Prime Minister PM Imran Khan has recently directed a select group of ministers and advisors to ensure a system of energy reforms including petroleum sector reforms to maximize public relief in the shape of reduced utility bills. He also emphasized that this system should also build public confidence and support for government initiatives for successful implementation.

Bloomberg Brent Price Trend
Source: Bloomberg Brent Price Trend – 2020 Year To Date

 

It is evident from the Bloomberg graph for Brent price, currently trading at USD 45 per bbl, that public and businesses can easily avail thirty percent of price decline in benchmark crude prices since start of year 2020 even if managers in MoE-Petroleum Division do nothing. So they have arranged the meeting at a very opportune time and must have committed big relief for public in front of Prime Minister of Pakistan. What they are worried about now is the decrease revenue collection that will drop due to percentage relationships linked directory to oil prices. This was manifested in petroleum product price notification applicable from March 1, 2020. Roughly five percent relief has been passed on to consumers under (reportedly) great resistance from Finance Division.

Main requirements reported in press regarding PM Imran Khan’s directive related to energy reforms are:

  • Energy theft prevention and recovery (UFG, line losses, etc)
  • Brining in professionals to improve matters related to policy, regulation and implementation
  • Performance evaluation of ministry and organizations working under Ministry of Energy
  • Non shifting of burden from paying consumers to defaulting consumers

 

Steps Required on the Part of Ministry

Appointment of professionals experts in ministry has been a tricky thing for decades. Existing bureaucrats in ministry are not inclined to include professionals in their ranks and have always been happy to seek professional inputs from industry. Unfortunately, this has become a curse because industry join hands to forward proposals to the ministry which only serve industrial interests and rightly so. In case there are professional experts present in the ministry than there will get developed an internal capability of ministry of energy to evaluate such proposals with regards to effects on revenue, burden on people, public relief initiatives, sustainability of operations as well as fair development of energy market.

Policy reforms on electricity side are already in place in the form of renewable energy incentives and tariffs, there is not much the ministry can do in the face of long-term thermal power plant tariffs already signed by previous government. Declining oil prices will automatically reduce the burden on pass-through tariff.

Regulatory and implementation areas in electricity supply needs ministry’s intervention supporting efficiency and punishing theft

Oil and Gas side has been the main culprit with average thirteen percent UFG and no appreciation by the ministry for importance of implementing accurate measurement. There have been doubtful measurements starting from wellhead (affecting government royalty and camouflaging E&P sector in-efficiency), at refineries, processing plants, tankers and retail outlets.

Un-accounted for Gas – A Regulated Crime in Pakistan

There have been inconsistent rules and decisions notified by OGRA which provide little room to implement the intent of fair play OGRA ordinance. OGRA seems to be every ready to benefit market players at the cost of consumers. Inclusion of UFG and Retainage losses (to the tune of USD 1.5 per MMBTU) in RLNG price is a killer for entire RLNG supply chain. OGRA officials need to re-think its RLNG price notification, may be not in consumers’ interest but in the interest of sustainability of RLNG supply chain.

Low price era is times when ministry can make consumers realize that they should not involve in theft and can inflict stricter penalties on those who do not comply. As discussed in Coronavirus effect on Pakistan’s economy, this low oil price era is there to last throughout 2020 and ministry can avail this window of opportunity to put its house in order. Steps recommended above can provide a path way for successful implementation of PM Imran Khan Energy reform and public relief

President Donald Trump and Prime Minister Imran Khan have close similarity of sustainability vision in terms of forestation. Likewise, UN Secretary General Antonio Guterres during his visit to Pakistan in Feb 2020 appreciated the CPEC Ten Billion Trees initiative.

 

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Pakistan Energy Market Data – October 2019

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