Indigenous Fuel Options Linked to Poverty Eradication – Markets

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KARACHI: Liberalizing the electricity market and indigenizing the energy mix should be the way forward for Pakistan to get rid of International Monetary Fund (IMF) borrowing and eradicate the country’s poverty.

Shahab Qader, CEO of Engro Powergen Qadirpur Limited, said company registrar that the country should explore Thar coal, low BTU gas fields and renewable energy sources and all these resources are local.

“These resources have no other uses. We can only generate electricity from these resources, so there will be no change in the cost and fluctuation of money,” Shahab said, adding that local resources allow better control over the fuel cost – the biggest problem.

“Fortunately, we have these three options. We are blessed. Thar charcoal was a dream some time ago and now it has been in use for four years,” Shahab said.

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

He said energy policies should liberalize markets and local fuels should be encouraged.

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

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

He added that the 1994 energy policies allowed private investment. Thus, 20-22,000 MW IPPs with investments of $60-70 billion arrived in Pakistan, but unfortunately most of them were projects based on imported fuel.

“So it was an interesting situation of a product that has local consumption with imported raw materials,” Shahab said, adding that a study shows Pakistan has imported $85 billion in fuel since 1994.

Shahab said Pakistan had an external debt of around $84 billion, but unfortunately Pakistan spent IMF loans on luxury items and energy projects running on imported fuels.

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

He added that the government of Bangladesh subsidizes its industry, not domestic consumers, but here in Pakistan, subsidies are given to domestic consumption.

“Bangladesh industry then repays the government through employment, taxes and exports,” Shahab said, adding that Bangladesh industry generates dollars through exports and pays for its imported fuel.

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

“So instead of spending $8-9 billion, now $15 billion, to import fuel, we should use local fuel options to get rid of the IMF,” Shahab explained.

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

“In order to stop the rising cost of fuel, the government needs to indigenize the fuel options. They can make lump sum payments to the sector and use cheaper fuel and that is a long term solution,” Shahab said.

He presented the Qadirpur project of Engro which was designed in 2006 under the energy policy of 2002 and commissioned in 2010.

“The project worked much better than expected. The projection was to produce 8-10 billion units, but in the past two years we have produced 60% more results with 16 billion units and now 6 billion more can be produced,” Shahab said.

He said the EPQL project generated Rs 80 billion out of nothing for the OGDCL and if this project had not been commissioned, the government would have spent $1.3 billion on an RFO plant.

Asked about the challenges of this project, Shahab said 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 region after 2018. Currently we are producing 110 MW from 32 mmcf of gas while the remaining 100 MW is produced from HSD,” Shahab said.

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

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

He added that they can produce 800 million units this way to save 20 billion rupees per month and this saving can be used to finance a pipeline to EPQL (the cost of the pipeline is 2 billion rupees and can be established in three months).

“We have asked the government to provide us with this gas as we go. Only 3-4 months are needed for this solution and the economy can start to show benefits,” Shahab said.

He said they have spoken to the Ministry of Petroleum and expect a quick decision in this regard, as this solution will ease the burden on foreign exchange reserves and reduce circular debt.

“Any cheaper energy alleviates the circular debt. Also, it is a PKR transaction as dollars are replaced by local currency,” Shahab said.

To a question about unavailability of both RNLG and Kandhkot gas, he said Kandhkot gas should be available as HSD is still expensive.

“95% of the plant will run on Kandhkot gas. And we don’t even ask for any commitment from the government in this regard, because gas can be supplied to the plant depending on availability,” Shahab said.

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

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

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

He said that over the past 12 years of operation, 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 low BTU, high sulfur gas consumption; therefore, it can prudently use the Kandhkot gas field to produce cheaper electricity,” Shahab said.

Copyright Business Recorder, 2022

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