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Bright and dark spots Energy policy

June 26, 2013

SO far so good. It seems the government is working along the right lines where the new energy policy is concerned. The thinking going into the policy is to work on a large-scale transformation of the power sector. This is good because a large-scale and comprehensive intervention is exactly what is required to pull the country out of the quagmire of growing power shortages. Small-scale tinkering here and there — rental power plants or impotent new boards of governors for a few entities — is what is not needed. The new policy being worked on by the PML-N government appears to be comprehensive, taking reforms in generation, transmission and distribution, as well as fuel supply and operational efficiency to a whole new level.

Perhaps this explains the delay in the formal announcement of the policy, which has been expected since days after the swearing in of the new cabinet. While it is now being reported that the policy will be announced in a couple of weeks, the delays are entirely understandable. Unlike the budget, which betrayed signs of being put together in haste, it is expected that the energy policy, with its extensive scope, will see detailed consultation and thorough homework before moving towards the implementation stage. So deliberating and poring over the details is time well spent, and the indications on the size and scope of the policy show that the government is serious about taking on this crisis by the horns.

But with large scales, come big questions. Missing from the details so far known is clarity on how pricing reforms will be advanced. We know that some slabs are being reworked — with an eye to protecting lifeline and lower-middle-class consumers from the inevitable price increases that are coming. We also know that the new policy will aim to recover the full cost of generation from billing recoveries and do away with any need for subsidies on government account and its attendant problems of circular debt. But what we have yet to see is work to create a market-driven pricing mechanism. There’s also no sign of augmented powers for the regulator to prevent market failures. And it is unclear where the massive investment required to bring about the operational efficiencies and improved fuel supply chain will come from. Private-sector efficiencies will not come in the absence of private-sector pricing. Admittedly, a comprehensive plan to reform the power sector will be a tale that will grow with the telling, but the government would do well to cast some light on the important dark spots in its thinking thus far.