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January 31, 2018

OICCI urges reduction in energy cost to attract investment


January 31, 2018

ISLAMABAD: Overseas Investors Chamber of Commerce and Industry (OICCI) has urged Pakistan to focus on reducing the energy cost and ensuring consistent policies to attract investment.

OICCI President Khalid Mansoor, while unveiling the ‘OICCI Energy Reforms 2017’ report on Monday, said the energy crisis has been averted to some extent, but the government should focus on increasing power generation and improving transmission and distribution.

He criticised the energy mix as the most inappropriate, but said inclusion of the China-Pakistan Economic Corridor (CPEC) projects has improved the situation. “Only one-third of the energy mix is from renewable sources which are environment friendly,” Mansoor said.

OICCI Managing Committee member Jawwad Ahmed Cheema said in the downstream sector value-chain no policy has been formulated since 1997.

The OICCI report recommended building new oil refineries, enhancing refining capacity, and improving fuel specification, import infrastructure, transportation value-chain, fair and transparent pricing mechanism, as well as quality of OMCs. Most importantly, the government should allow only serious players to operate in the downstream sector, it urged.

Currently, Pakistan’s refining capacity is four 0.4 million bpd that would increase to 0.7 million bpd in the next four years, for which the country needed around three new refineries.

Pakistan’s energy consumption, according to the OICCI energy report, is expected to grow by 70 percent in the next 10 years, substantially adding to the current $11 billion energy import cost.

Dependence on imported coal and LNG together with high transmission and distribution losses would keep the issue of circular debt and high energy cost under stress for some years to come, the report said.

Out of the total 9,000MW projects under execution expected to be completed by 2022, the share of coal energy would be 18 percent. The government’s own generation companies (gencos) were making losses of around 19 percent, the OICCI report stated.

“Although, we endorse the notion, ‘expensive power is better than no power’, it lowers the exportable products’ competitiveness,” the report added.

Pakistan’s energy imports (including LNG) are around $11 billion. For containing the outflow of this huge amount from the economy, the government should go for indigenisation by exploiting local resources, including renewable sources and other including exploration of gas and petroleum and coal.

Sindh has 175 billion tons of lignite coal reserves in Thar only, which was equivalent to 50 billion tons of crude oil, more than Iran and Saudi Arabia’s combined oil reserves. This coal was equivalent to 2,000 trillion cubic feet of gas, 42 times more than the country’s current discovered gas, the report said.

The report added that timely completion of power transmission and distribution projects would be critical for uplifting the additional generation capacity being added in the system, including from the Thar Coal Block II which would add 4,000MW by the end of 2025.

OICCI has also recommended replacement of inefficient, costly and heavy furnace fuel plants in a phased manner. National Electric Power Regulatory Authority has also been requested to ensure cost reflective tariffs that incentivise investment in the distribution sector.

One of the policy recommendations by OICCI is to segregate policy and regulatory functions at the Ministry of Petroleum besides accelerating the award of new exploration licenses, with additional focus on tight gas development, offshore exploration and for introducing marginal field policy.

Looking ahead, the OICCI envisages that by 2020, the energy mix of the country would marginally improve with less dependence on oil and increasing share of LNG, coal and renewable energy. This energy mix would improve with the judicial implementation of OICCI Energy recommendations in the larger interest of the energy security and economy of the country.

The OICCI represents 191 international companies from 35 countries, covering 14 sectors of the economy with assets of $83 billion. These companies are contributing one-third to the country’s total tax revenue and employing a million people in Pakistan.

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