Energy crisis has long been looming
Dr Gulfaraz Ahmad
There is a serious energy crisis in the country. It has a lot to do with
the steeply spiraling price of oil in the international market. As
Pakistan imports about 85% of the oil used, its economy has been
seriously hit by the mounting oil import bill. The situation has become
precarious as the oil import bill has touched nearly 30% of the total
export earnings. Energy analysts consider those countries that spend
more than 15% of their export earnings on import of primary energy as
‘Risky’ economies threatened by energy insecurity. One way out of the
‘Risk Bracket’ is to increase the export earnings but that is where
there has disappointingly been little or no success. For a developing
economy like that of Pakistan there is a need for maintaining a dynamic
policy framework to check the price of energy to promote economic growth
and increase the GDP. During the current decade starting with the year
2000, the reverse seems to have happened. Take for example the price of
petroleum products used by all segments of the economy and society.
Profit/take of four stake holders involved in the supply chain which
includes the government, refineries, oil marketing companies, and the
retail petroleum outlets (petrol pumps) was increased in about 2001 and
fixed in percentage of the end price. During the current decade the
price of oil increased from US $ 20 to 100 per barrel but the fixed
percentile profits/takes of the four stake holders remained unchanged or
even uncapped. Resultantly, all the burden of price increase was lumped
only on the last stake holder in the supply chain i.e. the end
consumers. Whenever the new price of the petroleum products was notified
by the government the immediate and direct beneficiaries were the
government, refineries, marketing companies and the retail outlets: 15%
of the increase goes to the government in GST alone, 3.5% to oil
marketing companies, 4% to retail outlets and a substantial share to the
refineries.
A quick look at the annual books of some of these stakeholders would
clearly reveal the phenomenal profits they continued to make while the
end consumers were exceedingly getting crushed by the mounting prices.
In addition to the 15% GST the government has been extracting petroleum
levy on some of the products till perhaps last year. If you take the 15%
GST into account, government makes tens of billions of rupees from the
petroleum products. This is not a case of subsidy. The time has come
that the government should not hope to extract the petroleum levy but
slash the 15% GST itself and also reduce the fixed percentage of the
other stake holders’ takes to provide a relief to the economy and the
general public. The new government has to pick up the threads and review
the whole process of pricing of petroleum products including the GST and
bring it under public scrutiny.
As the prices of electricity, natural gas, LPG, CNG also maintained
upward spiral the principal beneficiary of the increase in prices again
remained the government through 15% GST levied on the end prices. The
unexpected and unlimited increase in tax revenue from the energy sector
during the last seven years made the economic managers euphoric about
burgeoning economy with the obvious result that revenues from the
non-energy tax specially from the productive economy did not grow and
the government got firmly hooked on to the revenue fallout of the rising
energy prices. This perhaps may have been the reason the economic
managers did not like to evenly spread the rising cost of energy on all
the five stake holders and instead chose to burden only the end users.
The new government needs to face the problem squarely in the eye and
change the course away from the regressive energy pricing policies. The
cumulative revenues from the ‘Saudi oil facility’, the post nine-eleven
increase in remittances, the hike in energy tax revenues and infusion of
American dollars in multiple streams to our economy together may explain
the bygone economic euphoria. It came as no surprise when the new
Minister of Finance described it as an economy in serious crises. The
economy needs to be based now on robust, sustainable and dynamic policy
framework that seeks to increase revenue from the non-energy sectors
equally to give a relief to end consumers in energy prices.
The country faces another serious energy challenge of shortfall in
installed electric capacity. At the start of the current decade there
was surplus electricity but in the ensuing seven years there has come
about a shortfall of about 3500 MW. It has not happened overnight nor as
a surprise at all. The electricity consumption grew by an average of
around 7% during last seven years whereas the generation capacity grew
by only about 2% during the period with the commissioning of 300 MW
Chashma Nuclear Plant in 2001, 184 MW Chashma Hydel Plant also in 2001
and 1450 MW Ghazi Barotha in 2004. All these projects were already in
the pipeline for completion in 2000. The new Minister of Water and Power
has rightly been crying hoarse that not a single MW of new power was
installed during the last seven years. The problem has long been staring
in the eyes but we chose the easy course to close the eyes. One hopes
that such a blatant neglect of vital national interest is taken up by
the sovereign Parliament for a judicial accountability.
There were about ten major energy projects in the pipeline for
completion before the military government took control in October 1999.
All of them have now been commissioned and pipeline is nearly empty.
Energy projects do take long time to mature and be commissioned and
there is a serious challenge to the new government to first populate the
pipeline before we see the completion and relief. The power situation is
thus likely to get worse before it can get better. The consequences of
the power neglect on national well being, security and economy would be
of incalculable proportions. The new government in their efforts to add
new generation capacity may keep the universal principle of
least-cost-electricity in full view by carefully optimizing power plant
technology, fuel type, size that exploits economies of scale and
location that reduces the transmission losses over the national grid. In
the wake of the rising petroleum prices coal has become the fastest
growing commercial fuel in the world and offers an economical choice for
power generation even after taking into account the cost of clean coal
burning technologies. We are currently consuming 40% of the total oil in
power generation which renders the power very expensive. We should
reduce this use of oil by exploiting coal, hydel, nuclear and natural
gas (where and when available) based power.
Even though the new government acts with urgency and puts power
generation projects on the fastest track these will still take a few
years to commission. Meanwhile, there would be a need to manage the
demand side of electricity and pursue electricity conservation as a
national campaign for relief in the short term before the expansion in
supply side could defuse the growing crisis. The Minister of Power has
done well in drawing national attention during a walk rally in the
capital for electricity conservation on Monday May 05. We all need to
brace together to brave the crisis by whatever conservation of energy by
each one of us at all times. Otherwise the usual air-conditioning load
of the summer season would cause such additional power brakes leaving us
even without fans.
|
