Monday, January 28, 2008

Pakistan's Energy Crisis

Pakistan’s economy has recently been growing at 7-8% per year, doubling its GDP over the last 7 years. The industrial growth rate has been closer to 12.5% per year during this period, contributing 38% of the total economic output of Pakistan. Per capita energy consumption of the country is estimated at 14 million Btu, which is about the same as India's but only a fraction of other industrializing economies in the region such as Thailand and Malaysia, according to the US Dept of Energy 2006 report. To put it in perspective, the world average per capita energy use is about 65 million BTUs and the average American consumes 352 million BTUs. With 40% of the Pakistani households that have yet to receive electricity, and only 18% of the households that have access to pipeline gas, the energy sector is expected to play a critical role in economic and social development. With this growth comes higher energy consumption and stronger pressures on the country’s energy resources. At present, natural gas and oil supply the bulk (80 percent) of Pakistan’s energy needs. However, the consumption of those energy sources vastly exceeds the supply. For instance, Pakistan currently produces only 18.3 percent of the oil it consumes, fostering a dependency on imports that places considerable strain on the country’s financial position. On the other hand, hydro and coal are perhaps underutilized today, as Pakistan has ample potential supplies of both.

Pakistan’s rising energy demand, according to the U.S. Department of State’s Paul Simons, creates opportunities for regional cooperation. To this end, the U.S. Trade and Development Agency convened a meeting a couple of years ago in Istanbul that produced an agreement on examining options for exporting Central Asian electricity to Pakistan. It should be noted here that US does not favorably look upon any Iran-Pakistan cooperation in the energy sector. At an Asia Program event organized by Wilson Center in 2006, Vladislav Vucetic of the World Bank provided a troubling assessment of the state of Pakistan’s electricity sector—demand is approaching maximum production capacity, while institutional capacity for policy development and implementation remains low. Worse, failing to resolve these problems may cause investment delays and hamper Pakistan’s economic growth. Sanjeev Minocha of the IFC, a major source of private sector financing, noted the paucity of domestic private sector initiatives in Pakistan. The IFC has sought to raise investor confidence through its funding of private Pakistani energy companies, including the new firm Dewan Petroleum. Ultimately, stated Minocha, it is crucial that investment projects take into account the interests of local communities.

In early 2008, Pakistan's industrial consumers are facing an electric power deficit of up to 3,600 megawatts (MW)due to low water levels at hydroelectric dams and damage to two main power lines attacked during the three days of violence following Bhutto's assassination. More than anything, this represents the failure of long term energy planning to go with the economic growth forecasts.

Among the temporary issues exacerbating the larger power crisis, the two main power transmission lines were blown up in January 2008 in Sind, creating a shortfall of 1,000 MW. The business community complain that lopsided and unplanned shutdowns have resulted in closures in almost all industries. Subsequent production losses will be reflected in further pressure on exports and lead to increased imports.

Water levels have fallen by 32% compared with last year, according to the Pakistan Electric Power Company (PEPCO). Pakistan's current installed capacity is around 19,845 MW, of which around 20% is hydroelectric. Much of the rest is thermal, fueled primarily by gas and oil. PEPCO also blames independent power producers (IPPs) for the electricity crisis, as they have been able to give PEPCO only 3,800 MW on average out of 5,800 MW of confirmed capacity. Most of the IPPs are running fuel stocks below the required minimum of 21 days.

While there are many economic successes of the Musharraf-Aziz administration in terms of reviving the Pakistani economy and putting it on a growth path again, the energy sector represents its biggest failure. This failure has the potential to threaten Pakistan's economic future, unless immediate steps are taken to bring this crisis under control over the next few years.

5 comments:

Riaz Haq said...

Here's a recent Daily Times report about Bhasha Dam in Pakistan:

ISLAMABAD: Deputy Chairman Planning Commission, Sardar Asef Ahmad Ali on Thursday said some changes had been made in Bhasha Dam project, particularly in its power component. In an exclusive interview with Daily Times he said the power component of Bhasha Dam would be run on Public Private Partnership basis so that burden on the government kitty might be reduced. In this regard he said that a ‘Company’ would be established, which would be converted into an international consortium. The consortium would be able to get equity as well as funds from the International Financial Institutions (IFI), Kuwait Funds and others.

Once the Company is established, he said that there would be no problems for funding, as it would be able to borrow from the market and repay the loan. “The government has assigned me to structure the Company,” the Deputy Chairman said and added that he would invite all power distribution companies including KESC to purchase its shares. The government and WAPDA might also purchase its share and later, expatriates would also be offered shares in it. In this manner, it would enjoy the status of an International Company. Its marketing plan would be carried out at world-class top companies and arrangements would be made to conduct internationals show for it. In this way, all requirements for making it an ‘Equity’ would be fulfilled, he added. All these measures have been carried out for the first time in Pakistan.

About PSDP (Public Sector Development Programme) he said that as a routine, the government releases 19 to 20 percent developmental funds in first quarter of the current fiscal year (July-September 2009). Reason for low allocation was the slow process of revenue generation through new measures adopted in the annual budget. PSDP releases for second quarter (Oct to Dec 2009) was already in progress. If the funds are released in time, he expressed hope that the government would be able to achieve its targets. At present, he said there was no indication by the ministry of finance regarding cut in PSDP 2009-10.

