Pakistan’s power sector badly hit by circular debt

Karachi: Confronted with multiple challenges, one of the most worrisome issues is that of the energy crisis, which has been hovering for the last several decades. For a long time, the country has been facing an acute energy crisis.

Adding fuel to the fire is the Herculean task of the circular debt. The power sector has been badly hit by the circular debt, which stands at Rs4.17 trillion, at present. The transmission and distribution (T&D) losses of 17.13 per cent create hindrances and bottlenecks in the system.

The shortage of natural gas has played havoc with the country in the shape of hours-long power outages, industrial shutdowns and rising energy prices.

The main factors, which significantly contributed to the gas crisis is a growing demand for energy, growing population and the lack of investment in exploration and production. Pakistan heavily relies on imported oil and gas to fulfil the local demand, resulting in price fluctuations and supply disruptions.

Despite several measures by the successive governments, such as enhancing the use of alternative resources, including coal and renewable energy, coupled with implementation of energy conservation plans, to overcome this issue, the crisis remains a daunting task for them.

To find a long-term and sustainable solution will require concrete efforts on the part of the government functionaries. The government has to enhance domestic production and reduce its reliance on imported gas.

Energy Minister Khurram Dastgir Khan said that Pakistan needs to normalise its energy consumption, as it was in a “grave economic crisis”.

“We cannot afford the culture of wastage anymore. I also believe that the politicians should be the first ones to adopt these changes and become the role models for the public,” he added.

The energy landscape of Pakistan seems bleak in the coming years, as it had already consumed around 80 per cent of the total oil reserves and around 70 per cent of the gas reserves.

To recall, former Petroleum Minister Dr Asim Hussain had warned in 2012 that the country would face the dearth of gas after 10 to 12 years if the energy policy his government had introduced is not implemented in true spirit.

According to a Petroleum Division report, of the oil reserves of 1,234 million barrels, Pakistan has consumed 985 million barrels, which constitutes 79.8 per cent of the total reserves.

The break-up of oil reserves shows that Punjab has recoverable reserves of 457.43 million barrels, of which 383.20 million barrels have been consumed; Sindh has an estimated recoverable reserves of 509.58 million barrels, of which it has consumed 430.60 million barrels; Balochistan has recoverable oil reserves of 1.84 million barrels, of which 0.24 million barrels have been utilised, while Khyber-Pakhtunkhwa has recoverable reserves of 264.83 million barrels, of which 170.59 million barrels has so far been consumed.

Similarly, the country produced 27 million barrels of oil in the financial year 2020/21, compared with the target of 30 million barrels, achieving 90 per cent of the target.

Pakistan had always been a major gas producer to meet the domestic needs. The country remained self-sufficient until the launch of gas supply schemes on political considerations. Since 2015, the country has become an importer of liquefied natural gas (LNG).

In a social media statement, Information and Broadcasting Minister Maryam Aurangzeb said that extraordinary measures are required to deal with the extraordinary situation so that the contingency plan would significantly reduce the import bill.

According to the Petroleum Division’s report, Pakistan has so far consumed 66.6 per cent of the total gas reserves.

Similarly, exploration and production (E&P) companies have remained unable to ramp up gas production since 2000 and have also failed to make major discoveries.

We have around 63 trillion cubic feet (tcf) reserves of natural gas and so far the country has consumed around 42tcf gas, the report showed.

Pakistan also lacks gas production as it stood at 1.27tcf/annum, compared with the target of 1.43tcf/annum.

Pakistan’s natural gas mix consists of 33 per cent domestically-produced gas, 10 per cent LNG and one per cent liquefied petroleum gas. An annual increase of 5 per cent in the natural gas demand has been eating away the limited domestic reserves for the past several years.

These figures clearly show that a rapid depletion of the existing reserves with no substantial new discoveries since 2001 was one of the main reasons for the widening gap in the demand and supply of natural gas in the country.

There are several other issues in the Ministry of Energy such as the regulation of the E&P sector by more than one regulator. However, the absence of a single regulator has resulted in inordinate delay in the extension of leases, awards, cancellation of E&P blocks and allocation of oil and gas to the buyers.

In 2019, the Asian Development Bank (ADB) had published a white paper, claiming that Pakistan, coupled with a number of other countries, including developing countries, is an energy insecure country.

As far as the circular debt is concerned, the government needs to come up with an out-of-box solution to pay it off rather than recovering it through tariffs, which will only intensify the problem. However, if the issue was not resolved on an urgent basis, the distribution companies’ inefficiencies will continue to contribute to the ever-growing circular debt, which is estimated to reach Rs4 trillion by 2025.

One thing is clear that if Pakistan does not address the power sector inefficiencies on an immediate basis, the people, including consumers, investors and businesses and industries were left with no other option but to look for alternatives.

At present, almost the entire world is facing energy shortages and it has sent shock waves from Europe to Asia and Pakistan is no exception.

Pakistan’s energy sector is in crisis because of the lack of output to keep up with the rising demand during the past few decades.

The recent price escalation, to some extent, tells about the future, where one can expect some market disruptions. In these circumstances, Pakistan is expected to bear an extremely challenging and disastrous winter due to the lack of long-term energy management strategies.

The crisis is likely to worsen further, owing to the Middle Eastern countries, which serve as the major source of imports, which are severely impacted by the European fuel and gas shortages.

The frequent changes in the governments and the political turmoil and the politicians’ unwillingness to resolve this issue further aggravated the situation. The governments, political parties and other stakeholders continue to interfere in the decisions, while the utility firms accuse the management of wrongdoing.

The world is changing fast and without energy security Pakistan cannot compete with the world. To do this, we need to immediately explore other renewable energies to supplement our local requirements.

It is time that the political leaders and other stakeholders should make all-out efforts to minimise this crisis and find a sustainable solution to it.

Comments

Maryam Aurangzeb

Information minister

Extraordinary measures are required to deal with the extraordinary situation so that the contingency plan would significantly reduce the import bill

Khurram Dastgir Khan

Energy minister

We cannot afford the culture of wastage anymore. I also believe that the politicians should be the first ones to adopt these changes and become the role models for the public