Friday January 27, 2023

Energy gravy train

By Editorial Board
November 16, 2022

Barely a quarter after the government forked out Rs30 billion to help Pakistan State Oil (PSO) stay solvent, the public-sector behemoth is teetering on the verge of default once more, threatening the nation’s LNG supplies with disruption at a time when winter is already here. The reason for the fossil fuel juggernaut’s liquidity problems is receivables overdue with other public entities – the so-called circular debt problem that has bedeviled Pakistan’s energy sector for years with no solution in sight. For instance, the state-owned SNGPL alone owes PSO over Rs400 billion for LNG purchases – about 160 per cent of the about Rs220 billion the latter needs to remain solvent on import payments. Lest we forget, this is the same LNG that was reliquefied and fed into the piped natural gas system at a fraction of its cost. This is the time for recriminations – and that is precisely why we will hear everybody say: “This is no time for recriminations”. In fact, there will be no other time for recriminations because we will forget the problem the moment we are through this snarl up, and suddenly remember it all over again when we hit a logjam. There never will be improvement unless there is swift and credible accountability.

Let us get about the business then. We chalk it up to bad governance and strategic myopia, both of which are symptoms of an unsteady hand on the tiller. For instance, PSO can’t pay its import bills because the SNGPL won’t pay its own bills to PSO, which in turn is because someone somewhere decided to sell expensive RLNG at throwaway prices. There is no doubt that it was our political leadership that strapped SNGPL with this unjustifiable expenditure in the first place. The blame for circular debt, therefore, belongs to our political leadership, as does the responsibility to resolve it. Another approach could be to follow the money. Focus on the petroleum sector, and follow the whole gravy train. Who made windfall profits even as the public runted under sky-high energy prices? Those are the people milking the economy while starving it. Yet another approach would involve analysis of PSO’s size, structure, and scope. The colossal enterprise arches over the sector, engaging in a range of business activities from sourcing to marketing to distribution – in other words, touching everything from the wellhead to the pump. Professedly, it owns retail outlets, installations, depots, refueling facilities at airports, lubricant manufacturing facilities, and LPG storage and bottling facilities. Within its compass are a vast array of fossil fuels and derivatives. The question to ask analysis is: what good can possibly come of putting all those eggs in the same basket? In fact, the case of PSO could be Exhibit A for abolition of all megalithic entities, especially when they are raking in at the expense of the entire populace rolled into one big captive market.

And what is true of PSO is also true of the energy sector, an oligopoly of multifarious contiguous oligopolies whose rule has blinded us to the boundless and free alternative energy resources of the country. We spend our summers complaining how we are getting too much sun but cannot convert any of all that solar energy to cool our homes and offices. We spend our winters griping about how strong the cold winds are, but cannot harness any of all that wind energy to warm our homes and offices. The upshot is that we remain hostage to expensive energy imports requiring hard currency expenditure which are a perennial drain on our precious foreign exchange reserves. Meanwhile, our energy sector grows fatter by the day, skimming ever fatter profit margins, all the while leaving the populace freezing in the winter and roasting in the summer and the industry struggling for breath.

This winter, the prospect of LNG supplies drying up is staring us in the eye, which means the fraction of our population on piped gas may see their stoves go cold because the public sector is freeriding on PSO. Of course, the government will scramble into action to pony up the funding required to bail out PSO, if only to avert a politically expensive goof-up from generating debate. But they will likely get distracted right afterwards, allowing the problem of circular debt to fester. In the final reckoning, the root cause of the country’s energy woes is political instability that involves governments in firefighting mode but does not allow them time to take a strategic approach to the country’s energy issues. Given that energy security is fundamental to national security, here's hoping those at the helm of affairs can work towards the cherished end of political stability – as a prerequisite to any semblance of economic stability.