard, experts have suggested that Pakistan should speed up the privatisation of public-sector power plants. Also, there is a need for a centralised power-cum-petroleum “Planning Cell” for more accurate demand-supply forecasts based on a data-driven or econometric modeling exercise. In this connection, voices have been raised for an independent audit of thermal IPPs that do not produce as per demand and yet charge take-or-pay capacity payments throughout the year.

According to experts, another urgent reform relates to human resource management and governance structure of the energy sector, including the transfer of various regulatory functions from the Petroleum Division to the Oil and Gas Regulatory Authority. It is agreed by all stakeholders that Gauhar’s recommendations are far-reaching and deserve serious consideration.

In the meantime, to tackle the issue of a sudden increase in peak summer electricity demand, the government is seeking approval for a $400 million energy sector loan by the World Bank. A visiting WB delegation recently met Minister for Energy Hammad Azhar and Minister for Planning Asad Umar to discuss the latest situation and finalise a feasible plan for the board approval at the earliest.

Hammad told the WB delegation that around 20pc increase in peak demand for electricity had been registered this summer which was a good omen for the energy sector and the economy. He sought the bank’s support to enhance the capacity and modernise the transmission network. The minister also told the delegation that due to effective measures by the government the growth in circular debt was being curtailed to a considerable extent. During FY21, around Rs130b was added to the circular debt which was some Rs408b lower than in FY20.

It is relevant to mention here that the government has planned an addition of considerable capacity in the existing transmission network by the end of FY22, for which funds have also been allocated. About Rs120b worth of funds for the transmission network are part of the Public Sector Development Programme. Talking to the WB delegation, the official representatives emphasized the “importance of WB’s assistance in expansion and modernisation of Pakistan’s electricity transmission system”.

In its recent report, the World Bank has noted a significant slowdown in the growth of circular debt and renewed its commitment to continue working with the government in the energy sector. While talking of energy sector reforms, the issue of increase in consumer tariff is regularly hammered by the World Bank and the International Monetary Fund. Of late, the government has made some procedural progress by securing powers through an amendment to the Nepra Act to impose surcharge on electricity and filing of petitions before the power regulator to increase various consumer slabs and subsidy rates.

The next tariff increase is being planned for implementation after mid-September. In the meanwhile, however, the circular debt had been reconciled at about Rs2.33 trillion as of June 30, 2021.

For the current fiscal year, the Power Division had worked out the power sector subsidy of about Rs501b and received about Rs331b subsidy allocations from the Finance Division in the budget. The Power Division has reported about Rs170b shortfall on this account which has to flow to the circular debt.

To revive the energy sector, loans are direly needed for the balance of payments. It is hoped that given the satisfactory performance of the government so far, the World Bank will provide the needed assistance on time.

It is acknowledged on all hands that Pakistan has the potential of achieving a growth rate of 6-7pc, but it depends on the implementation of development plans so that sectoral targets are not missed.

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