THOSE without a memory can be excused if they think this is the first time a massive public controversy has arisen around the question of electricity, both its supply and price. But the clamour around electricity supply and pricing issues is actually very old, with perhaps the first major public issue arising in 1998.
Ironically, back then, too, it was about people’s inability to understand the concept of ‘capacity payments’ in private power generation, and Nawaz Sharif’s government launching a massive assault on all the independent power producers (IPPs) to force them into a settlement of some sort. In a sense, we have come full circle today, a quarter of a century later.
There is a simple reason why we keep going round and round in the same circle. The fact is that Pakistan is rapidly moving into a permanently high-cost energy environment. Domestic gas accounted for almost half of the country’s primary energy needs even as late as 2010, but the declining gas fields since then means Pakistan has to shift to imported LNG to plug the gap. And imported LNG is frightfully expensive in comparison to domestic gas.
According to projections in the Energy Outlook Report released in 2022, Pakistan’s consumption of gas will continue to rise, but it will increasingly consist of imported LNG rather than domestic gas. “To meet the demand shortfall, almost three times more LNG will need to be acquired by 2030 compared to current importation quantities in the country,” says the report. In 2020, something like three quarters of all gas consumption in the country was from domestic gas, the rest being imported. By 2030, it will have roughly inverted, with around 60 per cent of all gas being imported and the rest being domestic. This proportion will continue to fall unless a major gas discovery is made, and the prospects of that are dim.
This is the fundamental, underlying reality at play, which is inexorably driving up energy prices in Pakistan year after year. More reliance on imported energy means more vulnerability to exchange rate fluctuations. Which means that our energy pricing begins to respond to other dysfunctions in the economy, such as devaluations driven by money printing to plug fiscal deficits.
Pakistan is rapidly moving into a permanently high-cost energy environment.
A few weeks ago, I wrote an article referring to all this noise and fury around ‘capacity charges’ as a fight among billionaires; nothing that we common citizens have a stake in. I ended that article by saying the main driver of power pricing surge is devaluation, and invited readers to go check and find out for themselves.
One representative of these billionaires was kind enough to take up my invitation and ran some numbers of his own. The gentleman in question is the chairman of the All Pakistan Textile Millowners Association, one of the country’s largest and most powerful industry associations, and also the group that is leading the charge against the IPPs and their capacity charges.
Responding, he wrote that, in dollar terms, power tariffs rose by up to 60pc between 2019 and 2024. This, in his view, rebuts my argument that rupee devaluation, more than anything else, was driving power tariffs up. However, it isn’t. Because what he did not say is how much tariffs rose in rupee terms in that same period.
I have done the numbers, and since I am just a humble columnist, let me just share with you my own bills. In July 2019, I was billed at the rate of Rs23.4 per unit. In July 2024, I was billed at Rs69 per unit.
Other things were broadly equal. Government charges, for example, were somewhere around 25pc of my bill back in July 2019. They are around the same percentage today. And the full impact of the price hike announced mid-July had not yet been reflected in my bill, because all the units prior to the notification of the revised prices had been billed on the old tariff.
My math tells me to expect up to Rs80 per unit in the next bill. This is an increase of somewhere between 300 and 350pc, depending on the level of the next bill. Get my point?
The APTMA chair tells me that my bill rose 60pc in dollar terms between 2019 and 2024. I tell him that my bill rose by more than 300pc in rupee terms in the same time period. It is the fall in the value of the rupee that is driving power prices up, because in 2019 the rupee oscillated between 140 and 160 to a dollar, whereas in 2024 it stood at 280 to the dollar. And that is what has killed our energy bills more than anything else.
This is not going to stop. As time passes, more and more of Pakistan’s energy will have to reflect global market prices. The days of cheap domestic gas are over. Finished. The rest of us are being forced to accept this reality, and increasingly people are finding a way out by investing in solar panels. But a segment of our industrial elite refuses to acknowledge the permanence of high energy prices. This segment invested all their effort in the 2010s lobbying around gas supply and pricing.
Now they have turned their attention to lobbying for subsidised electricity. They will do everything they can to convince the state to pull their (and only their) energy prices down. One thing they will not do is innovate and learn to solve their own problems. Because let’s be frank: they are not businessmen. They are professional lobbyists for an industry that ought to have died out many decades ago in Pakistan.
The writer is a business and economy journalist.
Published in Dawn, August 8th, 2024
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