Pakistan needs energy security if it wants sustainable growth | Daily News Byte

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High-voltage power lines are pictured outside a Tata Power substation in suburban Mumbai, India, on August 8, 2017. — Reuters/File
High-voltage power lines are pictured outside a Tata Power substation in suburban Mumbai, India, on August 8, 2017. — Reuters/File

Pakistan has a multi-year energy deficit and that deficit continues to grow. The growth of the energy deficit is simultaneously a function of insufficient investment in energy, continuous subsidies and the government’s inability to appreciate Energy at a level that reflects the marginal cost of a gas molecule or an electron of electricity that is produced and sent.

The cost of natural gas at the household level is only a small part of the marginal cost of gas, resulting in inefficient use. Gas losses continue to rise, and a new hydra of gas circular debt has already been established, in addition to the regular circular debt.

As circular debts pile up and the government refuses to make any meaningful decisions, the consumer continues to bear the cost of government inefficiency. We currently have excess electricity generation capacity, but we need more foreign currency or the ability to afford expensive fuel. If pricing decisions continue to be arbitrary, the crisis will only worsen – eventually leading to complete paralysis. We may be witnessing a partial version of this as the central bank is hoarding foreign exchange while businesses are shutting down.

A drastic change in mindset is needed regarding how energy is obtained and valued. If Pakistan is to embark on a sustainable growth path, then energy security should be the priority of the day. Currently, the country’s energy mix is ​​heavily skewed toward imported fuel, whether imported LNG, coal, or petroleum products. There is a need to switch from imported to local sources or to rationalize consumption.

Tar coal is an indigenous resource that can power country for decades if the resources are efficiently and effectively managed. Within a few months, it will be possible to produce more than 15 million tons of coal per year, enough to generate more than 2500 MW of electricity. Currently, we have almost 5000MW power plants that can generate electricity through imported coal.

Through some technical modification, which will require certain investments, it is possible to convert power plants that run on imported coal to run on tar coal. It’s certainly a tough initiative because it will require getting everyone on the same page. Investments will also be needed to expand the existing mines and establish a railway line that will connect them to the power plants. Infrastructure investments to convert imported power plants to local coal, establish a rail line that effectively creates a coal corridor, and increase mining capacity will cost about $2 billion.

However, once the infrastructure is in place, it is possible to save more than $3 billion per year in foreign currency liquidity, ensuring that we continue to generate affordable electricity using domestic resources. This infrastructural intervention ensures energy security as reliance on imported fuel is reduced and electricity becomes more affordable. Recent data shows that the cost of fuel for power generation through Thar coal is Rs 3 per kilowatt-hour.

As coal continues to provide baseload, we also need to drive mass adoption solar at the household and commercial level. Currently, getting a net metering connection is a pain that the regulator actively discourages. The development of decentralized solar capacity is essential for the creation of a competitive electricity market. Ironically, the government is willing to provide guaranteed returns from setting up solar power plants to cover the risk that both households and businesses are willing to take and pay. It is time to shift our thinking away from guaranteed returns to a more competitive market, not just in letter but in spirit.

The combination of coal, nuclear, hydel and solar energy will greatly reduce the country’s dependence on imported energy and make energy more affordable. The combination of energy does not end with electricity. We import more than $12 billion of petroleum products, which are mainly used for automotive consumption.

The country must double down on the development of public transport infrastructure to reduce reliance on private vehicles. Countries around the world have done the same. It reduces commuting costs for the population and increases energy security. As the population continues to grow, so will the demand for petroleum products. We can either reduce this demand with interventions such as public transport infrastructure or continue to delay the problem until it becomes too great.

Policymakers and their friends are oblivious to the problems of future generations. They still live with excess thinking, while resource constraints are real. Someone somewhere needs to start thinking about future generations and how the country will manage its resources. The rate of population growth does not seem to be slowing down, and neither is the demand for staple foods and energy. If any policy maker or public representative feels an iota of responsibility, they will plan for the future and not just live for daily political theatrics.

The writer is an independent macroeconomist.

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