Indigenous fuel options linked to poverty eradication


Liberalisation of the power market and indigenisation of energy mix should be the way forward for Pakistan to get rid of International Monetary Fund (IMF) borrowings, and eradicate poverty from the country.

Chief Executive Officer of Engro Powergen Qadirpur Limited Shahab Qader told Business Recorder that the country should explore Thar coal, low BTU gas fields, and renewable energy sources and all these are local resources.

“These resources don’t have alternative uses. We can produce only power from these resources so there will be no change in the cost and fluctuation in money,” said Shahab, adding that local resources give greater control on fuel cost — the biggest issue.

“Luckily we have all these three options. We are blessed. Thar coal was a dream sometime back and now it is being utilized for the last four years,” said Shahab.

He said Sindh is energy capital where Thar has coal, Jhimpir has wind, and Ghotki and surrounding areas have good low BTU gas reserves.

He said power policies should liberalize markets and local fuels should be incentivized.

Currently Pakistan has 60% imported fuel and 40% local in its energy mix while it should be around 80% to 85% local and just 15% imported.

“Our policies should keep the risk of selling power with the developers so that they go for local fuels,” said Shahab, adding that currently we are paying to foreign fuel resources instead of funding our own resources.

He added that power policies from 1994 allowed private investment thus IPPs for 20 to 22 thousand MWs with 60 to 70 billion dollar investment did come to Pakistan but unfortunately most of them were projects based on imported fuel.

“So it was an interesting situation of a commodity that has local consumption with imported raw material,” said Shahab, adding that one study shows that Pakistan imported fuel worth $85 billion dollars since 1994.

Shahab said that Pakistan has foreign debt of around $84 billion yet, unfortunately, Pakistan spent borrowings from the IMF on luxury items and power projects run on imported fuels.

“The policy should have support for indigenization of fuel options. India and China adopted this indigenous fuel option to eradicate poverty while Bangladesh is also following this trend,” said Shahab.

He added that Bangladesh’s government is subsidizing their industry, not the domestic consumers, but here in Pakistan subsidy is given on domestic consumption.

“The Bangladesh’s industry then pays back to the government through employment, taxes, and exports,” said Shahab, adding Bangladesh’s industry generates dollars through exports and pays for their imported fuel.

But, he added, in Pakistan the problem is that imported fuel is used for power generation and the consumption is domestic despite that local and renewable fuel options have lots of potential to help Pakistan achieve its economic goals.

“So, instead of spending 8 to 9 billion dollars, which is now 15 billion, on importing fuel, we should use local fuel options to get rid of the IMF,” reasoned Shahab.

He said that receivables are the biggest issue for the local power sector and payments from the government are slow; therefore, the situation on liquidity is vulnerable.

“In order to stop the rise in fuel cost the government has to indigenize fuel options. They can do balloon payments to the sector and use cheaper fuel and this is a long-term solution,” said Shahab.

He briefed about the Qadirpur project of Engro which was conceived in 2006 under power policy 2002 and it was commissioned in 2010.

“The project performed far better than expectations. The projection was to produce 8 to 10 billion units but in the last two years we produced 60% more results with 16 billion units and now 6 billion more can be produced,” said Shahab.

He said that the EPQL project generated 80 billion rupees from nothing for OGDCL and if this project were not commissioned the government would have spent $1.3 billion on an RFO plant.

When asked about challenges to this project, Shahab said that the challenges are depletion of reserves as every local gas project faces this challenge.

“Now the options are to look for more reserves in the area after 2018. Currently, we are producing 110MWs from 32mmcf gas while the remaining 100MWs is being produced from HSD,” said Shahab.

He said that they proposed a solution to the government to connect the plant with RLNG as the annual impact is of Rs 13 billion if production is done through RNLG instead of HSD.

“We also requested the government to give us gas from Kandhkot so that we can continue producing power at Rs 7-8 per unit,” said Shahab.

He added that they can produce 800 million units this way to save Rs 20 billion per month and this saving can be utilized to fund a pipeline to the EPQL (pipeline cost is Rs 2 billion and can be laid down in three months).

“We have asked the government to give us this gas on ‘as and when’ basis. Only 3-4 months are required for this solution and the economy can start having benefits,” said Shahab.

He said they have talked to the Ministry of Petroleum and are expecting an early decision in this regard because this solution will lessen the burden on Forex reserves and reduce circular debt.

“Any energy that is cheaper eases circular debt. Also, this is PKR transaction as dollars are being replaced with local currency,” said Shahab.

To a question about the unavailability of both RNLG and gas from Kandhkot, he said that gas from Kandhkot should be available because HSD is always expensive.

“The 95% plant will be run on gas from Kandhkot. And we don’t even seek any commitment from the government in this regard like gas can be given to the plant on an availability basis,” said Shahab.

He said that EPQL can potentially produce 23 billion units of electricity over its remaining Power Purchasing Agreement (PPA) term till 2035, which will result in a potential benefit of over Rs. 300 billion to the consumers over the next 13 years.

“The 23 billion units can provide foreign exchange savings of up to $2 billion versus imported coal/ fuel,” said Shahab, adding that it can also result in potential revenue of Rs 150 billion for Pakistan Petroleum Limited (PPL) or the government till 2035.

“The plant would need Rs 450 to 550 billion for running on the imported fuel for the next 13 years. This is the reason this allocation of gas to EPQL is very positive for Pakistan to help overcome its energy challenges,” reasoned Shahab.

He said that over the last 12 years of its operations, the EPQL plant has operated with a very high capacity/ availability factor and is an ideal candidate for this gas allocation.

“The EPQL plant is specifically designed for consumption of low BTU gas with high Sulphur; therefore, it can prudently utilize the Kandhkot gas field to produce cheaper electricity,” said Shahab.

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