Pakistan: Steps Into Shaping A Secure Energy Future – OpEd
The energy crisis in Pakistan is generally consumed in putting out fires on short term basis. We talk of tariffs and fuel shipments and to whom is owed and what, but the greater evil is still rising. The system of power is expensive and prone to the surge of imported fuel and indulges itself in circular debt that currently sits on top with approximately 2.6 trillion. The intervention of the UN ESCAP that provides policy suggestions and technical assistance to the matter is not a donor headline in that case. It is a sign that change of energy in Pakistan is no longer a good idea, but an economic necessity and that serious participants are willing to assist in shaping out a plan that the investors will trust.
This is noteworthy because energy security in Pakistan is no longer about ensuring that the lights are on. It is alarming to keep the economy afloat. Once the world oil or LNG prices soar the import bill of Pakistan bursts, the rupee is smitten out, inflation ensues and industry is retarded. Include climate stress, flooding, heat waves and water risks and the ancient model is even further compromised. The move to domestic renewable decision cannot be termed as an environmental one. It is among the ways of diminishing the contact with the world fuel markets, lowering the stretching of the funds, and contributing to the steady growth.
The intervention of UN ESCAP requested by the Government of Pakistan is opportune, at the time when Pakistan needs just clarity instead of slogans. The scoping mission and consultation with ministries and development partners has made UN ESCAP identify some practical entry points and actual constraints as well. This type of external help can help Pakistan to reach out of the typical trap of having a glitzy strategy that would not be able either to be funded or put in place. It must strive to possess an Energy Transition Investment Plan that relates targets to projects, and policies to finance. It is not a plan, but a wish list unless it is able to raise capital on the scale.
The best argument of the ETIP is simple. The Pakistan strategic risk is the high dependence on the imported oil, LNG, and coal. The demand will grow until 2030 and the imported fuels will be unstable. Renewables can be supported by storage and a stronger grid because it will offer an avenue to manage demand without experiencing foreign exchange shocks to such an extent. They also give Pakistan room to implement its climate commitments without working hard on growth. Furthermore, to a market and a consumerism that is increasingly focused on carbon footprints, it will become damaging to exports and employment as well, to continue to be held captive by a high emission power mix.
However, Pakistan cannot fund this transition through the use of state finances. At that stage, the ETIP must prepare the investor. Blended finance can help, not in terms of marketing, but in terms of simple construction of transactions where limited public and philanthropic resources seek to attract in private funds. Pakistan should not bailout bad policy using each concessional dollar as a triggering device. The cheap cost of clean projects can also be attributed to low interest loans, guarantees and risk sharing instruments especially in areas that are generally shunned by the private lenders. It is possible to employ concessional finance as an instrument of equity, even as it is not a balance sheet chimera, in the event that the nation wishes solar, mini grids and storage to make its way into underserved neighbourhoods.
This is the other tool that Pakistan needs additional finance instruments that are appropriate to the market reality. The number of investors can be raised through the use of panda bonds and Green Eurobonds in the event the use of proceeds is evident and the reporting is reputable. Green Sukuk can tap local and regional sources of Islamic finance provided the cash flow of the project is acceptable and the government is stringent. The pay as you go models can enable faster uptake of clean energy by households and small business, however, these models require safeguards to the consumers, reliable services, and smart payment mechanisms. All these tools are not going to be applicable as long as the state is changing the rules halfway or buyers are not sure about the effectiveness of the system of power take.
The solar and the wind can also be contributed by Pakistan, but as long as it does not upgrade the grid, it will be wasting its energy and will be left vulnerable to instability without making the system any less costly. Specific attention to the modernisation of the grid can minimise the losses, improve the billing and allow decreasing the circular debt spiral. It can also be used to unlock distributed solar and battery storage that could lead to a reduction in the stress of peak demand and the reduction of the need to rely on imported fuel production. There is nothing glamorous in grid work and one can have real savings and dependability.
UN ESCAP might also come in handy because it presents regional knowledge in the work of Financing Energy Transition. Pakistan does not need to imitate another country but it must be aware of what has performed well in other related markets. Joint power, industry, transport and land use planning will avert policy conflicts that put investors to shivers. Carbon markets and green bond frameworks can encourage the transition to Net Zero targets over an extended time, but this would entail the development of plausible measurement, reporting, and verification systems by Pakistan. Investors never pay promises, they pay evidence.
