Myth busting: The truth about Pakistan's energy crisis

Pakistan's energy crisis is not due to corruption, and 'no circular debt' does not equal 'no load shedding'.

Musa Durrani July 04, 2013
With the electronic media barely in its teens and social media barely out of pre-school, information is reaching us in all shapes: substantiated and unsubstantiated, actual and distorted. The media process needs the kind of maturity only the slow and gradual process of evolution can bring.

So, in the absence of an effective information editing mechanism at the origination end, a need for filtering at the consumption end becomes imperative.

Of course, it is unfair to expect everyone to be a domain expert on everything. A basic level of understanding on key issues helps distinguishing facts from fiction, hope from hype, and shaoor (wisdom) from shor (noise).

We Pakistanis are no strangers to the confusion mass information can cause.

One area where we regularly mistake popular myth for factual reality is the ever-deepening energy crisis. In fact, one reason why this crisis has bothered us so long may be that in face of growing uncertainty about what is right and what is wrong, we don’t fully understand the energy conundrum ourselves. But we need to, and fast.

To this end, I wanted to highlight a few energy crisis myths rampant across media today.
Energy Crisis Myth 1: CNG is the poor man’s fuel.

What we say: The ruling elite want to ban CNG because the petrol and diesel mafia controls the ‘system’!

Reality: Pakistan ranks number one in the world in terms of the largest number of CNG vehicles. Considering we boast neither the largest number of vehicles nor the highest production of gas in the world, this ranking exposes the structural imbalances of our policy making and execution.

Natural gas is a scarce resource requiring logical rationing. With multiple customers (domestic, industrial, power plants, fertiliser, captive power plants and transport) competing for its allocation, logic dictates that gas be allocated to the sectors in order of highest combustion and economic efficiency.

As per official numbers, from 2005 to 2012 gas allocation to the transport sector (CNG) increased by a whopping 388% against gas allocation to the power sector which declined by 29% over the same period. This resulted in lower and more expensive power generation in the country.

Meanwhile, the government also claims that many of the CNG stations in Pakistan are involved in gas theft, implying that the actual consumption of these gas stations is much higher than official allocation.

Moreover, the argument of CNG being ‘a poor man’s fuel’ is baseless in itself. The proverbial ‘poor man’ in this country uses bicycle, motorcycle and/or public transport. And while the former two don’t use CNG at all, a bulk of the latter runs on diesel. The biggest consumers of CNG in Pakistan are by far the private vehicles, which are rarely owned by the poor.

Therefore, any effort by the government to divert gas allocation from the transport sector to other economically more efficient sectors needs to be analysed in proper perspective.
Energy Crisis Myth 2:  Increase in monthly fuel prices is due to our corrupt Pakistani system

What we say: The fortnightly increase in fuel prices by the government serves for high-ups to fill their pockets!

Reality: Pakistan doesn’t produce oil. We rely on oil imports. Crude oil is an internationally traded commodity and the Pakistani government or political leaders have no control over its price movement. With our annual oil import bill running into millions of dollars, it occupies an overwhelmingly large portion of the total imports.

A couple of years back our government had announced a monthly fuel price adjustment mechanism whereby any change in international oil prices (adjusted for PKR/US dollar exchange rate) would be passed-on to the consumers through a publicly notified pricing formula. In view of our economic problems, often triggered by external shocks, this was a step in the right direction.

If the government fails to pass through the price increase, it must finance these hikes through subsidies, which ultimately come at the cost of higher taxes, more inflation and structural imbalances.
Energy Crisis Myth 3: No circular debt equals no load shedding

What we say: The resolution of circular debt would mean an end to energy crisis! 24-hour electricity guaranteed!

Reality: This is only partially true. There are many factors contributing to this energy crisis, including the high cost of power generation, poor governance in energy companies, transmission/distribution losses and power theft.

As per the official numbers, against an average tariff of Rs 8.88each unit of electricity costs around Rs 14.70 to the government. This Rs 5.82/unit difference (price differential) is borne by the government through subsidies. However, due to various Transmission and Distribution (T&D) losses the government often fails to recover even the stated Rs 8.88/unit tariff and so it has to subsidise this shortfall too. Our reported average T&D losses have been as high as 36% against the stipulated 16%.

Circular debt is just a means to an end and not an end in itself. Even if the government somehow starts recovering 100% of electricity bills, ensures 0% power theft and wipes off the complete circular debt overhang (like it just did), we will continue to have load shedding - simply because our cost of power generation is unsustainably high!

Unless and until we are able to bring power generation costs down, through a medium to long term process of shifting to cheap and efficient sources of production, we can never witness 24 hours of uninterrupted electricity.

As a society, we need to move past justifying our government’s policy failures or condoning its corrupt practices to build real change by educating our own masses.

As we acquire better informed opinions, we will be able to give positive, constructive criticism to our policy makers and demand measures that will improve our own standards of living.
WRITTEN BY:
Musa Durrani A Chartered Financial Analyst (CFA) by qualification and an investment adviser by profession. Based out of Islamabad. He is currently involved in a buy-side role with a leading industrial conglomerate.
The views expressed by the writer and the reader comments do not necassarily reflect the views and policies of the Express Tribune.

COMMENTS (27)

Yasir Hanif | 8 years ago | Reply we pakistanis are always good planners but not gud implemetors.
Waseem Ahmed | 8 years ago | Reply Different kinds of issues, problems and mistakes have led us to this stage, some of these may be 1. Inappropriate Govt. Policy 2. Lack of Sincere Leadership 3. Lack of Planning and Management 4. Corruption 5. Power Theft 6. Scarce Resources 7. Uncivilized Population Solution could be, Firm Govt. Policy Use of Alternate Energy Sources Sincere Energy Management Staff Anti Corruption Campaign Efficient use of Scarce Resources by proper planning and execution. Education in general population.
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