Misallocating gas

Pakistan’s industrial elite is willing to let entire country live in darkness so long as their factories keep humming.

Any dispassionate analysis of Pakistan’s energy sector leads one to conclude that at least half of the problem originates in the fact that the average cost of generating, transmitting and distributing electricity is higher than the amount the government, through the state-owned energy sector, is willing to charge consumers. While some analysts have suggested an increase in tariffs, most others suggest that a sustainable solution to the problem is to switch to cheaper fuels, such as natural gas-fired thermal power. When it first came into office, there were some indications by the Nawaz Administration that it would choose the latter option as one of its principal policy tools, and prioritise the power sector above all others in deciding the allocations of natural gas.

Yet a recent government report seems to suggest that this is far from the case. Indeed, according to the revelations in the report, the power sector is only getting about half of the natural gas it needs to produce electricity. This information would be bad enough on its own. But there is more: it turns out that much of the gas is now being piped to captive power plants owned by large industrial conglomerates that seek to have their own cheap power supply at the expense of power being supplied to the wider grid. In other words, Pakistan’s industrial elite is willing to let the entire country live in darkness for half the time so long as their factories keep humming and their profits keep on rolling.

We have no problem with businesses being profitable. But we do have a problem with the government’s policies benefiting a small number of well-connected industries at the expense of the wider economy. Not only is this policy unjust: it is also grossly inefficient. The power plants at most industrial units are much smaller — and thus less efficient — than those owned by utility companies. Natural gas is a scarce resource in Pakistan and getting scarcer by the day. We can ill-afford the government so grossly misallocating this source of energy.

Published in The Express Tribune, April 1^st, 2014.

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