Saturday, April 21, 2012

Affordable Fuel Shortage Hurts Power Sector in South Asia

Lack of affordable fuel has forced many power producers in Pakistan to operate at a fraction of their installed capacity since 2008. It has led to widespread load-shedding in the country, seriously hurting its economy. Similar situation now appears to be developing in India as well, although it's not quite as serious as Pakistan's current crisis yet. Current costs of various fuel options vary from $4 per mmBTU for coal to $20 per mmBTU for oil. Recently, the US prices of natural gas have dropped dramatically from $12 per mmBTU a few years ago to less than $2 per mmBTU, about half the price of coal, with the shale gas revolution currently sweeping the United States.

India burns coal to produce 55 percent of its electricity needs. Domestic coal production has increased just 1 percent last year while 11 percent additional power generation capacity has been installed. Some power producers have been importing coal, but that option has become more untenable recently because India’s biggest supplier, Indonesia, has doubled coal prices, according to a report in New York Times.
The gap between demand and supply in India has increased to 10.2 percent last month, from 7.7 percent a year earlier. In some states like Andhra Pradesh and Tamil Nadu, power cuts have become so common that many factories report getting more electricity from diesel generators than they do from the power grid, at much higher cost. Retail rates for electricity are lower than the cost of producing and delivering it and the difference is made up by Indian state government subsidies running into hundreds of billions of rupees annually.

Unlike India which uses coal, Pakistan relies heavily on natural gas for the bulk of electricity production and other energy needs. Demand for natural gas now exceeds 4.5 billion cubic feet per day or 1.6 trillion cubic feet per year, with a shortfall of nearly 300 million cubic feet per day. According to BMI, gas accounted for 47.5% of Pakistan's primary energy demand (PED) in 2007, followed by oil at 30.7%, hydro-electric energy at 12.9% and coal with a 7.9% share.

The main option Pakistan is pursuing now is Iran-Pakistan pipeline to import gas and reduce the growing gap between supply and demand. However, this option faces serious obstacles with tightening US and international sanctions aimed at isolating Iran because of concerns about Iran's nuclear ambitions. At the same time, Pakistan is also negotiating for LNG imports from Algeria. The wholesale prices of these options are 3 to 4 times more expensive than the the retail rate of $3 to $5 per mmBTU for domestic gas being produced in Pakistan.

 In addition to gas imports, Pakistan has other options to meet its energy needs. Some of these are as follows:

1. Developing its shale gas reserves estimated 51 trillion cubic feet near Karachi in southern Sindh province. The US experience has shown that investment in shale gas can increase production quite rapidly and prices brought down from about $12 per mmBTU in 2008 to under $2 per mmBTU recently. Pursuing this option requires US technical expertise and significant foreign investment on an accelerated schedule.

2. Increasing production of gas from nearly 30 trillion cubic feet of remaining conventional gas reserves. This, too, requires significant investment on an accelerated schedule.

3. Converting some of the idle power generation capacity  from oil and gas to imported coal to make electricity more available and affordable.

4. Utilizing Pakistan's vast coal reserves in Sindh's Thar desert. The problem here is that the World Bank, Asian Development Bank and other international financial institutions (IFIs) are not lending for coal development because of environmental concerns.And the Chinese who were showing interest in the project have since pulled out.

5. Hydroelectric and other renewables including wind and solar. Several of these projects are funded and underway but it'll take a while to bring them online to make a difference.

In my view, Pakistan should pursue all of the above options with options 1, 2 and 3 as a priority for now. Pakistan's best interest is not in defying Saudis and Americans to buy expensive Iranian gas and end up with crippling sanctions which could be much worse than its current energy crisis. Its best interests will be served by developing its own cheap domestic shale gas on an accelerated schedule with Saudi investment and US tech know-how. If the Americans and the Saudis refuse to help, then Pakistan will have a stronger case to go with the Iran gas option.

Related Links:

Haq's Musings

Pakistan Needs Shale Gas Revolution

US Census Bureau's International Stats 

Pakistan's Vast Shale Gas Reserves

US AID Overview of Pakistan's Power Sector

US Can Help Pakistan Overcome Energy Crisis

Abundant and Cheap Coal Electricity

US Dept of Energy Report on Shale Gas

Pakistan's Twin Energy Crises

Pakistan's Electricity Crisis

Pakistan's Gas Pipeline and Distribution Network

Pakistan's Energy Statistics

US Department of Energy Data

Electrification Rates By Country

CO2 Emissions, Birth, Death Rates By Country

China Signs Power Plant Deals in Pakistan

Pakistan Pursues Hydroelectric Projects

Pakistan Energy Industry Overview

Water Scarcity in Pakistan

Energy from Thorium

Comparing US and Pakistani Tax Evasion

Zardari Corruption Probe

Pakistan's Oil and Gas Report 2010

Circular Electricity Debt Problem

International CNG Vehicles Association

Rare Earths at Reko Diq?

Lessons From IPP Experience in Pakistan

Correlation Between Human Development and Energy Consumption

BMI Energy Forecast Pakistan


Anonymous said...

riaz jee please stop clubbing India with Pakistan all the time.

India's power prolems are due to temporary coal shortages.This will be resolved soon as EXISTING OPERATIONAL mines can increase production fairly easily.This is because demand for power and the setting up of plants has happened earlier than normally expected in India.

Pakistan's gas shortage requires MASSIVE $$$ with long payback a risk which few investors are likely to bear.

Riaz Haq said...

Anon: "India's power prolems are due to temporary coal shortages."

Oh really?

How about the following opening paragraphs of NY Times recent story:

"India has long struggled to provide enough electricity to light its homes and power its industry around the clock. In recent years, the government and private sector sought to change that by building scores of new power plants.

But that campaign is now running into difficulties because the country cannot get enough fuel — principally coal — to run the plants. Clumsy policies, poor management and environmental concerns have hampered the country’s efforts to dig up fuel fast enough to keep up with its growing need for power.

A complex system of subsidies and price controls has limited investment, particularly in resources like coal and natural gas. It has also created anomalies, like retail electricity prices that are lower than the cost of producing power, which lead to big losses at state-owned utilities. An unsettled debate about how much of its forests India should turn over to mining has also limited coal production.

The power sector’s problems have substantially contributed to a second year of slowing economic growth in India, to an estimated 7 percent this year, from nearly 10 percent in 2010. Businesses report that more frequent blackouts have forced them to lower production and spend significantly more on diesel fuel to run backup generators.

There may be a difference of degrees, but how is it fundamentally different from Pakistan's problems?

As to the "MASSIVE $$$" investment in gas, do you know that Pakistan has been making huge investments in producing, transmitting & distributing gas, expanding it from 800 billion cubic feet a year in year 2001 to 1.5 trillion cubic feet now.

Iris Parikh MBA said...

I don't think foreign companies are lining up to invest in Energy in Pakistan. Currently, there are many lucrative and safer options other than Pakistan.
ExxonMobil entered in agreement with a Russian firm to share a potential 550 billion oil and gas extraction deal in Siberia. Total, Royal Dutch Shell and BP have signed multi-billion dollar contracts in East African countries (Kenya and Uganda).
Also, investment climate in Pakistan has been historically poor compared to other nations due to unpredictable long term issues of security, economic woes and unstable governments.
There is also a sense of dismay among many fortune 500 companies to invest in Pakistan due to shareholder diapproval (Warren Buffet) and lack of willingness of employees to locate there.

Pradeep said...

India's electric production stood 950 billion kwh whereas Pakistan at 93 billion.
Once the Coal shortfall is resolved (privatization of certain fields) the currently hampered production will escalate to 10-15% per annum growth in the near future. Australian companies and Reliance have announced partnership in this regard.

Riaz Haq said...

Parekh: "I don't think foreign companies are lining up to invest in Energy in Pakistan."

You are repeating frivolous claims that I have already rebutted.

Talking about foreign investor interest in mineral resources, do you know about Reko Diq? Have you heard about foreign investors keen on investing but turned down by the govt?

Parekh: "There is also a sense of dismay among many fortune 500 companies to invest in Pakistan"

Do you know that more half of global 500 companies have operations in Pakistan and many more are entering or expanding?

Do you realize that Pakistan has attracted slightly more FDI as percent of its GDP than India has over the last decade?

Riaz Haq said...

Pradeep: "India's electric production stood 950 billion kwh whereas Pakistan at 93 billion."

Instead of picking just one kind of energy, let's look at total energy consumption.

Pakistan consumes 2500 trillion BTUs a year while India consumes 19000 trillion BTUs per year.

All of the development and infrastructure supplying 1.3 TCF gas has been accomplished by Pakistanis....very few other developing countries have anything comparable.

India is way behind Pakistan in terms of its gas pipeline network, with Pakistan’s network stretching around 56,400 km against its 10,500 km, connecting only 20 cities compared to Pakistan’s 1,050, industry body Assocham said.

Pakistan’s pipeline density, at present is 1044 km/mmscmd (million metric standard cubic meter per day) per day compared to 116 km/mmscmd of India, Assocham said in its paper on gas sector "A Comparison between India and Pakistan".

And Pak national grid capable of generating and distributing 23,000 MW of electricity is no joke either. Do you know that a lot of countries, including India, don't even have a national grid?

While India currently does not have a unified national power grid, the country plans to link the India's state electricity boards (SEB) grids eventually, and has set up a state company, Powergrid, to oversee the unification. India also plans to establish national and state level regulatory bodies to set tariffs and promote competition.

Pradeep: "Australian companies and Reliance have announced partnership in this regard."

NY Times has a different take on it.

“There is a huge crisis looming,” said Chandan Roy, a retired executive at a state-run electricity producer, the National Thermal Power Corporation. He added that potential solutions were well known but political leaders were reluctant to carry them out because it would mean raising prices for electricity and fossil fuels.

Mr. Balashowry, a former member of Parliament for the governing Congress Party, has already bought 1,150 acres of wooded and pasture land, including 850 acres from the state of Andhra Pradesh, and has secured environmental approval for his plant. But no bank will give him money to build it until Coal India agrees to give him fuel.

“We have resources in India, but they aren’t able to do the proper thing,” he said, referring to government officials, during a recent interview in New Delhi.

Other companies are also stuck. Reliance Power, controlled by the investor Anil Ambani, says it has stopped construction on a large electricity plant nearby because it can no longer afford to buy coal from Indonesia as planned.

Riaz Haq said...

World Bank agrees to assist with financing for Dassu Dam, to be built in Kohistan area on River Indus with 1500MW power generation capacity, reports Daily Times:

WASHINGTON: The World Bank (WB) has allocated an unprecedented amount of $1.8 billion for Pakistan’s development projects, mainly in energy sector, in the current year, Finance Minister Dr Abdul Hafeez Shaikh said after holding a meeting with World Bank Vice President Isabel Guerrero on Friday.

Pakistan’s ambassador to the United States Sherry Rehman also attended the meeting during the IMF-WB annual spring gathering of economic leaders from across the world.

The WB has also agreed to assist with financing for a multi-year Dassu Dam, to be built in Kohistan area on River Indus with a 1500MW power generation capacity. The WB Board has already approved power generation enhancement project.

“This is a big sign of confidence in Pakistan’s ability to accomplish development for its people that the World Bank is allocating an unprecedented amount in one year,” Shaikh said.

The amount follows last year’s $1.2 billion assistance, and will be spent on completion of development projects in energy and water sectors as well as infrastructure, social and reform programmes.

The WB vice president was appreciative of Pakistan’s economic performance in these difficult times of global economic and regional challenges, the finance minister said.

Shaikh acknowledged the bank’s sustained cooperation with Pakistan, calling the financial institution a reliable development partner of the country.

The World Bank leader expressed satisfaction with the measures Islamabad has taken to enhance its revenue generation (which has increased by 25 percent over the last nine months), the continuing strong performance of the external sector, both exports and remittances and a healthy 4 percent GDP growth expected this year....\04\21\story_21-4-2012_pg7_2

Ashraf said...

It's a circular problem started off by the neo-liberal way the IPPs were set up. [And one is tempted to say that "circular debt" is the cause of a circular something else...but that would be inappropriate, I guess.

Riaz Haq said...

Ashraf: It's a circular problem started off by the neo-liberal way the IPPs were set up..."

Even the circular debt mounted at least partly because the oil price soared in 2008 and most IPPs used oil. So they switched to gas and the gas became scarce. What Pakistan needs is an overall energy policy, not piecemeal solutions. It should focus on increasing domestic supply of affordable fuels (like coal & gas) as well as renewables.

Riyaz Khan, ICICI said...

The Pew Charitable Trust in it's April 12, 2012 report said that India's clean energy sector continued to flourish in 2011 thanks to proactive government policies. Private investment increased 54% to $10.2 billion placing the country at number 6 spot among the G20 nations.

On a number of measures, India has been one of the top performing clean energy economies in the 21st century registering the fifth highest five year rate of investment growth and eight highest in installed renewable energy capacity or 22.4 gigawatts, said Director Phyllis Cuttino.

Well there is some good news coming out of South Asia as well.

Riaz Haq said...

Riyaz Khan: "Well there is some good news coming out of South Asia as well."

Yes, there's good news from South Asia on the renewable front, although it'll be a while before renewables can be sub for conventional. Here's an Express Trib report from Pakistan:

The first wind power generation project in Pakistan has recently been recognised by Project Finance Magazine. The financial magazine, in circulation for the last twenty years, is widely read by financiers, advisers, management consultants, stakeholders managing and developing projects globally and senior government officials.

Turkish-based Zorlu Group showed interest to set up the first wind farm in Pakistan. To turn this into a reality, the company decided to open a subsidiary in Pakistan called Zorlu Energy.

The Alternative Energy Development Board (AEDB) played a crucial role in helping Zorlu Energy to initiate this project.

The Alternative Energy Development was founded by the government in 2003. The purpose of AEDB was to reduce Pakistan’s dependence on hydro and fossil fuel based power generation by identifying alternative energy resources like wind, solar, biogas and micro based run of the river projects. The other major task of AEDB was to help foreign firms invest in this sector.

AEDB had earlier identified that Pakistan has the wind power potential to generate 50,000MW from this free and clean source of energy. Unfortunately, there was no bankable wind data, the data available with the Met department was not at the required turbine hub height and the banks or the investors were not comfortable by these claims alone. AEDB came up with a novel idea of providing ‘wind risk’ data to the investors, making Pakistan the first country to provide such data.

Zorlu Energy was the first company to move ahead with guarantees and assistance from AEDB in setting up the first wind turbine in Jhimpir area of Sindh. Zorlu Energy is investing $136 million in this pioneer wind farm project.

The Istanbul-based company borrowed $38.1 million from the World Bank’s International Finance Corp., $36.8 million from the Asian Development Bank, $20 million from the Eco Trade & Development Bank and $16.2 million from Habib Bank Ltd. (HBL) of Pakistan for the project.

Other investors like Fauji Fertilizer Company, China International Water & Electric Corporation have also keenly followed the progress of this project and have initiated projects in this lucrative new and clean energy generation sector.

In recognition of its wind power project in Pakistan, Zorlu Energy Pakistan has received the “Middle East Renewable Deal of the Year” for 2011 by Project Finance Magazine.

Attaining this prestigious award by Zorlu Energy demonstrates the ease and security of investing in the renewable energy sector in Pakistan.

The government has been late in identifying the potential of free, clean and renewable power sources in the country. In October 2011, the National Electric Power Regulatory Authority approved an Rs12.61 per KWh feed-in tariff for foreign financed wind power projects. This tariff has been approved to encourage foreign financiers to invest in this lucrative energy sector in Pakistan.

AEDB is expecting to achieve a target of harnessing renewable energy sources to produce 400MW by the end of this year. The target will be a record in itself as no country has been able to harness 400MW within six years of its first plant.

Riaz Haq said...

Here's a Businessweek report on rising PSO profits on the back of oil price hikes:

Pakistan State Oil Co. (PSO), the nation’s biggest fuel retailer, said third-quarter profit doubled after gains in furnace oil prices.

Net income rose to 4.4 billion rupees ($48.4 million), or 25.60 rupees a share, in the three months ended March 31, from 2.1 billion rupees, or 12.40 rupees, a year earlier, the Karachi-based company said in a statement to the Karachi Stock Exchange today. Sales rose 22 percent to 286.6 billion rupees.

“The price of furnace oil rose 26 percent compared to the same quarter last year,” Sana Abdullah, a research analyst for IGI Finex Securities Ltd., who has a buy recommendation on the stock, said before the earnings announcement. “The margins on high-speed diesel and petrol also increased.”

Furnace oil accounts for 56 percent of the company’s gross profit, while high-speed diesel and gasoline contribute 30 percent and 13 percent, respectively, Abdullah said.

Pakistan State Oil shares rose 2.4 percent, the most since Feb. 7, to 252.75 rupees at the close on the Karachi Stock Exchange. The stock has gained 11 percent this year.

The company plans to pay a midyear cash dividend of 3 rupees a share, according to the statement.

Riaz Haq said...

Here's PennEnergy on Pakistan's plans to add more nuclear energy to the national grid:

The Press Trust of India reports that Pakistan plans to construct four new nuclear power reactors over the course of the next five years. The first set of nuclear power plants will each boast a capacity of 1,000 megawatts, while the latter two will generate 325 MW, for a combined added capacity of 2,700 megawatts.

Ultimately, the country intends to increase nuclear power generation to 8,800 megawatts by 2030.The new reactors will be added on to the existing Chashma nuclear power complex near the southern coastal city of Karachi, which currently operates two reactors with a combined capacity of 650 megawatts.

"Our objective is to increase the nuclear electricity share in the current electricity mix up to 6 percent from the existing 2 percent," said one official from the Pakistan Atomic Energy Commission, according to The News.

Riaz Haq said...

Report in Foreign Policy Mag suggests TAPI gas will be cheaper than IP gas from Iran:

The World Bank on Saturday pledged $1.8 billion to development projects in Pakistan this year, with the majority of the funds allocated to the country's ailing energy sector (Dawn, ET). Pakistan, India, and Afghanistan on Friday agreed to a transit fee for gas obtained from Turkmenistan through the proposed TAPI pipeline, a key step toward actualizing the much-needed pipeline (DT, ET, The News). Pakistani Minister for Petroleum and Natural Gas Dr. Asim Hussain said Friday that the TAPI pipeline "would be cheap as compared to the Iran-Pakistan (IP) [pipeline]," over which the United States has threatened Pakistan with sanctions.

Pakistan may also look to import electricity from historical rival India, if a proposal supported by the Ministry of Water and Power is approved by the federal cabinet (ET). Setting aside political issues such as the conflict over Kashmir, India and Pakistan hope to normalize ties by promoting bilateral trade, exemplified by the recent opening of a trade post at the border town of Wagah, and the reduction in the number of products from India that Pakistan had barred (AP).

Riaz Haq said...

Here's Economic Times report on $10 per mmBTU TAPI gas price for India:

Natural gas from Turkmenistan would be delivered to India at an estimated price of about $10 per unit, including $3 as transportation charges and transit fee, in the proposed 1,680-km pipeline via Afghanistan and Pakistan, three persons with direct knowledge of the matter said.

Gas would be purchased at about $7 per unit at Turkmenistan but its cost would rise as it transits across two countries before reaching the Punjab border. It would be cheaper than some long-term LNG contracts, government and industry officials said. Gas-starved India pays a spot price of about $16 a unit for liquefied natural gas. Petronet LNG has recently contracted LNG import from Australia's Gorgon project at $15.8 per unit while Gail's 20-year contract with US' Sabine Pass works out to be around $10 per unit.

