Govt to cut returns to bring down power tariffs
ISLAMABAD: With growing unease over unaffordable energy tariffs, the government is working on reducing the return on equity (ROE) for its plants and offering improved prices to attract additional investments in hydrocarbon exploration and development.
Informed sources told Dawn that the government had already decided to scale down the ROE for public sector power projects, including hydropower. Since most of the ongoing projects’ financials were linked to local and international debt, different financial models were being looked into. What could be a trade-off between a revision in return on government equity and a dent in the budget or the financials of generation companies is yet to be examined.
The government has also decided in principle to sell profitable energy sector entities like Oil and Gas Development Company Ltd, Pakistan Petroleum Ltd, and Pakistan State Oil to Global Capable Companies (GCCs) through strategic divestment and management control. Work is also being pushed again to separate gas companies’ pipeline and transmission businesses from distribution activities and then privatise them.
In this respect, the government is finalising working models for buying back old and inefficient legal power plants through Pakistan investment bonds and expediting talks with provinces to effectively implement weighted average cost of gas (WACOG), including local gas and imported LNG. The government is also re-arranging monthly LNG cargoes within the existing annual envelope with Qatar for efficient and enhanced utilisation in the power sector.
Plans selling profitable energy firms to global majors
On the other hand, the government is currently in talks with China for a G2G engagement in the exploration side, for which an offshore basin and benchmarking study has already been completed. A total of 24 offshore blocks have been identified for auction. The Chinese government has already acquired substantial seismic data in the offshore area through three major offshore expeditions.
Simultaneously, the government has also engaged international consultancy services like Wood Mackenzie, LMKR, and KPMG for the fresh push for tight gas policy, a fresh attempt for offshore exploration based on results of past failures and the real causes of circular debt and cashflow issues in the gas sector.
In this regard, the government is expected to announce “some compelling incentives” shortly for exploration and offer both onshore and offshore concession blocks.
To enhance electricity demand, seasonal electricity tariffs would be launched ahead of the upcoming winter, encouraging automobile firms to rapidly grow the electric vehicle segment and providing discounted financing for hybrid automobiles. Ahead of winter, the government would also offer discounted and instalment-based financing for electric home appliances, particularly in water heating and space heating.
The sources said the government was now shifting its decision-making strategy from a socio-political orientation to an economic and commercial perspective on the pattern of Saudi Arabia and other Middle Eastern nations where most economic decisions stood outsourced to international consultancy firms and GCCs. The GCCs are offshore entities that support global parent companies through the synergy of the expert pool that is moved from one country to another depending on specific requirements instead of large staff at all destinations.
Published in Dawn, August 6th, 2024