The ongoing controversy over the IPPs may appear to be new to many but to those who have a long memory this is nothing new. This happened during the 1990s and again in the early 2000s.
As economic journalist, Khurram Hussain notes in his recent column, “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.”
Hussain argues “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 Hussain, “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.”
In conclusion, Hussain warns, “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.”
