ADVISOR on Finance Shaukat Tarin has indicated that an integrated energy policy will be evolved in the immediate future to get to grips with the looming energy crisis and to address the needs of trade and industry with respect to gas, petrol and electricity. He also spoke of a major initiative to streamline the distribution of available energy and address cross-subsidy issue.

Tarin’s remarks on a subject which he does not deal with, are essentially aimed at cooling off the anger of Punjab’s business community, which feels compelled to make noise and agitate like trade unions.

The situation may aggravate in the days to come unless electricity and gas outages come to a halt which looks improbable. In fact, the incumbent regime has no policy or plans as such and it has yet to think in terms of public policy.

But as the happenings in Faisalabad show, only agitation and riots, by domestic consumers in this case, can bring about the needed outcome and vital decisions. Hence, President Asif Zardari’s sudden directive to provide 30,000 tons of furnace oil to power generation companies. It will add 2,700 megawatts of electricity to the system by the end of this month and give relief to industrial units which are either closing down or lying idle.

The country is facing a shortfall of 4,500 megawatts while the gas shortfall stands at 800mmcf. At present, the supply of gas is suspended or interrupted to most of the industrial sectors across the country. Out of 400 textile mills, 150 are reported to have been closed and in Faisalabad alone 150,000 power looms have been shut down.

The present energy crisis, now more than a year old, has almost crippled the national economy at a time when the country’s finances are in dire straits and the nation had to reluctantly go to the IMF.

A crucial aspect of this crisis is its propensity to destabilise the socio-economic system and even undermine the national security. More often than not, there are attacks on power installations and utility personnel by enraged citizens when electricity is denied to a locality for long hours. And hardly a month goes by without an incident of explosion of a gas pipeline which suspends the supply to several areas. The internal supply disruptions apart, a major fallout of the energy crisis is the absolute dependence on oil imports which, if disrupted at some point of time, can be a grave threat to national economy and security.

As pointed out by the minister for water and power last week after an emergency meeting of the coalition high-ups, the energy scene is also marred by the “circular debt” which has piled up to such a degree that it cannot be eliminated in a short period. This prevents any serious planning in this sector. Since the government is restrained from borrowing from the State Bank, thanks to the IMF condition, to clear this debt, there is little the power generation firms can do to increase their output.

The circular debt runs in a vicious circle. For instance, the oil refinery at Multan has not maintained reserves of crude oil because it has not been paid for the petrol it has supplied to Pakistan State Oil. The government has asked the PSO to supply the crude to the refinery without being paid for it. Soon, the PSO ran out of money and was not able to import enough crude. This caused the shortage of petrol at pumping stations.

On Monday, the standing committee on petroleum asked the government to clear the dues of the PSO so that it can buy and supply fuel to power generation companies. The circular debt of the PSO has piled up to more than Rs73 billion and its banks’ borrowing has touched Rs22 billion, affecting its profitability.

Similarly, the independent power producers stopped producing electricity when they ran out of their oil reserves and had no money to replenish them as they were not being paid for their supplies to national power companies. The KESC, which has now got the long sought exemption from customs duty on its imported power generation plants with retrospective effect from June 11, 2008, has reached an agreement with Pepco to resolve the outstanding debt.

A committee has been set up for this purpose by the government. The KESC claims it owes Pepco Rs60 billion while the latter puts the figure at Rs80 billion. The circular debt under which several corporations and departments owe billions of rupees to each other, has now crossed Rs400 billion, half of which is payable to Pepco.

The most depressing aspect of the energy scene is that there is not much water at Tarbela and Mangla dams to produce electricity and whatever water is stored there is to be used for irrigation purposes.

In a way, we are paying a huge price for having neglected a gradual increase in hydropower. During the last two decades when the energy demand grew by more than 200 per cent, the country has seen an addition of less than 25 per cent to its hydropower base. There are only five hydropower projects currently in operation. These are Tarbela, Mangla, Warsak, Chashma and Ghazi Barotha. The capacity of three of them, Tarbela, Mangla and Chashma, is declining due to sedimentation in their reservoirs, because of which their storage capacity has reduced by 20 per cent.

During recent years, the only meaningful activity has been the construction of the 145 megawatt Ghazi Barotha project. The proposed Kalabagh dam project which remained controversial owing to inter-provincial differences for a long period, is now stated to have been dropped for good. It could have made a lot of difference. There is a consensus on a few projects but work on Bhasha dam alone has begun and it will take some years to become operational. To complete the various mega water and hydro power projects, there is a need for an investment of $30 billion but the government has no resources to finance this, according to Raja Pervaiz Ashraf.

With an average life span of 50 to 100 years, hydropower projects are considered a dependable source of electricity. They are long-term investments and can be easily upgraded. Water from rivers is not subject to the kind of fluctuations which the fuel prices are and hence this system fosters, to a large extent, energy independence and security.

Currently, the contribution of hydropower to total energy mix has decreased from 70 per cent in 1960 to 33 per cent in 2007 and must have further declined by now. Thermal power provides about 65 per cent of the total demand at present.

The total domestic electricity demand is 11,000MW but only 6,500MW is being generated, the basic reason being shortage of funds. So the country is facing a shortage of 4,500MW but, as assured by President Zardari, with the supply of furnace oil to power companies, the shortage can come down to 1,800MW.

The government hopes that the shortages will be overcome by the end of the current year and Raja Pervez Ashraf, minister for power, is fond of reiterating the good news, based on his wishful thinking, that the electricity load shedding will come to an end in 2009.

He told media persons at his last week’s press conference that he could really feel how citizens were experiencing the impact of prolonged outages but the problem was that “we have no other remedy to that because creating a new power generation plant takes years”. So, not much hope can be pinned on the assurances of the ministers and advisors that the energy crisis would soon be over.