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Energy sector impacts negatively on economic uplift

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Economic Updates - Pak Major Financial News

ISLAMABAD - Recommending the government to consolidate all energy sector functions under a single Ministry of Energy, Petroleum Institute of Pakistan has said that energy sector is in a state of crisis and over the past few years it has negatively impacted the social and economic development of the country.

 Consumption of indigenous natural gas has grown rapidly in all sectors of the economy (residential, commercial, industrial, transport and power) over the past 15 years, driven by growing availability of gas and a low, government-controlled gas price as compared with alternate fuel prices. As a result, Pakistan has developed a vast natural gas transmission and distribution network across the country. However Pakistan s indigenous natural gas reserves are declining and a low gas price has become a significant disincentive in attracting new gas supplies, either through increased domestic exploration activities or via imports of Liquefied Natural Gas (LNG) or regional gas pipeline imports. If current gas policies persist, Pakistan s natural gas supply is expected to decline from 4 billion cubic feet per day (bcfd) in 2010/11 to less than 1 bcfd by 2025/26. This will lead to a growing gas/ energy shortfall reaching 8 bcfd (over 50 million TOEs) by 2025/26 and will depress Pakistan s average GDP growth rate over the next 15 years, Pakistan Energy Outlook (2010/11 to 2025/26) says, adding, that the government-controlled power sector in Pakistan, one of the largest consumers of primary energy, is facing growing problems due to an unrealistic power tariff, high inefficiencies, low payment recovery and the inability of the government to manage its subsidies mechanism. This has led to a serious circular debt issue, which is becoming a barrier for future energy sector investments.

This Pakistan Energy Outlook document has also recommended that natural gas pricing be made compatible with pricing of replacement fuels in different sectors (LPG, fuel oil, LNG/pipeline imports) via an enhanced gas surcharge while pricing for new natural gas supplies, both domestic and imports, be de-regulated. Similarly, pricing slabs be abolished, with a single natural gas price for all volumes. Further, the state-controlled natural gas sector is being used for political leverage, resulting in over-commitment of gas supply leading to natural gas shortages and increasing natural gas theft is reaching alarming proportions so it is recommended that the existing gas utilities be unbundled and a single state-controlled natural gas transmission company be created for transmitting gas on an open-access basis. Natural gas distribution and marketing be privatised to multiple gas companies to provide improved business discipline and customer management while a competitive gas market be created with de-regulated prices and open-access to the gas distribution grids for third-party gas suppliers. Natural gas theft should be declared a non-bailable offence with a high penalty. Additionally, it was also recommended that Exploration and Production (E&P) sector be progressively de-regulated and, as a first step, be allowed to sell new natural gas discoveries at market-based pricing. E&P sector be able to sell natural gas directly to consumers via open access to the gas transmission and distribution grids. Merchant LNG import terminals should be set-up by the private sector, under capacity-utilisation guarantees by the government for an initial period, to enable early spot/ short-term LNG imports and the import terminals to be openly accessible to create a competitive LNG market. Development of parts should be undertaken by the government on a fast-track basis to provide accessibility for large-sized LNG vessels. The single national power tariff be disbanded and de-centralised to the multiple power distribution & marketing companies (DISCOs) to reflect the true power costs in different parts of the country. The power tariff for each distribution company should be de-regulated, with no pricing slabs and no government subsidy. A competitive power market should be created through open access to the distribution grids for all power suppliers. High-voltage power transmission to continue being a government responsibility via the state-controlled NTDC, with open-access for all power suppliers. All thermal power generation based on oil, gas and coal to be in the private sector, and the state-owned thermal power plants privatised. The thermal power plants to be operated in a competitive market with no requirement of government support. Further, hydel and nuclear power generation to remain a state responsibility, and their tariffs to be adjusted to provide funds for building new capacity.

Pricing and margins of the main transport fuels be de-regulated and the regulatory authority should be tasked with ensuring fair competition.

It was also recommended that minimum specifications for fuels quality in Pakistan should be progressively aligned with international specifications. A Thar Coal Development Master-plan should be formulated with international support, setting out the long-term road map for the use of Thar coal. Government to urgently allocate funds for key infrastructure development for the Thar coalfields. The Government should initiate a strategic dialogue for development of Thar Coal reserves with potential international investors. Furthermore, capability of local refineries should be enhanced through time-bound fiscal support to enable them to produce better-quality fuels. All energy sector functions of the government must be consolidated under a single Ministry of Energy to facilitate long-term energy sector investments. So a single Energy Regulatory Authority should be created to manage the proposed de-regulation of the energy market in Pakistan.

It is worth mentioning here that primary energy consumption in Pakistan has grown by almost 80 percent over the past 15 years, from 34 million tons oil equivalent (TOEs) in 1994/95 to 61 million TOEs in 2009/10 and has supported an average GDP growth rate in the country of about 4. 5 percent per annum. However, since 2006/07 energy supply has been unable to meet the country s demand leading to shortages. Meanwhile per capita energy consumption in Pakistan at under 0. 5 TOEs/ capita remains only one-third of world average. However, indigenous natural gas being the largest source of energy supply in Pakistan is contributing 27. 7 million TOEs (45. 4percent) in 2009/10, followed by oil products, mainly imports, at 21. 3 million TOEs (34. 9 percent), hydel power at 7. 5 million TOEs (12. 3 percent), coal, mainly imports, at 3. 7 million TOEs (6. 1 percent) and nuclear power at 0. 8 million TOEs (1. 3 percent). It is also unlikely that Pakistan will be able to substantially develop its other indigenous energy sources of hydel power and coal by 2025/26 under current policies, and the energy import requirements of the country may grow from the present 30 percent to over 75 percent of the energy mix by 2025/26 costing over $50 billion per annum in foreign exchange.

 

 

Courtesy: Nation

 


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