Pakistan has a new government – because, arguably, the PTI government lost support of the establishment and ex-PM’s visit to Russia antagonised the US. While the first may carry some substance; the second is far-fetched.
Russia has been offering cooperation to Pakistan in the energy sector since 2009. In April 2021, Russian foreign minister visited Pakistan, and declared he was carrying a blank cheque. The visit was preceded by a visit in February 2019 by a high level Russian delegation that intended investment worth USD14 billion in the energy sector and another in December 2019 with a delegation of 64 led by the Russian trade minister with similar objectives.
We have ourselves to blame that nothing materialised from those visits. Take the adhocism and dragging of critical decisions most noticeable in the energy sector. We saw change of three energy minsters and three SAPMs in three and a half years.
So, it is the PTI government’s governance challenges which led to its fall.
Policies vs Performance
Though the PTI manifesto and policies were replete with promises of professionalisation and autonomy of the SOEs by transferring their ownership to a wealth fund; the situation worsened after it assumed power in August 2018. The wealth fund never took off. As of the corporate boards, there is a negligible percent of directors that fulfilled even the minimum required PSC rules’ criteria. A comparison of a few multinational energy PSEs with some in Pakistan tells us that out of 59 directors of 6 such MNCs more than 40 have extensive relevant high-level experience as compared to less than 10 out of 90 in Pakistan.
Adhocism and dragging of critical decisions are most noticeable in the energy sector. Pakistan saw change of three energy minsters and three SAPMs in three and a half years.
The manifesto promised revival of oil and gas exploration, however, the PTI‘s three and a half years in power observed a marked reduction in the activity. On an average, Pakistan drilled 47 exploratory wells a year from 2013 to 2018, while only 29 wells were grilled a year from 2019 to 2021. Also, the sector spent 35 percent less on E&P activities in 2021 viz-a-viz 2018 and 45 percent less on the exploration component. Similarly, Pakistan observe an alarming reduction of 28 percent in the recoverable reserves of oil in 2021 viz-a-viz 2018 — an indication of the gap in reserves’ replacement ratio. Though Pakistan observed a net increment of 1.5 TCF in 2021 viz-a-viz 2018 in the recoverable gas reserves, but, it still observed a production decline of 500MMSCFD between the two reference years.
Similarly, Pakistan observed reduction in production of oil by 15 percent between 2018-2021. With a little effort, the decline could have been arrested by at least 10 percent for both oil and gas.
Further, the share prices of the major E&P PSEs took sharp plunges during the period — in one case 5 times and in another by 3 times. Despite major increment in prices, the circular debt continued to mount and share prices declined more than 5 times. The petroleum sector’s circular debt alone rose to PKR1.6 trillion during the period.
Primary causes for the sluggish activity appear to be capacity gaps at the top, including the PSEs’ boards and exploration blocks’ bidding rounds that failed to attract MNCs.
It goes without saying that I tried to contribute through presentations, articles and letters, but it all went unnoticed. Though the ordeal I went through in the past three and a half years is not a subject of this article. It hurts even more that it happened under a government which espoused merit and transparency. A professional of proven track record was forced to sit out on frivolous pretexts.
The major challenges faced by the PTI government were:
— Reserves’ replacement required sustained focus on the E&P activity. Also, known oil and gas basins stand exhausted and new ones need to be discovered. The exodus of MNCs during the last 15 years has added to this capacity loss. At least 50 percent of PSEs profits come from the JVs operated by other operators, while their staff adds to 14000 (1/5th of Aramco’s staff contributing 14 percent of global oil production); which reflects an ample capacity gaps in human capital.
— Pakistan energy PSEs continue to operate mostly with no diversification.
— Failure to develop strategic underground oil and gas storages.
— Abnormal increment of two and three wheelers, due to shortage of public transport, resulting in an additional drain (USD3 billion a year) for gasoline imports.
— Attempts for PSEs’ structural reforms hardly go beyond the already failed concept of unbundling.
— Pakistan failed to upgrade refineries to reduce furnace oil production, even though LNG economics was based on oil’s replacement with LNG.
— Future of TAPI and IP (the raison d’être for ISGS) is still hazy; while LNG imports are projected to be 4BCFD by 2026 and LNG’s infrastructure’s limited capacity is already a bottleneck.
— Machike to Taru Jabba oil pipeline needs to be pursued on priority.
— Viable alternates to piped gas are imperative. For example, off-grid bio-methane modular plants.
Topping all the above challenges is the absence of any professional tier/committee steering the energy sector. Officials that have hardly any subject knowledge or corporate management experience are governing it.
Experts expected the PTI government to respond effectively to the given challenges. Therefore, its performance needs an objective analysis: what obstructed it from implementing the policies? Shaukat Tareen in a press conference candidly accepted his government’s failure to reform the PSEs. This can serve as an excellent pivot for the above analysis.
The new government could constitute an advisory committee of 15 world-class energy professionals, who have successfully managed large value chains for assisting the government in driving the energy sector. In addition, they could nominate directors of SOEs’ boards and evaluate their performance.
The Way Forward
The way this sector is being managed is simply untenable. In the short time available to the new government, it can take the following strategic steps:
— To benchmark its current status, the government could initiate third-party performance audits and capacity mapping of a few large energy PSEs.
— It could constitute an advisory committee of 15 world-class energy professionals, who have successfully managed large value chains for assisting the government in driving the energy sector. In addition they could nominate directors of SOEs’ boards and evaluate their performance. The most immediate task for this committee could be to identify the potential for ramping up oil and gas production and implement the same on priority. The rest of their responsibilities can be developed from the above listed challenges. Only their effective resolution can lead to sustainable prosperity and genuine economic independence for the country.