Energy sector fails to revitalize

Energy sector crippling again

Six months down the road, government has yet to show any actionable performance in handling the energy mess. Inefficiencies in energy related sector are at the core of the twin deficit problem, yet the incumbents have nothing concrete to demonstrate.

The energy related ministries and finance ministry combined have failed so far in handling the circular debt, and other energy related governance and management issues. At the time PTI assumed power, the energy circular debt was Rs1.2 trillion and now news reports suggest that it is standing around Rs1.4-1.5 trillion. In 150 days, the toll has increased by an average Rs1.5-2 billion per day.

Did the government come unprepared? If six months are not enough, how many are? The talks of issuing Sukuk initiated 4 months ago and to-date no TFC or Sukuk has been issued. This could have happened in weeks. Dar in 2013 was spot on. An anchor to tackle the energy mess is missing.

Rs200 billion Sukuk is likely to be issued this week or the next. But government’s indecisiveness and slow decision making is not the right recipe for reforming energy sector. The problem is that no one is taking onus, and collectively, they do not seem to have comprehended the gravity of the issue.

The decisions were wrong from the onset – be it handling of furnace oil imports, managing RLNG demand, clearing circular debt, sacking gas companies board or appointing MDs, gas subsidy to textile – For details read “Textile gas and comedy of errors”, published on 8th November, 2018, or gas price revision formula. The challenges are big, but the government does not seem to have team to tackle the same.
The focus is on fixing power sector thefts which is a small problem in bigger scheme of things. The energy management team is penny wise but pound foolish. The first step in resolving any mess is to work on the big hurdles, before delving into the petty matters. What is the fun in stopping a few billion rupees leakages when the buildup of circular debt is Rs1.5-2 billion per day?

There is an energy task force, and cabinet committee of energy, but no one is seemingly in control. The minister of Petroleum is the weak link – earlier he was the head of the CCoE, but now Asad has assumed the role. The PTI government needs to get it straight by having one energy ministry. (read “Power sector needs powerful centre” published on 20th November, 2018)

The next step is to have right people at right place and coordination amongst relevant departments and ministries. How can you expect the NTDC in existing capacity to perform when the next year forecast on energy mix is out of proportion? The NTDC estimated FY19 FO consumption at 2.7 billion units while in 7 months; the consumption is already 7.4 billion units.

In FO fiasco, earlier there was a supply glut (read “No end to furnace oil lover affair” published on November 9, 2018). This was followed by import ban on FO and the way RLNG demand and supply is being handled, there is a chance that more FO would be imported this year. The mismanagement in RLNG is simply due to lack of coordination of power and petroleum divisions within the so called energy ministry. The power division does not give firm demand to petroleum and the latter does not import enough RLNG cargos.

This and other problems demonstrate lack of understanding and capacity constraints. For example, the idea of gas prices revision was right, but it should have been on averages instead of abrupt jump in bill on cut off slabs – such decisions require simple math and commonsense. Another example was sacking gas companies’ board which is not a jurisdiction of executives in government – the gas problem was due to being presented incorrect demand by the petroleum ministry, but nobody was fired there. Now acting MDs are working in gas distribution companies. Similarly, top executives are missing in E&P companies.

Energy is the epicenter of the fiscal problem. And to get out of the rut of boom-bust cycle, the most pressing need is to strengthen and straighten the energy sector.

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