Anonymous said...

Chasma reactor is in Punjab not Karachi. Press Trust of India are not even competent enough to get their basics correctly.

Riaz Haq said...

Russia has reportedly backed out of funding IP pipeline, reports Express Tribune:

KARACHI: The government is working on an alternative plan to finance the $1.5 billion Iran-Pakistan (IP) gas pipeline as hopes for funding from Russia fade in the face of mounting pressure from the US to stop the project, says a senior government official.

Earlier, a Chinese bank backed out of financing the vital gas supply project which may ease most of the energy shortage in the country.

“In the alternative plan, the government is studying a joint investment formula, according to which the engineering, procurement and construction (EPC) contractors will be invited to provide some funds for the pipeline,” the official said.

In talks held between Pakistani and Russian officials in the first week of April in Moscow, Pakistan asked Russia to either extend a loan or provide finished products and other material relating to the pipeline. Russia agreed to respond to the proposal in two weeks, but no response has been received so far.

After the return of the delegation from Moscow, the government officials had, however, announced that Russia had agreed in principle to give financial and technical assistance for the pipeline.

“A reminder has been sent to Russia in this regard and it is to reply by April 30,” the official said. Petroleum Secretary Ijaz Chaudhry also confirmed that Russia had not yet responded to the proposal.

Pakistan approached Russia after a Chinese bank hinted at its inability to push ahead with financing the project amid increasing US pressure. Russia offered to finance the entire pipeline during a four-day visit of Foreign Minister Hina Rabbani Khar to Moscow in February.

Moscow linked the proposal with the award of contract to its energy giant, Gazprom, without bidding. However, to give its consent the government will have to waive Public Procurement Regulatory Authority (PPRA) rules, designed to ensure transparency in government dealings.

“Funds will be generated through infrastructure gas development cess and EPC contractor will also be asked to extend some financing,” the official said, adding the government would make it part of the tender for EPC contract....

Riaz Haq said...

Here's ET report on revenue & profits at PPL:

Pakistan Petroleum profits rose 33% to Rs32.27 billion in the period from July 2011 to March 2012 amid better performance across the board.

The growth arises from increasing price and volumes coupled with contribution from higher other operating income, said analysts. Higher Arab Light oil prices made the explorer’s assets more valuable and increased margins, added analysts.

Net sales expanded by 23% to Rs71.51 billion in the first nine months of fiscal 2012 backed by higher realised prices and increasing volumes.

Gas production has remained flat while oil production went up by 20% on a yearly basis on the back of 85% and 36% higher production from Nashpa and Adhi, respectively, during the third quarter.

In addition to higher oil production, realised price for gas has shot up by an estimated 22%, while oil is believed to have risen by 16% on a yearly basis.

Furthermore, the company’s other income grew by 66% to stand at Rs5.2 million as against Rs3.1 million in the same period last year. This is due to growing cash balances as the company has booked higher interest income on bank placements and T-bills investment

In the third quarter alone, profits swelled 57% posted an earnings per share of Rs9.25 from Rs5.8 in the same quarter last year.

In line with its payout history, PPL did not announce any cash dividends alongside its third quarter result.

The country’s second largest oil and gas explorer’s stock value rose Rs1.69 to close at Rs197.20 during trade at the Karachi Stock Exchange.

Riaz Haq said...

Here's a Businessweek report on Faisalabad textile industry troubles:

Chaudhary Maqsood Elahi, a Pakistani exporter of knitted garments, spent two years trying to save his factory in the textile hub of Faisalabad. He sold his house, cut down on staff and switched to air shipments to meet orders on time. It didn’t work.

About six months ago, Elahi, whose Dilkhush Hosiery Mills Ltd. produced t-shirts for European mega-retailers Carrefour SA and Metro AG, shut down his 15-year old factory after booking losses for two straight years. He fired 550 workers, tore down his plant and divided the land into plots that he put up for sale to help repay loans, Bloomberg Businessweek reports in its April 30 issue.

“I kept running the factory despite losses in the hope of finding a way out but the financial burden kept growing,” said Elahi, 56.

Pakistan has one of the largest textile industries in the world, shipping 1.3 trillion rupees ($13.8 billion) worth of textiles in the year ended June 30 mostly to the U.S. and Europe. Textiles account for 63 percent of Pakistan’s exports and mills employ 20 percent of the nation’s workforce. Faisalabad, which generates the most tax revenue after Karachi, accounts for half of all textiles shipped from Pakistan.

The Pakistani textile industry has had a golden opportunity to capture markets lost by Chinese producers because of rising wage pressures in China and the appreciation of the yuan. But according to the Pakistan central bank’s annual economic report for the year ended June 30, 2011, the local industry hasn’t been able to seize the advantage.
Bangladesh, Cambodia

Instead, Bangladesh and Cambodia have increased sales of apparel as Pakistani manufacturers struggle with energy shortages, the report says.

Power blackouts last as long as 20 hours at a stretch in Faisalabad, while shortages of natural gas, which power the looms, can go on for six days at a time. Demand for natural gas exceeds supply by as much as 15 percent in the city.

Half the city’s 250,000 power looms have gone out of business in the past 12 months, 10 percent of the spinning mills and fabric printing units have shut down and half of the remaining plants are struggling to survive, says Muzammil Sultan, president of the Faisalabad Chamber of Commerce and Industry. At least 200,000 workers have lost their jobs since last year. “We’re shipping only half the quantity we used to from this city,” Sultan says.
Cotton Belt

Faisalabad, a city of 5 million people surrounded by Pakistan’s biggest cotton belt, was once known for attracting workers from across the Punjab province to run its weaving mills, spinning units and garment factories.

Now, as the textile business faces its biggest ever crisis, workers have begun leaving the city for the first time. “I’ve already moved my family back to Peshawar and if I can’t make this new tire repair business work, I will also move and try to find some other work,” says Sher Shah Khattak, who came to Faisalabad 35 years ago to work in the textile trade and lost his job as a loom operator last year.

In March, thousands of textile workers came out on the streets of the city, burned tires and shouted slogans against the government. “The change in the city is visible with just 10 percent of factories closed, and we see rioting by workers because of the growing frustration,” says Sheikh Abdul Qayyum, managing partner of Em Que Fabrics in Faisalabad. “We can’t imagine what would happen if half of all mills stop working.”..

Anonymous said...

and in other news Indian exports crossed $300 billion in FY12 a 25% growth despite economic problems in US and EU its main export markets.

where there's a will there's a way!

Riaz Haq said...

Here's an ET report on falling Lotte profits because of oversupply, lower demand and lower prices of polyester:


After making more than Rs2 billion in the same quarter last year, Lotte Pakistan PTA profits nosedived 93% to Rs151 million amid falling prices of its primary product during January to March 2012.

The massive decline was on account of reduced primary margins amid oversupply of the product emerging in the Asian PTA (purified terephthalic acid) industry.

PTA is widely used in making polyester fibres along with food and beverage containers. Polyester fibres are used to make fabrics for apparel and home furnishings such as bed sheets and curtains. It is also spun together with natural fibres such as cotton to produce a cloth with improved properties such as wrinkle resistance.

Demand from the PSF sector has shifted towards cotton amid bumper crop and lower prices.

The result is still better than market expectation as analysts expected the company to post a loss. The stock value increased by Rs0.16 to Rs8.79 at the Karachi Stock Exchange on Tuesday.

PTA prices fell 18% to average $1,190 per ton in the review period compared with US$1,457 per ton in the same quarter last year.

Overall gross margins dipped to 2% compared with 24% in the same quarter last year.

Reduced earnings also attributed to 52% decline in interest income to Rs130 million against Rs272 million in the period under review. The company’s cash balance has declined due to capital expenditure associated with its power project.

Riaz Haq said...

Here's a News report on Lotte's captive power plant, an example of companies going off-grid:

Lotte Pakistan PTA is working on a power generation project which will be commissioned by May-June 2012 and will help to (indirectly) provide 35-40 megawatts (MW) to the people of Karachi, said Lotte Pakistan PTA Chief Executive Officer Asif Saad.

Speaking exclusively with The News, he said that Lotte Pakistan PTA is currently the largest customer of Karachi Electric Supply Company (KESC) and consumes approximately 40 MW of electricity. “Now that we will have our own power generation plant, we will not be consuming KESC’s power supply, and all that additional power will be diverted and given to Karachi city,” he said.

Saad further said, “If KESC wants, we can supply electricity to them as a captive power plant. But apparently, KESC is not inclined to buying from captive power plants at the moment”.

Saad further said that besides their existing petrochemicals business, they are also looking for opportunities in different business sectors for their parent firm, the Lotte Group.

“Two years ago we had acquired the food company Kolson. We [Lotte Pakistan PTA] are not managing it, but it’s under our Lotte Group. So in this same context we are looking at many other opportunities, particularly in the food industry, retail and real estate,” he said.

Referring to the contribution the firm has made to the local economy, Saad said that other than the hefty foreign investment that entered the country, the company had provided technology, skills, training and knowledge to the local labour.

Furthermore, he said that his firm’s plant had been built with the objective of being an import substitute. “If this plant wasn’t here and this product was being imported, Pakistan would have been spending around $100-200 million worth of foreign exchange every year to get this raw material.”

“We also import our raw materials, but we do value addition to it locally,” he said, adding, “If we look at about 14 years of production, we have saved Pakistan over $1.5-2 billion in foreign exchange”.Saad also said that they had invested heavily to ensure that their employees work in a risk-free environment and the company’s operations are environmentally-friendly too. “We invested $44 million in our effluent treatment plant,” he said.

Saad said that his firm has also paid almost Rs5.5 billion in income tax alone over the past three years. This is not counting all the other taxes the company has to pay in running the plant.

Moreover, he stated that Lotte Pakistan PTA reinvests most of its profits back into the business than giving dividends to shareholders. “This shows the commitment of our parent company in maintaining their investments in Pakistan,” he said.

However, in the same breath, Saad goes on to say that despite the strong commitment, their production remained at 500,000 tons. “When we started off this firm under ICI, our production capacity had been equal to those plants in India, China, and USA etcetera. But today, we remain at the same level while the other nations have moved to 1.5 million tons; and this is just one plant. They are putting up multiple plants in one site,” he said.

“Even now we are thinking of expanding, and our investment will be around $500 million,” he shared, “but it’s going to be a risky venture as we are not sure whether the demand for our products will increase or not”....

Riaz Haq said...

Here's a Nation report on WB loan for education & energy sectors in Pak:

The World Bank’s Board of Directors approved two projects totaling $550 million aimed at supporting Pakistan’s effort to strengthen the education and natural gas sectors, which are critical to Pakistan’s growth and development.

The $350 million Second Punjab Education Sector Project would support the Government of Punjab’s education sector reform program designed to increase child school participation and student achievement.

The $200 million Natural Gas Efficiency Project aims to enhance the supply of natural gas in Pakistan by reducing the physical and commercial losses in the gas pipeline system.

Significant shortfalls persist in both school participation and student achievement in Punjab. To address these challenges, the Government of Punjab is implementing the Punjab Education Sector Reform Program (PESRP), which aims to improve schooling outcomes through institutional development and strengthening, improved monitoring, and enhanced governance and accountability. The Bank has supported this program since 2008. During this time, the reform over 850,000 additional students - more than half of them girls – are now enrolled in low cost private schools supported under government subsidies tied to minimum school quality standards; some 400,000 female students receive quarterly stipends tied to school attendance; and free textbooks are provided to all students in public schools. The new results-based project will build on these achievements and support the second phase of the reform program over the period 2012-2015.

Rachid Benmessaoud, World Bank Country Director for Pakistan said that with a target school-aged population of over 12 million children, 30 percent of who remain out of school and with relatively low levels of learning, continuation of our support to the government’s reform program is critical. He said that the second phase of the program aims to take the next evolutionary step and zero in on improving service delivery performance at the school level. A key focus will be improving teacher quality and performance, which is critical for better school quality, and, thereby helping retain students in school and attract new children to school.

The challenges in the gas sector are also significant. Pakistan faces severe scarcity of gas, with production failing to keep pace with demand. Other critical challenges include inadequate allocation of gas, inefficient end-use of gas, and high levels of unaccounted-for gas (UFG). More than 10 percent of gas supplied in Pakistan is unaccounted for, which is unaffordable and a major contributor to the current gas supply crisis. UFG is typically at 1-2 percent in OECD countries.

The main focus of the Natural Gas Efficiency Project is to reduce UFG to about 5 percent by 2017 in distribution areas served by the Sui Southern Gas Company Limited (SSGC). This includes Karachi, interior Sindh, and Balochistan.

Bjorn Hamso, World Bank Senior Energy Economist and project team leader said that Results will be achieved through pipeline rehabilitation, use of cathodic protection to halt corrosion, and installation of automatic pressure management systems and advanced consumer metering systems. He further said that Key to the project’s success is to install hundreds of wholesale meters in the distribution network in such way that network activity can be monitored on a localized level and investments can be put to use where the leakage problem is the largest and the theft problem the most severe.

Riaz Haq said...

Here are excerpts of a Khaleej Times report on Pakistan courting investments at Dubai conference:

...“Keeping in view global food security concerns, the province vast agriculture expanse has capacity to become region’s food basket,” he said.

Shah said agro-related investment projects are ready for investment and introduction to value-addition through use of technology, efficient irrigation system and modern implements can help attain true potential of province agriculture. The Sindh Board of Investment, the primary investment promotion agency of the province, invited Gulf investors and UAE companies in particular to avail the benefits of conducive-investment policies.

“We are offering investment opportunities in agriculture farming, livestock, grain-storage project as well as in infrastructure development projects,” Muhammed Zubair Motiwala, chairman of the Sindh Board of Investment, told Khaleej Times.

Elaborating, he said the government of Sindh is looking to offer land for establishment of Halal Meat Park in Sukkur and Thatta near Karachi. He said the Rs500 million project will pay back the cost in three to five years and offers a 20-22 per cent IRR to investors.

Motiwala said the provincial government has strived to facilitate and create investor-friendly environment to attract more investment especially in Thar Coalfield, which is declared as a special economic zone. Investors can avail 30-year tax holiday, zero per cent customs duties on import of coal mining equipment and machinery. “We are offering up to 22 per cent IRR to investors on the their investment in Sindh along with other benefits which include repatriation of 100 per cent capital, profits, royalty and zero import duties on capital goods, plant and machinery and equipment not manufactured locally,” he said.

He said that the province has also an estimated hydropower potential of 153 megawatts based on various sites identified along the Sindh canal network.

He said the UAE has showed interest in Thar coal mining and power plant projects. “Al Manhal has shown interest in developing block 2 of the Thar Coalfield. We may discuss the project this weekend and if talks go positively, the UAE firm may invest up to $6 billion in the Thar coal project,” he said.

Motiwala said Thar coal reserves have an estimated potential of generating 100,000 megawatts of electricity for a period of 300 years. “It provides an opportunity for large-scale mining and power-generation over a longer period of time,” he said.

He said Pakistan has been facing an acute shortage of electricity and direly need investments in power-generation projects. According to a delegate, about 700 main industries in Punjab and Sindh are directly affected by electricity shortages in the country.

“About 400 industries in Punjab and 300 factories in Sindh have shut down their operations due to load-shedding and shortage of electricity,” he said.

Motiwala further said Sindh government also offers investment opportunities in renewable energy like solar street light initiative and wind power projects worth around $5.3 billion.

“International investors are in queue to invest in wind power projects because the province has potential to generate 50,000 megawatts electricity through wind turbines across its coastal belt,” he said.

To a question about potential investors in wind energy, he said Hydro China, China Three and NBT/Malakoff, among others, showed interest in 26 projects in the province with installed capacity of 1,800 megawatts.

“We also have offered some renewable energy projects to Masdar. We will discuss some investment opportunities with Masdar officials in Abu Dhabi and expect positive results,” he said....”

Riaz Haq said...

Here's an ET report on Pak-China Joint Energy Group:

Pakistan has once again asked China to finance the Iran-Pakistan (IP) gas pipeline project, as Beijing appears to be least interested in the face of pressure from the United States.

“No Chinese government official gave assurance about participation in the project,” a participant of a meeting of the Pak-China Joint Energy Working Group told The Express Tribune.

The final round of the working group, which concluded here on Tuesday, was held under the chairmanship of Water and Power Minister Naveed Qamar and Chinese delegation head Wu Guihi, which reviewed financial and other aspects of energy projects and cooperation between the two sides.

In the meeting, private oil and gas exploration company United Energy Group (UEG), however, expressed interest in participating in the IP gas pipeline project. A representative of UEG, which has recently acquired assets of British Petroleum (BP) in Pakistan, said the company was willing to participate in the project.

Sometime ago, the Industrial and Commercial Bank of China (ICBC) had been given the role of financial adviser for the project, but it backed out apparently due to US pressure.

In remarks made at the conclusion of the meeting, the head of Chinese delegation said the energy crisis in Pakistan could be resolved through cooperation between the two sides.

Discussing concerns of Chinese enterprises, he stressed the need for infrastructure development for ongoing and forthcoming energy projects for easy transportation of machinery and equipment to the project site.

It was proposed to set up an infrastructure fund to finance power projects. “Banks may contribute to this fund from where investors will be able to get financing,” Naveed Qamar told the media after the meeting.

Qamar said China was also willing to contribute equity to the Diamer-Bhasha dam and power project. Private parties of China could assist in setting up power houses, he said.

In the past, Chinese wanted contracts for projects like Guddu and Uch power plants. “But now these companies have agreed to participate in the bidding process in line with Public Procurement Regulatory Authority (PPRA) rules,” he added.

Qamar stressed that matters relating to Nandipur power project had been resolved six months ago. “Now, there is an issue of demurrages and the government is mulling over to waive them,” but the penalty issue would be resolved through dialogue.

Later, a signing ceremony was held for three wind energy projects. These included signing a letter of intent (LoI) for 150MW project between United Energy Pakistan and China Development Bank Cooperation and inking a memorandum of association for 350MW project between Three Gorges and Pakistan. A document was also signed between Dawood Power and Hydro China Engineering Company for a 50MW project.

Twister said...

So basically, you are assuming based on one paper report that Pakistan actually has that shale gas in proven, economically recoverable reserves? And the assumption that Americans would be clamouring to hand over fracking technology to Pakistan? yeah right...

I've seen research publications on the energy sector plenty of times during my research at university. What you keep ignoring is that "fracking" is a difficult, hazard-prone process that can potentially cause severe damage to the environment, especially groundwater contamination. With the level of quality control and environment protection legislation in Pakistan, fat chance you'll have adherence to any environmental protection measures.

Moreover, US shale gas is easily recoverable because they have plenty of domestic water and energy supplies to actually inject the water into the ground for fracturing. Pakistan faces a shortage of water during dry spells anyway, and groundwater contamination is something we cannot afford.

Then there's Thar coal..."175 billion tonnes" of fantasy reserves, with no large scale drilling to prove it. We produce around 4 million tonnes of coal a year.

And by the way, Thar coal is lignite (brown coal), and some tests say Thar's lignite is so ridiculously high in moisture, it takes significant energy to get to a combustible state in the first place. China's Shenhua group scrapped the project in 2007 even though they were being offered the highest tariff for any coal-based power in thr world.

