Pakistan needs a cohesive energy policy 1


I.M. AHMAD

There seems to be lack of co-ordination and/or cohesion in the various departments/ministries of the Government managing energy sectors in the country. In this regard a reference is made to the media report quoting Senator Dilawar Abbas, Head of the Senate Standing Committee on Petroleum and Natural Resources, urging the Government to “Remove Hurdles in IPI’s ways” to accelerate work on this project.Abbas has rightly pointed out that the gas fields are fast depleting and there is an urgency to accelerate work on the IPI Gas Pipeline to meet the growing demand for gas in the country. The demand for gas is expected to grow at a much higher rate than estimated before due to scheduled commissioning of gas fired power generation projects in the next 3 years as planned/approved by Private Power Infrastructure Board (PPIB).
The energy needs of the country are not overseen from any one focal point, but assessed by various sectors independently and making plans to meet the energy requirements of their sectors accordingly. To name a few these are the Planning Commission, Ministry of Petroleum and Natural Resources (MP&NR), Petroleum Institute of Pakistan (PIP), Oil Companies Advisory Committee (OCAC), Water and Power Development Authority (WAPDA), Pakistan Electric Power Company (PEPCO), Karachi Electric Supply Corporation (KESC), Private Power Infrastructure Board (PPIB).

Their plans are being developed rather independently as these are independent bodies and are not working in tandem to support any unified energy policy as we understand there is, none. One may recall that some two years back in the Oil and Gas Conference held in Islamabad, Government sponsored the announcement of a pilot project for import of Liquefied Natural Gas (LNG) by Sui Southern Gas Company Limited, then under Engineer Munawar Baseer.

The Project ambitiously was named “Mashaal” and entailed development of port facilities on fast track for import of LNG, de-gasification for Sui Southern Gas Company (SSGC) system mainly for use by the power generation companies as the estimated landed cost of LNG was viewed as unviable for domestic users. We understand highly reliable foreign partners were taken on board after due diligence and scrutiny.

This project has still not moved ahead from the ‘Drawing Board’ level as the foreign investors, partners in the project, are looking towards the Government for a ‘Sovereign Guarantee’ to protect their investment in this country against any eventuality of not finding the market for the gas imported through this project.

This guarantee is not forthcoming as such the project is not moving ahead or is moving at a snail’s pace. The time and money spent so far on Mashaal Project may be lost and opportunity too as there will be hardly any source of supply of LNG available in the international market if the present partners move away from this project taking with them the committed source of supply wherefrom the product has been planned to be obtained.

Experts are of the view that as of today, there is hardly any source supply left uncommitted from where this product can be obtained. LNG is now a scarce commodity unless some new production facilities are added which takes 3 to 4 years in development. The Gas Pipeline Projects, both Iran-Pakistan-India Pipeline (IPI) and Turkimanistan-Afghansitan-Pakistan Pipeline (TAP) under the Ministry of Petroleum and Natural Resources managed through Inter-State Pipeline Company are still a far cry and their dates of commissioning are uncertain.

There is definitely an urgency to remove all the impediments in the way of IPI as urged by Senator Dilawar Abbas so that actual construction work on this project is undertaken at the earliest ensuring supply of gas to meet the demand. The increase in demand of gas in the domestic, commercial and in the power sectors in the Country is not matched by the limited increase in the local production.

Experts are concerned with the looming crisis and their concerns are increasing with every passing day. The gas shortages in winters even today are unmanageable and the increased demand in the future is likely to add to the woes of the consumers, both in terms of gas supplies as well as electricity shortages due to limited gas supplies.

The electrical energy requirement in the country on a conservative estimate is likely to grow by 12.5% per annum and to meet the demand/supply gap WAPDA, PEPCO and PPIB are working independently and one learns about approval of projects in the print and electronic media every now and then without any information as to when will the net outcome favourably affect the consumers as they presently continue to face the unprecedented electrical outages, making their life utterly miserable.

According to information posted on the website, PPIB has recently updated the list in July 2008 of approved power projects for more than 4500 mega watts based on Gas, Oil/Gas and Oil during the short term ie March 2009-June 2011 as detailed below:

All these projects have different commissioning dates. However, all are scheduled to be commissioned before June 2011, under the ‘short term plan’. Apart from the above listed oil and gas based power projects there is a list of other hydel and coal based projects, including two 1200 MW imported coal based projects near Karachi, expected to be commissioned in 2013. This is good news for the Karchiites and something to look forward to.

