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Govt must take ruthless steps to resolve energy crisis

With the energy crisis on top of the PML-N government’s agenda, The News talks to former Hubco CEO Zafar Iqbal Sobani about the challenges ahead.

Q. Is the energy crisis solvable?

A. The new government looks positive and determined to create an enabling environment for investments in the power sector which can eradicate the menace of circular debt and power shortages in the country. The business community has shown an interest in investing in the power sector but they are waiting to see the steps the new government takes on key issues such as circular debt and the protection which will be provided to power sector investments.

Q. The government plans to raise Rs500 billion through T-bills to clear circular debt. Do you agree with this step?

A. Ideally, the new government should clear the entire stock of debt in one go and focus on arresting the creation of new debt. However, even if the government chooses to pay between 70 and 80 percent of the total existing stock of circular debt, the supply chain of the energy sector will likely begin functioning normally once again.

Q. How can the government reduce power losses?

A. First, the government will have to take ruthless measures, including the immediate recovery of receivables from the federal, provincial, semi-autonomous and private sector to ensure that the circular debt issue does not surface again.

Second, the government needs to take a number of policy decisions to reduce power losses, primarily through additional investments in improving T&D infrastructure and increasing operational and management efficiencies. Power tariffs also need to be rationalized and anomalies within power sector subsidises corrected.

Then, the oil supply system to generation companies (gencos) needs to be revamped, while operations at gencos also need to be made more efficient to reduce the costs of generation. Anyone responsible for mismanagement at gencos should be dealt with an iron hand since such measures will give immediate results.

Furthermore, work should be done on war footing on energy conservation as huge wastages of power are witnessed in our country

Q. How do you think the tariff and the supply of gas should be rationalised?

A. Gas availability to the power sector is a strategic issue due to the huge gap of supply and demand and any decision in this respect will have to be made after considering both the short-term and long-term impact on various facets of business.

One thing which can be done immediately is to shift the CNG consumption to the power sector as gas consumption for CNG sector is criminal.

The cost of power generation through gas is around 75 percent lower than oil base generation and a higher share of gas in power generation will help reducing the differential between the cost and selling price of power.

Q. Does the government have the HR capacity required to oversee such changes?

A. The government-run power generation and distribution organisations are not structured to deal with the current crisis. The organisations will require a 360 degree change to run efficiently, which should also include the induction of private sector professionals.

It is difficult to induct private sector professionals in the government sector power organisations as they haven’t been allowed to work independently in the past.

However, with the positive post-election build up and involvement of key private stakeholders in making radical improvement in the power sector, I think it is expected that there will be an induction of private sector people in the government for fast track reforms under the current setup.

Q. The government is getting much flak for the current energy mix…

A. The country cannot afford any new power project which is run on oil. Currently, the cost differential between furnace oil and coal is between 40 to 50 percent so the authorities should go all-out in converting oil-based plants to coal wherever possible. The government should also start new projects consuming imported coal currently, with an option to convert to Thar coal when those reserves come online.

Q. What of hydel?

A. The private sector has shown interest in developing small and medium size hydel projects and the aggregate of all these projects, which was reflected in various presentations given by the government was as high as 8,000MW. The plants were located in Kashmir and Khyber Pakhtunkhwa. However, the private sector has only begun work on one or two of these projects.

Q. What will it take to restore the confidence of investors in the country?

A. Power sector reforms will improve the confidence of the private sector while lenders such as IFC, ADB and Islamic Development Bank will also be keen to finance power projects in the country.

Wind and solar power have huge potential in Pakistan but development in the areas has been dismal in the past few years due to the terrible performance of the energy sector with the IPPs running post to pillars for getting their dues.

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