(And no, don't mention gasification. The largest coal gasification project on a commercial scale produces 100mmfcd of gas. No large-scale commercial implementations in place yet).

It's getting almost comical how delusional some of my fellow countrymen are when it comes to Thar coal and now perhaps shale gas.

And to ice the cake, no international financial institution is willing to finance coal-based projects anyway because of the Kyoto protocol. Oh scratch that, no one will finance anything in Pakistan now since the government just defaulted on sovereign guarantees to the IPPs. Hurray for not adding a single MW to the grid between 1999 and 2008.

Riaz Haq said...

Twister: "So basically, you are assuming based on one paper report that Pakistan actually has that shale gas in proven, economically recoverable reserves?"

It's not just any "paper report", it's from a highly credible source called the US Energy Information Administration" (EIA) based on read data from drilling for exploration in one vast shale gas basin near Karachi. And I believe it's a conservative estimate given the size of this one basin. And it does not take into account other basins like DG Khan.

Twister: "Moreover, US shale gas is easily recoverable because they have plenty of domestic water and energy supplies to actually inject the water into the ground for fracturing. Pakistan faces a shortage of water during dry spells anyway, and groundwater contamination is something we cannot afford."

Shale gas extraction uses a lot less water than other forms of energy production and the water can be reused in producing more gas.

Here's a comparison:

One MMBtu, or 1 million British thermal units, a standard measurement for the energy content of fuels, was produced from these energy sources using the following amounts of water:

Deep shale natural gas 0.60-5.80 gallons

Nuclear (uranium ready to use in a power plant) 8-14 gallons

Conventional oil 8-20 gallons

Synfuel-coal gasification 11-26 gallons

Coal (ready to use in a power plant) 13-32 gallons

Oil shale 22-56 gallons

Tar sands/oil sands 27-68 gallons

Fuel ethanol from corn 2,510-29,100 gallons

Biodiesel from soy 14,000-75,000 gallons

Twister: " And by the way, Thar coal is lignite (brown coal), and some tests say Thar's lignite is so ridiculously high in moisture, it takes significant energy to get to a combustible state in the first place."

High moisture lignite is being used in many parts of the world to produce large amounts of electricity, such as in Australia's Latrobe Valley and Luminant's Monticello plant in Texas.

Twister said...

Latrobe valley lignite is not that high is can be used for a direct burn after going through a pulverise/dry cycle.

Thar coal is way too high to make drying it for a direct burn feasible. The net energy content by weight is too low to make a direct burn worthwhile.

Moreover, the logistics are questionable...the researchers working on it say it can't be gasified underground because the ground is they'll need to first get it open-cast mined, and then gasify it...Gasification is a pilot-scale project still, and the largest gasification unit in commercial use is South Africa's Lync Energy...they do 100mmfcd of gas. You know very well it's a rather miniscule amount of gas compared to what we actually need.

The biggest concern I see is that politicians have led the public to believe it is some sort of panacea for energy needs without making adequate disclosure of the fact that no detailed feasibility study has even been concluded for a large-scale power project.

And after Shenua's exit from the project (they were talking US$1.5b or so for 1000MW), other companies are understandably reluctant.

I'm sure you're aware of what Tethyan Copper is being put through in you think it gives anyone a "please invest" impression in our country?

Riaz Haq said...

Here's a News story on LPG production in Pakistan:

Pakistan has become self-sufficient in meeting local demand of the liquefied petroleum gas (LPG) and the dividend of exploiting this locally-produced fuel has started benefiting the end-consumers in the shape of drastic reduction in its prices, making it a viable auto fuel, as well, industry sources said on Friday.

As domestic production of LPG is up by 25 percent since the start of the year 2012, its price has also seen continuous decline lately.

The present demand of 1,200 tons per day is being met through locally-produced LPG, the sources said.

“After three years, we have once again become self-sufficient in meeting our local demand of LPG through domestic sources,” an industry official said.

It is expected that the local component of LPG will grow further by end of this year to 1,475 tons per day. After a gap of five years, LPG has now become cheap fuel if it is compared with petrol, the source added.

Besides initiative taken by the government to explore local LPG reserves, glut in market and illegal import of cheap commodity through Iran have been described as the main factors for this price cut. Nevertheless, various categories of consumers will indeed welcome this price decline amid prevalent severe energy crisis.

The latest LPG price cut was announced by the state-owned Oil and Gas Development Company Limited (OGDCL) as it reduced its base stock price of LPG for the third time this month to Rs58,000 per ton exclusive of duties and taxes.

The latest price reduction of Rs7,000 per ton came in the wake of piles of unsold stocks and a mounting domestic production, which is up by 25 percent since the start of the year.

“LPG demand typically begins to slacken with the onset of summer. However, this year the demand has also been affected by an over supply of product both locally and from cheap and under-invoiced Iranian imports,” said Belal Jabbar, the spokesman for the LPG Association of Pakistan.

The current producer price is $225, or Rs20,000 per ton below the Saudi Aramco contract price with which LPG prices have remained indexed.

The drastic reduction in price is effectively a de-linkage from the international price benchmark and augurs well for the LPG industry, as the product has become cheaper than petrol, diesel and even CNG.

“In the light of the increasing domestic production, which has made imports altogether redundant, we urge the honourable federal minister Dr Asim Hussain to immediately notify de-linking of LPG producer prices from Saudi Aramco CP as this will keep the product affordable for the common man,” said Belal.

The revised price of LPG companies for their distributors will be Rs970 for domestic and Rs3,732 for commercial cylinders. Similarly distributor price for the consumers will be Rs1,125 for domestic and Rs4,320 for commercial cylinders.

Retail prices in various parts of the country are expected to be as follows; Sindh and Balochistan Rs90 per kilogram, Punjab Rs95 per kilogram, Khyber-Pakhtunkhwa Rs100 per kilogram, AJK Rs105 per kilogram and Northern Areas Rs115 per kilogram.

Twister said...

The CNG lobby, who have plonked billions of rupees blindly into CNG stations, wont be too happy to see LPG become popular as an auto fuel...

Interesting point: LPG is a much better fuel than CNG, especially for larger in Australia, people run vehicles as large as Land Cruisers on LPG...

Riaz Haq said...

Here's a BBC report on power cut and sanitation problems at the Indian parliament:

A foul smell emanating from sewage in a toilet in India's upper house of parliament, the Rajya Sabha, forced it to adjourn twice on Thursday.

Congress party lawmaker Rama Chandra Khuntia first complained of the smell when a minister was replying to a question in the House.

The first adjournment lasted for 15 minutes. But the continuing stink forced lawmakers to exit again.

Mr Khuntia told the BBC the smell was due to "poor maintenance".

"Everyone in the Rajya Sabha, panicked. Initially, we thought it was a gas leak. But then we realised the stench emanated from the toilet."

"We were told the smell from a toilet adjacent to a canteen found its way inside the House through air-conditioning ducts," Mr Khuntia said.

The incident comes three days after brief power cuts interrupted parliament proceedings.

Television news channel NDTV quoted the main opposition party BJP's Ravi Shankar Prasad as saying: "We talk of nuclear safety, we should at least ensure safety of smell in the House."

Riaz Haq said...

Here's Daily Times on need for fiscal reform in Pakistan:

Pakistan’s economy requires immediate reforms to overcome the challenges because any more delay in initiating much-needed sector-specific reforms would further aggravate the situation.

USAID Economist Thomas Morris at the Lahore Chamber of Commerce and Industry (LCCI) on Tuesday indicated the country’s fiscal position was fast deteriorating as numbers suggest the gap was widening with every passing day.

He highlighted a major chunk of taxpayers money was being eaten away in defense expenditures, subsidies and interest payments.

After spending huge sums of money on non-development expenditure, the government had left with no money to spend on hard pressing energy shortage and social development.

He pointed out in 2008-09 Pakistan was paying around Rs 99,000 million on account of subsidies, but this figure jumped up to Rs 284,827 million in 2010-11.

There was dire need to correct the energy mix of the country as any change in petroleum products prices adversely affect the government’s budgetary estimates.

He pointed out in 2008-09, the government allocated Rs 77,000 million for electricity subsidies, but it had to spend Rs 99,000 millions when oil prices in the international market were below $80.

On the other hand, in 2010-11 budget, the government earmarked Rs 32,000 million for electricity subsidy, but it had to spend Rs 284,827 million as oil prices had crossed $100 per barrel barrier.

He said the GDP growth would remain 3 percent contrary to government’s claim of four percent.

He said during the global recession Pakistan’s economy remained positive which shows its strength. Therefore, he said the government should focus on curtailing expenditure by cutting non-development expenses.

He said Pakistan should further strengthen its economic relations with the United States by signing new trade agreements.

Agriculture sector in Pakistan is constrained by insufficient investment over many years as its share in the GDP in 1960 was 46.2 percent and in 2010 it was only 20.8 percent.

LCCI President Irfan Qaiser Sheikh said the Chamber was ready to collaborate with USAID in carrying out projects in energy sector for the sake of economy and in the best interest of Pakistan and its nationals.

About the condition applied by US Congress Committee to link economic and military aid to NATO supply resumption, he said it was not justified considering the present situation of Pakistan which has already suffered losses of well over $65 billion due to its frontline role in war against terror. He said the role of USAID in various sectors ranging from energy, education, health, humanitarian assistance and etc needs to be expanded to more areas and with wider scope.\05\16\story_16-5-2012_pg5_7

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.

Riaz Haq said...

Here's the Hindu on Coal India:

Coal India is expecting to resolve the fuel supply agreement (FSA) deadlock in next two weeks.

While 14 private and public sector units have already entered the long-term pact, the largest power producer NTPC is yet to sign an agreement.

A total of 48 thermal power units, commissioned between April 2009 and December 2011, are scheduled to enter supply pacts with the coal major in the current round.

“We are expecting to complete signing FSAs latest by the first week of June,” a senior company official told Business Line.

Though some of the private players are also yet to sign the agreement, CIL is currently more focussed on settling issues with NTPC. The public sector power major – which is reportedly enjoying 65-70 per cent of coal supplies for the respective units against existing memorandum of understandings – has raised primarily two sets of arguments on the FSAs.

On one hand, NTPC wants the recent round of FSAs to have similar penal and force majeure conditions as was in the pacts signed till March 2009.

The CIL board, while clearing the draft on April 16, diluted the penal provisions for supplies below the minimum assured 80 per cent of requirement to negligible. The coal major also imposed stricter force majeure clauses passing the buck on the buyer even for CIL's failure to procure spares and others.

“NTPC now wants us (CIL) to set varying penalty clauses for supplies less than 80 per cent. For example 50-80 per cent of supplies may attract a lower penalty when compared to supplies less than 50 per cent of requirement,” a source said.

However, any such change in FSAs may not be possible without some binding order to the board by the Government. And, there is no clarity as yet if the Government would repeat the precedence of Presidential Order.

Till that happens CIL is working on ironing out NTPC's other grievances which include demand for a more disciplined sampling procure so as to ensure the quality of coal.

“This is a fair demand from a buyer and is doable. We are hopeful to resolve such issues in a week or so,” the company source said.

On the private sector, the coal major feels that while the companies which are in need of coal and have the requisite power purchase agreements (PPAs) in place, have either initiated the process of signing FSAs or have already entered the pact.

These include Lanco, Reliance Power, CESC Ltd and Bajaj Energy. Adani Power, which requires supplies for nearly 1500-2000 MW, is yet to enter into a pact.

Riaz Haq said...

Here's an excerpt from The Economist magazine on Pakistan's energy crisis:

SUMMER in the plains of Pakistan is excruciating enough without the added joy of 20 hours of power cuts a day. Earlier this month protesters in several towns in Punjab, Pakistan’s wealthiest province, smashed windscreens, blocked motorways, shut down markets and set fire to the offices of parliamentarians and an electric utility. They clashed with police who brought out handcuffs and tear gas and fired live rounds in the air.

It was a reaction to electricity shortages that had plunged parts of the province into darkness and scorching heat. At one point the gap between supply and demand hit 7,500 megawatts (MW), or nearly 40% of national demand.

Under the current government, the power sector has neared the top of a list of security, political and foreign-policy problems that includes some heavyweight contenders. Last week’s confluence of events once again underlined how easily Pakistan’s power sector can slip into collapse. The system’s many weaknesses find it all too easy to conspire. Cool weather in the north meant a reduced flow of hydroelectricity. Demand shot up as summer temperatures further south soared into the forties and air-conditioners strained to keep pace.

Meanwhile, several private power producers had to halt or slash production because the state-run power purchasing company hadn’t paid them. They had not been able, because the biggest consumers (especially provincial and federal governments) had not paid their own electricity bills. The bills that were paid are not enough to cover the cost of generation.

This so-called “circular debt”, currently about $880m, is an ongoing problem. The government usually bites the bullet, as it did this time, by paying off a portion when power producers are about to sue for default, enabling them to start generating again—for the moment. What remain unaddressed are the structural issues that cause the debt to pile up again: poor recovery of dues (receivables stand at $4 billion), electricity theft, transmission losses, reliance on imported oil and politically sensitive subsidies for certain groups. Perpetuating all of this is a lack of efficiency and co-ordination across a maze of state-owned agencies including a power purchaser, distribution and generation companies, a regulator and various ministries. The gap between the effective cost of generation and payments received is estimated at $12 billion over the past four years.

Imran said...

When India and China are adding a coal plant a week, energy efficiency in the western world is meaningless.

A big, and the fastest growing , part of this electrical consumption
will be to power ICT equipment. Currently somewhere between 6-10% of
electrical consumption is for ICT.

So what are we to do?

Riaz Haq said...

Imran: "When India and China are adding a coal plant a week, energy efficiency in the western world is meaningless."

India is not expanding coal so rapidly.

India burns coal to produce 55 percent of its electricity needs. Domestic coal production has increased just 1 percent last year while 11 percent additional power generation capacity has been installed. Some power producers have been importing coal, but that option has become more untenable recently because India’s biggest supplier, Indonesia, has doubled coal prices, according to a report in New York Times.

The gap between demand and supply in India has increased to 10.2 percent last month, from 7.7 percent a year earlier. In some states like Andhra Pradesh and Tamil Nadu, power cuts have become so common that many factories report getting more electricity from diesel generators than they do from the power grid, at much higher cost. Retail rates for electricity are lower than the cost of producing and delivering it and the difference is made up by Indian state government subsidies running into hundreds of billions of rupees annually.

China is adding coal plants as well as solar & wind.

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...$126bn

Riaz Haq said...

The shale gas boom in the US has led to a big drop in its carbon emissions, as power generators switch from coal to cheap gas, reports Financial Times:

According to the International Energy Agency, US energy-related emissions of carbon dioxide, the main greenhouse gas, fell by 450m tonnes over the past five years – the largest drop among all countries surveyed.

Fatih Birol, IEA chief economist, attributed the fall to improvements in fuel efficiency in the transport sector and a “major shift” from coal to gas in the power sector. “This is a success story based on a combination of policy and technology – policy driving greater efficiency and technology making shale gas production viable,” Mr Birol told the Financial Times.

Shale gas has transformed the US energy landscape, with surging production pushing gas prices down to 10-year lows and heralding an industrial renaissance. But it is also the subject of a heated environmental debate, with critics alleging that the production process can pollute groundwater.

Gas is fast becoming the new fuel of choice for the US power sector: in the past 12 months, coal generation has slumped by 19 per cent while gas generation has increased by 38 per cent, according to US Department of Energy figures. A gas-fired plant produces half the CO2 emissions of a coal-fired one.

Overall, however, the IEA said 31.6 gigatonnes of CO2 were released into the atmosphere last year, mainly through the burning of fossil fuels – one gigatonne more than in 2010 and much higher than the average annual increase of 0.6 GT between 2006 and 2010. “The impact of this increase is going to be catastrophic,” said John Sauven, executive director of Greenpeace. “We’ve really got to act now, with a real sense of urgency – which up till now has been completely lacking.”

The increase will make it harder to keep global temperatures from rising more than 2 degrees Celsius above pre-industrial levels – which scientists believe is the threshold for potentially “dangerous climate change”.

Riaz Haq said...

Here's a Nation story on China approving $450 billion loan for Neelum-Jhelum dam project:

Chinese EXIM Bank, after a long delay, has now approved $450 million loan to finance 969MW Neelum Jhelum hydropower project, which would add about 5.15 billion units of cheap electricity to the national grid every year by 2016.Well-placed official sources informed TheNation that Chinese EXIM Bank after a long delay has now approved $450 million loan to finance the Neelum Jhelum hydropower project located near Muzaffarabad adding that the Economic Affair Division (EAD) has also gotten an approval from the Chinese bank in this regard. They told that the Neelum-Jhelum hydropower project needed $700 million foreign funding to complete the project by 2016. The major financiers of the project include the Kuwait Fund, the Export Import Bank of China, the government of the UAE and the Saudi Fund for Development. Sources further told that project had originally been budgeted to cost Rs130 billion, but costs had witnessed skyrocketed rise by 154per cent to Rs330 billion. In the revised plan submitted by the water and power ministry, the main reason for the spike in costs was attributed to a change in design, but a detailed examination of the figures has shown that primary cause for the increase was delay in completion. Sources further told that more than 30per cent of the work on the project had been completed. The project would earn about Rs45 billion in revenues annually and would therefore be able to recover its cost of construction within seven years.It is also learnt that as the Chinese EXIM bank found hesitant to release the worthy amount since 2009 resultantly the delay for unknown reasons had caused the cost of the project to rise to Rs330 billion ($3.7 billion). It was also feared that the pace of construction might slowdown providing an edge to India, which had been building Kishanganga project on the same Neelum River on its side of Kashmir because if Pakistan failed to complete its project before India, then it might lose the water rights to the upper riparian country. Further, according to Indus Water Treaty (IWT), the country that first completes its project on Neelum tributary will have the priority rights on the water of Neelum River. Furthermore, the Neelum Jhelum Hydropower Project Company (NJHPC), a wholly owned subsidiary of the Water and Power Development Authority was set up to manage this very project.It is to be noted here that the top man of China had committed this loan during the visit of President Asif Ali Zardari to Beijing in 2009 but the Chinese Exim bank did not entrain Pakistan although three years have elapsed since the commitment of China to Pakistan resultantly the country was in contact with Islamic Development Bank, Saudi Development Bank, Abu Dhabi Fund, Kuwait Fund for the required finding. Even IDB had committed $200 million, Saudi Fund $337 million, Abu Dhabi Fund $100 million and Kuwait Fund $30 million and the government was pursing the said donors to expedite the disbursement of their credit line for the timely completion of the project.Waqar Masood Secretary Economic Affairs Division while confirming the information pertaining the receiving of approval worth of $450 million loan to help finance the 969-megawatt Neelum Jhelum hydropower project. He also informed that documentation process in this regard would take one month while disbursement of such a hefty amount is likely within one-month....

Riaz Haq said...

Here's the Nation on Pakistan's soaring oil imports:

Pakistan’s oil import bill soared by 43.52 per cent to reach $12.583 billion during the first ten months (July-April) of the outgoing financial year 2011-2012 against $8.768 billion in the same period of last year (2010-211).

