As the year passes, Pakistan's energy sector boasts of some success

Under IMF programme, government sharply increases power and gas tariffs

ISLAMABAD:

 

Year 2019 ended with some pain and gain. The government of Pakistan Tehreek-e-Insaf (PTI) may term it a year of success but it also added to the misery of the common man.

A jolt to consumers came when the government agreed to increase energy prices under a $6-billion loan package secured from the International Monetary Fund (IMF).

However, there had been no abnormal increase in international crude oil prices, which went up from $54 to $64 per barrel during the year. But at the same time, the rupee depreciated massively against the US dollar, causing an increase in petroleum product prices as imports got expensive.

Prices of petroleum products were increased by up to Rs23 per litre in 2019. The price of high-speed diesel - widely used in public transport and agriculture sector and any hike in its price impacts all sectors - went up from Rs106.68 to Rs125.01 per litre, an increase of Rs18.42 per litre.

The other major fuel is petrol which is widely used in motorcycles and cars. Its price rose Rs23.02 to Rs113.99 per litre. The price of kerosene oil, used in remote areas for cooking purposes, went up Rs13.37 to Rs96.33 per litre.

Likewise, the price of light diesel oil - used in the industry - went up to Rs82.43 per litre compared to Rs75.82, registering a hike of Rs7.15.

Gas prices

The PTI government raised gas prices by 190% in the year 2019, heavily burdening the consumers. It also decided to revise consumption slabs and recover an additional Rs2.3 billion through inflated bills.

The faulty mechanism brought misery to the consumers as despite commitment the government could not reimburse anything. Unchecked inefficiency and theft continued to put an extra burden of billions of rupees on the honest consumers who were regularly paying their bills.

In the meantime, the government took some initiatives to improve efficiency and cut losses in the gas sector. It approved an unaccounted-for-gas (UFG) reduction plan for the public gas utilities that would be implemented over three years.

Under the plan, the reduction in UFG will push up revenues of the gas utilities by Rs29.12 billion by the end of financial year 2021-22.

Projections show Sui Southern Gas Company (SSGC) will be able to increase its revenue by around Rs20.1 billion and Sui Northern Gas Pipelines Limited (SNGPL) will jack up its revenue by Rs9.023 billion. The two companies have already started work on the plan in their respective jurisdictions by initiating efforts to control theft, ensure meter accuracy, conduct a survey for detecting underground and overhead leakages, undertake repair and implement other strategies to push down the UFG level.

As part of the plan, SSGC will reduce its UFG level by 9.55 percentage points (or 40,629 million cubic feet of gas per day - mmcfd), which in financial terms equals to Rs20.1 billion.

Electricity prices

Prices of electricity also went up to abnormal levels. Consumers were forced to pay capacity charges pending since the time of previous Pakistan Muslim League-Nawaz (PML-N) government.

Total increase in electricity tariffs was calculated at 62% in the year 2019. This included monthly fuel cost adjustments, quarterly tariff adjustments and the increase in base tariff.

In a year, the PTI government raised electricity tariffs by Rs3.85 per unit on account of quarterly tariff adjustment and increase in base tariff, fuelling inflationary pressure in the country.

Of the total tariff increase, Rs180 billion was collected from the consumers to inject into those idle power plants that were not generating money. A total burden of Rs600 billion was shifted on to consumers by increasing tariff rates of electricity and gas in 2019.

Circular debt

Despite many challenges, the government claimed that it had been able to turn things around in the power sector by improving governance, which led to higher revenues, and plugging loopholes to stop electricity theft. However, the piling up of circular debt did not seem to be ending, though its pace slowed down somewhat.

The oil and gas sector continued to be plagued by the runaway circular debt. State-run Pakistan State Oil (PSO) got a major hit as its receivables shot up to an all-time high of Rs336 billion.

Power producers were major defaulters of PSO as they had to pay over Rs200 billion for receiving fuel supplies. The circular debt also started emerging in liquefied natural gas (LNG) supplies. PSO, which was importing and supplying LNG, was to receive Rs71 billion from SNGPL.



The previous PML-N government had started LNG imports without putting any proper mechanism in place for the sale and purchase of the imported fuel in the domestic energy chain. What was missing were the gas sale and purchase agreements among PSO, SNGPL and consumers and the ad hoc arrangement continued during the tenure of the current PTI administration as well.

At present, the country has gas but consumers are not ready to buy as they find the resource expensive. However, the government has found a way for its consumption by domestic consumers in the winter season.

The government decided to reconstitute board of directors of oil and gas companies and appoint their heads on merit. In the first phase, boards of directors were reconstituted and were tasked with appointing heads of companies.

In the entire calendar year, the hectic process of appointing heads of energy firms continued but the government could not hire anybody. State-owned Oil and Gas Development Company, SSGC, SNGPL, PSO and Pakistan Petroleum Limited were not able to appoint their regular heads. Like in the past, these companies were being run on an ad hoc basis.

Achievements

The Power Division stressed that it had undertaken a number of initiatives to reform the power sector besides making it self-sustaining. Main emphasis of these steps was to make electricity affordable and available for all.

Citing the measures, the Power Division said an anti-power theft campaign had been launched on October 13, 2018 across the country with the slogan of zero tolerance for overbilling and corruption. In the campaign, Rs1.37 billion was recovered.

Apart from that, line losses were brought down by 1.4% with an impact of about Rs16 billion. 

Published in The Express Tribune, January 1^st, 2020.

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