Mumtaz Hasan Khan, Chairman of HASCOL Group and renowned energy expert proposes a range of innovative solutions to overcome Pakistan’s acute energy problems. Among other recommendations, he calls for the development and implementation of an integrated energy policy, the setting up of a national energy authority and the development of alternative energies as a way of weaning Pakistan off its crushing dependency on expensive Middle East oil.
With over 45 years of experience in the oil industry, Mumtaz Hasan Khan started his career in Burmah Shell Oil Storage and Distribution Company in 1963 and was also the Managing Director of Pakistan Services Limited before moving to the UK where he established Hascombe Limited, highly successful oil trading business specialising in crude oil and petroleum products.
In 2005, Mumtaz Hasan Khan moved to Pakistan and established Hascol to take advantage of the petroleum sector deregulation and undertake a programme for owning, leasing and renting oil storage facilities as well as importing petroleum products. In February 2005 Hascol was granted a full marketing license by the Government of Pakistan. Since then Hascol has been engaged in developing a retail network with over 200 retail outlets commissioned across the country.
Mumtaz Hasan Khan is also the Chairman of the Hascombe Business Solutions (formally Gestetner) and Sigma Motors. An authority on the energy sector, he talks to Blue Chip about overcoming the present crisis.
You recently made recommendations about Pakistan’s energy policy and how the country could save at least $100 million, can you elaborate on this?
Mumtaz Hasan Khan: “There are short-term, medium-term and long-term recommendations. At the moment Pakistan’s economy is in a state of collapse and requires urgent measures. Immediate steps need to be taken to revive the economy and save the country precious foreign exchange.
The allocation of gas must be prioritized. At the moment 50% of Pakistan’s energy needs are being met from natural gas produced in Pakistan which is about 4 billion cubic feet per day. A lot of gas at the moment is being spent on sectors of the economy which are not critical. The first priority should be the power sector, because with no power, industries won’t run and the whole economy depends on the uninterrupted supply of power. Second priority should be industry: for example fertilisers and textiles. These industries create jobs and result in exports for the country. The third sector should be commercial establishments like hotels which are necessary to support the economy. The fourth should be CNG and finally domestic consumption.
At the moment we are giving too much emphasis to the domestic sector and CNG. CNG is taking about 300 million cubic feet of gas per day and if that is used for power instead, 1200 megawatts of power could easily be generated with that gas – perhaps even more. Similarly, the amount of gas being subsidised for the domestic sector is urgently needed for the fertiliser industry and power generation. We should stop giving gas to domestic consumers except for cooking. We should stop giving gas for domestic water heating. In India, China, Sri Lanka, Bangladesh and Nepal all domestic water heaters are run on solar and not gas.
Since domestic prices are subsidised here, geysers usually run 24 hours a day because the gas bill is nominal. As a result, not enough of effort is being made to conserve gas. We are wasting a lot of gas. The line losses of Sui Northern and Sui Southern are running at over 7%. Since over 4 billion cubic feet of gas is being produced per day, this means that more than 300 million cubic feet of gas is being wasted in transmission losses, theft and other inefficiencies in the transmission system. Again, another 1200 megawatts of power projects could be run if the losses are reduced to 3%. So these are steps that can be taken within the three to six months horizon and would save Pakistan from importing furnace oil which is expensive. Therefore, power generation becomes more expensive and the price of electricity rises. Since poor people cannot afford this, subsidies are given and this leads to circular debt.”
What are the medium-term steps that you recommend?
MHK: “In the medium-term, we need to look at Pakistan’s total energy mix. At the moment Pakistan’s energy mix is highly dependent on hydrocarbons: 50% is gas, about 30% is oil and only about 20% is hydel, imported coal and other forms. Our gas reserves are going down so we will need to import more oil. If we import more oil and if our economy keeps growing at 5% per annum, by the year 2022 at the price of $80 a barrel, our import bill will reach $40 billion and the country will not be able to afford it. There will be huge energy shortages and therefore we must immediately concentrate on producing indigenous and other local sources of energy. We have a huge reservoir of coal which we have not developed up till now. In India 60% of electricity is produced from coal, in China 70% is being produced from coal, in Pakistan nothing is being produced from coal. Coal being a domestic resource, we should urgently start a programme to develop the coal mines and lay a policy stating that all new power projects will be based on indigenous coal and not on hydrocarbons.
In the long-term we need to develop hydel energy and alternative energy sources like wind and solar. We have a wind-corridor near Gharo which according to some experts can produce about 50,000 megawatts of electricity. We are at the moment not even producing 20 megawatts. India is producing over 10,000 megawatts from wind energy.
Similarly in solar, we are blessed with so much sunshine. We have over eight hours of sunshine a day for over 300 days a year. Instead of providing gas to every village, the focus should be on developing hybrid solar solutions. For example, houses in the rural areas should be equipped with small solar cells which can power a house: provide a few bulbs so people can read at night and during the day people can charge their mobile phones. That is the basic rural requirement. The cost per home will be a few hundred dollars for a small solar cell. This is the sort of solution we should be looking at rather than trying to provide natural gas which should be used for power generation or industry.”
Recently you spoke of implementing an integrated energy planning policy as in the rest of South Asia, what specific recommendation would you propose to the government in developing policy?
MHK: “The government needs to set up a National Energy Authority because at the moment, decisions in the energy sector are taken by various ministries without any coordination and without an integrated energy model. If you have a National Energy Authority which not only prepares the plan but is also entrusted the task of executing the plan. The trouble in developing countries like Pakistan is that even if you get a good plan, you don’t have people to implement and execute the plan. This authority would report directly to the prime minister and the sole task would be to prepare an integrated plan and to execute it within certain well defined timelines. If we did this, we would make huge progress in all fields of energy.”