According to the latest figures released by Pakistan Bureau of Statistics (PBS) on Monday, the break-up of $12.583 billion oil import revealed that country imported petroleum products worth of $8.355 billion in July-April 2011-2012, up by 69.81 per cent if compared with $ 4.920 billion of July-April 2010-2011. Meanwhile, the import of petroleum crude increased by 9.89 per cent to $ 4.228 billion during the period under review against $3.848 billion of the corresponding period of the last year.

It might be mentioned here that country’s exports had recorded negative growth of over three per cent during the first ten months of the outgoing financial year, as these were recorded at $19.393 billion in the period under review against $20.092 billion of same period last year. On the other hand, country’s imports increased by 14.81 per cent in one year, as these were recorded at $37.042 billion in July-April 2011-2012 against $32.263 billion of July-April 2010-2011. Therefore, the trade deficit remained higher at $17.649 billion in July-April period of 2011-2012 against $12.171 billion of same period last year.

Meanwhile, the break-up of imports further revealed that import of food items recorded a minor decline of 1.73 per cent and reached $4.231 billion in July-April period of the year 2011-12 against the $4.305 billion in July-April period of the year 2010-11.

According to the data, import bill of milk products increased by 3.75 per cent, wheat unmilled decreased by 100 per cent, imports of dry fruits and nuts surged by 2.78 per cent, import of tea increased by 4.76 per cent, import of spices reduced by 5.16 per cent, soyabean oil’s imports went down by 30.79 per cent, palm oil import increased by over 18.26 per cent, sugar import declined by 97.89 per cent, import of pulses went down by 7.06 per cent and import of all other food items increased by 32.51 per cent during the period under review.

Apart from oil and food imports, the country imported machinery worth of $ 4.567 billion, transport group imports stood at $ 1.670 billion, textile group $1.980 billion, agricultural and other chemicals $ 5.979 billion, metal group $ 2.297 billion, miscellaneous group imports recorded $ 772 million and all other items imports were recorded at $ 2.962 billion during July-April period of 2011-12 against July-April period of 2010-11.

Riaz Haq said...

Here's an FT piece on the negative impact of power sector in Pakistan:

...Munir, born and educated in Lahore, makes his case in the latest issue of the Economic & Political Weekly of India, to be published on Saturday.

“The 1994 privatisation of the energy sector offered investors generous returns and created pricey overcapacity,” he told beyondbrics. “This created an expensive legacy which is the real problem of today’s energy crisis.”

Unless that problem is dealt with, he sees no light at the end of the energy tunnel.

He says Pakistan’s government, helped by the World Bank, “sweetened” its energy privatisation with attractive conditions, fearing it wouldn’t be able to attract investors otherwise. It guaranteed a 12 to 15 per cent annual return (indexed in dollars, not rupees), gave tax breaks and paid interest on private funding – more expensive for the government than providing the funding itself. ”The deal was too good to be true for investors,” Munir says.

The government gave those guarantees during an economic boom it assumed would continue. That turned out not to be the case.

Munir says the model turned out to be badly constructed in terms of creating value for the government and people of Pakistan. Even in an environment of economic growth and efficient energy generation, it would have been hard for the government to finance the plan. But since both have been absent, it became nearly impossible to pay for privatised energy.

What else went wrong?

Most private investors chose to build oil-powered plants because of their low construction costs and short lead times. This backfired as the oil price has trebled since the 1990s. Variable costs, and therefore prices to consumers, are at unsustainable levels. “No wonder many consumers can’t afford to pay their bills,” Munir says.

To make things worse, the government neglected to step on the brakes when its generous conditions attracked too many investors. Assuming economic growth would continue, it allowed too much capacity to be built and guaranteed the same return on that extra capacity, whether it was used or not.

But as growth stalled, the government could no longer meet its commitments. So operators have begun shutting down power plants, killing the lights across Pakistan – which is now enduring daily power outages in spite of having excess generating capacity of almost 35 per cent.

Munir says the government should develop new power plants using cheaper fuels, and that this shouldn’t be a problem in a country with an abundance of coal, waterways and sun.

But Pakistan must first escape its vicious payment cycle. The Economist magazine reports that Pakistan’s so-called circular debt to energy producers stands at $880m. It is only getting worse because of rising interest costs and dollar-rupee appreciation.

“We need to get out of the the current deals,” says Munir. But at what cost, and does this imply default? “Your guess is as good as mine,” the academic admits.

Still, he felt it was time to make his point. “I’m not defending people who don’t pay bills and I’m not promoting government subsidies to keep prices low,” Munir says. “But why isn’t anyone talking about the policy that led to this situation to begin with?”

Riaz Haq said...

Here's an ET story on Russian interest in energy projects in Pakistan:

Pakistan has agreed to award contracts without bidding for multi-billion-dollar Iran-Pakistan (IP) and Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline projects to Russia, which will also extend financial assistance.

However, in an understanding reached with Russia, Pakistan made it clear that it would award the contracts on government-to-government basis only. Private Russian firms will not be entertained.

“Pakistan’s government will ask the cabinet to waive public procurement rules for award of pipeline contracts to Russia,” a participant of the meeting of Pak-Russia Joint Working Group on Energy told The Express Tribune.

A 15-strong delegation of Russia, led by the deputy minister for energy, participated in the meeting held in Islamabad on Wednesday.

The two sides would sign a memorandum of understanding (MoU) in next two to three months to move ahead with the projects, he said. Third meeting of the joint working group will be held in Moscow in 2013.

The government has already floated tenders, inviting bids for giving contracts for construction and pipeline procurement for the IP project, costing $1.5 billion.

“Russian energy giant Gazprom may also participate in bidding for the engineering, procurement and construction (EPC) contract, which gives an edge to the company that will pledge financing as well,” a government official said, adding Moscow also agreed to finance the rehabilitation of Guddu and Muzaffargarh power plants.

According to sources, Pakistan will submit a draft of agreement for financial and technical assistance for the IP pipeline in 15 days. Though the Russian side assured financial assistance for the pipelines, they did not indicate the amount.

In a preliminary meeting held in Islamabad on Tuesday, the Russian authorities offered cooperation in gas import through pipelines and the Central Asia South Asia (CASA) electricity import project, which would bring electricity from Central Asian states.

Besides Russia, Iran is also willing to provide $250 million on government-to-government basis for constructing the IP pipeline. Pakistan wants $500 million for the pipeline.

Iran has also come up with a plan to lay Pakistan’s portion of the pipeline based on a mechanism called ‘supplier’s credit’, which Pakistan will repay after two years.

Pakistan is also seeking China’s help for the IP pipeline. In a recent visit to Beijing, President Asif Ali Zardari and Adviser to Prime Minister on Petroleum Dr Asim Hussain succeeded in convincing the Chinese leadership to take part in bidding for the construction of the pipeline.

Electricity import

In addition to supporting the gas pipelines, Russia has also expressed its willingness to cooperate in import of 1,000 megawatts of electricity from Central Asia. Leading financial institutions including the World Bank and Islamic Development Bank have committed financial support for the power import project.

Construction of a cross-border transmission line is being considered for creating a dedicated link aimed at supplying surplus hydropower during summer months from Kyrgyzstan and Tajikistan to Pakistan.

Riaz Haq said...

Here's an Asia Times story on power outages or loadshedding in India:

Power outages in India, now enduring the peak demand of hot summer months, are running to as long as eight to 10 hours in northern cities, including the capital, and while large parts of the country continue to be off grid rural areas with access to electricity can be without power for over 20 hours at a stretch.

The Uttar Pradesh government this week ordered that electricity be cut off at malls and shopping centers in the evenings, before apparently backtracking in the face of angry traders who put up defiant protests, clashing with police.

Billions of dollars have been invested by power producers to create new capacity over the past few years, but numerous factors linked to populist politics, over-zealous implementation of

environment norms, transmission losses, pilferage, free power to agriculture and bureaucratic tardiness have resulted in under utilization of existing capacity. In short, India can produce more power if it wants to, but is unable to.

One bottleneck is coal, the majority of which is mined by state-owned Coal India Ltd (CIL). The bulk of Indian power is produced at coal-fired thermal plants, but CIL has not been able to increase output to meet the country's needs.

The environment ministry has declared many of the company's mines to be in "no go" zones, while the bulk of CIL's coal supply comes from areas in eastern India where Maoist rebels are active.
It also has to rely on another government institution, the slip-shod Indian Railways, to move the coal. Coupled with in-built delays and indecision within the government, CIL's output growth has been near stagnant over the past three years, with the result that more than one-third of India's coal-based thermal power plants are running on critically low levels of fuel stocks this season.

Estimates suggest that if CIL continues to falter in supplying coal, India's target for adding new power capacity for the 2012-17 period will need to be slashed to 45,000 megawatts from the proposed 76,000 MW. New Delhi has already scaled down its capacity addition target for the next five years by 25,000 MW to 75,000MW from conventional sources.

The coal ministry, meanwhile, has projected that India's annual coal demand could rise over 40% by March 2017 to nearly 1 billion tonnes while domestic coal output may increase by less than 30%, leaving a gap of around 300 million tonnes that will have to be met by imports.

India's power woes do not stop there. Electricity generators such as NTPC, Tata Power and Adani have the option of buying coal from the likes of Indonesia, Africa and Australia, but overseas prices are too steep compared with the artificially depressed domestic prices set by the government.----------
As India does not produce enough of its own oil, the bulk of the diesel is imported, draining foreign exchange, creating balance of payments problems and weakening the rupee - which drives up the cost of imported products such as oil and coal.

The government continues to subsidize diesel to protect among others the transport sector - which adds to the ever-rising fiscal deficit, which again helps to fuel inflation. It is no surprise that rating companies such as Standard & Poor's have cautioned that India's investment climate could be pegged at "junk'' levels.

Meanwhile, in the sweltering streets and fields of India, the poor die of heatstroke, a savage reminder that the structural infirmities built into power generation ostensibly to protect the poor are actually harming the impoverished the most. While India pushes to increase its use of renewable and nuclear power, it is the thermal power energy chain that needs some serious attention and reform.

Riaz Haq said...

Here's an interesting Friday Times story on reliable power supply in may parts of Karachi where people pay their bills:

e have not had loadshedding for more than 10 months as far as I can remember," said Umar Ansari, a resident of Gulshan-e-Iqbal Karachi. "We have no loadshedding. Just the usual breakdowns once in a while," says Yasir Khan, who lives in PECHS. That might be unbelievable for people living in other parts of Pakistan, but some residents of Karachi have found new respect for the once-loathed Karachi Electric Supply Company.

"We have devised a new mechanism for loadshedding," says Muhammad Haroon, a KESC official. "If the recovery rate in an area is up to a certain mark, we exempt that area from loadshedding. It is very simple. If you pay your bills, you get electricity, if you don't, then you're not on the priority list."

The situation in interior Sindh is somewhat different. "Despite the falling recovery rates, average load shedding is 2 to 4 hours a day in most parts of Sindh and Balochistan," says Yaqoob Chandio, an official working at the HUB Power Company. Punjab has said the uneven distribution of power is unfair.

Raja Pervez Ashraf, the newly elected prime minister, promised during his recent visit to Karachi that he would improve power supply in Karachi and the rest of Pakistan. "I will do my best," he said. "One of the first meetings I called after becoming prime minister was to discuss the power crisis. Inshallahh we will resolve this issue."

The shortfall of electricity in the country is about 7,000 megawatts, according to Saeed Muhammad, a PEPCO official. Experts say the problem is not of generation capacity, but of circular debts, recovery and theft.

According to WAPDA and PEPCO figures, Pakistan Railway alone owes Rs422 million to various electricity distribution companies. The ISI owes more Rs8.2 million, Pakistan Rangers Rs120 million, the Senate Rs49 million.

The total billing in May 2012 was Rs87.4 billion, but only Rs35,9 billion were recovered. In April, the total bills amounted to Rs79.4 billion but the distribution companies collected only Rs30.2 billion. In March, only 31.3 billion were collected in bills, instead of Rs51.8 billion. In January this year, the collection was Rs29.3 billion of the total bills of Rs77 billion.

According to information provided by the Finance Department, the ratio of recovery from consumers of electricity was only 51 percent. That means 49 percent of electricity bills in Pakistan were not paid. The highest number of defaulters are in Balochistan and Sindh.

"If the KESC owes PEPCO for power purchases, the finance ministry owes KESC for tariff differential claims. KESC therefore holds payments until the finance minister delivers, and if pressed, offers to adjust its receivables against its payables," says Khurram Hussain, an energy policy expert.

The other key factor in the power crisis is line losses - stolen electricity for which no one is billed. Officials in various departments in Sindh say line losses in Sindh are over four times than those in Punjab. That means an average consumer in Punjab pays for the consumer who is stealing electricity in Sindh.
Karachi Chamber of Commerce and
"The solution is very simple," according to policy expert Muhammad Yahya. "Enough with the free rides. The government and the consumers must pay for the electricity they consume."...

Riaz Haq said...

Here's a Daily Times report on Punjab's plans to deal with power crisis:

The Punjab government has finalised plans to install coal energy plants in industrial estates across the province through public-private partnership, Chief Minister Shahbaz Sharif said on Thursday.

Presiding over a meeting at his Minar-e-Pakistan tent office to review the pace of development of energy-related projects in the province, the CM said that provision of relief to the people, who are undergoing agonising load shedding, poverty and inflation, was of utmost importance.

He said that the government had chalked out a plan to provide solar panels to poor families and biogas units to small farmers for running their tube wells. He said that the programme of providing solar panels to poor families would be initiated from south Punjab. “The solar panel will run one fan and two electric bulbs,” he said, adding that

Shahbaz said that the present energy crisis had adversely affected all sectors, and had deprived citizens of their sleep and peace. “Therefore, under these circumstances, provision of immediate relief to the people has become essential,” he said.

The CM said that provision of solar panels to the poor would be made through transparent balloting, and similar method would be adopted for distribution of biogas units among small farmers.

He directed the officials concerned to evolve a methodology for distribution of solar panels and biogas units so that the programme could be implemented at the earliest.

He also told them to hold negotiations with reliable and best companies for the purchase of solar panels. He disclosed that the quota of south Punjab with regard to provision of biogas units to small farmers would be 10 percent higher and, initially, 1000 biogas units would be distributed.

Shahbaz said that a programme had also been evolved to set up coal-energy plants of 50MW in the industrial estates with public-private partnership.

Earlier, Energy Secretary Jehanzeb Khan informed the meeting about the progress on coal-related energy projects. The investors present in the meeting also showed interest in make investment in the energy sector.

Riaz Haq said...

Here are excerpts of a Wall Street Journal story on energy crisis in India:

India is facing an energy crisis that is slowing economic growth in the world's largest democracy.

At stake is India's ability to bring electricity to 400 million rural residents—a third of the population—as well as keep the lights on at corporate office towers and provide enough fuel for 1.5 million new vehicles added to the roads each month.
Vast tracts of rural India lack electricity. Even in such business hubs as Delhi's suburb of Gurgaon, companies employ backup generators because of regular outages. Factories are forced to curtail production. And vaccines that require refrigeration go bad because of spotty service.
Energy imports will be costly for India's already shaky public finances, economists say, and the government will have to pass on higher costs to consumers and businesses. That won't be easy. Residents depend on government subsidies to lower prices for electricity, auto fuels and cooking gas.

Last month, Standard & Poor's cited India's yawning 5.8% budget deficit and inability to reform fuel subsidies as reasons it was considering downgrading the country's debt from investment-grade to junk status. Fitch, another ratings firm, later joined S&P in cutting its outlook on India's sovereign debt from "stable" to "negative."

"India has a very distorted system of subsidies," Jaipal Reddy, minister for petroleum and natural gas, said. "But how, in a vibrant democracy like in India, do you change the system suddenly?"

The country's energy crunch can be overcome, he said: "We'll have to pay for more, that's about all. It does not weaken the long-term growth story."
India's efforts in April to strike a long-term gas supply deal with Qatar faltered over price, about $20 per million British thermal units, or more than triple the cost of Indian domestic gas.

Exploration for gas and oil discoveries isn't going well. Since 1998, the government has issued 87 exploration blocks to companies through competitive bidding. Only three blocks have gone into production.

Interest in India is waning among the global oil companies that dominate exploration: Eight of the 37 companies that bid in the last round of auctions were foreign companies, down from 21 in 2008.

Mr. Reddy, the oil and gas minister, said he was considering allowing firms to sell what they produce at higher prices to attract more investment. Companies complain that government price caps are too low.

Policy makers are resigned to costly imports for now. "In all probability the import dependence in primary energy is going to increase," said Mr. Ahluwalia of the Planning Commission. "The real issue is, 'Can we pay for that energy?' "

Riaz Haq said...

Here's a News report on CNG growth in Pakistan:

Pakistan has become the third country in the list of countries with the most natural gas vehicles, as over 26 percent of the vehicles on the roads consume natural gas, suggests the data of Natural Gas Vehicles (NGV) Europe.

The NGV Global suggests that Pakistan has observed the fastest growth in natural gas vehicles since the year 2000 as the number of gas vehicles has surged to around 3.5 million from less than 100,000 vehicles back in the year 2000. While Pakistan is the country with the highest number of CNG refilling stations in the world.

Former CEO of OGDCL, Zahid Khan said that independent seminars and analysts consider CNG to be a burden on the system.An official at the Ministry of Petroleum said that from 2005-06 to 2010-11, CNG consumption increased at the rate of 24 percent, the highest increase witnessed in any sector.

“With gas production facing a decline, this growth is at the expense of other value-added sectors like fertilizers, the general industry and the power sector,” he said.With growing car ownership and CNG prices being kept at 55 percent of petrol prices, the CNG monster is fast eating into the legitimate gas share of other sectors. Commenting on the investments made by the CNG sector, the official said that many CNG stations were initial investments based on a government incentive.

However the initial cost to set up a CNG station is approximately Rs55 million including Rs.31 million of the land cost and on average, the payback period is three years. Based on current CNG prices, most of the CNG stations have already made significant profits. The industry people say that when deciding on gas allocation, the government should consider the opportunity cost of the allocation of the gas to different sectors.

Fertilizer, textile and other manufacturers are value added industries producing goods locally with capital and equipment, which is already present in the country and this reduces the import of goods and increases the exports of locally manufactured items.

CNG, on the other hand, involves the substitution of one fuel by another.“Keeping energy prices in the form of CNG artificially low, encourages energy inefficiency. But energy spent using petrol for example, is likely to be less as the efficiency of use will be higher. Hence total expenditure on transport will not increase proportionately if CNG is withdrawn,” industry sources said. “The government should consider the fact that petrol is a perfect substitute for CNG, but there is no substitute available for fertilizer plants that use gas as a raw material,” he added. The ministry official said that the CNG sector was stating inaccurately that the government was imposing Rs141 cess tax per mmbtu on CNG.

In reality, in the first official communication on Cess dated Dec 15, 2011, the Cess for CNG was announced to be Rs 141/mmbtu for Region-1 (KPK, Baluchistan, Potohar Region) and Rs 79/mmbtu for Region-2 (Sindh, Punjab excluding Potohar Region). Later on it was reduced to Rs 84.6/mmbtu for Region-1 and Rs 47.4/mmbtu for Region 2 after the CNG associations went into negotiations with the government of Pakistan. Whereas, the fertilizer industry pays Rs 300/mmbtu.

Riaz Haq said...

Here's an AP report on US gas and electricity rates:

A plunge in the price of natural gas has made it cheaper for utilities to produce electricity. But the savings aren't translating to lower rates for customers. Instead, U.S. electricity prices are going up.

