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Proposals to make Pakistan’s energy sector more efficient and sufficient

Proposals to make Pakistan’s energy sector more efficient and sufficient

Interview with Mr Abbas Bilgrami — energy sector expert

PAGE: Tell me something about yourself and your organization, please:

Abbas Bilgrami: I am a Pakistani Canadian. Born in Karachi I grew up all over Pakistan as my father was posted by his employer from city to city and in different countries for his work. I am a very fortunate individual being born into a family where education was valued. While I wanted to be a poet and a healer my father urged me to study something that would ensure I didn’t die of impoverishment and hunger. I did my first undergraduate degree at the University of Karachi worked and studied in the UK and Canada where I finished my second degree and an accountancy qualification. I worked in North America in the energy sector for a Middle Eastern investor group. I have worked in the hydrocarbon and energy space for over 30 years. I developed with a team the first and largest integrated LPG import terminal at the time. The project had been built with a view to adding LNG handling facilities. The operations were national with a presence in all the provinces. This project was subsequently taken over by the Sui Southern Gas Company. Since then I am working overseas developing a number of projects in the Far East and in Southern Africa. These significant infrastructure projects remain focused on energy and energy related sectors. I have continued my education by attending energy industry related courses and recently undertaking a certificate in law. I remain committed to Pakistan and its energy space. The country has much to offer. I am working as Principal Advisor for a Malaysian company that is developing a maritime corridor on the Malaysian Thai border and a South African Small Scale LNG project.

PAGE: How would you comment on the investment in oil and gas projects in the wake of COVID 19?

Abbas Bilgrami: In the wake of the COVID-19 pandemic globally, demand for energy has fallen dramatically, specially for oil and gas. Oil demand has fallen from just over 100 million barrels per day to around 90 million barrels per day. The pricing for all hydrocarbons has flattened out except in the case of LPG, which has remained steady throughout the pandemic. There was initially a price war between Russia and the Kingdom of Saudi Arabia on the price of crude. Prices fell from USD 64 to 18/barrel. They have collectively along with OPEC managed to stabilise the price of crude by reducing production. This price collapse has had a huge knock on effect on US oil production as the Middle Eastern and European producers are lower cost producers while the US is predominantly a shale oil producer, which is a more expensive and environmentally unsound source of hydrocarbons. A number of large shale oil producers in the US are likely to go into bankruptcy. The major oil producers like Saudi Arabia with major investment programmes and outflows in political adventures in Yemen have had to raid their sovereign funds as the price of crude has fallen dramatically.

The COVID pandemic coupled with foreign adventures has resulted in a perfect storm. While the long-term view on the price of crude remains steady, in the short- and medium-term prices will fluctuate. Investment in the oil and gas sector is likely to become more problematic. Several large oil and gas projects that were on the road to achieving financial close like LNG projects in Africa and Asia have all either dropped the projects or postponed investment decisions till the markets stabilise and demand picks up.

PAGE: Could you give your views on the demand of oil and gas during next one year?

Abbas Bilgrami: The EIA forecasts consumption of global liquid fuels of 101.1 million b/d in the fourth quarter of 2021 would still be less than during the same period of 2019, it would be 16.7 million b/d more than in the second quarter of 2020. The EIA expects global oil supply to rise in the coming quarters. However, voluntary production restraint from OPEC+ producers, along with the lingering effects of low oil prices on the US tight oil production, will limit increases. As a result, EIA expects global oil inventories to decline at a rate of 1.8 million b/d through the end of 2021, eliminating most of the surplus that accumulated in early 2020. These inventory draws will likely put upward pressure on oil prices, but that pressure will be partly offset by high existing oil inventories, particularly in the second half of 2020, and a large amount of spare crude oil production capacity. The trajectory of both supply and demand are highly uncertain according to the EIA.

My own personal view is that crude demand will recover but it will be 2021/ 2022. Global oil supplies that had been reduced in 2020 will start going up by 2021. The future of the oil and gas industry is a matter of speculation as the mid and long-term use of oil in particular as a heating, transport or power generation fuel is highly doubtful. Crude will be used more and more as feedstock for petrochemicals. But crude as a feedstock for plastics and related materials is likely to see a major decline therefore limiting the use of oil products. Europe is moving to hybrid and electric cars by 2030, China is moving rapidly in developing new battery technologies which will all result in further decline in consumption of petroleum products in the transport sector. A lot more of the long-distance logistics industry is likely to look at alternatives such as LNG, LPG, CNG, Electric & hybrid technologies.

