May 052008

Syed Mohibullah Shah

Electricity is a commodity. When you turn on a button, the fan, fridge, air- conditioner or other gadgets will start working and the bulbs in your house or office will light up. The gadgets will work exactly the same way irrespective of whether the source of that electricity is oil, gas or coal.
For a poor country like Pakistan where 75 per cent of people can not earn even Rs5,000 in a whole year and which neither sits upon any big reserves of oil or gas- nor of gold or silver- but has abundant coal reserves of its own?

Ask any businessman anywhere in the world this question, and the answer would be: the lowest cost will determine where to buy the commodity from. In this case, the commodity is electricity. Any business that does not follow this sane purchase policy would lose customers and go bankrupt. And this is exactly where the irrational energy policy inflicted upon Pakistan is leading the economy of this country.

This energy policy has been promoting a profile of expensive energy for Pakistan that is out of synch with the economic and geological realities of the country. It is heavily titled- in policy preferences, institutional behaviour, incentives and cultural attitudes in favour of purchasing electricity from the most expensive sources over whose supply, transportation and price we have no control. Whosoever it may have been benefiting, this policy has cost the country a lot making it most expensive energy location in the region. Any dreams of industrialization of Pakistan would not materialize on the back of such an unaffordable and expensive energy regime.

Make no mistakes about it. No country in the world has ever industrialized and become a developed nation without benefiting from cheap coal-based electricity. And Pakistan is not going to be an exception to this well established fact. This was true of Europe, the US and others in the past and is equally true of today’s industrializing countries of China and India.

Already about 60per cent of the country’s export earnings are used up in meeting oil import bill when oil averaged around $ 60 a barrel lat year. Oil has crossed $ 120 a barrel and most international energy observers believe the price is going to remain very high despite occasional dips. But if you were to take a look at the 25 year ‘new’ Energy Security Action Plan ( 2005-2030) you would find that the vibes of rising oil prices never seem to have travelled to the energy planners and the decision makers of the previous government. But a policy that became antiquated before its start-up date still insists on misguiding the country for the next 25 years! Not satisfied with the already over-dependence upon imported oil constituting 30 per cent of energy mix, this policy plans to further increase the country’s dependence on oil to 51 per cent by 2030! That would almost certainly bankrupt the economy tying up all export earnings of the country towards single item import bill.

Any serious search for solution for energy problems of Pakistan should start right there- by reforms and rectification of the problems embedded in energy policy itself which acts as guide to investors abroad and institutions and individuals at home. The investor community is quite aware of the biases against coal-based power embedded in our existing energy policy and the institutions that implement it. No wonder this policy failed to materialize any investment in coal-based power in the country. It has also been flying in the face of economic realities of the country and refusing to build upon its natural advantages.

Let us be clear on another thing too. It is not energy at any cost that Pakistan needs. It needs ‘affordable’ energy and it is lucky enough to be endowed to get it too! Unless we shift our public policy debates and discussions to reflect the real issue – ‘affordable energy’- we would continue to fall into the trap of having expensive electricity from the likes of gold and silver and not from cheap coal. That coal based energy is cheap, labour intensive secure source of supply and has tried and tested technology that is most appropriate level of our technological development is well known and needs no further explanation in this space. The real question is not its well known merits and historically known critical role in industrialization of every country in the world.

The question that begs the answer from our energy planners and policy makers is why these self evident truths have never found their place in the energy policies Pakistan has been made to follow?

It is now important for new government to translate Prime Minster Gilani’s announcement of coalition government’s commitment to coal based power through concrete policy features that would signal to investor community around the world that we are serious about pursuing coal based power as principal plank of our national energy policy and they can now plan to make long term investment and technology commitments in Pakistan. This will also convey to domestic institutions dealing with energy and their leaders about how they should conduct the affairs of their organizations and implement this policy.

Learning from the wisdom of the world, the revised energy policy should declare its objective of raising share of coal based power first to the level of world average of 40 per cent of total power production by 2030 and then go on to increase its share like India and China to between 60-70 per cent of national energy profile.

Translated into actual projects, such a policy would require Pakistan to gear up its institutional support systems- investment policy, infrastructure, technology, human resources and others to be able to deliver about 2000 MWs of coal-based power every year in the first few years and then raise it to 3000 MW per year. These are realistic and doable goals but need to be seriously pursued to deliver benefits to residential and business consumers of electricity within the tenure of this government.

Electricity is a public utility which no one can do without these days. The energy issues are serious public policy concerns and need responsible handling. A lesson to learn would be from the messy privatization of KESC that has added to the miseries of residential and business consumers of Karachi. Its half-backed, open ended and loop-holed privatizations makes a model case study for business as well as public policy schools of the country to teach students how not to privatize a public utility in that manner.

The concurrent list of subjects is now going to be deleted by end of the year as announced by Prime Minister Syed Yusuf Raza Gilani in parliament. One of these which will then become a provincial subject is ‘electricity’. Coal is already a provincial subject. This devolution will help Pakistan in quickly developing more localized and cheaper coal-based power solutions throughout the country. Provinces would now have greater role in finding solutions to energy problems. Their existing institutional and human-resource capabilities in coal mining and coal-based power are not be of requisite quality but they have nine months to strengthen these capabilities and be ready to successfully discharge additional responsibilities coming their way.

The writer is a former federal secretary and head of the Board of Investment. Email:
Source: The News, 5/5/2008

 Posted by at 7:28 am

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