Electricity prices are forecast to rise slightly this summer. But any increase is noteworthy because natural gas, which is used to produce nearly a third of the country's power, is 43 percent cheaper than a year ago. A long-term downward trend in power prices could be starting to reverse, analysts say. Pacific Gas & Electric, for instance, is asking to raise gas and electric rates by $144 a year for the typical customer in 2014.

"It's caused us to scratch our heads," says Tyler Hodge, an analyst at the Energy Department who studies electricity prices.

The recent heat wave that gripped much of the country increased demand for power as families cranked up their air conditioners. And that may boost some June utility bills. But the nationwide rise in electricity prices is attributable to other factors, analysts say:

In many states, retail electricity rates are set by regulators every few years. As a result, lower power costs haven't yet made their way to customers.

Utilities often lock in their costs for natural gas and other fuels years in advance. That helps protect customers when fuel prices spike, but it prevents customers from reaping the benefits of a price drop.

The cost of actually delivering electricity, which accounts for 40 percent of a customer's bill on average, has been rising fast. That has eaten up any potential savings from the production of electricity.

Utilities are building transmission lines, installing new equipment and fixing up power plants after what analysts say has been years of under-investment.

This may reverse what has been a gradual decline in retail electricity prices. Adjusted for inflation, the average retail electricity price has been drifting mostly lower since 1984, when it was 16.7 cents per kilowatt-hour.

"The ratepayer is going to have to foot the bill," says David Wright, vice chairman of the South Carolina Public Service Commission and president of the National Association of Regulatory Commissioners.

PG&E is seeking permission to raise gas and electric rates by $1.25 billion in 2014, $1.75 billion in 2015 and $2.25 billion in 2016, arguing it needs the money to upgrade its distribution network and hire an additional 2,200 employees. If approved by state regulators, the average residential customer would see their combined gas and electric bill rise in the first year by $12 a month, or $144 a year.

The average U.S. residential electricity price is expected to be 12.4 cents per kilowatt hour for the June-to-August period, up 2.4 percent from the same time last year. For the full year, electricity prices are expected to rise 2 percent. PG&E's average residential price is 16.1 cents per kilowatt hour.

In a typical summer month, that would mean an extra $3 on a residential bill, which includes the cost of generating the power and delivering it to a home, plus local taxes and fees. ...

Riaz Haq said...

Here's an ET story on Iran-Pakistan electricity deal:

Iran has linked the price for export of 1,000 megawatts of electricity with international crude prices and the rate will fluctuate in the range of 7 to 11 cents per unit.

Pakistan and Iran have already signed a memorandum of understanding (MoU) for electricity supply. According to a government official, the two sides have also agreed on the price which will be in the range of 7 to 11 cents per unit.

An official of the Ministry of Water and Power said gas prices in Iran were linked with global oil rates, therefore, it based the power price on crude oil prices in the international market.

According to the price formula, Pakistan will be paying a maximum rate of 11 cents per unit of electricity if crude prices reach $110 per barrel and the price range will be reviewed after five years.

“The electricity price has been capped by the time oil rates do not cross the $145 per barrel mark. However, if crude prices rise above that level, the two countries will be bound to review the electricity rate before the end of five-year period,” the ministry official said.

Under the proposed project, Iran will build a powerhouse in Zahedan province bordering Pakistan to generate electricity for export and has also expressed its willingness to provide $800 to $900 million for the project. A 700km transmission line of 500 kilovolts will also be laid from the Pak-Iran border to Quetta.

Some officials suggest that the government should ask Iran to install the power plant in Pakistan in order to avoid expenditure on laying the distribution and transmission line.

Besides the 1,000MW for which an MoU has been signed, Iran has also offered to export a huge quantity of 10,000MW to Pakistan.

However, the ministry official pointed out that Iran, at present, had no power plants to export such a huge quantity. “So the best way is to press Tehran to establish power plants in Pakistan,” the official said, adding Iran had already shown interest in setting up a 200MW plant in Balochistan near the border.

To push ahead with talks on electricity supply, a four-member delegation of Iran’s Mapna group of companies, headed by Abbas Ali Abadi, held a meeting with Federal Water and Power Minister Chaudhry Ahmed Mukhtar at the ministry on Monday.

The delegation expressed great interest in the power sector and discussed the setting up of plants of 1,000MW capacity immediately. The Iranians were also keen on installing smaller plants of 25MW on the ground as well as on barges to help Pakistan overcome the prevailing power crisis.

Riaz Haq said...

Here's an ET story on Pakistan's high-price LNG deal:

The Pakistan Economy Watch (PEW) on Friday said the government is planning to buy Liquefied Natural Gas (LNG) on inflated rates under the garb of resolving energy crisis.

All rules and regulations have been relaxed for the import of 500 million cubic feet of LNG per day under a long-term contract with Qatar, said Abdullah Tariq, SVP of PEW in a statement.

Current price of LNG is hovering around $12.5 per million British thermal units (MMbtu). A 15-year agreement should bring down the cost to $7/MMbtu. However, the government is planning to buy the same for around $15/MMbtu which will cost slightly over $18/MMbtu when transportation cost is included. Pakistan will have to pay some $5 million daily for 15 years while politicians will get some Rs400 billion in kickbacks if the deal to import LNG from Qatar on hefty rates is finalised, Tariq warned.

Secretary Petroleum Muhammad Ejaz Chaudhry has been fired for resisting the deal while efforts are under way to tame Ogra, which has also opposed the deal, he claimed.

Riaz Haq said...

Here's PakTribune on WAPDA's power & water projects:

The Water and Power Development Authority (WAPDA) here on Thursday informed the Senate Standing Committee on Water and Power that WAPDA is working on 20,000 megawatts (MW) hydel power generation projects and assured that 10,276 MW at lowest rates will be made available in the country by 2020.

The Senate body met in the Parliament House with Senator Zahid Khan in the chair, Minister for Water and Power Chaudhry Ahmed Mukhtar, secretary Zafar Mehmood and Petroleum Secretary Dr Waqar Masood Khan also attended the meeting. The members of the committee questioned that who would be judging the claim of WAPDA in 2020 when no one from the members of this committee will be in the parliament. However, WAPDA officials assured the committee that what they are committed to make sure through their efforts by 2020 that 10,276 MW power through hydel projects would be available in the country.

A WAPDA official explained that less than committed financial resources is the main hurdle in delay and cost overrun on water and power sector development projects and sought help of the committee in providing funds to WAPDA as per committed amount to make its planning predictable.

WAPDA Chairman Shakeel Durrani was optimistic about the average annual flows and water storage potential of the country and informed that some 17.8 million acres feet (MAF) water would be available for storage in future in the country (enough for three dams like Diamer Bhasha Dam).

The live storage of the Diamer Bhasha Dam would be 6.8 MAF and WAPDA has already released Rs 5 billion for land acquisition and Rs 13 billion for construction or establishment of required infrastructure for the construction of dam like roads, residential colony and offices power availability. Explaining the access water availability scenario, he informed that average annual flows to Kotri Downstream were 31.3 MAF during 1976-2010. However, during 2012 alone 54.5 MAF flows to Kotri Downstream were recorded.

Riaz Haq said...

Here's PakTribune report on Pakistan-Qatar LNG deal:

US energy giant ConocoPhillips is mediating between Pakistan and Qatar to enable them to strike a multi-billion-dollar liquefied natural gas (LNG) deal, in an apparent attempt to drive Islamabad away from the Iran-Pakistan (IP) gas pipeline project due to tensions between the West and Tehran.

An official of the Ministry of Petroleum and Natural Resources told Our Sources that the Qatari government had designated ConocoPhillips to clinch an LNG supply deal with Pakistan.

Earlier, Qatar had asked Shell to finalise the LNG contract with Pakistan, which could not be reached due to controversy over the Mashal LNG import project.

According to sources, high-ups of the petroleum ministry went to Dubai and London this month to hold negotiations with representatives of the US energy company on the terms of LNG contract.

"Former US Secretary of State Richard Armitage is a member of the board of ConocoPhillips and playing a role to help Pakistan and Qatar reach an agreement," a senior government official said. This may force the government to shelve the IP pipeline project, he said.

Headquartered in Houston (Texas), ConocoPhillips has operations in about 30 countries and has a 30% share in oil and gas reserves being explored under the Qatargas-III project in the North Field near the Iranian border from where LNG will be supplied to Pakistan.

Under the IP pipeline project, Pakistan will get gas from Iran's South Pars field, the world's largest gas field situated along the Iranian border with Qatar in the Persian Gulf. The Qatari side of the field is called the North Field.

According to reports, delay and low production by Iran may shift some gas reserves to the Qatari side and lead to loss of yield due to low field pressure.

Pakistan and Qatar have already signed a memorandum of understanding, under which Islamabad will import 500 million cubic feet per day (mmcfd) of LNG to generate 2,500 megawatts of electricity.

According to the term sheet, Qatar had demanded a price of $18 per million British thermal units (mmbtu) for LNG supply. In response, Pakistan quoted a price of $10 per mmbtu.

"Pakistan and ConocoPhillips are discussing terms of the agreement and price is also part of the discussion," the government official said.

US embassy officials in Pakistan have also been lobbying and holding meetings with stakeholders of the power and energy sector to try to convince them that the Iran gas project will not be viable for Pakistan.

The US diplomats stress that Pakistan should shelve the IP project, terming it 'bad' and call for inking an LNG deal with Qatar to meet the country's pressing energy needs.

"Pakistan should shelve the IP gas pipeline project and move ahead with LNG deals," a US diplomat said on condition of anonymity.

The petroleum ministry is also receiving technical help from USAID consultants for LNG import.

Riaz Haq said...

Here's John Daly of on coal energy plans in Pakistan:

Pakistan has glimpsed its energy future, and it is brown – coal, to be exact.

Sindh Engro Coal Mining Co. is developing the $3 billion Thar Coal mining project in partnership with the government of Sindh. The Thar project is expected to produce 100 megawatts of electricity by 2016 using Underground Coal Gasification (UCG) technology. The Thar UCG pilot project is situated in the Tharparkar desert in Sindh eastern Pakistan.

UCG converts coal to gas while still in the coal seam, where injection wells are drilled and used to supply the oxidants to ignite and fuel the underground combustion process, with separate production wells bringing the resultant gas to the surface. The high pressure combustion is conducted at temperatures of 1,290–1,650 degrees Fahrenheit, but can reach up to 2,730 degrees Fahrenheit. The process produces carbon monoxide and dioxide, hydrogen and methane.

Boosters of the Thar UCG project note that Block Number 5 of Thar Coal Project contains 1.4 billion tons of low-grade lignite coal reserves. Overall the coal reserves at Thar are estimated at 175 billion tons of lignite coal.

The project is being driven by Pakistan’s dire electricity situation. With about 50 percent less electricity generation capability than the actual demand, Pakistan’s National Grid currently faces more than a 5,000-megawatt shortfall in power generation, leading to blackouts in both urban and rural areas of the country. Due to unscheduled shortages by the National Power Control Center, urban areas are now subjected to unscheduled minimum 8-hour power blackouts each day, while in some parts of the country, blackouts can last up to 22 hours.

So, where will the $3 billion financing come from? According to Sindh Engro Coal Mining Co. CEO Shamsuddin A. Shaikh, “The bulk of financing will be arranged from China - we may also seek funds from other places if need be.”

Interestingly, the Thar project may also improve relations with India. When asked about Thar's geographical proximity to India and the possibility of Indian participation in Thar Shaikh replied, “Yes, that's something we have in mind. India is supposed to develop an additional 100,000 megawatts based on coal in the next five years. India currently generates more than 50 percent of their electricity from coal, using about 450 million tons of coal every year. Most of that is indigenous and about 50 million tons is imported coal. They will need to import coal, we can utilize the railway line, which will be serving our own plants as well, to export coal to India. We can also put up a power plant at the mine mouth and export electricity to India. The economics are very much there, but India-Pakistan relations are always more delicate than just the economics. A plus point of working with Indians is that they have immense knowledge and experience of coal. They have been dealing with over 400 million tons of coal per annum for a number of years. It makes more sense for us to use their expertise instead of having experts from China or anywhere else.”..

Riaz Haq said...

Here's NY Times on massive power outages in India:

It had all the makings of a disaster movie: More than half a billion people without power. Trains motionless on the tracks. Miners trapped underground. Subway lines paralyzed. Traffic snarled in much of the national capital.

On Tuesday, India suffered the largest electrical blackout in history, affecting an area encompassing about 670 million people, or roughly 10 percent of the world’s population. Three of the country’s interconnected northern power grids collapsed for several hours, as blackouts extended almost 2,000 miles, from India’s eastern border with Myanmar to its western border with Pakistan.

For a country considered a rising economic power, Blackout Tuesday — which came only a day after another major power failure — was an embarrassing reminder of the intractable problems still plaguing India: inadequate infrastructure, a crippling power shortage and, many critics say, a yawning absence of governmental action and leadership.
India’s power sector has long been considered a potentially crippling hindrance to the country’s economic prospects. Part of the problem is access; more than 300 million people in India still have no electricity.

But India’s power generation capacity also has not kept pace with growth; in March, for example, demand outpaced supply by 10.2 percent, according to government statistics.

In recent years, India’s government has set ambitious goals for expanding power generation capacity, and while new plants have come online, many more have faced delays, whether because of bureaucratic entanglements, environmental concerns or other problems. India depends on coal for more than half of its power generation, but production has barely increased, meaning that some power plants are idled for lack of coal.

Ramachandra Guha, an Indian historian, said that the blackout was only the latest evidence of government dysfunction in India. On Monday, he noted, 32 people died in a train fire in the state of Tamil Nadu — a reminder that the nation’s railway system, like the electrical system, is underfinanced and in dire need of upgrading.

“India needs to stop strutting on the world stage like it’s a great power,” Mr. Guha said, “and focus on its deep problems within.”

Riaz Haq said...

Here's a BR story on massive Rs 1.2 trillion subsidy to power sector in last 4 years:

Prime Minister Raja Pervez Ashraf has said that the government has provided Rs1,200 billion subsidy on electricity over the past four years. Moreover, he added, the government initiated short-, medium- and long-term projects to bridge the demand-supply gap.

Addressing a function organised in connection with Independence Day celebrations here on Tuesday, the Prime Minister highlighted the PPP-led coalition government’s performance over the past four years, criticised the previous government and said that it was responsible, especially for the energy crisis and security situation in Balochistan.

Raja Pervez Ashraf also acknowledged that people were also facing problems because high inflation and unemployment. He said that the government had provided subsidy to the people through Utility Stores Corporation (USC) to minimise their problems.

Raja Pervez Ashraf said that the government had “inherited energy problem” but after coming into power had been making serious efforts to address it.

According to him, the government had added more than 3,500 megawatts of electricity in the national electricity network.

“We have initiated short-, medium- and long-term projects to bridge the demand-supply gap. We are working for quick completion of these projects,” he added.

The Prime Minister said that to address the grievances and complaints of the provinces about unequal electricity distribution, the Council of Common Interests (CCI) had formed a special committee to submit suggestions in this regard.

The government, he said, had also decided to exploit 175-billion-ton coal reserves in Thar on a fast-track basis for electricity generation.

He said that the size of the Public Sector Development Programme (PSDP) had been increased from Rs416 billion to Rs873 billion over the past four years and remittances had crossed $13 billion mark....

Riaz Haq said...

Here's a Power Engg report on inefficient electricity generation in Pakistan:

A recent research study by Arshad H Abbasi, advisor Water and Power, Sustainable Development Policy Institute (SDPI) highlights inefficient electricity production and chronic line losses as the major reason for an energy crisis in Karachi Electric Supply Company (KESC).

The only ways out of this crisis, the report suggests, is to invest and buy affordable electricity from hydro power, improve fuel efficiency of power plants and introduce 'smart grid' with advanced metering system, said a press release on Friday.

The report 'Pakistan Power Outlook: Appraisal of KESC after Privatisation' underpins the causes of chaotic energy situation in Pakistan while discussing KESC as a case study. It is the first ever study that comprehensively assesses the performance of KESC since its nationalisation in the early fifties.

The report highlights that KESC has been given huge amounts of subsidy even after privatisation, which distorts the purpose of privatising the utility, which was to reduce the burden on government of Pakistan.

The report says that thermal power plants in Pakistan, particularly of KESC, operate at extremely low efficiency and consume very high quantity of fuel to generate per unit of electricity.

KESC takes 11 to 18 cubic feet of gas to generate one KWh of electricity whereas plants of other companies such as Uch Power, Saif power and Orient Power take only 7.37, 7.47 and 7.56 cubic feet of gas respectively for generating one unit.

On regional level, when gas consumption is compared with thermal plants of Bangladesh, the consumption of KESC was found to be almost double. "Control of fuel costs, exercised through benchmarks alone could help substantially reduce or even eliminate the subsidies that government has to pay for reducing tariff to a politically acceptable level," the report added.

One of the recommendations stressed in report was to go for cheap and green hydro and wind power projects which are holded up due to lack of investment. "Dams like Bunji, Dasu, Lower Spat, Kohala and Tarbela 4th extension are capable of adding 15631 MW into the system.

The feasibility studies of most of these projects have been completed but the development is stalled or slowed down due to lack of fund and inefficiencies within the departments," report says.

The report calls on KESC and concerned authorities to invest and buy electricity from these hydro power plants at minimal cost instead of purchasing it from independent power producers (IPPs) at very high costs.

Currently, KESC is purchasing electricity on average at the rate of Rs8/KWh to Rs16/ KWh, which is very high as compare to Rs0.37/KWh obtained from hydro power plants with minimal wheeling charges by National Transmission and Despatch Company (NTDC). The report says, increased dependency on fossil fuel is the fundamental cause of present energy crisis and the best option available is to skew the generation mix with the renewable energy resources.

The findings, conclusions and recommendations of the report are equally applicable to all thermal power plants of the country. "These thermal plants are the backbone of our electricity system with the capacity of generating almost 70 percent electricity," it says...

Riaz Haq said...

Here's Reuters on opening of a new refinery in Pakistan:

Karachi-based Byco Oil said it had completed Pakistan's largest oil refinery at Balouchistan with a capacity of 120,000 barrels per day, which is expected to reduce the country's imports of oil products.

The new refinery, manufactured in the UK and assembled in Pakistan, is currently in the pre-commissioning stage, with tests being done on various equipment, the company said on its website. Byco Oil is the parent company of listed Byco Petroleum .

"It will enhance overall crude oil refining capacity in the country from an existing 12.25 to 18 million tonnes per year and will significantly contribute in reducing a shortage of refined petroleum products in the country," the statement read.

Byco officials could not be reached for comment.

The new plant will more than triple Byco's current capacity of 35,000 bpd at its existing refinery.

The refinery can be further expanded up to 180,000 bpd, the company said.

An isomerisation plant to produce higher volumes and cleaner motor gasoline is also being commissioned with the refinery.

Pakistan operates five other refineries, the largest of which is Pak-Arab Refinery's 100,000 bpd plant.

Pakistan State Oil, a major oil importer in the country, imports about 250,000 tonnes of diesel every month through term volumes, they added.

Riaz Haq said...

