Wednesday June 29, 2022

Fuel crisis

By Editorial Board
April 16, 2022

The PTI government has left, but its aftermath lingers. The Oil and Gas Regulatory Authority (Ogra) finds itself in a bind to increase the prices of petroleum products. This is mainly due to the exchange rate loss that the economy has incurred with the depreciating rupee. The country needs to recover full imported cost, which appears fairly hard without increasing fuel prices. That the petroleum division was highly mismanaged by the previous government is a well-known fact now. Realizing his imminent departure, the former prime minister had announced a four-month price freeze until June 30. There are still eight weeks before that expires. The policy guidelines that the PTI government followed were not in sync with the ground realities of the power sector. The guidelines required calculations on the basis of existing sales tax and petroleum levy rates as well as tax rates permissible under the law. The main issue appears to be the subsidy that is an anathema to the IMF which wants the government to charge breakeven prices. That would mean an unprecedented increase in prices directly affecting common consumers. If the prices of all petroleum products go up, that will have an adverse impact on the public perception of the new government.

The PTI government had approved at least Rs31 billion to oil companies as price differential claims for March. Now the current government has to pay another Rs26 billion for the first two weeks of April – but there is no allocation or approval as yet in the budget. Not unrelated to this is the information that 27 power plants with a combined generation capacity of more than 7,000 MW are out of order. This is just because technical hitches continued to mount and the previous government could not rectify them. Another reason is that fuel shortages affected supplies to power plants. This has resulted in power shortages across the country. It has become clear now that there was a persistent lack of direction to make fuel arrangements. The support that the Ministry of Energy needed was not forthcoming from the political leadership that was in charge in the previous government.

According to a briefing given to Prime Minister Shehbaz Sharif, nine major power plants with a capacity of over 3,500 MW were out of order due to fuel shortages. Four plants and nine units of another plant remained closed because there was an LNG shortage, and another two were not functioning for lack of furnace oil. One plant suffered from lower coal inventories and another was at a standstill after the expiry of a gas supply agreement. This negligence is of enormous proportions. Fuel and power are inextricably linked and mismanagement in one directly affects the other. There is a need now for better coordination among the petroleum and power divisions of the energy ministry. For the new government, it would not be a good idea to keep blaming the previous government as there is a need to move forward with better management. When the power division fails to make its accurate demand forecast in a timely manner, the petroleum division fails to make appropriate decisions, resulting in fuel shortages and power outages. There should be an immediate focus on creating a mechanism for arranging fuel supplies before it is too late. This is an issue that the government cannot leave unaddressed. The dire financial constraints the present government has inherited are a major hurdle, along with the spiraling circular debt. If these plants remain inoperative, the government will not be able to provide power to consumers in the summer which is always a testing time.