It is apparent from the above list of the projects that most of the power projects are based either on gas, oil/gas or purely on Fuel Oil. We have discussed shortage of Gas earlier and it is imperative that LNG and natural gas must be imported as planned to meet the growing demand of gas in the country. Experts view the availability of fuel oil as questionable, both in terms of sourcing of supplies as well as port infrastructures limitation to handle import of such large volumes at the ports.

If all the listed purely oil based projects are commissioned as scheduled, estimated fuel oil required to meet the approved capacity works out to an additional 60,000 tons per month during 2009, 350,000 per month during 2010 and yet another 60,000 tons per month during 2011 after their commissioning dates. The additional requirement of fuel oil will have to be imported unless new refineries are commissioned in Pakistan.

On the supply side, fuel oil or furnace oil, as it is commonly known, has been viewed by the refiners as a loss making product as the selling price in the international market of this product has traditionally been lower than the price of crude oil. As such all refineries in the Middle East and elsewhere have commissioned highly capital intensive fuel oil cracking units to further process the available residue fuel oil (RFO) to produce value added products.

This has resulted in much reduced availability of fuel oil in the international market, pushing the prices upwards as well. The need to have a co-ordinating body cannot be more justified as implementation of the PPIB’s ambitious short term plan may run into snags for want of fuel oil for generation of electricity from these projects.

At present, Oil Marketing Companies (OMCs) are importing fuel oil in addition to the availability from the local refineries to meet the requirement of power sector and general trade in the country. The total fuel oil import at present exceeds 4 million tons per annum (actual import 2007-08 was 4.8 million tons) and the available port facilities are being utilised to the maximum leaving hardly any room for accommodating additional imports.

The additional fuel oil required by the newly approved private power projects will be in excess of 2.5 to 4.0 million tons per annum. The problem is two-fold, firstly the availability of the product in the international market and secondly the infrastructure limitations at the ports which is likely to constraint the imports in excess of the present 5 million tons per annum.

Another factor that may crop up later could be the cost of the electricity generated from the “Thermal Power Projects,” including the existing ones as we have seen that there was not any sizeable reduction in the prices of fuel oil in the international market due to limited availability of this product in spite of the downward movement in crude oil price in the recent past.

Moreover, the fuel cost, as we understand is a pass-through item in the pricing structure of the IPPs Tariff as approved by National Electricity and Power Regulatory Authority (NEPRA) and actual fuel cost will be passed on to the buyers of the electricity under the Power Purchase Agreement (PPA) in this case to WAPDA and KESC. The higher cost of fuel is likely to push up the per unit price and may not be affordable by the consumers.

The Mashaal Project which was supposed to be commissioned on fast track is still far from commissioning and needs to be addressed quickly as it may help in partly resolving the supply side issue of Independent Power Projects (IPPs) fuel requirements both in terms of port infrastructure constraints as well as fuel oil availability in the international market.

If the Mashaal Project is to be finally abandoned for reasons best known to the policy makers, in that case alternate sources of supplies have to be tied-up on long-term basis with matching port infrastructure development to support PPIB’s ambitious target to generate 4,400 MW plus electricity to alleviate the sufferings of the common man in the next 3 years or so.

The element of high cost of fuel will continue to haunt the planners in PPIB until their prayers are answered through some miracle. We all pray for the same. There is an urgent need to have a cohesive energy policy and all stakeholders to work within the ambit of the well outlined policy contributing through their constructive role for a better and progressive Pakistan.

The Government may consider establishing a Ministry of Energy overseeing implementation of the energy policy by all the stakeholders and co-ordinating for achieving the common goal of providing the much need energy for the economic growth of the country and for the betterment of the people of Pakistan.
 