Here's BR on PPL introducing new petroleum exploration technology in Pakistan:

A PPL statement here on Saturday said that developed by NXT Energy Solutions (NXT), a geophysical service company based in Canada, SFD is a proprietary cutting edge, eco-friendly airborne reconnaissance method to identify potential hydrocarbon traps and reservoirs in a time- and cost-effective manner, especially in unexplored on- and off-shore frontier regions with limited access and infrastructure.

It said that the SFD is expected to be particularly useful in the current energy scenario, warranting fast track identification of, and production from, relatively deeper, more complex reserves of hydrocarbons to bridge the supply-demand gap.

Welcoming the guests, PPL's Managing Director and Chief Executive Officer, Asim Murtaza Khan, underscored the increasing importance of deploying latest exploration technology to meet production and reserves replacement targets to address the current deficit and ensure future energy security. SFD technology has been successfully applied by leading oil and gas companies in North America, Colombia and other countries. PPL is proud to be the first company to apply the technology in Pakistan', he said.

Riaz Haq said...

Here's BR on PPL introducing new petroleum exploration technology in Pakistan:

A PPL statement here on Saturday said that developed by NXT Energy Solutions (NXT), a geophysical service company based in Canada, SFD is a proprietary cutting edge, eco-friendly airborne reconnaissance method to identify potential hydrocarbon traps and reservoirs in a time- and cost-effective manner, especially in unexplored on- and off-shore frontier regions with limited access and infrastructure.

It said that the SFD is expected to be particularly useful in the current energy scenario, warranting fast track identification of, and production from, relatively deeper, more complex reserves of hydrocarbons to bridge the supply-demand gap.

Welcoming the guests, PPL's Managing Director and Chief Executive Officer, Asim Murtaza Khan, underscored the increasing importance of deploying latest exploration technology to meet production and reserves replacement targets to address the current deficit and ensure future energy security. SFD technology has been successfully applied by leading oil and gas companies in North America, Colombia and other countries. PPL is proud to be the first company to apply the technology in Pakistan', he said.

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.
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....

Riaz Haq said...

Here's PakTribune on reduced hydel power in winter causing increased load shedding:

The current wave of load-shedding will end soon, as water flow in canals will come to normal levels in coming days and production of electricity will increase. The government is making all-out efforts to cope with the current situation and eliminate load-shedding.

The energy mix of the country consists of around 34% electricity generation from hydel resources and 66% from oil and gas. Reports show that hydropower production has dropped from 6,500 megawatts to 1,500MW these days.

Every year, canals are closed in winter for de-silting and the Indus River System Authority (Irsa) curtails water releases from major reservoirs of Mangla and Tarbela during December and January, leading to a sharp decline in hydropower production.

On the other hand, gas companies also cut supply in winter to those power producers, which have nine-month gas supply agreements, disrupting electricity production. Thus, the shortfall increases and the Ministry of Water and Power is left with no choice but to opt for power outages.

However, considering the scale of gas and water curtailment, the power supply has been managed very well. The ministry is mindful of providing maximum relief to people by resorting to load-shedding mostly during night and very less power cuts in day time so that routine life of people is not disturbed.

The canals are expected to be opened in the second week of January and production of hydropower will increase and outages will come down.

The ministry is also making alternative plans to cope with the power crisis as it is working to increase the generation capacity of existing power plants.

It is very important that the people should also come forward and help the government in conserving electricity, which could be done by saving power through all possible ways. This way, they will not only be helping the government, but will also reduce their electricity bills....

Riaz Haq said...

Here's a Nation newspaper report on power projects under way in Pakistan:

ISLAMABAD - Ministry of Water and Power is managing portfolio of 37 Independent Power Producers (IPPs) through Private Power and Infrastructure Board (PPIB) with a cumulative capacity of 11,771MW for solution of energy shortage problem in the country.

These projects, being managed on the basis of water, coal, gas and oil resources, are at various stages of implementation and will be commissioned this year through 2019. An official source on Monday said in addition to this there are numerous Hydro Power Producers (HPP) projects under construction for a cumulative capacity of 6054 MW which are also due to be commissioned from 2016-19.

He said the Ministry of Water and Power has been working on war footing to overcome the energy crises and was undertaking different projects under its two pronged strategy both in public and private sectors to meet the demand. It is pertinent to mention here that six IPPs, having cumulative capacity of 2530 MW have been commissioned through private sector since 2008.

Moreover, he said, the Ministry is determined to enhance production of existing power plants through GENCO rehabilitation projects and addition of new power plants like 747 MW combined cycle power plant at Guddu is underway for addition in the system. Under conservation measures, the official said in pursuance of Cabinet Decision two holidays were announced per week for all government offices which have resulted in conservation of approximately 250 MW.

Steps have been taken to minimize the load of unnecessary lights and hoardings while concerned departments have been requested to replace the street lighting with LEDs and use of solar energization to reduce load. He said a replacement of agricultural tubewell motors with efficient motors in MEPCO and IESCO are in progress which will also result in conservation of up to 60 MW electricity. A project of distributing 30 million CFLs to domestic consumers has been initiated which will ultimately result in conservation of 1000MW, recently a bill has been placed before National Assembly for introducing penalties to individuals involved in electricity theft which will result in reducing theft and increasing receivables in circular debt and line losses of the system.

He said an improvements in the system are underway by introduction of Advance Metering System (AMR) which will also help to reduce line losses and ultimate reduction in load while rehabilitation of transmission lines in collaboration with international funding agencies is also being implemented to improve the efficiency of the system.

Riaz Haq said...

Here's ET on ADB not objecting to Thar coal:


Engro Corporation President and CEO Muhammad Aliuddin Ansari has stated that the Asian Development Bank (ADB) does not object to financing the switchover of thermal power plants to Thar coal.

“The directors of ADB have met me and the chief minister of Sindh and said that they had no objection to the conversion of power plants to Thar coal and are ready to finance [such projects],” he told The Express Tribune.

The revelation comes on the heels of the Ministry of Water and Power’s claim that the ADB is not ready to finance the conversion of power plants to Thar coal, and that the lending authority would finance power plants that run only on imported coal.

Ansari also said he is ready to travel to Manila along with a delegation from the water and power ministry to meet ADB officials and negotiate a financing deal for such projects.

Ansari recalled that it had been decided in a special board meeting of the Thar Coal Energy Board (TCEB) on October 3, 2012, chaired by the prime minister of Pakistan, that existing oil-based power plants should be modified and redesigned to Thar coal specifications, and that new coal-based plants should also be designed keeping the same specifications in mind.

It was also decided in the meeting that agreements would be signed between power generation companies and the Sindh Engro Coal Mining Company (SECMC) for the supply of coal for an existing 420 megawatt (MW) power plant in Jamshoro, as well as a new 600MW power plant to be built in the same location. These agreements were to be finalised and signed within a week, but never materialised.

Ansari said that Pakistan was facing a circular debt issue due to the poor energy mix employed by generation companies, and that conversion of power plants to run on Thar coal could address this issue. He claimed that Thar held the future of Pakistan, and reiterated that all future power plants should be designed on Thar coal specifications.

“Not only has the fuel mix shifted from gas to furnace oil, the price of furnace oil has increased four times in the last five years. This has increased the furnace oil bill by 461%, whereas power generation through furnace oil has increased by only 79%,” said a handout provided by Engro Corp as part of the interview.

Ansari said that Indonesia and India both held coal reserves that were similar in specification to the coal available in Thar. He remarked that India is expected to become a major market for coal by 2016: it already imports significant quantities to meet its needs....

Riaz Haq said...

Here's ET on ADB funding of coal power in Pakistan:


Giving in to the pressure from an international lender, the government has reversed its decision on consuming domestic coal for power generation as the Council of Common Interests has approved using a blend of imported and Thar coal in power plants.

The move will pave the way for an early sanction of a $900 million loan by the Asian Development Bank that will go for the construction of a 600-megawatt coal-fired power plant at Jamshoro and for switching an existing 600MW power plant to coal.

According to sources in the finance ministry, further discussions on the $900 million loan will be held with ADB Director General of Central and West Asia Department Klaus Gerhaeusser, who was due to arrive on Wednesday.

During his two-day visit, Gerhaeusser will meet Finance Minister Dr Abdul Hafeez Shaikh and Water and Power Minister Ahmad Mukhtar. He will also hold meetings to review communication projects.

Prime Minister Raja Pervez Ashraf had placed a ban on imported coal-powered plants in a bid to encourage consumption of Thar coal in such projects. However, the ADB resisted the move and refused to extend loans for Thar coal-based power plants.

The bank was of the view that higher dependence on lignite would increase pollution, which was against the environmental policy of the lending agency.

Following the ADB’s decision, the federal government placed the case in a meeting of the CCI – a constitutional body headed by the prime minister with all chief ministers as members – on January 23. According to official documents, the CCI decided that “instead of using only Thar coal, a blend of imported and Thar coal will be used in the 600MW Jamshoro plant.”

In this meeting, Sindh Chief Minister Syed Qaim Ali Shah, who actively promotes mining and consumption of Thar coal, was also present.

CCI also decided that the Ministry of Water and Power would work out further details in deliberations with representatives of the ADB.

Apart from the ADB, the Japan International Cooperation Agency (JICA) has also expressed interest in constructing power plants in Pakistan, besides laying a power transmission lines from Thar to Matiari.

In the past many years, heavy reliance on furnace oil has disturbed the country’s energy mix. Against a one-third share of thermal power generation earlier, the ratio has increased to three-fourths. The recent emphasis on the shift to coal is aimed at tackling the runaway circular debt that has plagued the entire energy chain, forcing the government to spend billions of rupees every month to prop up the energy system.

According to a government official, it was not yet clear whether Pakistan will again take up the issue of financing the Diamer Basha Dam with the ADB director general.

However, he said these days the dam, costing $11.3 billion, was not the top priority of the government, which has shifted funds meant for the dam to another project, the Neelum Jhelum hydropower plant. An amount of Rs1 billion has also been diverted to the PM’s discretionary funds.

Riaz Haq said...

Here's a BR report on unconventional oil ad gas policy in Pakistan:

Advisor to Prime Minister on Petroleumand Natural Resources Dr. Asim said that Pakistan offers great potential in the oil and gas sector and the government is doing its part by introducing new policies to meet the rising energy demand .

He was presiding over a seminar organized by the Petroleum Institute of Pakistan (PIP), a representative body of the oil and gas industry, on the topic "Shale Gas Potential in Pakistan" on Saturday.

The purpose of holding this seminar was to create awareness aboutpotential and challenges of shale gas in Pakistan and establish PIP'sprofessional standing in view of assisting the government on dealing with the energy crises in the country.

The forum consisted of 150 distinguished guests from the oil and gas fraternity including government officials, media personnel and students from Karachi's top universities/colleges.

Dr. Asim Hussain said he has been advocating the need to balancecountry's energy mix, which currently is heavily dependent on natural gas.

He stated that the US Energy Information Administration have estimated 51 TCF Shale Gas Reserves in Pakistan, while as estimated reserves for Low BTU Gas are 2 TCF and that of tight gas are 40 TCF.

He added that Shale Gas exploration is high technical and costly, therefore, in order to encourage its exploration, pilot projects are planned.

The Ministry of Petroleum and Natural Resources will facilitate E&P Companies wishing to explore shale gas, by granting special concessions through transparent process and based on merit.

Chairman PIP Asim Murtaza Khan stressed on PIP's role as an effective energy sector advisory body, supporting government and industry in Pakistan todevelop a progressive and sustainable roadmap to meet present and futurechallenges.

He said that PIP is planning to hold series of seminars in nearfuture. The big ticket items that will be discussed and which need theimmediate attention will be the "LPG Outlook in Pakistan", "Fast-trackingimports of LNG", "Refining Vision 2020", "Energy conservation" and"Restructuring of the Pakistan's gas sector".

Riaz Haq said...

Here's a PakistanToday report on Sindh coal plans:

KARACHI - The Sindh Engro Coal Mining Company (SECMC) and Government of Sindh broke ground on Thursday to mark the beginning of coal extraction project at Thar Coal block II.
Sindh Chief Minister Qaim Ali Shah attended the groundbreaking ceremony, along with the other government officials and Senior Management of Engro Corporation, says a statement issued by Engro Corporation. Sindh Engro Coal Mining Company is a joint venture between Engro Corporation and Government of Sindh. The SECMC has completed the feasibility study on Thar Coal project, confirming the technical, commercial and environmental viability of the project.
All the required government approvals have been obtained and the Economic Co-ordination Committee (ECC) has approved $700 million sovereign guarantee for the project. The mining project, which will cost US$ 1.3 billion, is likely to start later this year and is expected to take less than four years for completion. Speaking the occasion, Ali Ansari - President and CEO Engro Corporation said, “For over four decades Engro has been a part of Pakistan’s economic landscape sharing the various challenges and triumphs that the country has offered.
As a good corporate citizen, our investments in Thar Coal project today are a preliminary step towards building the capacity, which will foster a more developed and energy-efficient Pakistan. Investments in Thar Coal are not only the need of the hour but also make sound economic sense.” On the occasion, Shamsuddin A. Shaikh - CEO Sindh Engro Coal Mining Company said, “Thar has an enormous energy potential. SECMC’s Thar Block-2 can produce 4000 MW for next 50 years. Total foreign exchange savings for 4000 MW of Thar coal based power plants are estimated at more than US$ 50 billion for life of the project.
The strategic investment and development of the Thar Coal Block II will not only help alleviate the chronic energy crisis of the country but also usher in a new era of prosperity for the people of Sindh and ultimately the people of Pakistan.
The project will yield 4,000 new direct and indirect job opportunities for the local community. The SECMC applauds the support and efforts of the Sindh Government and reiterates its firm commitment to fulfil all its obligations in a timely manner, which will bring energy security to Pakistan and accelerate the industrial development in the country.
The Engro Corporation Limited is one of Pakistan’s largest conglomerates with businesses ranging from fertilizers to power generation. Currently Engro Corporation’s portfolio consists of seven businesses, which include chemical fertilizers, PVC resin, a bulk liquid chemical terminal, foods, power generation and commodity trade.

Riaz Haq said...

Here's a Dawn story on oil and gas discoveries in Pakistan:

Following a lacklustre period of several years, when things remained quite on the oil and gas exploration sector, in the face of heightened security situation and circular debt issues, the oil and gas fields have started to buzz with activity.

In the current financial year-to-date (July 1, 2012 to March 11, 2013) the country’s oil and gas sector has spudded as many as 56 wells. It represents a big leap over the 31 wells drilled in the same period last year. The sector has drilled 20 new exploratory wells as against 12 wells same time last year, depicting a significant increase of 67 per cent.

On the discovery side, the picture was a lot brighter than the earlier years as a total of 10 discoveries have been made by the sector in FY13 so far.

The sector’s drilling of a total of 56 exploratory and development (E&D) wells during the period also represents achieving 61 per cent of the full year target set at 91 wells. Even in that sphere, the sector fared better than the comparable period last year when only 41 per cent of the target 76 wells could be drilled.

“O&G sector’s focus continues to remain on the development wells”, says Nauman Khan, analyst at Topline Securities. Of the total wells drilled, 36 were development wells (representing 64 per cent of total activity). It reflected improvement over 19 wells or 61pc of total wells drilled in the comparable period last year.

Apart from the development wells, the activity on the exploration side also represented encouraging growth. Although, contribution of the exploratory wells had slightly declined to 36pc as against 39pc in the same period last year, the overall trend was heartwarming.

The sector spudded 20 exploratory wells, which was significantly more than 12 wells drilled in the comparable period last year while it represented 45pc of full year target of 44 wells.

Analyst said that amongst the listed companies, Pakistan’s largest oil and gas explorer, the Oil and Gas Development Company (OGDC) had drilled 13 wells which were 63 per cent higher than eight wells drilled last year. Included in those 13 wells, were two exploratory wells and 11 development wells.

Pakistan Petroleum Limited drilled five wells (one exploratory and four development), up from two development wells in the comparable period last year. However, with full year target of 16 wells (six exploratory and 10 development), sector watchers expect the drilling activity of the company to significantly intensify in the remaining of the year.

The third major oil and gas E&P company, the Pakistan Oilfields Limited drilled only one exploratory. In the comparable period last year, POL had drilled two exploratory wells.

Though much of the success eluded the E&P companies on the listed sector, the revival and discovery would benefit the country. The darkest hour for the sector came possibly in late 2010 and early 2011, when exploration and development work had started to limp.

According to the data compiled by Pakistan Petroleum Information Services (PPIS), 28 E&P companies in the country, that hold operator licences, together had drilled only 19 wells in first half of the year 2011, compared to 80 wells targeted for all of the FY11.Besides the poor security situation, the two major reasons for the underperformance of E&P companies were the nagging circular debt, which had affected the drillers’ liquidity thereby restricting their drilling portfolio and secondly, the continuation of the carry over wells of the earlier year that stalled companies from launching into new wells, keeping them focused on already drilled ground.

Riaz Haq said...

Here's Express Tribune on private sector jumping in to add power generation capacity:

After five years of unbearably long daily power outages, Pakistan’s private sector has had enough: over the next five years, they plan on investing over $14.3 billion in increasing the nation’s power production capacity by nearly 46%, and they are doing so by investing in the cheapest possible sources of electricity.

According to data released by the National Electric Power Regulatory Authority (Nepra) in its 2012 State of the Industry report, private sector firms have already begun work on dozens of projects that would substantially increase the country’s electricity generation capacity. For the purposes of this special report, we include only those projects that are scheduled to be completed by the end of the next administration’s term in 2018.

If the next administration were to do absolutely nothing to prevent or slow down the progress currently being made on projects that are already approved and progressing, Pakistan’s power generation capacity will increase to 34,200 megawatts (MW), compared to the approximately 23,500MW today. Of that increase, more than 80% is coming through private sector initiatives.

Yet it is not just the private sector’s initiative that deserves to be applauded: it is also their foresight. Nearly all of the private sector projects scheduled to come online use the cheapest fuels possible. These firms are scheduled to add about 4,900MW to the nation’s hydroelectric power generating capacity, for example. Another 800MW will be added in terms of gas-fired thermal power plants. And nearly 3,000MW will be added or converted to coal and bagasse (a waste product from sugar manufacturing).

Residents of Karachi should rejoice in particular: the Karachi Electric Supply Company is converting 840MW of oil-fired thermal power stations to coal, which will dramatically increase the country’s only private utility’s ability to generate cheaper electricity. Put simply, this will mean even fewer power outages in Karachi.

The private sector’s focus appears not only towards fuel sources that are cheap, but also easily available. Natural gas, for instance, is possibly the cheapest source electricity, cost an average of Rs4.24 per kilowatt-hour, according to Nepra. But the bulk of the investment is going towards hydroelectricity, which, according to Nepra’s tariff determination, is expected to cost Rs5.43 per unit for the first 12 years of a project’s life, while the debt used to finance the plants is still being paid off, following which the tariff will be reduced to Rs2.47 per unit.

The preference for hydroelectricity has to do with the fact that Pakistan’s natural gas reserves are rapidly being depleted and importing gas is far more difficult than importing coal. Power plants that run on imported coal can produce electricity for an average of Rs10 per unit, according to industry experts, much cheaper than the Rs16 per unit that oil-fired thermal plants cost.

Compared to the $14.3 billion being invested by the private sector, the government is planning to invest just over $2.5 billion over the next five years to upgrade its power infrastructure, which will add about 2,100MW of electricity generating capacity over the next five years, the overwhelming bulk of which will be in thermal power plants that can run on both oil and gas.

