Plenty of advices were also given for tax reforms with a stress on improving transparency and governance. — File Photo

A MEETING of the Pakistan Development Forum, representing more than 30 multilateral and bilateral lenders, held in Islamabad last week, was marked by additional pledges of $500 million by Japan and $400 million from Saudi Arabia.

Plenty of advices were also given for tax reforms with a stress on improving transparency and governance.

After a gap of four years, the PDF also brought to the fore a lack of coordination among various arms xof the government in putting across the country’s case for foreign aid, to recover from widespread devastation caused by massive floods and in projecting difficulties in dealing with international war on terror and its economic cost on the lives and properties of the poor.

While the interior minister Rahman Malik made a strong case for a $50 billion foreign debt forgiveness to compensate for sacrifices made by security agencies and the damage caused to infrastructure, Finance Minister Dr Abdul Hafeez Shaikh brushed aside the demand from a purely economic ramification standpoint.

Mr Shaikh believed the debt write-off could lead to downgrading of sovereign credit rating and make it impossible to raise funds from the international capital market. The debate on debt write-off aside, it showed how different ministries looked at economic challenges and how they wanted the international community to respond.

Apart from much talked about structural reforms and the policy measures for increased resource mobilisation, the energy scenario raises more critical questions relating to the country’s economic health. Petroleum Minister Syed Naveed Qamar presented an overview of the current energy supplies and shortages, with the possible solutions that remain uncertain to materialise in the given circumstances.

According to Mr Qamar, despite paying $10 billion for energy imports, the country faced oil shortage of 350,000 barrel per day and gas shortage of two billion cubic feet of gas per day (BCFD) in 2010 – almost one third of 4.1 BCFD of current gas supplies. The oil shortage would jump to 550,000 barrels per day and gas shortfall will double to four BCFD in 2015. The oil deficit would go up to 700,000 BPD and gas shortfall would triple to six BCFD in 2020.

Since 70 per cent of electricity generation is thermal-driven, it could be anybody’s guess how it will impact the energy cost. He said the country’s total discovered oil reserves stood at 965 million barrels of which about 659 million barrels had been exploited, leaving about 306 million barrels of remaining reserves. Likewise, the estimated discovered gas reserves stood at 54 trillion cubic feet of gas (TCF), of which 26 TCF had been used, with 28 TCF of reserve left.

The coal reserves so far been discovered stand at 15,000 million tons of which 200 million tons have been produced and used. An estimated 14,800 million tons of coal reserves are still to be produced and utilised for power generation at least for a few decades, if not a century.

Naveed Qamar talked about four mega projects that, he said, would be completed by 2015 to partially meet growing energy needs. At present, the production from conventional gas discoveries is estimated to maintain a steady decline over the next few years. He envisaged completion of Mashaal Liquefied Natural Gas (LNG) import project by 2012 to add 750 million cubic feet of gas per day (MMCFD) to the system.

He, however, did not explain why his ministry was not able to finalise the LNG import deal for almost a year. He said, a second private sector LNG import project would be completed to add one BCFD of gas by 2012, for which, even the bidding process has not taken off. Another import project for Iranian gas has been reckoned to be completed by 2014 to bring 750 MMCFD of gas while there is a plan for gas import from Turkmenistan via Afghanistan for 1.35 BCFD. Both the projects have not moved ahead despite a series of agreement signing ceremonies.

Among the deliverable gas production projects, the petroleum ministry is expecting about 18 TCF including four TCF from Tight Gas, 10 TCF of Shale Gas, utilisation of four TCF of non-pipeline quality gas for power generation. All these projects involve non-conventional production methods which are not only expensive but are not in the common use of large exploration and production companies. These would require at least three times higher sale rates than existing gas prices to become economically viable.

The petroleum minister also talked about government intentions to reduce gas losses through capital investment in transmission and distribution system. He did not explain that loss reduction programme finalised in consultation with gas utilities seven years ago has failed to yield results. He also did not say why these reduction benchmarks have been done away with this year.

The representatives from the World Bank and other lending agencies have questioned the continuation of a guaranteed rate of return to the gas utilities that provide little incentive for efficiency improvement.

The minister said coal was a provincial subject and this resource has not been developed due to long gestation period. Several companies have shown interest in coal mining and power generation and a pilot project for coal gasification was currently being pursued.

Water and power minister Raja Pervez Ashraf talked about a power sector reform programme with a completion deadline of July 1,2011 but did not say if power shortages could be overcome anytime soon. The targets that are to be achieved by then include reaching complete cost recovery levels of power tariff through cost reduction, and tariff adjustments that are to be directly notified by the Nepra.

He said, because it was politically difficult for the government to pass on higher electricity tariffs to the consumers, the government would move out of this domain and let the regulator notify tariffs. Other targets included a far more cost effective service delivery while ensuring optimal use of resources, a fully functional board of directors of power companies, and regular performance evaluation of entire power sector.