Gas and electricity management

The federal government during the Council of Common Interest (CCI) meeting held on 26 February 2018 offered provinces to take over gas production, transmission and generation activities – an offer reportedly accepted by Sindh and Khyber Pakhtunkhwa (KPK). This was confirmed by the release of an official statement noting that “the CCI discussed gas and electricity management by the provinces including generation, transmission and distribution.”

The outcome of the federal government’s offer must be seen in the context of two factors that have assumed greater relevance over time. First, there has been a policy shift with respect to pricing of major fuels – those that are imported, including oil/furnace oil/high speed diesel and domestically produced gas. The reason: sustained poor governance and macroeconomic mismanagement has led to a steady rise in reliance on external borrowing (from multilaterals and bilaterals) – a reliance that is accompanied by their standard normal conditionalities that include: (i) full cost recovery in pricing utilities; and (ii) elimination of subsidies. In other words, as subsidies have steadily declined the cumulative cost of electricity generation from different fuels, priced differently, is being passed onto the consumers. Domestic gas, apart from hydel, is one of the cheapest inputs for electricity generation in Pakistan, including Liquefied Natural Gas. Any province that can use more gas to produce electricity would, no doubt, be able to provide cheap electricity to its residents.

Published in Business Recorder, 1st March, 2018