HOW TO TACKLE PAKISTAN’S RUNAWAY ENERGY COSTS: Here is a Solution

Dr. M. Ilyas Fazil

The Country’s Financial Challenges are well known and the subject of daily Media discussions: the pressures from IMF, the volatile prices of energy in the international marketplace, and the depleting indigenous natural resources, all impact the prices of commodities that are consumed by the common man who is hard put to meet the financial challenges resulting therefrom. Energy cost has also affected all sectors.

We do not have enough financial resources to meet our ever-growing needs of the basic essential commodities to keep our populace supplied. The poor segment of our population is growing and facing survival challenges on a daily basis.

All our indigenous resources have dwindled and we continue to rely more and more on costly imports at a time when our Rupee/Dollar parity is seriously compromised and the international market keeps heading north due to war and pandemics.

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The bottom line is: We need to resort to belt-tightening and relying more on indigenous resource

Oil and Gas is a key area we need to focus on as it impacts the entire national well-being. The challenges we face in this sector are as follows:

Our Local Natural Gas Resources are already seriously compromised: We have consumed ~70% of our Natural Gas Reserves. Unbridled consumption of CNG and ever-increasing imports of expensive RLNG are overburdening our already compromised financial well-being.

We import almost 85% of our Crude Oil and 70% of our Gasoline and 50% of our HSD needs.

Our Local Refineries have been operating at close to or less than 60% over the last few years: Reduced lifting of Furnace Oil by OMCs/Power Plants was the main reason. Some refineries also shut down in November/December 2021.

The shutdown of a local Refinery not only leads to lower availability of Refined products but also directly impacts local Oilfield Production and that of Associated Gas (especially for ARL, which is solely dependent on local crude).

The bottom line here: Maximum Use of Indigenous Energy Resources, Reducing Consumption and Minimizing Imports is the only solution;

The situation at the country’s borders and the fight against terrorism being addressed by our valiant Armed Forces, furthermore, requires a National strategy that ensures timely and without-disruption POL supplies, especially for the Armed Forces.

The situation is very much fluid and out-of-the-box thinking and solutions (not the tested-and-failed strategies) are the need of the hour.

We propose the following actions:

1. Minimize imports and Maximize use of local energy resources
2. Restrict RLNG use for power generation by maximizing the use of furnace oil      
3. Make local furnace oil a must-use product for power generation around the year  
4. Remove it from the merit order calculation to permit its use at those power plants that operate on furnace oil. Around 3,000 MW of electricity can be generated from local furnace oil

  Benefits:

• Local refineries will operate close to their maximum capacity thereby producing more Gasoline and HSD and reducing their imports.

Estimated annual savings due to this measure, based on ’20-21 imported crude & product cost, and incremental value addition of 5%, will come to around PRs 35 billion.

At current prices, the impact will be even higher, in the range of PRs. 55 Billion. [Those advocating to keep merit order considerations for FO must also account for these savings in their calculations in order to get the whole and not a one-sided picture]

The gas thus saved can be diverted to other critical sectors (domestic/export industries)

Measures to cut Pakistan’s energy costs

2. Target Consumption Reduction on War Footing
3. Introduce legislation to reduce the consumption of transport fuel
4. Allow odd/even number of vehicles on the roads only daily. For example, allow only odd-numbered cars to ply on the roads on 1, 3, 5, 7, 9, 11, 13, 15, 17, 19, 21, 23, 25, 27, 29 and 31st of each month to match the odd dates. Allow only even numbers for the even number dates. Impose hefty fines on vehicles that violate this mandate
5. The transportation of people and goods will be exempt from this restriction

Benefits of reducing energy costs in Pakistan

With half the cars off the road on any given day, people will be forced to share vehicles for reaching work/place of business.

Saving half the Petrol and HSD that cars use will translate to billions of rupees savings annually (about Rs 500 billion).

Out of the box Solution to reduce energy cost

Yes, sure these proposals sound radical; that’s because they are! Are they doable?

We firmly believe so! We will never know till we try, will we?

Form a Taskforce where these and other proposals with the same objective are scrutinized dispassionately and without the negativity of lobbies

Where there’s a will there’s a way!

We propose that a Working Group be constituted by MoEPD earliest to evaluate the above options and develop an Action Plan to determine the future course of action, with all stakeholders (Industry, Defense, Ports & Shipping) participating.

The Writer is an energy expert with a primary area of expertise and experience in the Downstream Sector (Refining, Oil Marketing, Oil Transportation and Port Handling of Oil Imports). He has over 42 years of experience, including appointments as a Member Oil, Oil & Gas Regulatory Authority (OGRA) and as the CEO of, the Oil Companies Advisory Council (OCAC). He presented these views also at the Turnaround Pakistan Conference on 28 June 2022 organized by the Ministry of Planning at the Convention Center Islamabad