Islamabad: As all our attention is focused on Asad Umer’s economic wizardry which will lead us to the proverbial Camelot that he and Prime Minister Imran Khan have promised us all along, something is amiss here.
Of course, the economic challenges are indeed daunting: turning around public sector enterprises like the Steel Mills and PIA whose losses have crossed the trillion-rupee mark; managing the ever increasing $40b trade and $18b current account deficit; dealing with nearly $100b external debt preferably without going to IMF, etc. While the more grandiose promises of 10 m jobs and 5 m new homes will certainly take longer, we have an impending payment crisis stemming from our current account deficit and debt repayments that needs immediate resolution.
While the entire focus is to deal with this emergency, which may just be a one-time bail out if things go well, there is another less talked about but more easily accessible funding source that could generate anywhere from 7-10 b $ annually. If managed properly, that is.
If the government wants to get out of the perpetual rigmarole-rationalise and optimise energy sector policies. This encompasses ending electricity and (the impending) gas load-shedding without burdening the public for government mismanagement and corruption. What’s needed here: clear the mess and go after the mafia and lobbies that are leeching off the system at the expense of the hapless public.
This would be considered the low hanging fruit and could be achieved with much less effort and in significantly shorter time -provided we have the guts and will to take on the oil and gas mafias which work hand in glove with bureaucratic and political sharks. Here’s how up to $10 b can be saved annually:
We save between $2.5 b to $ 3 b if we generate electricity from Re-gassified Liquid Natural Gas (RLNG) instead of expensive furnace oil. We save another $ 1.5 b to $ 2 b by tariff rationalisation (including directed subsidy). Simply put, we have to control theft across various tariff slabs. Examples are people having multiple meters to avoid higher price slabs, domestic to commercial tariff theft, large industry to small industry discrepancy, etc. Another guzzling factor is unaccounted-for-gas which eats away at least half a billion dollars annually. We save at least another $ 2b if we control line losses and sort out distribution companies. Either reform or outsource discos, as they are called, just do it. They are a mess and work as entire mafias, with clear SOPs for corruption.
Now these are not my figures but the conclusions of official research reports lying in some dusty file in the Energy Ministry. We hope the newly appointed Federal Energy Minister Omer Ayub will make an effort to read it before he gets going.
But it’s not easy to deal with the biggest mafia of this country. The trophy is there to be taken by Omer Ayub but he needs brains and guts to go after them. Whether the grandson of the Field Marshal has them or not-only time will tell.
First about the oil mafia. We will watch how Omer and the PTI follow up on the earlier scams- the two notable being the payment of Rs 480 b to IPPs by the Nawaz government and Rs 120 b which was paid to oil companies without any pre-audit by Zardari and Company. Not to forget Iqbal Z Ahmad’s trail of scandals. But the most urgent scam is still in the process eating away roughly $ 500 m (and still counting) not just much needed foreign exchange but costing the public higher electricity prices.
The scam reads as a text book example of how the nexus of babus, businessmen and politicians gang up to rip us off millions of dollars. The oil mafia opposed the substitution of expensive oil with LNG for decades. Now that we have finally RLNG coming, though not without its share of scams (more of that later), the oil mafia makes sure that it gets used as little as possible. The government and the public lose massively while the mafia comes out like bandits. Simple maths should explain this: furnace oil, while also bad for the environment, makes one unit of electricity for roughly Rs 13-14 whereas it costs roughly Rs 7-9 per unit for RLNG (new plants are on the lower side while older on the higher).
The mafia, along with its cohorts and facilitators, conspires to create a situation wherein more oil is imported and RLNG import is hampered. This is all despite merit order rules which mandate that at least 6500 mw from RLNG has priority (due to it being cheaper) before switching to other liquid fuels.
Beginning January this year arrangements were made to run the new LNG terminal at capacity and order six cargoes per month. But then somewhere down the line some babus raised flags that demand may not be enough and asked for cancellation of three of these cargoes on average per month. The government agency supervising RLNG imports warned repeatedly against it but the babus allegedly backed by the oil lobby prevailed. The procurement process for LNG spans 3-4 months (PPRA rules) so these last minute changes resulted in costs including rescheduling, idle terminal charges, etc. Lo and behold, the babus changed their position, estimates were wrong, more energy was required and the quick solution was to use furnace oil which was on hand – surprise, surprise. The government and poor us ended up paying over $500 m extra this year already. Lots of people made lots of money and the government, as always, will transfer the burden of 5-6 rupees per unit costlier energy to consumers.
Here comes the rub. Demand estimates are made by gas companies, Power (Division) Secretary and Petroleum Secretary. Petroleum Secretary was Raja Sikandar Sultan who was dubiously promoted by batch mate former PSPM Fawad Hassan Fawad who was the chief architect of everything. And guess who were the crucial people involved in presenting, ascertaining and then manipulating demand figures. One chairing Sui Northern Gas was Raja’s father-in-law Saeed Mehdi and the other (Power Secretary) was again 15th Common batch mate Yousaf Naseem Khokhar (FHF is also 15th Common).
Raja now blames Khokhar who is now Interior Secretary. So if the government asks FIA for an inquiry he will be lording over the FIA. Con used to be sophisticated but this Italian Job was done so crudely that even a child can see through it.
Together, they prevented Pakistan from moving forward on long term LNG supplies at some of the most favourable rates in the world at the most opportune time in the LNG cycle. By doing this, they kept the door open for the oil mafia to continue to manipulate the market. It is also unlikely that lng prices at those levels will be seen again, so a double loss through opportunity cost to the national exchequer of billions of dollars.
Now we are facing over six hours of electricity load shedding. This is not the end of our woes: buckle up for gas load shedding as the time to obtain winter LNG supply has passed. PTI needs to gargle its biggest throats to explain it to the public at the end of their three month honeymoon that they suffer December cold not because of Imran Khan’s fault. Politics is cruel, you see. In the meantime, oil companies are ordering and using furnace oil with reckless abandon and making mega bucks. So lutto tay phutto (rob and escape). This is just the start of this very long story.
Tail piece: PTI has created a mess by making two separate federal ministers of energy and petroleum. Technically, Energy lords over Power and Petroleum Divisions. Now that we have Ghulam Sarwar as Federal Minister, who being senior and old PTI is not likely to take instructions from new kid on the block-Omer Ayub. No matter how technically smart the young lad may be. So here we see another tug of war about to fire up between them. We don’t know if this was done in naivete or stupidity but it’s going to be a mess. Either Prime Minister sorts this out or we the public suffer cold winters without fire and electricity at home. Welcome to Naya Pakistan!