Structural Energy Problems

Amid the lingering energy crisis, it is being reported that the government is looking towards Qatar once more for spot cargoes for LNG, due to the outgoing PTI government’s failure to make fuel purchases in time. The former government did not enter into any long-term LNG contracts during the peak of the pandemic in 2020, when prices of the gas were at their lowest. Fast-forward to mid-2022, and the high demand in the international market due to the Ukraine war has led to the cost of imports skyrocketing, not to mention that the devaluation of our own currency has almost doubled this cost for us in any case.

The EU is currently snapping up any and all spot cargoes up for grabs, and the fact they are willing to pay any price—higher than what we can pay—makes most suppliers not even consider the sale of spot cargoes to Pakistan at this point. To put this into context, the PML-N government signed a long-term agreement for a period of 2018–2022 for cargoes at a cost of $8.02 mmbtu. Today, spot cargoes are being sought after for $38 or more.

The issue of LNG cargoes is only one in a long list of problems that have led to the energy shortfall, which is why it is important to address the structural problems that are inhibiting the new government from alleviating the shortage even three months after it came into power. Another problem is the rising circular debt and the failure of power plants to be able to meet their financial commitments, due to the government’s inability to make payments to them. This dramatic rise is directly attributable to the constant depreciation of the Rupee against the US Dollar during 2018–2022—in 2018, the circular debt was Rs 1,152 billion, which increased to Rs 2,467 billion in March 2022.

The direct result of this is that 3900MW of our national grid, divided between three major coal power plants, is currently running on half-capacity or less due to the inability of IPPs to make payments or open up additional credit lines with their suppliers.

Finally, incomplete projects that suffered inordinate delays could have helped plug the gap if they were completed on schedule. The Karot Hydro project, the Shanghai Thar coal indigenous power projects and the efficient Trimmu project would have contributed more than 3000MWs to the national energy supply while raising only a fraction of the production cost, since two of these projects were based on indigenous fuel sources and the third relied on the efficient use of LNG.

It is clear that after the 2013–2018 tenure of the PML-N government, we would need to consolidate the gains made in energy supply capacities, but this was not done by the former government led by PTI. While the current government seeks out sources of fuel and tries to get the power plants running again, it is important to remember to plan for the future alongside the firefighting and remove the issues left behind

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