Energy challenges: Importing coal will darken balance of payments, says Bengali
Economist suggests change in policy, better use of railways as mode of transport.
ISLAMABAD:
The annual oil import bill of $15 billion can be halved by transporting goods through railways and using indigenous coal for power generation, as heavy reliance on imported oil products is increasing chances of severe balance of payment crisis, said a noted economist.
One should not be surprised, if the rupee-dollar parity crosses Rs200 to a dollar due to increasing imports of petroleum products, said Dr Kaiser Bengali, advisor to Balochistan chief minister and a renowned economist. Bengali was a keynote speaker at a seminar on energy challenges and implications for balance of payments.
Dr Bengali cautioned that the government’s decision to set up power plants, fired by imported coal, would further aggravate problems and a time may come when a major chunk of the imports will comprise petroleum groups.
Around 92% of the petroleum, oil and lubricants imports are consumed for power generation and transportation. He suggested that the federal government should set up a holding company to bring Pakistan Railways and the National Logistic Cell (NLC) – the army’s transportation wing – under an umbrella. Bengali said that most of the cargo transportation is being carried out through trucks, which is economically unviable.
By shifting cargo through railways, the government can reduce its diesel import bill by one-fourth. As much as 95% of the cargo transportation is taking place through road networks.
The country’s monthly oil import bill is roughly $1.2 billion. In the last fiscal year, oil imports amounted to $14.8 billion, according to the Pakistan Bureau of Statistics. Bengali said another two-thirds of the total import bill can be curtailed by moving away from furnace oil-based power generation.
He said the problem was that the government wants to use imported coal for running the coal-fired power plants, which will have adverse implications on the balance of payments. Pakistan has long been facing twin deficits of budget and current accounts, and has knocked the door of the International Monetary Fund (IMF) about 20 times so far, seeking bailouts. Roughly $7 billion annual savings, that Dr Bengali claims as a result of change in priorities, is more than the $6.7-billion three-year IMF Extended Fund Facility.
It will take another seven years to produce seven million tons of indigenous coal sufficient to generate 20,000 megawatts of electricity, opined Mohammad Idrees, a business development manager working with Engro.
He said that Thar’s lignite coal was of low-heating quality and requires more quantity to produce the same amount of heat that is generated by using imported coal.
Dr Bengali said Thar coal may be as expensive as imported coal but still the country will be paying in rupees instead of dollars. He said the coal was as good as Germany’s lignite.
The experienced economist added that due to the weakening writ of state, the government was not able to fully recover the cost of electricity. The government was paying Rs5.10 per unit subsidy on account of price differential, low recovery and theft, he said.
However, it is only budgeting price-differential subsidy while deferring the other cost aimed at keeping the budget deficit artificially low.
“We have come to a stage where there is a hard choice between long hours of power outages to save subsidies or high cost of living due to inflation as a result of printing notes for budget financing,” said Dr Bengali.
He said building dams for enhancing power generation was also not an option as water shortage is also becoming an issue due to climate change. During the last decade, Mangla and Tarbela dams were filled to their full capacities not more than twice. He said due to silting in dams, the reservoirs were becoming cause of floods in the country.
Published in The Express Tribune, November 26th, 2014.
The annual oil import bill of $15 billion can be halved by transporting goods through railways and using indigenous coal for power generation, as heavy reliance on imported oil products is increasing chances of severe balance of payment crisis, said a noted economist.
One should not be surprised, if the rupee-dollar parity crosses Rs200 to a dollar due to increasing imports of petroleum products, said Dr Kaiser Bengali, advisor to Balochistan chief minister and a renowned economist. Bengali was a keynote speaker at a seminar on energy challenges and implications for balance of payments.
Dr Bengali cautioned that the government’s decision to set up power plants, fired by imported coal, would further aggravate problems and a time may come when a major chunk of the imports will comprise petroleum groups.
Around 92% of the petroleum, oil and lubricants imports are consumed for power generation and transportation. He suggested that the federal government should set up a holding company to bring Pakistan Railways and the National Logistic Cell (NLC) – the army’s transportation wing – under an umbrella. Bengali said that most of the cargo transportation is being carried out through trucks, which is economically unviable.
By shifting cargo through railways, the government can reduce its diesel import bill by one-fourth. As much as 95% of the cargo transportation is taking place through road networks.
The country’s monthly oil import bill is roughly $1.2 billion. In the last fiscal year, oil imports amounted to $14.8 billion, according to the Pakistan Bureau of Statistics. Bengali said another two-thirds of the total import bill can be curtailed by moving away from furnace oil-based power generation.
He said the problem was that the government wants to use imported coal for running the coal-fired power plants, which will have adverse implications on the balance of payments. Pakistan has long been facing twin deficits of budget and current accounts, and has knocked the door of the International Monetary Fund (IMF) about 20 times so far, seeking bailouts. Roughly $7 billion annual savings, that Dr Bengali claims as a result of change in priorities, is more than the $6.7-billion three-year IMF Extended Fund Facility.
It will take another seven years to produce seven million tons of indigenous coal sufficient to generate 20,000 megawatts of electricity, opined Mohammad Idrees, a business development manager working with Engro.
He said that Thar’s lignite coal was of low-heating quality and requires more quantity to produce the same amount of heat that is generated by using imported coal.
Dr Bengali said Thar coal may be as expensive as imported coal but still the country will be paying in rupees instead of dollars. He said the coal was as good as Germany’s lignite.
The experienced economist added that due to the weakening writ of state, the government was not able to fully recover the cost of electricity. The government was paying Rs5.10 per unit subsidy on account of price differential, low recovery and theft, he said.
However, it is only budgeting price-differential subsidy while deferring the other cost aimed at keeping the budget deficit artificially low.
“We have come to a stage where there is a hard choice between long hours of power outages to save subsidies or high cost of living due to inflation as a result of printing notes for budget financing,” said Dr Bengali.
He said building dams for enhancing power generation was also not an option as water shortage is also becoming an issue due to climate change. During the last decade, Mangla and Tarbela dams were filled to their full capacities not more than twice. He said due to silting in dams, the reservoirs were becoming cause of floods in the country.
Published in The Express Tribune, November 26th, 2014.