Energy as an economic resource
The prime factor governing balanced economic growth is sound and creative management supported by a broad expanse of the skilled and unskilled manpower through the complete spectrum. Industrialisation is necessary for development, agriculture growth in a commensurate manner is an added potential vital for economic emancipation. Some Nation-States have been compensated for lack of land space (and thus agriculture potential) by their strategic geographical location at international crossroads, making Services of various kind into an invaluable asset, Singapore and Dubai being prime examples.
Third World countries are rarely blessed with assets such as vast expanse of land and a developed agriculture base like Pakistan, despite the handicap of centralized planning (and the lack of imagination that goes with it) we have a sound infrastructure of small, medium and heavy industries, operating profitably under the private sector. Wherever private enterprise has had a free run, our management expertise has generally been sound, management performance in the public sector has depended considerably upon the individual, with rare exceptions this has been the weakest link in the chain of economic development. The individual’s desires for pro-rata incentive tasked to commercial activity force-multiplies results, the achievement of desired objectives is heavily dependant upon result-oriented hard work. In government departments this may be a cause for delay and inefficiency for the country, to have such individuals in critical decision making areas can be nothing short of an economic catastrophe. Any government serious about tackling economic issues must induct capable individuals from private sector in decision-making and/or evaluation management position in short and medium-term contracts. In advanced countries, this is an excellent device to bring a dynamism into the usually moribund realm of State.
Without the development of energy resources, we are beaten before we start. Our greatest asset, an invaluable source of energy, is cheap hydel power. Water and Power Development Authority (WAPDA), has done tremendous work to harness the rivers to our advantage, both for power and irrigation. The momentum of the 50’s and 60’s was lost after the construction of the gigantic Tarbela Dam. Thereafter controversy has surrounded the proposed Kalabagh Dam, now a political hot potato, some people arguing that number of small dams upstream of Tarbela would be more suited and would not inundate vast agriculture areas of NWFP, causing dislocation to a big segment of the population. Sindh complains that the current apportioning of water would be restricted to the detriment of agriculture in the Province. Whatever may be the cause, for the time being hydel power utilisation is on a back-burner. However, low-head canal water hydel power is available because the gradient of canals is enough to be utilised cost-effectively, the technology is relatively easy to obtain and simple enough to be indigenously fabricated. Both the public (WAPDA) and private sector (agriculture landowners and commercial enterprises) should exploit this potential.
We have average-to-good reserves of low grade coal. This technology also is on the low end of the scale and not difficult to obtain for indigenous manufacturing. The Chinese are particularly adept at this because they have had to exploit their own vast resources of low grade coal. There is an environmental impact because of the use of coal but (1) modern technologies keep the sulphur releases within safety levels and (2) the advantages of having adequate energy to fuel economic development far outweighs the drawbacks of air pollution (which can be minimised by judicious locationing of the Plant). The residual ash from low grade coal plants can be used as a raw material for cement and brick manufacturing, not to mention providing the road base for highway development.
The development of our vast reserves of low heating value gas is being restricted because the officials of the Ministries of Water and Power and Petroleum and Natural Resources have not agreed upon a reasonable tariff for the gas. If it was not so tragic for the country it would be funny, another stupid display of bureaucratic nonsense retarding progress, this issue requires the PM’s immediate attention. Combustion Cycle Gas Turbines are available off the shelves, with the known low-heating value gas reserves, four or five 500 MW power stations of this known technology, giving 2000-2500 MW into the national grid, can be put up within one year, giving a tremendous fillip to energy development with commensurate benefits all around.
Solar energy and wind energy are still a decade in the future for us, we have to depend upon thermal power (mostly furnace oil) to make up the shortfall. WAPDA’s ambitions for more thermal units is constrained because of foreign aid agencies penchant to support the private (instead of the public) sector for new projects. The most ambitious plan is for the Hub River Xenel Project (not to be confused with the recent advertisement of the Private Power Cell, Ministry of Water and Power, for a Hub River Project based on Lakhra coal) — a 1200 MW plant to be based completely on imported furnace oil. It is a brilliant concept except that it has some holes (flaws) through which you can drive the remnants of Saddam Hussain’s Republican guard through. As the twisted remains of Iraq’s major power (and other industrial) plants has shown, it is not wise to put too many eggs into one economic basket that can be easily got at from the air — and the sea. If anything, Iraq’s misery should teach us a lesson to site our crucial industrial sites with some strategic sense and to spread them out better in smaller sizes. We are paying through our nose to maintain the Hub River Xenel Project Consultants in clover, it would be much cheaper to give them a lifelong annuity, otherwise the gift horse will be paid for by our children and their children (and so on) till Kingdom come.
The crucial element in revitalising the energy sector is to encourage private investment. Private Power Cell (PPC) was created in the Ministry of Water and Power to encourage private sector participation. In good faith it was funded by US AID and staffed by US experts but management decisions were the domain of a Pakistani, on deputation from WAPDA under another full time so-called technocrat in the rank of Additional Secretary. To date, no project has seen the light of day except on paper, the litany of woes of earnest entrepreneurs fouled up by Catch-22 requirements of this lazy, untruthful twins that could fill a book to put the people of Pakistan out of their “load management” misery. The Government of Pakistan (GoP) would do well to double (and treble) the salaries of these favourites and send them out to pasture, it would be a cheaper solution. Anyone who states, without being drunk, that providing water and power to the nation “does not hold any socio-economic benefits to the people of Pakistan” needs to get his head examined. The President of the US Pakistan Economic Council was so frustrated at this priggish attitude, he invoked the help of the PM to overcome the nonsense being doled out by these characters, the bureaucracy closed ranks and the PPC goes on without achieving anything, the normal end-result of a 9 to 5 mentality.
GoP under Nawaz Sharif has ushered in many meaningful, far reaching changes to the economy, they should immediately announce a fresh Energy Policy with due incentives motivated to encourage the private sector. The tariff must be calculated at which (1) WAPDA/KESC, etc will purchase electricity in bulk from private power plants and (2) sell bulk electricity to private distribution companies. The government has to devise a formula with fuel price as the variable that will periodically reflect the raising/lowering of tariffs. The tariff formula which may be different for thermal plants and (2) hydel stations will take into account (1) the capital cost of a plant available at internationally competitive prices (2) the funding cost available from international banks (3) the variable indicator will be the cost of fuel and (4) a fair profit for the private investor. The Government’s discretion should be restricted to location of plant for (a) environmental reasons and (b) the ability to off-take electricity at a particular grid, these factors reflected in the tariff formula.
The business of Power should be treated as any other business, if the financial institutions feel that the package of capital costs, financial costs and variable costs give a reasonable profit against the Government-set tariff, they will finance the entrepreneur, how can any technocrat having no entrepreneurial experience or business sense other than lining his own pockets sit on judgement on the years of business experience and acumen of the private sector? Press the button, Mr. Prime Minister, jettison them NOW if you want enough energy to fuel development in Pakistan.
The PPC should be disbanded forthwith but make use of the US AID experts by transferring them to a professionally capable financial institution like the NDFC where a Private Energy Development Fund has been created meant to foster private sector energy development. The experts will be able to render better service to Pakistan than bureaucracy’s 9 to 5 ignoramuses who do not even acknowledge that for every kw/hr of electricity that we are delaying in producing we are commensurately losing 12 times value-added fillip to the economy of Pakistan.
Without resorting to drastic means to utilise the energy sector, the PM will remain far short of his dreams to invigorate the economy.
Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.
Comments
No comments yet.
Leave a comment