Previously the country faced an electricity-capacity crisis; this time, there is a fuel-price crisis
Oil imports have decreased by 26% in the first five months of the current fiscal year (July-Nov). Crude oil imports have fallen by 16%, diesel imports by 44%, and gasoline by 20%. While there may also be some inventory effect, this is a clear demand-reduction signal. The reasons appear obvious: economic slowdown and pricing and foreign exchange issues.
Whenever there are financial issues in energy supplies, there are immediate calls for closing the markets by 8pm. A research study by "Business Recorder" concludes that the commercial sector’s share in electricity consumption is only 10% and that electricity savings in this area may not be significant. The commercial sector has not accepted the market closure proposal and remains largely unimplemented.
Similar attempts were made in the past. However, previously the country faced an electricity-capacity crisis; this time, there is a fuel-price crisis. On the contrary, tariff incentives have been given to incentivise high electricity consumption so that unit capacity charges could be reduced due to high capacity utilisation.
Surprisingly, there is no move to conserve and reduce unnecessary oil consumption, although high prices discourage oil consumption. Reducing energy/oil consumption can be a double-edged sword and affect economic output. It is wasteful consumption that should be discouraged while also introducing efficiency measures.
The country’s elite who drive posh vehicles consume gasoline irresponsibly. There is a case for increasing gasoline prices only for the rich and the elite. But the problem is that this commodity is consumed by both the rich and the poor. In my previous articles, I presented a mechanism for introducing a low-octane cheaper variety of gasoline for the poor.
It is time to promote public transport across the country — transport for goods or passengers. Public transport consumes diesel, and there is a case for reducing diesel prices vis-a-vis gasoline so that public transport can become affordable and attractive. Low diesel prices incentivise economic output as well. It can be done easily by high taxes on gasoline and lower on diesel. Many advanced countries have adopted this practice.
The COVID-19 pandemic has also introduced several fuel-saving options like Zoom meetings or the work-from-home model. Authorities should promote ride-sharing in the country and regularise and expand it. The corporate sector should be asked to introduce fuel-saving programmes and targets.
The oil imports of $20-25 billion, as opposed to the $36 billion total exports, are unsustainable. This situation will continue for some time unless conservation measures are taken. It is similar to the 1973 oil crisis, which forced several Western countries to promote oil conservation and efficiency. We have a similar situation, and it will continue unless exports increase without incurring high energy costs.
The International Energy Agency (IEA) has advised its OECD member countries to adopt conservation measures. They have developed a 10-point agenda, which may be partly relevant and useful for us. Can Pakistan develop a 10-point agenda of its own?
Pakistan needs to refine and better coordinate its oil import process. The power sector requires furnace oil mostly in winter. There is enough furnace oil production by local refineries. Its import ban was lifted in 2020-21 due to the LNG crisis. As a result, excessive furnace oil imports were made, leading to a surplus, which created a disposal problem.
The demand for furnace oil is high in winter, except for occasional demand in other seasons. Oil refineries should be encouraged to build sufficient storage units for furnace oil. There are other areas where procurement and internal oil logistics can be improved, resulting in oil savings.
Oil is mostly consumed in the transport sector. Some 80 % of the total oil consumption is by passengers and freight transport. Conservation and efficiency efforts in this sector may save up to $2 billion in oil imports, depending on the prevailing oil prices. The following three areas can lead to oil savings in transport: driving and maintenance, automotive fuel efficiency, and spare parts availability.
Raising awareness about fuel-efficient driving among vehicle users and drivers is important. Though people know some techniques to be more fuel-efficient, they are not sensitive. Awareness campaigns may help sensitization. Oil marketing companies (OMCs) can play a vital role and use petrol pumps to spread the message. In Pakistan, one comes across the following tips on the official websites of OMCs: don’t be an aggressive driver; observe speed limits; maintain the speed between 50 and 80km/hr on highways; avoid revving the accelerator to a high RPM; and avoid breaking aggressively.
Other tips include: avoid excessive idling; keep the trunk empty; don’t carry unnecessary load; no overload for truckers and CVs; fill the vehicle at the lowest setting when the pump stops and gives a sound; drive with the AC on instead of opening windows at high speeds; and keep your vehicle exterior clean to reduce air drag. The list goes on: keep tires inflated at the right pressure; clean, adjust or change spark plugs and air filters regularly; and change engine oil and oil filter as per oil manufacturer’s specifications.
Training programmes for automotive technicians should be introduced to implement these requirements adequately. Such trained manpower can also be sent abroad to earn remittances.
The oil crisis of 1973 initiated several energy efficiencies and diversification programs led by the US. Vehicle fuel efficiency standards (VFES) were introduced, tremendously improving fuel efficiency. Today, vehicle fuel efficiency has doubled or even quadrupled compared to the 1970s-80s. The movement spread to Europe, Japan, and Korea. Developing countries recently introduced such schemes and initiatives. India introduced emission standards in 2015 and is now introducing the VFES, which will be enforced by April 2023. Perhaps, the time has come to take similar initiatives in Pakistan.
In Pakistan, there are used imported vehicles that are usually more fuel-efficient — a fuel consumption of 20km per liter — than the locally produced ones. Import and taxation policies can encourage fuel efficiency through varying tariff rates.
Currently, except for engine capacity, there is no other tariff differentiation. Import policy can place an upper or lower limit on fuel consumption. Imported vehicles should be type-certified in the manufacturing country, specifying fuel consumption rating. Similarly, local producers may be encouraged to increase the fuel efficiency of the vehicles they assemble or produce by making adjustments. Tariff incentives may work.
Older vehicles are generally less fuel-efficient through wear and tear or fuel efficiency improvement in new vehicles. Some other possible rules and regulations can be introduced to convince vehicle owners to change to new or less old vehicles. Tax or credit term incentives may work. Since Pakistan is a poor country, it cannot introduce a policy on the mandatory retirement of vehicles.
Many countries have also extended their energy labeling programs to the automotive sector. Advanced countries introduced this labeling scheme many years back. India, Chile, Vietnam, Thailand, Singapore, and Indonesia have adopted the system. Pakistan’s National Energy Efficiency and Conservation Authority (NEECA) may also consider going into the automotive sector.
There should be some initiatives to promote the spare-parts industry to reduce spare parts prices. People delay changing parts at the end of their recommended life due to the high prices of these products. Take the case of spark plugs. Its price can vary between Rs1,000 and Rs10,000. This component plays an important role in fuel consumption. There is a huge market for these plugs. Its local manufacturing can be economical. Similarly, other parts like various filters of engines and AC can be produced locally.
There are other approaches, such as introducing electric vehicles (EVs). But these plans are mid-to-long-term. The combined effect of small changes in several sectors can be quite big. We should not look towards revolutions; history tells us they do not deliver much.
The writer is a former member of the Energy Planning Commission. He can be reached at: akhtarali1949gmail.com.