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Pakistan introduces financial incentives for green energy

Source: Thomson Reuters Foundation - Tue, 25 Jun 2013 14:10 GMT
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Children stand near a wind turbine in a village about 25 km northwest of Karachi, Pakistan, June 18, 2010. REUTERS/Akhtar Soomro
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LAHORE, Pakistan (Thomson Reuters Foundation) – The new government of energy-starved Pakistan has proposed financial measures aimed at cutting the use of fossil fuels and promoting alternative energy sources, while also protecting the environment.

Presenting the government’s first budget, which is expected to be passed thanks to the ruling party’s majority, Finance Minister Ishaq Dar said duties would be lifted on imports of small hybrid cars, solar and wind power equipment, and energy-saving devices like LED bulbs.

“Use of imported POL (petrol, oil and lubricant) products as a major source of energy has not only led to a high import bill, but has also created a negative environmental impact,” Dar told the National Assembly in a speech on June 12, outlining budgetary measures for the new fiscal year starting on July 1.  

Pakistan’s import bill for fossil fuels surged by 26 percent to $15.25 billion in the 2011-2012 fiscal year, against $12.08 billion the previous year, with the fuel used primarily to generate electricity, according to the Pakistan Bureau of Statistics.

The use of energy-efficient Hybrid Electric Vehicles (HEVs) needs to be encouraged, Dar said, adding that imports of HEVs with an engine capacity of up to 1200CC will be exempted from withholding tax. In addition, the tax will be reduced by 50 percent for hybrid cars up to 1800CC and 25 percent for vehicles up to 2500CC.

Local car vendors, however, are not happy about the move.

Munir K. Bana, chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), told journalists in Karachi that importing 20,000 standard hybrid cars and 5,000 luxury hybrids would cost the government $423 million in lost taxes, while cutting the national fuel import bill by just 0.16 per cent a year.

“Instead of allowing zero-rated imports of hybrid vehicles, the government should have emphasised the transfer of hybrid technology to existing local auto manufacturers and encouraged new entrants for job creation,” he said.

POLICY FOR THE RICH

Environmental lawyer Ahmad Rafay Alam said the real test lies in whether the lower cost of the hybrid cars will attract hire-purchase customers, as most cars are sold through such payment schemes. 

He added that Pakistan’s high levels of poverty mean hybrid cars are unlikely to have a wide appeal.

“Cars are, basically, an elite issue.  Only the rich can afford cars.  It remains to be seen if the rich care about the environment,” he said.

The new government, sworn in early this month, is grappling with a weak economy, and may not see the environment as a top concern. But faced with chronic electricity blackouts, it cannot ignore the question of where the country’s future power supplies will come from, and who will pay for them.

According to a National Planning Commission report, at the end of 2012 the debt carried by the country’s energy industry was $9.1 billion, or about 4 percent of GDP. This has hit the electricity supply-chain hard, holding up economic growth by at least 2 percent a year.

Meanwhile, expensive gas and oil imports are eating into the country’s scant foreign-exchange reserves.

The World Bank - which has launched a new programme to help nine developing countries map their renewable energy potential  - says Pakistan has abundant renewable resources, including solar, wind, hydropower and biomass , but has done very little to utilise them so far.

Announcing the government’s planned shift towards renewable energy sources, which he called “a need of the time”, Finance Minister Dar said the procedure would be simplified for duty-free imports of solar and wind machinery and equipment. Energy-saving devices like energy-efficient light bulbs and solar water pumps will also be exempted from duties.

Separately, the local government in Pakistan's most populous province, Punjab, has allocated Rs7.5 billion ($76 million) to subsidise biogas and tube wells fitted with solar-powered pumps for small farmers.

The continued power crisis has caught farmers and the agriculture sector in a vicious circle of low yields, Punjab’s minister for finance, Mujtaba Shujaur Rehman, said in a budget speech on June 17.

HIRE-PURCHASE SOLAR?

The national government’s measures to boost installation of solar and wind energy have been welcomed by environmental activists.

“The exemption to solar kits will be truly successful if it extends to individual parts as well,” said lawyer Alam, adding that vendors can then stock back-up supplies cheaply. “Also I believe that if financial institutions begin looking to solar products as something they can offer on hire-purchase, a policy winner is possible.”

Wind products are likely to be limited to well-known wind corridors, he said, including one in Karachi where several people he knows have small 3kV turbines on their roofs.

Alam suggested the transition to a more sustainable energy future could be further supported by the introduction of a feed-in tariff by the energy regulator and utilities. That would enable individuals and businesses that produce surplus green power to sell it back to the national grid, offering an added incentive to install renewable energy systems.

Before this can happen, energy utilities will have to upgrade their infrastructure, he added. Such improvements have been on the agenda at several meetings to address Pakistan’s energy crisis, convened by Prime Minister Nawaz Sharif since he was inaugurated early this month.

Waqar Mustafa is a journalist based in Lahore, Pakistan.

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