Power, petroleum ministries to be merged

[Lahore_Real_Estate]

ISLAMABAD: With the oil import bill estimated to increase by about 300 per cent to $38 billion by 2015, the government has concurred with the Friends of Democratic Pakistan (FoDP) to merge the ministries of power and petroleum and their sectoral regulators for an integrated solution to the energy crisis.

The government has also agreed to substantially increase power tariff for domestic consumers using over 300 units per month to bring it on a par with the average tariff for industrial and commercial consumers.

The steps are part of an Integrated Energy Sector Recovery Report and Plan prepared by the FoDP energy sector task force and spearheaded by the Asian Development Bank.

“In the absence of such measures, the current energy gap of 18 million tons of oil equivalent (MTOE) will widen to an unsustainable 56 MTOE by 2015-16. The energy import requirement would simultaneously increase from $10 billion to $38 billion i.e. almost double the country’s present export earnings,” said the report made available to Dawn.

This will place a considerable strain on the economy because it will raise external current account deficit and worsen the balance of payment position. The FoDP wants Pakistan to do away with cross subsidies by July 2013.

The current energy shortage of 5000MW was anticipated five years ago, but the growth in demand was not fully anticipated by planners and capacity fell significantly, resulting in the prolonged power cuts across the country.

Gas demand is increasing by 8.5 per cent and indigenous gas availability is projected to decline and the deficit is thus widening significantly.

The crisis is not only because of immediate shortfalls and loadshedding but also because of a deeper problem in energy policymaking, governance and regulation.

The report regretted that while sufficient gas was not available for electricity, subsidised gas was being provided to fertiliser companies and new gas connections were promised in new areas. The report strongly recommended a reduction in guaranteed rate of return to gas utilities and transmission and distribution losses. Citing one estimate, it said electricity and gas shortages caused an annual loss of over Rs220 billion to the industry and a job loss of over 400,000.

“Energy shortfalls are blocking growth, limiting employment opportunities and becoming a serious handicap to fight poverty that breeds extremism and violence in society at a time when the country is fighting a war against terrorism in its border areas,” the report said.

Under an agreement with the FoDP, Pakistan will establish a ministry of energy by merging power-related functions of the ministries of water and power and petroleum and natural resources to ensure an integrated sector policy development, planning and implementation. The merger will have to be completed by January 2012. There will be a separate ministry to look after the water sector development.

They have also agreed to merge the present electricity (Nepra) and oil and gas (Ogra) regulators into a single, autonomous and effective energy regulator. One of the causes of energy crisis has been identified as dwindling public investment with development spending substituted by increased military spending to finance the war against terrorism.

FoDP experts have also asked the government to include energy efficiency as a priority in mainstream policy development, resulting in high energy intensity.

For each dollar of its gross domestic product, Pakistan uses 15 per cent more energy than India and 25 per cent more than the Philippines. Therefore, there is need for more attention on demand management than new power generation to bridge the gap between supply and demand.

“There is neither a single accountable institution nor enabling legislation to promote energy efficiency in the country,” the experts said.

The task force recommended the need for larger investment in hydropower generation to tap an estimated potential of over 54,000MW and utilisation of over 725 million tons of local coal (that can generate 100,000MW) to increase power production.