PAGE: What kind of impact could the energy-dependent countries have on their bottom line in the prevailing circumstances?

Abbas Bilgrami: Energy dependent countries like Pakistan are likely to benefit in the very short term from a reduction in price of crude. Inflation will fall as petroleum fuels will be cheaper. However, there are serious issues related to long term strategies that these countries need to consider. Energy conservation and energy efficiency programmes will be important. Developed economies have been able to invest in long term efficiency and conservation programmes. Post COVID pandemic economies will never be the same. It is therefore important for governments to re think their mid and long term strategies.



PAGE: Would there be an adverse impact on the economy of Pakistan by virtue of less production and export of energy globally?

Abbas Bilgrami: The Pakistan economy will most certainly be impacted by the fact that the world economy is heading for a recession. The only markets that will probably remain steady will be the Chinese economy. If Pakistan can see some level of sustained strategic direction it could strengthen its economy by building demand growth internally and ensuring that this is fed by promoting local industry. Pakistan is blessed with substantial energy resources. With some proper planning Pakistan can meet most of its energy needs. The long-term requirements for the economy to move from being a hydrocarbon dependent economy to an energy efficient and diverse energy sourced economy are critical matters.

We are paying unrealistic tariffs allowing outright theft and allow inefficient power sector GENCO’s to burn fuel indiscriminately. In this regard I would like to share some of my thoughts with your readers on the power sector which should help reduce the impact of the global downturn due to the major economies going into recession. Our public sector power generation is very inefficient. IPPs produce power at around 43 %, State Owned GENCOs at around 28% while KESC produces at 32% efficiency. Theoretically the thermal plants should be producing power closer to 50% efficiency. Just as a simple example if 1.9 M Ton of HFO is diverted from our GENCOs to the IPPs it would generate an additional 2,000 MW. The same thing applies to natural gas. This is not the fault of the GENCO’s but years and years of neglect and politicisation of the energy sector. I would also propose establishing a priority order for fuel supply based on demonstrated efficiency for the thermal power sector as part of an energy efficiency and conservation programme. If the government encourages investment in infrastructure and up-gradation of GENCOs, preferably introducing private sector equity and professional management this would result in more efficient power output without significant cost and reduction in the tariff providing some ease to consumers.

Pakistan’s plant load factor is amongst the worst in the world. Pakistan’s IPPs and GENCOs on average operate at a load factor of around 50% compared to 78% in India next door. Just a simple improvement of 15% in load factor would generate an additional 2,400 MW. This improvement can happen while GENCO’s remain in the public sector but have the plants operated under professional management under contract to operate GENCOs under a clear announced mandate and without political interference.

The Transmission & Distribution losses in Pakistan are amongst the highest in the world. The average in Pakistan is 24% compared to 8% in China, OECD 7% & South Korea 3.6%. 68% of T&D is attributable to DISCOs with a major chunk due to theft. Reducing from 24% of T&D losses to 20% would save around 2 MTOE of fuel. Reduction in theft and better collection of recoverables would be possible if DISCOs were privatised as long as investors were protected against political interference and policy change.

For very little investment smart metering could be introduced. The government should incentivize investment in distribution infrastructure modernization and upgradation. One of the major issues that the public sector power generating industry suffers from is poor governance. There are 20 organizations involved in the power sector with little or no inter-organization coordination or harmony. There is a lack of professional management and accountability resulting in poor operational performance and sluggish progress on new projects and incentives. Re-organisation and simplification of the power sector should be done with appointments of competent management. There must be political will and enforcement ability through implementation of good governance in state owned enterprises. The current government has tried to overcome these issues by appointing advisors with international and Pakistan experience, but they have been targeted by the media for the fact that they have dual nationalities. What we need are results not politicising the energy sector.

None of the corrective measures suggested and implemented have been sustained by successive governments (Energy efficiency, load management, Tariff management). Injection of funds by governments are a fire fighting measure to keep circular debt under manageable extents and retards any long-term measure. The inability to formalize policies to promote Hydel/Indigenous generation instead of thermal power plants and adhoc solutions has resulted in an overall higher cost of production with a consumer tariff ineffective to match it. While a lot has been done there is a huge upside in Pakistan’s energy sector to reduce the huge energy losses that exist due to lack of investment, poor pricing policies, poor policy implementation and poor governance.

I would say that a megawatt saved is better than a megawatt produced.

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