Currently the country’s revenue generation remained stagnant at 8.5 percent of the GDP, which he termed as lowest in the world. The government wanted to increase it to the level of 11 percent of the GDP. “Finance Minister Shaukat Tareen informed me that the government identified 2 million new taxpayers in the existing system and if it remains successful, then the PSDP will be remain as it is”, he maintained.

Riaz Haq said...

Here's a Gulf News story on Pakistan's plan to import power from neighbors:

Dubai: Talks with India and Iran on power exports are under way and likely to be settled soon, Pakistan's Minister for Water and Power Syed Naveed Qamar, told Gulf News.

Iran currently provides 72 megawatts to Pakistan which is likely to be increased to 1,100MW.

"It is our desire that the modalities, tariff and terms and conditions may be finalised at the earliest so that the project can be started soon."

He said the transmission line between Pakistan and India is around 100 kilometres compared with the Kyrgyz Republic and Tajikistan transmission lines which are around 1,000km.

"As we look into the future, the power demand is going to be robust coupled with the growth in the economy. The electricity trade with India is beneficial for both countries and it will open new avenues of economic ties," Qamar said.

Pakistan may import up to 500MW which may be supplied with the construction of small transmission lines from both sides.

Wind projects

He said that the major share of power production is through oil which is expensive, and therefore the government is considering running the power plants on coal. Special attention would be given to the power sector and in this regard more funds would be allocated for the power sector during the coming development budget.

The government has plans to produce 1,000MW of cheaper power from wind projects next year, Qamar said.

"Russia, Uzbekistan and Turkmenistan have also offered Pakistan to export their surplus power to Pakistan," A.U. Rahman, acting executive director of Central Asia, South Asia (CASA-1000) project, told Gulf News.

He said Russia is also keen to join the project.

Pakistan has an installed capacity of around 20,000MW, but the production capacity is around 16,000MW. Right now "the shortage of power is around 4,500MW," Rahman said.

He said the current load shedding will be "reduced gradually" with the new projects expected to come online soon.

In certain parts of the country current load shedding continues for more than 12 hours.


http://gulfnews.com/business/economy/pakistan-negotiates-for-indian-and-iranian-power-1.1025096

Riaz Haq said...

Here's a News story on oil leading Pak imports:

Pakistan has spent 43.5 percent (or $3.815 billion) more dollars during the July-April 2011-12 period on import of petroleum products as during the ten-month period the country imported petroleum products worth $12.58 billion against $8.76 billion in corresponding period last year, according to official data.



During the period petroleum imports were one-third of the country’s total imports of $37.04 billion. Petroleum group was followed by agricultural and other chemical group imports of $5.98 billion showing an increase of 16.77 percent over $5.12 billion last year.



Machinery imports also secured a sizable share in country’s total imports during the period under review and it stood at $4.567 billion against $4.41 billion last year, showing a rise of 3.5 percent.



Pakistan Bureau of Statistics (PBS) bulletin indicates that under the petroleum group, petroleum products import stood at $8.35 billion against $4.92 billion last year, showing an increase of 69.8 percent. Besides, crude petroleum import also showed an increase of 49.9 percent to $4.23 billion during these ten months from $3.85 billion in same period last year.



Under the agricultural and other chemical group, manufactured fertilizers import up by 116.5 percent to $1.082 billion, plastic materials by 1.88 percent to $1.28 billion, while imports of insecticides were down by 9.76 percent to $110.39 million and medicinal products reduced by 3.1 percent to $548.66 million over July-April 2010-11.



In the machinery group, textile machinery import declined by 15.11 percent to $339 million against $399.4 million same period last year. Telecom sector import was up by 22.85 percent to $1.05 billion; power generation machinery import increased by 1.3 percent to $877 million; electrical machinery and apparatus import increased by 0.07 percent to $675.3 million; agriculture machinery by 32.7 percent to $103 million; office machinery by 22.6 percent to $239.8 million; construction and mining machinery by 12.6 percent to $111 million over same period last year. During the period, Pakistan spent $568.75 million which was 29 percent more than last year imports of $441.05 million.



In the transport group, imports reduced by 7.26 percent to $1.67 billion from $1.8 billion last year. However, under the completely built units (CBU) during July-April 2011-12 imports of buses, trucks and other heavy vehicles imports increased by 91.3 percent to $122 million and motor cars 161 percent to $285.4 million.



While, under the completely knocked down/semi knocked down category, imports of buses, trucks and other heavy vehicles imports up by 27.1 percent to $120.47 million, motorcycles 27.1 percent to $74.92 million, however, motor cars imports down by 1.14 percent to $389.78 million over same period last year.



The food import declined by 1.73 percent to $4.23 billion from $4.31 billion in July-April 2010-11. In this group, on palm oil import economy spent $1.89 billion which is 18 more than last year. Tea imports up by 4.76 percent to $301.9 million, while pulses import down by 7 percent to $320.27 million and spices imports down by 5.16 percent to $86.57 million over same period of last year.



