China
represents 21 per cent of global energy demand and its energy consumption is
growing four times faster than rest of the world. The country is due to become
the world’s energy production hub by 2020. More importantly, the country is
trying to position itself as a regional provider of greener energy in the
future.
While
the transition from fossil fuels to green energy may take decades, however, the
state-owned enterprises in China have already started to shift from dirty coal
to liquefied natural gas, and also benefiting from imported gas from US where
shale gas revolution is being witnessed.
India
is the 4th largest consumer of energy in the world. After the blackouts of July
2012, which affected nearly 680 million population of northern India, the
country is now simultaneously improving its portfolio in all its energy
sub-sectors. This includes planning and investment in over 8 dozen coal-fired
plants, expansion of solar power systems, hydroelectric dams and various
renewable energy resources.
Currently
three per cent of India’s energy needs are being met through renewable sources
(this excludes water). However, the country plans to increase the share of
renewables in the energy mix to around 17 per cent by 2030. This will largely
involve increasing the share of wind and solar energy. There is also a plan to
amend the building codes in a manner that prevents energy wastages. This is
intended to save USD 42 billion in the energy sector annually.
There
are four key messages for Pakistan from the energy development in China and
India. First, both countries (China and India) stand ready to inject or modify
reforms that can enable private sector participation in energy sector. This is
not just confined to the local private sector and there is aggressive pursuit
of foreign direct investment in this sector. Second, both the countries are
trading heavily with their neighbours and beyond in energy and energy products.
In fact, India has also offered Pakistan electricity through transmission lines
across Wagah-Attari border. Third, both the countries are continuously trying
to lower prices of energy for all consumer types. While for a domestic
consumer, this may imply lower inflation however for the external account of a
country this will imply greater competitiveness. Finally, both the countries
are trying through demand-side and price reforms to drive energy mix away from
i) expensive sources (e.g. fossil fuels) and ii) polluting sources (e.g. coal).
The
key question now is how to enable the institutions dealing with energy
governance in Pakistan to undertake the sort of initiatives that our
neighbourhood has already adopted. With a fragmented energy sector governance
comprising 29 departments in total and with lack of coordination between these
bodies, it seems unlikely that any integrated energy planning could take place.
In fact, some well-intentioned energy reforms under the Integrated Energy
Framework developed under the previous government died before they could even
be placed in an implementation matrix.
The
moral then is to bring all departments related to energy under either one
federal ministry or authority so that issues such as fragmented
decision-making, rent-seeking and lack of accountability can be done away with.
The new government has already tipped three things they aim to do in the short
to medium term i.e. managing circular debt, reduction in load shedding by
around 30 per cent and in the longer run privatising several components in
energy supply chain, for example distribution companies (DISCOS). However,
energy experts are expecting a more comprehensive plan which is reforms-based
and can ensure that Pakistan comes out of darkness in the longer term. What are
these reforms?
First,
apart from the consolidation of energy decision-making bodies into one
authority, it is also essential to build the regulator’s capacity. Both Nepra
and Ogra have been termed toothless on several occasions. Their lack of
capacity to regulate has even invited the Supreme Court of Pakistan to
intervene on certain occasions. Furthermore, necessary legislative changes
should be undertaken so that the government in power should not intervene in
regulatory matters. This includes postings and transfers at the regulatory
bodies.
Second,
the government is expected to devise policies and programmes which exhibit a
longer term vision. However, executing such plans requires technical capacity which
is missing at both ministries dealing with energy at the federal level. It is
surprising to see that despite the availability of computation infrastructure,
the transmission optimisation is conducted through manual methods. It has also
been difficult for both ministries to attract and retain professionals from a
technical background. However, the lack of career planning in federal
administrative structure prevents such professional from joining these
ministries.
Third,
there is a strong desire from all stakeholders that pricing structure in the
energy sector should be deregulated. This will not only correct the incentives
structure in this sector but also improve position of receivables. This reform
will also require phasing out of cross and hidden subsidies which are nothing
but cost of inefficiency. Subsidies should be targeted and only for the poorest
of the poor. Untargeted subsidies must be laid to rest. The provincial
government, after the 18th Amendment, should also be held accountable for
administrative losses (including power and gas theft). These governments can be
facilitated through smart metering system; a proposal towards such a system was
developed by the Planning Commission and is still pending with the Ministry of
Water and Power for over 12 months now.
Fourth,
one of the key successes that Pakistan can learn from India has been the role
of private sector at the distribution level. This has brought greater certainty
in the supply side of the power sector in India (particularly at the state
level). For this to happen in Pakistan, the new government must initiate
privatisation of DISCOs which will not only reduce the burden of future
circular debt but also drastically bring down the administrative losses.
Finally,
we also need to challenge our existing power generation entities. Gas
allocations should strictly be on the basis of efficiency exhibited by
generation units. This will imply that if a generation entity continuously
indicates relatively lower efficiency levels, its gas allocation should be cut
down until the time there is some proven improvement.
Similarly,
price paid for oil to generation units should vary with the quality of oil
provided to the generation entities. Currently, same price is paid even for the
lower quality oil supplied to power generation sector. There is also a need to
look into the potential of coal water slurry which is being advocated by
experts as a more cleaner and cheaper substitute of oil.
The
above mentioned reforms are certainly not untested. Most of them have already
been in vogue in our neighbourhood. We have enough evidence and documented
practices to learn from. It is now for the new government to show its will to
act on its own manifesto which puts energy sector reform on top of its priority
list.
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