TWO aspects of Pakistan’s growing energy problem should be clear by now. One, that the government in power at this time does not have the capacity, competence and the will to address the problem comprehensively.
Two, the citizens have exhausted their patience and are resorting to street protests. As we know from the experience of the Arab Spring it is extreme desperation with their situation that leads people to move into the street and gather in public square to express their discontent.
The energy problem now encompasses both electricity and natural gas. Gas and electricity shortages are also hurting the economy. Serious damages are being caused. If these shortages persist, we will probably see the rate of growth of GDP shaved off by as much one percentage point a year. Most worrying is the damage to the environment.
Those who can afford to buy power generators have done so producing electricity for domestic and industrial use by installing inefficient and polluting generating equipment. Their exhaust is playing havoc with the already poor quality of air in most Pakistani cities. There will a large economic cost of this as the effect on health of breathing-in low quality air begins to impose a large cost on the economy.
Poor households have begun to burn wood for cooking food. This switch to another fuel from gas will put additional burden on the already significantly depleted forest resources. It will also affect the lungs of those – mostly women – who will be breathing the foul, smoke-filled air in their kitchens.
Why did the government that has been in power now for four years allow these shortages to creep up? This happened for a number of reasons but two of these are important. The government was preoccupied with a number of other crises – most of them political – and spent little time and resources on addressing the energy problem that was slowly building-up. Second, if anecdotal evidence is to be believed a number of projects in which the private sector was interested in investing were held up because of high-level corruption.
Greasing the palms of the officials who give the final go-ahead increases the cost of the project and presumably made some of them uneconomic.
However, no government – certainly not a democratic one – can afford to ignore a problem that has provoked a great deal of popular discontent. Action cannot be delayed for too long. What form should it take?
Solving the energy crisis will take time and will also require a great deal of investment. The state does not have the resources to meet the growing needs. The private sector has to be brought in. A beginning in this direction can be made by drawing up policies for the immediate term as well as for the medium- and long-term. One immediate approach would be to allow the provinces to invite the private sector to invest in hydro power as well as in power produced from non-renewable resources.
It appears that various provinces in the country have hundreds of sites on canals, streams and rivers that can be tapped to produce electricity. They have not been used since they are too small for the state to take note of and too risky for the private sector to invest in them. The best way to tap into this resource would be to reduce the risk private investors would be taking by ensuring that the power they will produce will be bought by the state at a pre-determined price. This means coming up with an attractive pricing policy.
Licenses to invest should be given not on the basis of the price the state is prepared to pay for buying the power produced.This was done when the first wave of the independent power producers (IPP) invested in developing the energy sector.Instead licenses should be handed out on the basis of auctions, with those indicating the lowest price they want for the power they produce getting the go-ahead. This should be the limit of the state’s involvement.
What happens if this policy leads some provinces to generate surpluses far in excess of their demand? The answer is to allow the provinces to trade power. The private sector should be encouraged to develop a power exchange which will allow them to buy and sell power from one another. Such exchanges can also become the basis of trading electricity with India the possibility of which is being discussed by the officials from the two countries.
The medium-term solution should focus on divesting government control over distribution. This has been under consideration for a long time but not much progress has been made. The creation of the distributing companies was supposed to be a step in that direction. However, the process has stopped at that point. Even the distributing companies have not been given the operational autonomy which is necessary if the private sector is expected to move in with capital into this part of the energy sector.
The long-term solution to the power problem is to develop sources of supply that can produce electricity and gas at affordable prices. This can only be done by the state. But it will be an expensive proposition to build a series of new dams and invest in exploring new sites that may yield gas. What is required is a well thought-out plan that is carefully costed out. The plan should also indicate the sources of finance for implementing it. The important point is that action by the government cannot be delayed for too long. It may produce a political backlash that may be hard to contain.