 

 


Like oil, speculators and water an uneasy mixROB TAYLOR On the cracked grey clay of an ancient lake bed on the edge of Australia’s outback, Guy Kingwill is at the frontier of a global rush to commercialise water. Despite a long-running drought, Kingwill, who runs the vast Tandou farm, 142km southeast of the mining town of Broken Hill, has just sold his property’s critical water on a national market rather than pump it into irrigated cereal crops.
“The return on the water is higher,” Kingwill told Reuters. “Where we are it’s broadacre cropping. But the market now is driving significantly more per megalitre from horticulture than you can get a profit margin out of wheat and barley,” he says. Across the world, speculators are increasingly looking to water as a new profit engine as supplies dwindle, caught between booming populations demanding more access and climate warming threatening its very availability.

Australia, the most parched inhabited continent, has for 25 years had an internationally unique water market to better share supplies among farmers and reverse years of allocating more water than the country’s rivers and dams could spare. That market last year traded $1.1 billion in permanent and seasonal water rights, according to Mark Siebentritt, the Operations Manager for national water broker Waterfind, who says business last year grew by 20 percent.

But Kingwill, whose corporatised farm lists on the Australian Stock Exchange, says prices are being pushed up by a metaphorical gold rush, luring bankers and speculators both at home and internationally to a new and waterlogged Elysian field.

With drought gripping some areas for a decade, prices for one megalitre of seasonal water – enough for an Olympic-size pool – are peaking at A$600 ($517), while permanent water entitlements are less volatile, but still pricey at up to A$2,500 a megalitre. “You’ve got from the biggest financial institutions down to aunty Jane buying 10 megalitres of water … It’s now an asset, just like a block of land, and people are buying on a daily basis,” Kingwill says.

ARGUMENT FOREVER While Australia has the most mature water market, it is stunningly complex, drowning in around 10,000 rules and the regulation of four states spreading over the huge food bowl Murray-Darling river basin in the continent’s southeast.

The country’s consumer watchdog, the Australian Competition and Consumer Commission, or ACCC, has been asked by the centre-left Labour national government to develop new and uniform rules for how water should be charged and traded. State governments agreed in 1993 to establish a free market underpinned by a national register of water entitlements. Development has so far been hobbled by political rivalries and water over-allocation problems in some regions.

“What we want to do is to see water trading freed up so it can trade not only across regions, but also across state borders,” says ACCC Chairman Graeme Samuel. But some farmers are wary of intervention by the nation’s powerful regulator, fearing it will further push up prices when drought is already evaporating supplies and even major cities are enforcing tough water-saving measures like no car washing.

In July, national Water Minister Penny Wong extended the time for farmers to have a say in the coming reforms, with the ACCC to report back in December and again in June 2009. “By making it so investors can come in, there is concern the small guy on the block is not getting a fair shake. But then again, some argue that the more investors come in, they drive the value up. The arguments go on forever,” says Kingwill.

PUBLIC RIGHT Waterfind’s Siebentritt says his business has been tracking water trade for 20 years and has developed an electronic platform which automatically matches registered buyers and sellers, advising which areas are legally entitled to trade. Kingwill’s Tandou, which has more land under water-saving subsurface drip irrigation than any other farm in Australia, is a client, with a sizeable ability to store water.

But Siebentritt does not see water making the transition anytime soon to a pure investment rather than a public right overseen by government and used 70 percent for agriculture. “There’s some speculation, but people investing in water now are doing it as a way of investing in agriculture,” he says.

“What drives the price is the value of the produce that can be grown with the application of that water, so really the price of commodities on international markets – whether it be food or rice or cotton – is having an impact on the value of water,” Siebentritt says. Wendy Craik, in charge of managing food bowl water through the Murray-Darling Basin Commission, said there has been an “explosion” on the water market in recent years, with around 30 percent of all available water traded.

“We’re seeing corporate groups getting together and purchasing water, and then having an arrangement with farmers where they provide the water to produce a crop,” Craik says. “There are stories of some of the banks getting in there and buying water for agribusiness,” she says.

ACCC involvement, Craik says, will streamline and regulate a water trade system that has evolved over a quarter century from a semi-informal dealing between farmers in separate river valleys, but given new urgency by scarcity, climate shift and drought. “Government will always have a pretty close eye on water, simply because water has become more critical,” Craik says. “Currently buying a house has a lot of paperwork, but buying a piece of water has a lot more.”
 

 

 

 

 


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