In textile group, total import was of $1.98 billion against $2.42 billion depicting 18.26 percent decline over corresponding period of last year.



Under this head, raw cotton imports down by 56.68 percent to $369.4 million, synthetic and artificial silk yarn by 6.36 percent to $434.6 million, while synthetic and artificial silk yarn has up by 13.3 percent to $503.87 million and worn clothing import up by 16 percent to 122.48 million over last year...


http://www.thenews.com.pk/Todays-News-3-109601-Pakistan-imports-petroleum-products-worth-$126bn

Riaz Haq said...

Here's an ET story on decline in circular debt:

The good news is that circular debt in the energy sector is going down. The bad news is that it is doing so for all the wrong reasons.

Circular debt has now become shorthand for the crippling string of financial liabilities that energy companies owe each other because the federal government fails to live up to its promise to pay out energy subsidies that it announces as vote pleasers. This debt has resulted in a massive cash shortage virtually all along the energy chain and significantly reduced the ability of power companies to operate at full capacity, which in turn causes massive power outages throughout the country, particularly during the summer months of peak demand.

But now at last, it appears that the government is paying out what it owes in subsidy payments. Azfar Naseem and Sateesh Balani, research analysts at Elixir Securities, an investment bank, estimate that total circular debt throughout the energy chain has not only stopped growing, but has shrunk by about Rs137 billion during the first six months of the fiscal year ending June 30, 2013.

Part of this reduction has come from higher subsidy payouts to the energy sector from the finance ministry, which rose to Rs160 billion between July 1 and December 20 of this year, about 5% higher than the net payouts throughout the whole previous fiscal year that ended June 30, 2012.

Another significant chunk came when the government effectively forced the state-owned Oil & Gas Development Company (the largest company in Pakistan by market capitalisation) to buy about Rs82 billion in government bonds meant to clear out the outstanding liabilities. The bonds do not mean that the government has paid out its liability: they just mean that they forced OGDC to pay the rest of the energy chain and promised to pay OGDC back.
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The government was given this fiscal breathing room by the inflow from the United States in the form of $1.1 billion in outstanding dues on account of the Coalition Support Fund. That entire amount, by some accounts coming out of the finance ministry, was spent on power subsidies. Yet the government may well be running out of accounting tricks to patch up the power sector before the elections.

The reason the government has tried to juggle around its scarce cash reserves is because it wants to make sure that the power companies have enough cash to buy the fuel they need to keep the lights on in the country, at least most of the time, in the run-up to the elections, expected around May 2013.

These techniques appear to be having at least some positive impact: the outstanding receivables at Pakistan State Oil, the largest oil retailer in the country, are down by almost 40% to around Rs120 billion. Receivables at Hub Power Company and Kot Addu Power Company (which supplies politically important regions of southern Punjab) are also down substantially....


http://tribune.com.pk/story/485765/energy-crisis-circular-debt-is-going-down-but-not-for-the-right-reasons/

Riaz Haq said...



Pakistan’s prime minister ordered emergency measures to increase petrol supplies, as the deepening fuel crisis in the south Asian country threatened to further undermine confidence in Nawaz Sharif’s government.
Motorists lined up to fill their tanks outside petrol stations across Pakistan amid fears that existing stocks would run out.

“We have moved back to the stone age,” said Ikram Khan, an Islamabad taxi driver as he waited to buy fuel behind as many as 30 cars. “Soon, we will need to build stables for horses, because that will be the only means of transport left in our country,” he joked.
Critics said the fuel crisis further tarnished Mr Sharif’s already weak credentials, amid mounting criticism of the failure of his government to tackle the worsening security conditions caused by Taliban-related militant attacks.
“While smart countries are stocking up on fuel as global oil prices fall, Pakistan failed to anticipate the coming demand,” a senior government official said. “It is a mess.”
Hafeez Pasha, a respected economist and former government minister, said the fuel crisis illustrated how the government had “lost its writ”. “Their inability to rule has been badly exposed . . . this government must be asked to go. This can’t go on,” he said.
According to officials, the crisis began earlier this month when banks refused to extend further credit to Pakistan State Oil, the state-owned fuel importer, to pay for imports beyond its existing credit of Rs200bn ($2bn).
PSO has also failed to collect money it was meant to receive from privately run electricity generation companies, who in turn are owed large payments by government-owned power distribution companies. One economist said this could amount to a further Rs50bn.
However, a senior finance ministry official said the failure to build up fuel stocks was due to the ministry seeking to maintain tight control of expenditure on oil imports to keep within spending limits agreed with the International Monetary Fund under a loan programme. “This problem has mainly been driven by fiscal issues” he said.
Pakistan’s worsening security environment was illustrated by a vicious Taliban attack on a school in Peshawar last month.
In the wake of the attack, the Pakistan army, led by General Raheel Sharif, has taken charge of security policies, pressing politicians to amend the constitution and creating courts presided over by military officers to try terrorism-related suspects.

http://www.ft.com/intl/cms/s/0/ff90ab2e-9ef7-11e4-a849-00144feab7de.html#axzz3PEs9yS4e