HERE is a theory: every government manages to do only one big thing in its tenure. They might try on many fronts, but succeed in only one area. In this way, Pakistan changes slowly, one government at a time. So instead of asking what package of policies the PTI government should put in place to ‘fix the economy’, I prefer to ask this: what should be their one, signature achievement for their term?
First consider the evidence in support of the theory. The Musharraf regime worked on many fronts but succeeded mainly in its privatisation drive. Of course in doing so it built on work that had begun earlier, but beyond the privatisation of banks and generally releasing the financial sector from all shackles of state control, there was not much else on the structural side. Whether or not this was a good thing can be debated, but not the fact that shareholding of the banks moved massively to private-sector hands, consumer products proliferated, and the stock market took off in earnest and participation in it became much larger than it had ever been.
The regime failed to broaden the base of exports or break the growing dependence on imported furnace oil for power generation. It also failed to advance power sector reforms in any meaningful way or broaden the base of taxation.
What would the PTI’s signature achievement be? It would be enough if it could bring the renewable energy revolution to Pakistan.
The PPP government that came after it succeeded in one area too. It restructured the federation with the NFC award and the 18th Amendment. Beyond this it failed in every other area. The PML-N government succeeded in one area too: it finally broke the power sector’s growing dependence on imported furnace oil, even if it did so largely by replacing furnace oil with imported LNG. Beyond this it failed in every other area as well. Revving the engines of growth does not count if it is not accompanied by structural transformation of any sort. Having failed in reforming the power sector, broadening the tax base, curtailing losses at the state-owned enterprises or advancing privatisation, the only structural legacy of the PML-N government that will remain with us for years to come will be the growing role of LNG in our economy. For CPEC, we will have to wait and see how large it actually becomes before concluding that it has any ‘game changer’ significance.
So what would I like the PTI government’s signature achievement to be? For me, it will be enough if they can bring the revolution sweeping the world in renewable energy to Pakistan. If they can ensure that at term’s end there is a solar panel on every rooftop in Pakistan, and more than half of our daytime peak demand is being met from point-of-consumption renewable sources such as wind and solar, that will be enough.
This might sound like a modest proposal, but it isn’t. First consider this: a few days ago, Bloomberg ran a story about a little-known phenomenon known as ‘sub zero power pricing’, or ‘negative power price’. This happens when the grid has more electricity in it than demand, so those countries where the price of grid electricity fluctuates depending on supply and demand find that there are moments when the grid actually has to pay you to take electricity off their hands. Sounds peculiar, doesn’t it?
When a negative price is created, power plants are told to shut down or scale back production. In recent years, more and more countries are finding themselves hitting negative price for longer and longer hours than ever before, and all because of the massive spread of renewable energy. Some countries had up to 50 hours of negative pricing in 2018, and others up to 100 according to the article. Sunny or windy days often spell doom for large power generators in these places.
Here’s how the article concludes: “‘Bill Gates became the richest bloke on Earth off the end of the mainframe,’ said Neil Eckert, chairman of Aggregated Micro Power Holdings Plc, an energy services company that installs small power plants. ‘We are seeing the end of the energy mainframe. The world will have to learn new techniques — how to invest in small-scale distributed energy.’”
In short, power markets around the world are transforming rapidly and can potentially transform their economies in profound ways. This is no time to rush into coal. It is high time to be pushing rooftop solar and small wind projects through incentives. So what will it take?
The biggest obstacles to the renewable revolution in Pakistan is the power bureaucracy itself, particular the distribution companies that have to provide the net metering facilities that are necessary for the revolution to take off. The next big obstacle will be the large private power producers, who have locked in enormous ‘take or pay’ terms in their power purchase agreements with the government. No further take or pay terms should be offered to anybody, nor any more sovereign guarantees.
Instead, power-sector reforms should now focus on incentivising micro generation through renewable energy sources. Subsidies can be offered on import of solar panels and wind turbines for home or factory use. Pay and promotions in power distribution companies can be linked to how much of their energy they are getting through net metering rather than buying from NTDC. Homes and businesses can be offered incentives through taxes or even through their bills to invest in solar and wind technologies. Power pricing will need to be reformed to market principles instead of being set by the regulator.
There is no shortage of ideas to spur this movement along in Pakistan. Since the PTI claims to be a popular party, it is best situated to take on the powerful vested interests that are holding this revolution back in the country. It will take nothing less than five years of concerted effort, but if at the end of their term they can give us moments of negative power prices, they can call it a term’s job done and sign out.
Published in Dawn, August 9th, 2018