(Edited version published in “Pakistan Today” September 3, 2011)
Productive investment is the only plausible engine of growth, but it will need energy.
Even as it continues to struggle with its addiction for central bank borrowing and total lack of ability to revive the economy, the government can still facilitate productive private sector investment by finding credible solutions to the economy’s most pressing problem — energy shortage. Worsening security and its fallout on the economy and a weak currency imply foreign investment will remain shy for the foreseeable future. But prudent policy can still unlock productive spare capacity in local investors, despite being sandwiched between high interest rates and credit crowding out owing to massive government borrowing.
Already discouraged, whatever remains of the severely battered manufacturing sector complains of huge production losses due to severe energy shortages. As long as Pepco’s cost of power generation remains above its revenue collection and it relies on government subsidies that are not easily forthcoming, issues like circular debt will linger and we will remain below our production capacity of 20,000MW, far above our requirement of 15,000MW. Therefore, we must immediately lay a multi-pronged long-term strategy.
First, it must stress immediate identification and subsequent implementation of an action plan aimed at easing debt bottlenecks and ensuring uninterrupted energy supply. Second, we must work out a long term energy mix best suited to our requirements and resources. Presently, circumstances and international energy trends demand a gradual, planned shift to a more balanced mix featuring renewable energy sources like wind and solar, especially in rural areas. Oil, at 31 per cent, forms an excessive part of our energy mix. Policy should aim at bringing this number down to about 20 per cent while increasing coal from five to 15 per cent, along with notable increase in hydel and nuclear energy.
In the immediate term, crucial issues regarding Pepco cannot be put off any longer. There is an urgent need to improve management, administration and transparency. Management inefficiencies, ministerial disputes and overall bad governance have already compromised two major public sector power projects.
Our coal reserves are another serious issue that continues to be ignored. There has been no progress in the Thar project since the last government’s initiative. Available technology can not only convert the Thar reserves into energy, but also produce natural gas and synthetic fuel as by products. It can also aid in conversion of non potable water into potable. Experts estimate that approximately 15,000MW can be generated from Thar coal reserves, making them extremely important with regard to our energy requirements. Yet the issue receives little, if any, attention.
Pakistan’s infrastructural inadequacy is complemented by the government’s failure to meet energy needs when the economy is choked by chronic stagflation. At a time of high inflation, growth is too low to impact the bloating unemployment number. This, when the country is in a difficult security and political situation, serves to underscore the urgency of reform.