The picture, of course, is not completely rosy. Power projects are notorious for not meeting their deadlines so it is possible that the next administration will not see all of these projects come to fruition during its term. But given the private sector’s commitment to solving Pakistan’s energy problems, the least the government can do is not create hurdles in their way. It will only help their own re-election chances.

Riaz Haq said...

Here's a National Geographic piece on Thar coal development in Pakistan:

The current acute energy crisis in Pakistan, certainly the worst of all times is heating up an indigenous extractive resource scramble in a remote part of Pakistan with unusual demographics. The Tharparker District or simply the Thar Desert located in the southeastern province of Sindh is under spot light because of a 175 billion tons of estimated coal reserves lying beneath its surface. These reserves have been known for around two decades, but only recently has development gained momentum to generate power in order to propel the country’s ailing economy. The signs of a resource boom are already animating the dull landscape of the region – roads, airports, site offices, power lines, guest houses and rising real estate price are evident. Near the town of Islamkot, an underground coal gassification pilot project represents the scale of possible change where workers sourced from local communities rest their heads after long-hour shifts.

Understanding the quandary faced by the residents of the Thar Desert took me to several villages situated in the vicinity of the coal fields to gather some basic ethnographic data on community perceptions of the project. Tharparker is home to around 1.5 million people stretching its boundaries with Indian Rajasthan and the Great Ran of Kutch salt marsh. The indigenous communities of Menghwar, Kolhi and Bheel make up a large part of the rural human settlement. The land is famous for rippling sand dunes, distinct folklore, rain-starved shrubs, drying wells, bottomed indicators of health, poverty and education and the most food insecure district in the country. One of the villages Mauakharaj of Tharparker, just beside an airport being built to host coal companies, has abject poverty and deprivation. The whole village is culturally and socially crippled because of fluorosis; a disease caused by consumption of excessive fluoride in groundwater, with no remedy and still people compelled to use it.
The conversation did not lead to consensus on what approach should be dominant but there was a agreement that Thar coal development should not be a first resort but much further down the priority scale for addressing Pakistan’s energy crisis. As Pakistan’s election approaches, energy is a ballot issue and polemics are rife on panacea solutions. It is high time that Pakistanis consider their energy predicament with a multifaceted strategy that transcends petty nationalism so that communal harmony is not compromised for short-term and inefficient power solutions.

Riaz Haq said...

Here's an AFP report about discovery of new gas reserves near Karachi:

ISLAMABAD: Pakistan has discovered a new gas reserve in southern Sindh province that would help reduce acute gas shortages for industry and transport, the petroleum ministry said Friday.

Italian energy major ENI with joint venture partners Pakistan Petroleum Limited and Kuwait Foreign Petroleum Exploration Company made the discovery in the Kirthar Fold Belt region 270 kilometres (170 miles) north of Karachi.

"During the production testing gas flowed at 33 million cubic feet per day highlighting an excellent potential for the future for energy needs of the country," the ministry said in a statement.

Officials said that under an early production scheme, gas supply from the new reserve would be possible within three years.

Pakistan's Minister for Petroleum and Natural Resources Sohail Wajahat Siddiqui said that the discovery was "good news for the nation and the energy sector of Pakistan".

The discovery of new oil and gas reservoirs were "vital" to cope with the prevailing energy shortage in the country, Siddiqui said.

ENI has been in Pakistan since 2000 and is the country's largest producer, with an average production of 54,800 barrels of oil equivalent per day in 2011.

Pakistan has had an endemic energy crisis for years, characterized by frequent blackouts, which has crippled the economy.

The crisis is blamed on chronic mismanagement and corruption.

Riaz Haq said...

Here's a Dawn report on the cost of fuel for thermal power in Pakistan:

ISLAMABAD: The government disclosed in the Supreme Court on Thursday that about Rs2 billion was being spent daily (Rs749bn a year) on purchase of furnace oil for thermal power generation.

“This Rs749bn is in addition to Rs250bn which the government has to incur in terms of subsidised electricity provided to certain consumers,” Managing Director of the Pakistan Electric Power Company (Pepco) Zarghoon Ishaq Khan informed a three-judge bench headed by Chief Justice Iftikhar Mohammad Chaudhry which had taken notice of the rising electricity loadshedding.

The court regretted that despite spending a huge amount on thermal power generation people continued to endure huge power cuts.

The total electricity shortfall currently stands at about 4,000MW against a demand of 13,800MW. The generating units at present are collectively producing about 9,200MW.

The court directed Pepco, National Transmission and Dispatch Company, generation companies, Indus River System Authority and Alternative Energy Development Board to come up with actual reasons for loadshedding, bottlenecks and difficulties in providing the required electricity to consumers.

Riaz Haq said...

Here's an Express Tribune report on Engro-KESC deal for coal electricty:

Karachi Electric Supply Company and Sindh Engro Coal Mining Company (SECMC) inked a memorandum of understanding to construct a power generation project capable of producing 600 megawatts (MW) at Thar coal field.
According to the agreement, SECMC – a joint-venture between Engro Powergen and the Government of Sindh – will develop a 600MW Mine Mouth Power Plant in Thar field’s block 2, whereas KESC will purchase power from the plant to meet the rising power demand in Karachi and adjoining areas of Sindh and Balochistan, according to a press statement on Wednesday.
Both the parties believe that the agreement will serve as the base for a mutually beneficial partnership for future progress and development of one of largest coal reserves of Pakistan.
The two companies acknowledged that coal from Thar had the potential to address the country’s severe power shortages and bring energy security which is indispensable for economic growth.
The Thar Coal Power Project aims to provide affordable and sustainable electricity to consumers using domestic resources. Reliance on indigenous fuel is likely to save billions of dollars in foreign exchange currently spent on import of the expensive alternative furnace oil, cutting the overall cost of power generation.
After the signing ceremony, Sheikh said, “Thar coal is a project of national security as it will bring much-needed energy security to propel the nation into an era of prosperity and development. SECMC’s Thar block 2 alone can produce 5,000MW for the next 50 years, amounting to an estimated foreign exchange savings of $50 billion throughout the life of the project. This project will demonstrate maturity and capability of corporate sector to join hands and synergise on national level.”

Riaz Haq said...

Here's a BMI report on Pak energy sector:

Boston, MA -- (SBWIRE) -- 05/24/2013 -- Successive energy shortages in Pakistan have led the government to acknowledge that longterm gas self-sufficiency has become impossible. A March 2013 agreement with Iran on the development of the IP pipeline by 2015 could ease the risk of an energy shortage. Domestic consumption continues to rise rapidly, boosted by the start-up of additional gas-fired power stations and continued use of Condensate Natural Gas cars. As import volumes rise, LNG is set to become part of the energy mix. In the meantime, Pakistan will again attempt to privatise more of its various state-controlled energy companies and stimulate investment in domestic oil and gas production. While we do not believe it would render Pakistan gas selfsufficient over the next 10 years, the recent start-up of shale gas exploration creates a large upside risk to our forecast.

View Full Report Details and Table of Contents

The main trends and developments we highlight for Pakistan's Oil & Gas sector are:

- Energy minister Asim Hussein has acknowledged that the current situation in Pakistan requires policy rationalisation. Several steps have been taken including a rise in regulated gas prices, a revamp of licensing regulation to promote exploration and distribution of production in local markets, the offer of 60 onshore blocks in a licensing round, offshore and unconventional exploration, and development of necessary import infrastructures.
- We expect gas reserves to fall until 2022 as consumption increases from 39bn cubic metres (bcm) in 2012 to 55bcm by the end of the forecast period. Production will not follow that trend. We see gas output peaking at 40.1bcm in 2015 and falling afterward to slightly above 35bcm by 2021 as the Sui Gas Field, the main producing field in Pakistan, reaches the end of its life.
- We see oil demand rising from an estimated 376,600 barrels per day (b/d) in 2012 to nearly 482,000b/d in 2022, about 30,000b/d more than previously forecast. While we expect production to continue its increase throughout the decade, this will leave the county with a growing import requirement. From 62,000b/d in 2011, we see oil output growing steadily until 73,500b/d in 2022.
- LNG imports will start in 2013. The government expects to import 2bcm of LNG in 2013, acquired on the spot market and arriving at Port Qasim. International supply contracts are to be allocated for up to 8bcm in the coming years, while discussions have reportedly already started with the US and Qatar.
- The controversies surrounding the IP and TAPI pipelines continue, with the US providing increasing support for Pakistan to meet its energy needs through LNG imports. While we can still see some risks to the completion of the line, especially from a political perspective, the IP pipeline appears to be on its way to start first flows in 2015. We do not believe that LNG imports will be sufficient and we hardly envisage a scenario where neither pipeline is completed by the end of the decade.

Riaz Haq said...

Here's a Daily Times report on SC hearing on load shedding:

....A three-member bench, headed by Chief Justice Iftikhar Muhammad Chaudhry and including Justice Chaudhry Ijaz Ahmed and Justice Gulzar Ahmed, noted on Tuesday that there could be a genuine problem, “but now it seems that there was an involvement of artificial factors, particularly the high inefficiency of the Pakistan Electric Power Company (PEPCO) (Private) Limited and the National Transmission and Despatch Company (NTDC) Limited officials”.

The court said that production of power plants below their capacity could be one of the reasons of severe load shedding in the country.

The court was informed that the Guddo Thermal Power Plant’s total capacity was 1,650MW, but it was presently producing 775MW, while the Jamshoro Thermal Power Plant had a capacity to produce 1,000MW, but it was generating only 300MW.

Moreover, Muzafargarh plant’s capacity was 1,100MW, but it was presently producing only 700MW.

PEPCO Managing Director Zargham Ghulam Ishaq Khan informed the court that the deterioration in production was due to faults in the machines and that spare parts had to be changed.

The court was informed that after several steps, about 975MW had been added to the current system, which would reduce the intensity of load shedding in the country.

He told the court that the technical audit of some of the thermal plants had been carried out and the machines shall be made functional to their full capacity.

He maintained that during the last couple of days, power generation had dropped drastically due to various technical reasons.

He informed the court that due to the non-availability of oil and gas to the power sector, the current power crises had gotten worse. He said that arrangements had been made for the supply of furnace oil to the plants, adding that natural gas would also be supplied to the companies so that maximum output was generated.

About the hydroelectric power plants, the MD said 60% to 70% of their capacity had been increased, and they were presently generating 3,900MW. The generation capacity could further be increased if discharge from Tarbela, Mangla and glacier melting was increased, he added.

PEPCO engineer and consultant Raziuddin, who appeared voluntarily, told the Supreme Court that the company and the NTDC needed a fulltime managing director rather making makeshift arrangements. He said that PEPCO had sufficient capability to make the units functional. He said the Gudu Power Plant had the installed capacity of 1,650MW, while it was currently generating 775MW due to fault in various machines, which needed to be fixed. He gave the example of a machine, stating that only fixing of one machine could add 100MW of electricity to the system.

The PEPCO MD replied that they had already completed the audit of all the machines and they had also fixed machines number 5 and 7 at Gudu, adding that the current output of the plant was 835MW and not 775MW.


He said that Jamshoro Power Plant, after necessary repair work, was ready to generate 750MW. The CJ asked why were they not generating 750MW from Jamshoro, on which the MD said that due to the deficiency of furnace oil, they could not go ahead with the new additional capacity. He further added that power generation addition would be about 975MW after the new steps by the PEPCO

Riaz Haq said...

Here's a GlobalPost report on coal conversion of gas-oil-fired power plants in Pakistan:

Pakistan has asked the Manila-based Asian Development Bank to help finance two coal-fired power units at the Jamshoro thermal power station in Sindh, a senior official of Pakistan's Water and Power Development Authority told Kyodo News this week.

Zafar Umar Farooqi, chief engineer at the authority, said Pakistan had initially sought a $433 million ADB loan for one 600-megawatt unit but the bank has now been asked to consider a loan for two units.

He said the size of ADB loan will be decided after consultations with the bank, but he indicated the total cost of Jamshoro project would be around $1.5 billion.

The government-owned WAPDA operates an 850-MW oil-gas fired thermal power plant at Jamshoro at less than 40 percent of its capacity because of a shortage of fuel oil and gas.

The ADB loan will be used to convert the existing plant to coal and set up an additional coal-fired plant at the site, increasing installed capacity at Jamshoro to 2,050 MW.

The government has already invited expressions of interest from consultants to oversee construction at Jamshoro, which is about 150 kilometers northeast of Karachi and uses water from the Indus River for cooling.

Pakistan has long examined setting up coal-fired power plants to use its own lignite coal, but efforts have been unsuccessful because of the high ash content in the coal.

Ismail Khan, senior external relations officer for the ADB for Pakistan, said the new units at Jamshoro would be designed to use mixed local and imported coal, most probably from Indonesia.

Farooqi said separate tenders will be invited for conversion of existing Jamshoro plant from oil-gas to coal.

Pakistan has an acute power shortage and the new government of Pakistan Muslim League (N) has given top priority to increasing power generation.

Riaz Haq said...

Here's an ET report on ADB financing for Jamshoro coal-fired 1200 MW power plant:

Despite opposition by the United States (US), the Asian Development Bank (ADB) has approved a $900-million loan for converting the Jamshoro Power Plant to a coal-fired one, giving a boost to the government’s efforts to improve the energy mix.
According to sources, hectic diplomatic efforts, launched by Finance Minister Ishaq Dar, saved the day for Pakistan after the US had indicated its opposition to the deal to the ADB’s Board of Directors. The US cast its vote against Pakistan, the sources said.
However, Canada, Germany, Australia, New Zealand and Japan cast their votes in favour of Pakistan.
The loan was approved by the ADB Board of Directors, according to Ministry of Finance. The project will have an installed capacity of 1,320 megawatts (MW) and will add 1,200 to the national grid.
The new plant will generate electricity at a lower cost, saving about $535 million per year on fuel imports compared to oil-fired power plants.

Three-fourth of the board voted in favour of the loan, the finance ministry said. Dar also thanked the ADB and countries that supported Pakistan’s proposal, it added.
The previous government had initiated the process of converting and running the power plant on imported coal.
However, the PML-N government plans to construct coal power plants at Gadani with a total capacity of 6,600 MW as part of its policy of producing electricity on cheaper fuels like coal, Dar stated.
According to the ADB, out of the total sum of $900 million, an amount of $870 million will be at a higher interest rate while $30 million will be at a concessional one. The Islamic Development Bank will also provide $150 million, while $450 million will be arranged by the government, to meet the total estimated project cost of $1.5 billion. The ADB said that project is expected to be completed by December 2018.
While the ADB approves the loan, the Pakistani authorities have yet to sort out the actual price. After the Ministry of Water and Power overestimated it at $2 billion (Rs220 billion), the federal government had constituted a committee to review the cost, which had originally been estimated at $1.5 billion (Rs165 billion).
The ADB said that in order to address environmental concerns, it will employ state-of-the-art emission control equipment resulting in cleaner emissions than the existing heavy fuel oil-fired generators and subcritical boiler technology which is more commonly used.
Before approving the loan, the ADB had pressed Pakistan to agree to using imported bituminous coal for 80% of the plants fuel requirement, and Thar coal which is lignite and has a low heating capacity for the remaining 20%.

HopeWins Junior said...

^^RH: "Do you know that a lot of countries, including India, don't even have a national grid? While India currently does not have a unified national power grid, the country plans to link...."

Well? Should we now connect to the Unified Indian Grid? Bangladesh has already done so? Should we follow? Or do you see a danger?

Riaz Haq said...

Here's a Financial Times report on Qatar-Pakistan LNG deal:

Electricity-starved Pakistan is close to signing a deal with Qatar worth as much as $2.5bn a year for the supply of liquefied natural gas (LNG) from the Gulf emirate to fuel Pakistan’s power grid, according to senior officials in Islamabad.
“This will be the last winter of discontent,” said Shahid Khaqan Abbassi, Pakistan’s petroleum minister, in a reference to the long power cuts that have for years angered Pakistani industrialists and householders. He promised a “major improvement” in gas supplies next year after particular severe shortages this winter.

Mr Abbassi is close to signing an agreement for the import of LNG from early 2015. Although the government has yet to name a supplier formally, Mr Abbassi and other officials from his ministry said that Qatar was the expected seller.
“If we can provide gas to those of our power generation plants that run on gas, [electricity cuts] will go down by half,” said Mr Abbassi. Demand for natural gas in Pakistan, a country of 180m people, is estimated at 8bn cubic feet per day, double the amount produced locally from gas fields in the south of the country.
Pakistan has also negotiated an agreement to buy gas to be piped from neighbouring Iran, but implementation of the project has been has been hampered by lack of financing and by US opposition.
Mr Abbassi expects Pakistan to buy some 3.5m tonnes of LNG a year from Qatar, meeting only part of the country’s shortfall.
Before the winter, Mr Abbassi alarmed his cabinet colleagues when he told them that for the first time in Pakistan’s history gas supply this year would not be sufficient to meet the needs of domestic consumers – even if supplies to commercial and industrial buyers were suspended.
Nawaz Sharif, prime minister, ordered Mr Abbassi to “take emergency steps” to tackle the situation, according to a senior official working with Mr Sharif. “Failure to provide gas will only enlarge the political risk [to the government],” the official said.
Growing energy shortages in recent years have prompted street demonstrations that only add to political instability in Pakistan.
Some critics have questioned Pakistan’s ability to keep up with the payments for future LNG supplies given the country’s weak finances, although the gas would partly replace oil used for power generation. “That may spare foreign exchange and allow the authorities to pay for at least part of the gas imports,” said Sakib Sherani, a former finance ministry adviser
The discussions with Qatar have deepened uncertainty over an earlier plan by Pakistan to build a pipeline to the Iranian border to import gas from Iran’s South Pars gas field. Mr Abbassi refused to comment on that project, and said only that “Pakistan will need more gas even after the LNG project. We are looking at all possible avenues.”

Riaz Haq said...

Modi on petroleum exploration in Pakistan: Referring to the exploration scope in the region, he said Pakistan has started exploring the area across the border for gas and petroleum products.

"Look across the border in Pakistan, they have started massive work in gas and petroleum sector, why can't we?" he asked.

"It is the same region. There is immense scope for gas and petroleum here. I am sure we can definitely find it here as well. It can give new strength to our nation."

Addressing the youths, he said there will be opportunities in the exploration work in future and asked them to prepare themselves for it.

"We have started a petroleum university in Gujarat and this is for youngsters. I would urge the youth here to go on Internet and search about petroleum university. I invite you to make full use of it," he said.

Riaz Haq said...

K-Electric (KE) has signed an agreement with China Machinery Engineering (CMEC) for the development of a coal-fired power project with a capacity of 700MW in Pakistan.

Under the terms of the joint development agreement (JDA), the $1bn power plant will be built at Port Qasim, Pakistan. China Datang Overseas Investment Company (CDTO) is also part of this agreement.

The project is being developed as part of KE's effort to diversify its energy fuel-mix toward cheaper sources of energy.

KE CEO Tayyab Tareen said: "This initiative is in line with KE's vision of Karachi being a net exporter of power in the years ahead.

"This project will also contribute to KE's fuel diversification strategy and marks a significant step towards a new era of cheap base load power in Pakistan."

In addition to creating employment opportunities, the project will help to overcome the ever rising electricity demand of the port city of Pakistan.

