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Energy sector reforms: Low-hanging fruit rotting – III

The energy sector also requires a fast-track deregulation, which should have happened yesterday. It requires a focused phased plan for power, gas, and oil sectors to streamline their supply chains including investment facilitation for drawing in significant FDIs estimated at $150 billion in the coming years.

Just like the power and oil sectors, gas sector supply to delivery function requires privatisation with each function existing as a separate business unit, complemented with a licence for a time period. A phased transition can entail beginning with distribution under a transparent process that provides for “royalty” being used on the lines of USF to expand the network or put in place LPG-air mix plants. Followed by setting up of provincial or regional distribution companies in Phase-II resulting eventually in city-gas companies. Transmission lines, like in power, are better managed by one entity. Subject to technical and operational studies, they may deliver LPG, LPG air mix or gas to communities.

As for guarantees, the example of Reko Diq is a perfect example of the demand for support on a commercial agreement not only from GOP but also from parliament and judiciary. It is very apparent that confidence-building measures need to be deployed as soon as possible to bring back the trust in the government as the signing authority and to restore Pakistan’s international credibility sans economic credentials to feature the country as a foreign investment destination on the world map. The question remains, will we?

Offshore exploration and production are required to take precedence over mining undertaking by OGDCL (Oil & Gas Development Company Limited) and PPL (Pakistan Petroleum Limited), need to bring back firms that have left the country and hold developers accountable for delays. Core element of a “Pakistan NDRC” type Planning Commission must encourage and oversee public-private partnerships while limiting role of GOP to just that of a facilitator and not an executor or business operator/manager. Let go please. Simpler said than done!

Given surplus generation capacity in winters, primary energy needs to be driven by the industrial sector, regional play facilitated by increase in productivity and energy conservation. The generation cost has reduced from 9.9c/kWh in FY13 to 8.1c/kWh in FY22. The main driver-in aggregate cost has been imported energy or fuel price and not the capacity payments. Imagine unit pricing without the improvement in our energy mix (coal, wind, solar, nuclear, hydel) that has occurred over the years. Converting existing coal power plants to Thar coal is essential in further reducing our dependency on imported fuels while rationalizing the subsidies for power and gas in a timely and phase-wise manner with a target of 6c/kwh within the next decade. A pricing hub at Multan for gas and oil storage needs to evolve and be fully utilized for futures trading of energy molecules through PMEX.

The relevancy of conservation requires a different strategy. The easiest way to change people’s behaviour is to change their environment. An active ‘Engineering and Development Board’ can investigate what cultural nudges can bring positive change and avoid the one-size-solution-fits-all approach, which does not work.

G2G structure for State Owned Enterprises’ (SOEs’) share placement has been approved by Parliament but we struggle to implement it. In fact, our dilemma is that changes are politicized before they are understood. It happened in case on LNG and its import structure as well. For decades we have heard of unsuccessful privatization attempts for the same reason. Examples of Aramco, Qatar Petroleum, Abu Dhabi National Oil Company, and Kuwait Petroleum Corporation are good blueprints of successful public institutions performing and competing. We seem to have a lack of desire to improve and prefer to postpone tough decisions which in turn have contributed to greater misgovernance. A new approach is quite overdue and necessitates reviving PIDC (Pakistan Industrial Development Corporation) with competent and independent management tasked to turn around the SOEs. We need to do away with desire of controlling.

We have home-grown example of K-Electric which has reduced T&D losses by more than half (from 34% to 15% since privatization) as well as reduced AT&C losses. The successful KE model of integrated generation and distribution should be executed in rest of the country and be used to attract local and international investments in the energy sector. Discos should be integrated with IPPs/Gencos, and provincial gas distribution (Gdisco) similarly combined with E&Ps under a “new holding company” with no GOP majority with (Discos/Gdiscos) their subsidiaries with a target of merging the Genco/Disco or E&P/Gdisco within three years.

Stimulating innovation and advocacy needs a continuous throughput. For example, the work of LUMS Energy Initiative has tabulated achievable low-hanging fruit based on investment, time to implement with potential benefits ranging between USD 1.5 to 2 billion. This includes day-light savings time, speed-limits on highways, commercial activity timings and shifting the peak hour demand. K-Electric’s 7/11 Innovation Challenge and IBA-ORIC Access are brilliant examples to bridging academia with entrepreneurs to solve complex problems.

We need to use data and analysis for a better contextual nudge. And for that, more information sharing, and bridges need to be built. CPPA/NTDC and gas companies need to publicly post data to facilitate better research, analysis and understanding. Such firms are repositories of data and should make available reports, studies, and policy papers for researchers. Current access is to a few and requires NDAs to be in place. Similarly, tabulation reports of LUMS, PIP, OCAC and HDIP need to find an alternate domain focus.

Likewise, to facilitate an expected increasing need for skilled labour in a complex energy market, our education system requires, not mending, but overhauling to encourage thinking and challenging concepts and approaches to solve problems. We need to think and dream big. The not-coming-out-of-the-cocoon-syndrome acts as the biggest roadblock to Pakistan’s productivity. For instance, like APPLE, Starbucks and others have gone global but our products stay confined to the street level.

We need more of such initiatives to drive change while developing solutions in line with our environment. Pakistan needs to take ownership for its self-reliance. GOP does not have the acumen or capacity to structure finance, assess/conclude bankable feasibilities or develop high-capex projects, or provide an environment conducive for implementing decisions. It is a historical problem, and the time demands introspection about the “whys” in consonance of ground realities. HEC should also facilitate young talent from universities who can undertake studies and consultancy work on the World Bank, the ADB and the AIIB projects.

A careful assessment is required on the regional play within our energy segment. The Board of Investment, the attaches at Embassies, the Foreign Office, the Inter State Gas System, and Ministry of Energy have not delivered. The recent establishment of a special strategic cell by the MoE (Ministry of Energy) is commendable. Its role is to pave the way for long-term projects and fuel-import negotiations. Barter trade agreements to overcome sanctions and laying out a network of pipelines and transmission network needs working for regional energy operation. For this possibility to catalyse, however, cooperation is paramount and important for us to resolve strenuous matters on our borders, especially Afghanistan. Building on the National Security Policy authored by Moeed Yousaf, these elements need redefining under the framework of a “NRDC of Pakistan” with focus on aggressive and diligent target deliverance.

Lastly, a small victory perhaps, Pakistan should continue to be the strongest voice for developing nations in G77 and future COPs for the “loss & damage fund” with good governance and transparency as highlighted by the Pakistan Business Council (PBC). It goes to show we can be leaders in driving important conversations.

Sheikh Imran-ul-Haque, "Energy sector reforms: Low-hanging fruit rotting – III," Business recorder. 2023-02-02.
Keywords: Social sciences , Social issues , Energy crises , Social reforms , Oil industries , Transmission lines , Qatar Petroleum , LPG , OGDCL , PBC , NRDC , USD

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