You also have a wealth of international experience, what are your views on the future of oil prices?
MHK: “I think oil prices worldwide are going up because even Saudi Arabia’s wells have matured and will very soon start going into decline. The amount of new oil which is being discovered is not enough to cope with the increase in demand. In the last two years prices have gone up from $50 to $100 a barrel and the general projection is that if there is a serious geopolitical conflict as witnessed in the Middle East, it could go up to $150 barrel. This would be disastrous for Pakistan because we are a poor country and we may not have the means to import all the oil we need. Hence the cost of energy will go up because we are highly dependent on oil; as a result the cost of other manufacturing items will rise and our foreign exchange reserves will not be able to sustain the oil bill which we will have to face. It will be a huge blow to Pakistan’s economy. That is why our objective should be to develop indigenous sources of oil, gas, coal and hydel so we minimise our dependence on imported energy.”
You have had a rich and diverse experience in the energy industry, what drew you to a career in the energy industry?
MHK: “When I started work over 45 years ago, the energy sector at that time was the most attractive sector to be in because of its diversity and the interplay of politics and economics. It seemed more challenging than the other sectors.”
In terms of the energy sector, given all the civil strife and instability in Pakistan would you describe Pakistan as a good investment destination?
MHK: “Pakistan represents a very good investment opportunity. The only drawback in Pakistan is that government policies are not consistent in terms of returns for the investor. The oil industry is very dynamic and changes are taking place every day. If you tell an investor who is drilling for oil and gas that his price is capped at $70 a barrel and if the price goes to $150 a barrel then people would rather go and invest in those countries where they can get $150 a barrel rather than $70. So the government has to be dynamic and quick-footed to adjust to the international environment and promulgate policies which will encourage people to make long-term and sustainable investments in the country.”
What would you say about the impact of the security situation in the country?
MHK: “The security situation is marginal. You must realise that oil companies operate in the most insecure environments in the world. They operate in Angola, Nigeria, Uganda, Sudan. I think the security in these countries is much worse than Pakistan and yet the major oil companies are operating over there. If the returns are good the industry will make its own security arrangements to make sure that the oil is extracted and transported.
We have recommended to the government that the locals must be made stakeholders in the areas where oil and gas projects are initiated. So if a gas field is found in the Marri area in Balochistan, 10% free equity should be given to the locals so they will know that their livelihood depends on that project. If a project is generating $100 million, the local community should be given $10 million and they will provide you with the security so that nothing happens to disturb the oil and gas production.
Unfortunately the government has relied too much on using the military and police force rather than winning over the hearts and minds of the people. At the moment we cannot drill for oil and gas in Balochistan because of the security situation. The government has been trying to provide security through military force rather than providing people with the economic incentive that if we find oil and gas, we commit to spending 10% of our income every year on development, building roads, schools, scholarships, development and community uplift.”
What are your views on regional gas pipeline projects?
MHK: “I think the Iran-Pakistan gas pipeline is a very good project. It is contiguous and the Iranians have already built all the facilities up to the border. It is mainly because of US pressure that we are not proceeding with that pipeline. To me, that is the most logical pipeline project because Iran has the largest gas reserves in the world and we could easily get one billion cubic feet of gas from Iran if we had the political will to resist US pressure and build the pipeline in Pakistan. That would be a great boon and provide the additional gas that we need for our energy needs. It is a clean fuel and would certainly mitigate some of the losses which we are going to suffer because some of our fields like Sui are already maturing.”
You are an important patron of the arts and a Trustee of the Foundation of Museum of Modern Art (FOMMA), what prompted your interest in art?
MHK: “I am fond of art and Pakistan has internationally acclaimed artists. When I was living in London, I felt that the image of Pakistan was that of an Islamic fundamentalist state. So in 1999 we helped to organise the first ever Pakistani art exhibition in London called ‘50 Years of Pakistani Art’. It received glowing reviews and people became aware of a new dimension of Pakistan. We have to sell the soft image of Pakistan. I felt that this was a good activity to help to promote Pakistan’s image in the West. So when I moved back to Pakistan I was asked to help raise money and get involved in art publications on the famous artists of Pakistan.”
Do you have any favourite artists?
MHK: “I like Jamil Naqsh and Sadequain is very good but I find him a bit depressing.”
You have achieved so much in your career, what are you planning next?
MHK: “I have now spent a lot of time working and my personal aim over the next two years is to try and not to lead an active managerial lifestyle but to be a non-executive chairman and spend more time on traveling and social work and getting involved in think-tanks to develop and propose solutions for the huge problems that Pakistan is facing. It is time for me to give something back to the country. I am already doing so by investing money and generating employment but I can also make some contribution in providing ideas on a policy level to help improve governance in the country. If I can do this, I think I would have made a small contribution which all Pakistanis should make.
Are you still optimistic about Pakistan?
MHK: “If I was not optimistic about Pakistan, I would not have come back after spending 25 years in London. Pakistan has a great future. The only problem at the moment is governance – you get the right people in the right jobs and you will see Pakistan prosper greatly. There are three important factors: you must have a strategic vision, you need people who put national interest over personal interest and you need to have people with competence and integrity to manage the affairs of the economy and of the state. We have tremendous natural resources, an enterprising population, we are geopolitically situated in a very important region, so we have all the key ingredients.”
