ALTHOUGH economic growth is the government’s mantra, whether it will
utilise the recent freefall in crude oil prices to turn the economy
around is a moot point. The battle of the sheikhs vs shale gas has not
only impacted geopolitics, it has also brought the oil price at Brent
crude (the global oil price benchmark) to $59 a barrel. Meanwhile WTI,
the US benchmark, has dropped to $55 from well over $110 in June 2014.
economy is in shambles, a situation exacerbated by poor leadership and
bad governance. One result is that a 45pc reduction in petrol prices has
translated into only 15pc reduction for motorists.
drop in oil prices can improve two crucial data points: the energy
crisis and external balance of payments.
The deepening power shortage has sparked violent protests and cost
thousands of jobs in a country already beset with high unemployment.
The government has failed to take full advantage of falling oil prices.
OPEC’s more powerful members are willing to bear the crunch of oil
prices as low as $50 a barrel to take on Russia, Iran (even though it is
a member of OPEC) and US shale revolution. This opportunity must be
used by the government to end the energy crisis. A quick look at
Pakistan’s energy crisis shows the gap between supply and demand
exceeded 6,000 megawatts in summer, and remained around 4,000 to 5,000
MW for most of the year. This shortfall, representing about one-third of
the total demand, saw one-third of the consumers remain without power
for over 20 hours at a time.
It is important to emphasise that
Pakistan’s energy crisis is not due to insufficient installed capacity,
which is 24000MW, but because of an inefficient energy mix, as a result
of which it failed to meet the peak demand of 19,000MW last summer.
the energy mix, the share of thermal generation is 68pc but this
touches 80pc in winter when the hydroelectricity share is reduced to
14pc. In the thermal power generation pie, the major share is of
oil-based generation. The share of gas-based generation was almost 45pc
in 2005, but is down to 19pc now due to rapid depletion of gas reserves.
on imported oil means the government has paid huge subsidies totalling
Rs1,900 billion over the last eight years, mainly because of a
significant difference — caused by a persistent rise in international
oil prices — between generation cost and notified tariff.
oil for electricity generation also spawned the monster of circular
debt. Despite the payment of Rs500bn to settle it in July 2013, the net
circular debt again reached Rs300bn in September 2014. Moreover, high
cost of generation has forced power plants to remain idle, which is the
primary reason for the power cuts, aside from inefficiencies caused by
bad governance, losses and low recoveries.
The coal projects
initiative is intended to add 6,600MW to the grid, but given its high
tariffs, it remains unviable in comparison to oil at $60 per barrel.
oil prices have also tumbled to $360 per ton as of December 2014, from
$630 in June 2014. Simple mathematical calculations show that
electricity generation using furnace oil should now come to around
Rs10.50 per unit, as 60-80pc of the cost depends on the fuel cost
component (along with the operations and maintenance cost).
the fall in oil prices must be reflected in the tariffs, and should
intuitively lead to a reduction in subsidies, essentially a lucky fix
for the energy crisis. This would bring down the basket price of
electricity, making it more affordable, eliminating the need for a
subsidy, and giving relief to 23 million consumers.
However, the government has failed to take full advantage of the falling oil prices, a godsend for oil-importing economies.
Until and unless it does so, the energy crisis of more than seven years will persist.
a start, the government must increase the efficiency of the existing
fleet of thermal power plants through retrofitting and rehabilitation.
In layman’s terms, increasing efficiency means using the minimum
quantity of oil and gas for maximum generation.
The question is,
will the government adopt the simple strategy of increasing efficiency,
and then running power plants at full capacity by utilising the low oil
prices until viable? In the current situation, this is an excellent
short-term solution and an easily executable strategy. For any
policymaker in the energy sector in oil-importing Pakistan, this is no
less than a heaven-sent opportunity.
Keeping the volatility of
global oil prices in mind, it would be wise for the government to
execute a new, rational and robust national power policy based on the
Energy Vision 2035 document. Meanwhile, it will not take rocket
science, but simple mathematics and a sense of purpose, to turn around
the energy crisis.
The writer is adviser on water and energy at the Sustainable Development Policy Institute, Islamabad.
Source : http://www.dawn.com/news/1153554
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The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.