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Power failures

May 30, 2013

ASK around why we’re in a power crisis, and you’ll hear three different narratives.

One narrative says this is all an institutional issue. This camp believes that the crisis grows out of an inability to advance power-sector reforms past the 1994 Private Power Policy. The net result of this failure is that we’re reaping the worst of both worlds: the inefficiencies of the public sector with the costs of the private sector.

The way out, therefore, is to advance the reforms and complete the handover of the power sector to private companies, like in the case of KESC, and the private operators will find a way to increase recoveries, reduce losses and meet customer obligations in the most efficient manner.

Another narrative says the whole crisis grows out of a bad pricing regime being implemented by the government. This camp will tell you that we’ve been lying to ourselves all along, and the lie is now beginning to catch up. The big lie has been this: we’ve been telling ourselves that energy — whether in the form of gas or electricity — is cheap and abundant whereas in fact it is scarce and precious.

The lie is propagated through the price we sell these goods at. Since the government determines the price of electricity and of gas in this country, this camp argues that what we get is a political price but not a market-determined one. Like the neoclassicals of a decade or so ago, their take has it that we can begin the journey out of the crisis once we stop lying to ourselves and ‘get prices right’.

The third camp will tell you the whole crisis is driven by the growing shortages of indigenous natural gas. These shortages began around mid-decade in the Musharraf years, but have kicked in seriously since 2010. Sometime in the last couple of years, our peak deficit of natural gas crossed 1 billion cubic feet per day. In another decade, if things float on as they are, this could touch 8bcf, meaning there’s nothing left.

Gas was supposed to be the fuel of choice for much of our thermal power generation system but the shortages have left us with no option but to import expensive furnace oil as a substitute. So the receding tide of our gas reserves has left our power-sector investments of the past two decades high and dry.

All three narratives touch on an aspect of the power crisis, and each suggests a different solution as the starting point. The institutional camp wants to see a growing role for private-sector management in the running of the power-sector companies, leading eventually to full management control, perhaps even full ownership like what happened with the big banks.

The pricing people want to see what they call ‘tough decisions’ in the pricing of natural gas and electricity, like what happened with petrol and diesel in 2008, when the circular debt was eliminated in these two fuels by passing international prices straight to the consumer at the pumps.

The gas shortage people want to see expedited work on arranging alternative gas supplies — eg via a long-distance pipeline or an LNG import terminal — along with new petroleum policies that give market-based incentives for further domestic exploration.

At their rudest, these camps devolve into monkey business that only they can understand. The institutional folks get into fist fights with the power bureaucracy, while the pricing folks start talking with insensitivity about the need to hike power tariffs immediately.

And the gas shortage people start pushing us to risk the wrath of the international community by entering into dubious pipeline ventures with pariah states, or start chasing mirages in the desert in the shape of underground coal gasification schemes or some such.

The monkey business notwithstanding, each of them is right in their corner. But they’ll all agree that there is one overarching cause behind the failure to articulate a response to the challenges that a changing world has thrown our way over the past two decades.

Put simply, we are in the midst of a massive and growing power crisis because we have been muddling through things for the past 20 years. The political noise in our system has drowned out all attempts to implement the broad array of measures that need to be advanced in tandem to address the power crisis.

The failure therefore stems more from the political climate within which policy has to be made and implemented, and less from specific issues of the power sector itself. It follows then that the most important ingredient in resolving this power crisis is political stability — a government that enjoys a mandate to rule and is not preoccupied with legitimacy issues.

We had this state of affairs once before, in 1997, and some progress was indeed made in getting reformist legislation through. But the promise of that moment was held hostage to the mercurial impulses of one man — Nawaz Sharif — who preferred to pick fights everywhere rather than let the better minds of his team do their job.

His idea of institutional reform at the time was to send the army into Wapda. His idea of price reform was to arrest the management of Hubco and force a renegotiation of the purchase price from the independent power producers at gunpoint.

Since then, we’ve had one government embroiled in legitimacy issues, and another held captive by the play of coalition politics. The next time the stars have aligned again is, ironically, again with Nawaz Sharif, who has all the political cover that he needs to implement a wide-ranging policy agenda.

All eyes, therefore, will be on his mercurial impulses, his reflex to stand and fight rather than stand and deliver that would determine whether the hope carried by the moment lights up our future or fizzles out before our eyes.

The writer is a Karachi-based journalist covering business and economic policy. Twitter: @khurramhusain