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Introduction
Facing mounting concerns over soaring energy tariffs, the Pakistani government is implementing a series of measures aimed at reducing the return on equity (ROE) for power plants and incentivizing investments in the hydrocarbon sector. These initiatives are part of a broader strategy to address the affordability of energy while attracting foreign investment and improving the efficiency of the energy sector.
Reducing Return on Equity (ROE) and Financial Reforms
The government has decided to lower the ROE for public sector power projects, including those in hydropower. This decision is driven by the need to make energy more affordable amid rising concerns about high tariffs. However, this reduction could impact the financials of generation companies and the national budget, as ongoing projects are financed through a combination of local and international debt. The government is exploring different financial models to balance these trade-offs and mitigate potential adverse effects.
Strategic Divestment and Privatization Efforts
To streamline the energy sector, the government plans to sell profitable entities such as Oil and Gas Development Company Ltd, Pakistan Petroleum Ltd, and Pakistan State Oil to Global Capable Companies (GCCs) through strategic divestments and management control. Additionally, efforts are underway to separate the pipeline and transmission businesses from gas distribution activities, with a view to privatizing them in the future. These measures aim to enhance operational efficiency and attract more investment.
Revamping Energy Sector Operations
The government is also focusing on revitalizing the energy sector through various operational reforms. This includes the buyback of old and inefficient power plants via Pakistan Investment Bonds and negotiating with provinces to implement the weighted average cost of gas (WACOG). Adjustments are being made to the scheduling of LNG cargoes with Qatar to optimize their use in the power sector.
Exploring Hydrocarbon Exploration Opportunities
In parallel, the government is engaged in discussions with China for government-to-government (G2G) collaboration in hydrocarbon exploration. An offshore basin and benchmarking study have identified 24 offshore blocks for auction. The Chinese government has gathered significant seismic data through major offshore expeditions, which will support future exploration efforts.
Consultancy Engagements and Policy Developments
International consultancy firms like Wood Mackenzie, LMKR, and KPMG have been enlisted to refine tight gas policies, revisit offshore exploration strategies, and address issues related to circular debt and cash flow problems in the gas sector. The government is expected to announce new incentives for exploration and offer concessions for both onshore and offshore blocks.
Promoting Energy Efficiency and Demand
To stimulate electricity demand and enhance energy efficiency, the government will introduce seasonal electricity tariffs and provide discounted financing for electric vehicles and home appliances. This initiative aims to encourage the growth of the electric vehicle market and support the adoption of energy-efficient technologies.
Strategic Shift in Decision-Making
The government is shifting its decision-making approach from socio-political considerations to an economic and commercial focus, emulating practices from Saudi Arabia and other Middle Eastern nations. This strategy involves outsourcing economic decisions to international consultancy firms and GCCs, which leverage expert pools to address specific requirements more effectively than traditional staffing methods.
Conclusion
The Pakistani government’s multi-faceted approach to addressing high energy tariffs and stimulating investment reflects a strategic shift towards greater efficiency and economic focus. By reducing ROE, privatizing key entities, and engaging in strategic partnerships, the government aims to create a more attractive and sustainable energy sector. These efforts, combined with enhanced operational reforms and targeted incentives, are expected to contribute to a more resilient and competitive energy market in Pakistan.