CDTO president Duan Zhongmin said: "We are fully committed to cooperate with KE and CMEC to successfully execute this Port Qasim project which shall go a long way to meet the energy needs of the people of Pakistan."

Riaz Haq said...

From Wall Street Journal: "Pakistan Close to Agreement With Qatar Over LNG Supplies for Power Plants"

ISLAMABAD—Pakistan is close to striking a long-term deal worth potentially $22.5 billion or more to import liquefied natural gas to help fuel the country’s power stations and ease its crippling electricity crisis, Pakistan’s top energy official said.

“We are negotiating with Qatar and a few other sources,” said Pakistani Petroleum Minister Shahid Khaqan Abbasi in an interview with The Wall Street Journal. “The deal will be very competitive and very beneficial for Pakistan.”

An agreement with Qatar is expected by early March, Pakistani officials say.


The deal with Qatar would provide supplies over 15 years, Pakistani officials say. Pakistan is looking to import 3 million tons of LNG a year, beginning this year, with much or all of that coming from Qatar.

The country’s overall LNG imports are expected to rise to around 7 million tons annually within three years. It isn’t clear as yet how much of that higher total would be provided by Qatar.

Importing 3 million tons of LNG would cost around $1.5 billion annually, or some $22.5 billion over 15 years, given current global oil and gas prices, analysts say. That cost will fluctuate with the price of oil, which is also used to price LNG.

The Pakistani conglomerate Engro has built a terminal to import LNG at Port Qasim, on the edge of the southern city of Karachi, set to become operational at the end of March, officials say. Bidding is now under way to construct a second LNG terminal at Port Qasim.

Pakistani officials have been negotiating for months with state-owned Qatar Gas. The government of Qatar and Qatar Gas didn’t respond to requests for comment.

Pakistan’s electricity crisis has been caused partly by its reliance on importing furnace oil and diesel to fire its power stations, both relatively expensive fuels that will be replaced by the LNG. “LNG is more efficient and cleaner for the environment than the alternatives,” Mr. Abbasi said. “This is a major shift in our energy mix.”

According to Mr. Abbasi, LNG imports of 3 million tons would yield cost savings worth an annual $300 million. By using LNG, Pakistan will be able to between 7% and 9% more power, as a result of its greater efficiency and by bringing currently dormant gas-fired power stations back to work, Mr. Abbasi said.

Pakistan’s electricity shortage results from a failure to build power stations to keep pace with demand, a dependence on burning relatively expensive fuels and the swelling of debt in the sector that has led to some plants being shut down.

The deal would mark the first time that Pakistan will import natural gas. It would be the biggest financial commitment made by Pakistan to date, analysts say.

“This would be a positive development for Pakistan’s energy security. Qatar is a reliable and credible supplier,” said Anthony Livanios, head of oil and gas consultancy Energy Stream CMG. “For Qatar, this will help it diversify its customer base. So it’s a win-win situation for both countries.”

Qatar is the world’s biggest producer and exporter of LNG.

Pakistan is also considering shorter-term deals and open-market transactions to source some of its LNG needs from other countries, including Brunei, Malaysia and China, which isn’t a producer but may have excess imports that it can resell.

Nicholas Browne, a senior manager at Wood Mackenzie, an oil and gas consultancy, said typical pricing for Qatari LNG would be 14% to 15% of the price of oil. At 14%, Pakistan would be acquiring the fuel at $7 per million BTU, an attractive price, said Mr. Browne.

“From a buyer’s perspective, it is a great time to be in the market for LNG, in terms of both price and availability,” said Mr. Browne, because the price of oil has fallen and there is a substantial increase in supply expected in the next couple of years, as Australia and the U.S. bring new output onto the market.

Riaz Haq said...

MANILA, Feb. 27 (UPI) -- The Asian Development Bank said Friday it was supporting efforts to help Pakistan build its first liquefied natural gas terminal with a $30 million loan.
Pakistani company Engro Corp. will get funding from the ADB to build the regasification terminal at a port near Karachi. The plant will be able to convert as much as 3 million tons of LNG per year to gas for use in state power plants.

ADB investment specialist Mohammed Azim Hashimi said the loan would help Pakistan build a cleaner, more efficient and more diverse power sector.

"Pakistan urgently needs to utilize its existing power generation capacity fully, while reducing its reliance on costly imported diesel fuel for electricity generation," he said in a statement.

The Engro facility was approved for fast-track development earlier this week.

Pakistan's aging infrastructure means the country lacks a reliable power sector. The ADB in the past has lent its support to a multilateral natural gas pipeline that would strength from Turkmenistan.

The pipeline would draw from the Galkynysh natural gas field in Turkmenistan, one of the largest in the world.

The ADB describes the status of the power sector in Pakistan as "crippling." With the LNG facility, the bank said the Pakistan government would save about $1 billion per year on its fuel import bills. Cleaner burning natural gas, meanwhile, would help avoid 2 million tons of greenhouse gas emissions per year.

Read more:

Riaz Haq said...

The first shipment of LNG is scheduled to arrive in Pakistan on 26 March 2015, according to local reports.

Sources suggest that Qatargas has sold the LNG to Pakistan at approximately US$8 – 9/million Btu.

The government of Pakistan is keen to secure supplies of LNG from Qatar to help ease the energy crisis that is currently plaguing the country. Last year, Engro Corp.’s subsidiary, Elengy Terminal Pakistan Limited (ETPL), won the contract to develop Pakistan’s first LNG import infrastructure within a 335-day deadline.

Engro Corp. prepared an exclusive article discussing the regasification project for the March 2015 issue of LNG Industry. In the article, Engro explained the extent of the energy crisis in Pakistan:

Pakistan’s demand for gas [is] expected to double in the next 10 years and current gas production at 4 billion ft3/d was less than the required 6 billion ft3/d. At the current rate of growth, the demand could touch 13 billion ft3/d by 2020.

If this happens, the energy conundrum in the country could well become an energy catastrophe. Towns and rural areas will be in perpetual darkness, and a majority of the industrial units will be forced to shut down or remain uncompetitive. Consequently, unemployment will increase, a greater majority of Pakistanis will fall below the poverty line, food inflation will become rampant, and social indicators will be well below that of sub-Saharan countries.

By this time, Pakistan will only be able to meet 41% of its energy requirements and will have an energy import bill of US$52 billion. With no end in sight, the repercussions of Pakistan’s ongoing energy crisis are severe and go well beyond threats to the country’s economic well-being and stability.

Hence, it is imperative to look for an alternative source of gas in Pakistan. Importing LNG will enable the government to save significant foreign exchange through import substitution of oil, and will alleviate the energy crisis plaguing the country.

Riaz Haq said...

Excelerate Energy’s Exquisite FSRU arrived in Karachi on Thursday carrying Pakistan’s first LNG imports, according to local media.
The FSRU has been chartered by EngroVopak to be used as a permanent regasification vessel at Port Qasim for 15 years. Its installation marks the completion of the terminal, which has taken less than a year to build.
The terminal was initially slated to come online in the first week of March, but negotiations for a supply deal between Pakistan and Qatar overran. An agreement was reached on 13 March, although details on prices and volumes remain confidential.
The Pakistani government was under considerable pressure to finalise a deal as it would have been liable to pay penalties of $272,000 per day to Engro if an agreement had not been in place by the beginning of April.

Riaz Haq said...

#Energy deal: #Moscow to lend $2b for #Karachi-#Lahore LNG pipeline. #Russia #Pakistan …

Currently, Pakistan is working on two pipelines to transport re-gassified LNG from Karachi to the northern parts of the country. The first is a pipeline that will connect the Gwadar Port to the main natural gas pipeline hub in Nawabshah. The second will lay a direct pipeline from Karachi to Lahore.

The government has signed an initial deal with China to award a $3 billion LNG terminal and pipeline project to a Chinese contractor in a similar financing-for-guaranteed-contract arrangement.

Islamabad had initially offered Moscow and Beijing a similar arrangement for the Iran-Pakistan pipeline, but American and European sanctions against Tehran scuttled that project – at least for now.

An LNG import terminal, owned and operated by the Engro Corporation, an industrial conglomerate, is already up and running, though there is, as yet, no agreement to import natural gas from Qatar, the third-largest natural gas producer in the world and closest to Pakistan. There is also no infrastructure yet that would allow that natural gas to be transported upcountry.

“We are negotiating an LNG supply deal with Qatar which will be finalised soon,” Abbasi said.

Pakistan’s existing pipeline network has the capacity to transport 320 million cubic feet of gas per day (mmcfd) in re-gassified LNG. Consumption in Punjab and Khyber-Pakhtunkhwa, as well as upper Sindh, however, exceeds 3,000 mmcfd, which is why the new pipelines are badly needed.

In order to finance the payback of the loans needed to construct the pipelines, the Oil and Gas Regulatory Authority (Ogra) has allowed the state-owned gas utilities, Sui Northern Gas Pipelines (SNGP) and Sui Southern Gas Company (SSGC), to start charging consumers more for their gas bills every month. SNGP and SSGC are expected to invest $750 million and $300 million respectively to finance the LNG pipeline.

Riaz Haq said...

#Chinese company to build #LNG gas pipeline projects in #Pakistan that will also connect with #Iran. #CPEC #China

A Chinese firm will be awarded the contract to build $2.5 billion Gwadar liquefied natural gas (LNG) and the Iran-Pakistan gas pipeline in November, Interstate Gas Systems (ISGS), who opened the technical bid for the construction of projects told media personnel on Wednesday.

Mubeen Saulat, ISGS managing director, said that the Chinese state firm China Petroleum Pipelines Bureau (CPP) has submitted technical and commercial bids in accordance with the Public Procurement Regulatory Authority (PPRA) rules. While ISGS, after scrutinising the documents opened the technical bid adding that the commercial bid will be opened in November.

Related: Iran Pakistan gas pipeline to be completed by 2017

CPP will construct the terminal with a capacity to handle 500 mmcfd (million cubic feet per day) of LNG and a floating storage gasification unit. It will also build the 700 kilometre long Gwadar to Nawabshah pipeline.

"The dual projects will be completed at the cost of about $2.5 billion, 85 per cent of the investment will be done by the Chinese company while government of Pakistan will provide 15pc of equity," said Saulat.

The ISGS official also added that the CPP will acquire a loan from Exim Bank which Pakistan will repay in the coming years through the revenue earned from the project.

The pipeline and terminal will be secured by Pakistani security agencies while the Chinese camp will be safeguarded by a Chinese security company.

The CPEC, with a planned portfolio of projects totalling around $46 billion, will link Gwadar, Khuzdar and other areas on way to Dera Ghazi Khan, Dera Ismail Khan and Peshawar along its central route.

The eastern route will connect Gwadar to Ratodero, Sukkur, and Karachi and upward to cities in Punjab, and from there to Khyber Pakhtunkhwa and the Khunjerab Pass.

Linking Gwadar to the rest of Pakistan and the western Chinese city of Kashgar, 3,000 kilometres away, will involve major infrastructure work in Balochistan.

Riaz Haq said...

LNG spot price now is $8 per mmBTU. It could fall to $6 soon.

Private importers in Pakistan can import on spot price if contract price is higher.

Meanwhile, a Chinese company has the contract to build an LNG pipeline from Gwadar which will connect to Iran as well.

#India's Petronet #LNG breaks #Qatar contract to gain from low spot prices ..36% lower at $8 per mmBTU …

Riaz Haq said...

Global #LNG surplus pushing producers, importers to spot market. Demand from #Jordan, #Egypt, #Pakistan via @Reuters

* 130 mln T a year of capacity due online by 2020

* LNG supply began to exceed demand in 2014 -EY

* Prompt spot market still just 5 pct of trades in 2014 -BG

SINGAPORE, Oct 30 (Reuters) - Producers and importers of liquefied natural gas (LNG) are preparing to trade the fuel more actively on a spot basis as a looming supply surplus threatens to overwhelm decades-old bilateral contracts and pressure prices lower.

With the advent of 130 million tonnes of LNG capacity in Australia and North America by 2020, producers such as Woodside Petroleum and Chevron, and traditional buyers such as Japanese utilities, have expanded trading teams to handle excess cargo flows and navigate a more open market.

Australia, with investments of almost $200 billion in new production, is on track to overtake Qatar as the world's biggest LNG exporter before the end of the decade.

In North America, U.S. company Cheniere Energy plans to export its first LNG cargo in January, and Canada is also planning to start exports in the next few years.

"Buyers will be able to have their choice ... (of) very large supply sources that can deliver pretty much at a moment's notice," Cheniere Chief Executive Charif Souki said this week at a conference in Singapore.

Excess supply, along with rising demand, is key to establishing a liquid commodity market as in tight conditions producers and consumers tend to enter long-term fixed supply agreements rather than trade openly.

And while new demand is popping up in countries such as Jordan, Dubai, Egypt and Pakistan, it is unlikely to be enough to offset the slower-than-expected consumption growth in China and the falling demand in top importers Japan and South Korea.

Some major players in the industry disagree, though, on how quickly a robust spot market will develop.

Last year, less than 5 percent of total volumes were sold on a prompt delivery spot basis, said Ann Collins, vice president for LNG at BG Group, at Gastech on Thursday.

"A rapid tilt towards a commoditization of LNG seems unlikely in the near term," she said.

Still, Ernst and Young (EY) says liquefaction capacity has more than doubled since 2000 and exceeded demand last year.

This surplus, along with slow-growth demand, will keep prices under pressure until the end of the decade, consultancy Wood Mackenzie said in statement this week.


Japanese power utilities - traditionally strictly buyers of LNG for gas-fired generators - are selling to each other or reselling to emerging smaller local buyers, even as nuclear reactors restart and the country's overall electricity demand falls with a shrinking population.

Japan's JERA Co, a joint venture set up by Tokyo Electric Power and Chubu Electric Power, will renew only a minimum of the long-term contracts that supply 80 percent of its gas, and instead meet its needs via mid-term and short-term contracts or spot purchases.

Australia's Woodside, one of the biggest producers of LNG, has traditionally sold its volumes on contracts that last 20 years or more, yet now says it needs more LNG tankers to deal with rising spot and short-term sales.

"We're becoming more sophisticated in our marketing and trading activities," Chief Executive Peter Coleman told reporters at the industry meeting this week in Singapore.

Chevron, which up to now has also dealt mostly in long-term supply agreements, has established an LNG trading desk in Singapore to handle output - mainly from its Australian projects - that is not committed to buyers.

Commodity trading houses are also getting ready for the increase in supply, with Glencore planning to double its trading team as it mounts a challenge to rivals Trafigura and Vitol to become the top merchant LNG trader.

Riaz Haq said...

New #LNG supply glut will test global gas floor price: #Europe Spot Price Hits New Low of $4 per mmBTU. #Pakistan

In a report prepared for Gastech 2015, Wood Mackenzie outlines the key levers which will determine the global gas floor price as the market absorbs a wave of LNG. With 130 million tonnes per year (mmpta) of additional LNG supply set to reach market over the next five years, coincident with faltering China demand, Wood Mackenzie asserts that new local floors for spot prices will be tested, unlocking new demand and curtailing supply, with global pricing implications.
Mr Noel Tomnay, Head of Global Gas & LNG research for Wood Mackenzie sets the scene: “The last LNG oversupply between 2008-10 came about when Qatar ramped up its LNG output and the market had to absorb 50 mmtpa of new LNG, at a time when demand growth had slowed. As a result, gas spot prices in Europe traded under US$4 per million British Thermal Unit ($/mmbtu) through the summer of 2009 and with no market in Asia, those prices were still enough to attract LNG cargoes to Europe, including from Australia.”
“The LNG market is facing another oversupply which is likely to be deeper and will persist for some years. Prices in Asia will be lower than in Europe, and at their worst, between 2017-19, while prices in Europe will not reach a low point until 2020. The key question the industry is wrestling with is: how low will prices go?” Mr Tomnay asks.
Wood Mackenzie’s report , titled ‘Global gas prices – what will set the floor?’ asserts that China’s market policies will be key. While more new LNG markets will emerge with lower gas prices, particularly if oil prices climb, more liberalised market conditions in China could enable it to absorb a lot more LNG, mitigating the impact of the LNG oversupply on price. This includes improved regasification infrastructure access, reductions in regulated gas prices and allowing the curtailment of high cost indigenous gas. Mr Tomnay elaborates: “It is likely that output from some high cost gas will be curtailed but protectionist measures will restrict China’s willingness to fully replace indigenous gas with lower priced LNG, dampening the potential supply response.”
New demand for gas and LNG could be created through the displacement of coal in power generation, a theme which will be central to Mr Tomnay’s presentation at Gastech 2015’s Market Outlook session on Wednesday. The gas price at which coal will be displaced, a soft floor for gas prices, will be determined, in part, by the price of coal. “Assuming higher ARA coal prices in Europe of US$70/tonne and Japanese coal prices of US$80/t (CFR), a floor price for gas in Europe and Asia should be maintained at prices above US$5.00/mmbtu. This should be sufficiently high to avoid US LNG being shut-in,” Mr Tomnay explains.
However, lower coal prices, possibly a consequence of reduced demand through displacement by gas, risks pulling both gas and coal prices down further Wood Mackenzie says. “At prevailing ARA coal prices of US$50/t and Japanese coal prices of US$60/t CFR, a floor price for gas in Europe and Asia could go down to prices at which many US LNG exports fail to cover cash costs, around US$4/mmbtu. This would force US LNG exporters to consider shutting-in for periods, a move which would depress US gas prices,” Tomnay adds.
Lastly Mr Tomnay explains why the behaviour of major suppliers, most notably Russia, will be key: “We could see major suppliers withdraw gas from the market, thereby supporting LNG spot prices. It was Gazprom’s withdrawal of 20 bcm per annum of pipe gas from Europe between 2008-10, equivalent to 15 mmtpa of LNG, that prevented spot prices from remaining low. At periods of severe oversupply, Russian gas supply behaviour will again be key to gas price formation in Europe – and this time in Asia and even the US too.”
Source: Wood Mackenzie

Riaz Haq said...

#LNG glut to steal coal market share as gas replaces #coal in power generation. #Pakistan #India #China via @Reuters

* LNG competition to cast doubt over new coal power capacity
* LNG supply to grow by 35 mln tonnes in 2016-Energy Aspects
By Sarah McFarlane
LONDON, Oct 29 (Reuters) - A wave of liquefied natural gas due to hit energy markets over the next couple of years is expected to displace tens of millions of tonnes coal demand globally, helped by government initiatives to move away from polluting power generation.
Both coal and LNG are oversupplied after higher prices during the past decade triggered investments in new projects and expansion plans. At the same time the gap between their prices has narrowed as LNG has become more competitive, particularly where governments penalise coal via taxes or emissions trading schemes.
"There is a monstrous amount of LNG coming into the market, on pure cost economics you can say coal is cheaper than LNG at any realistic price, but it's going to be used somewhere and if it is coming in the volume that's forecast, it will be displacing coal," a coal trader said.
"New coal generating capacity is less likely to be realised in a world awash with LNG."
One of the biggest factors in how much switching occurs will be what the world's largest coal consumer China does.
Environmental concerns and a desire to help financially distressed domestic coal miners has led to a dramatic fall in Chinese coal imports, with shipments down 30 percent in the first nine months of the year, compared with the same period a year ago.
Smog has emerged as a major problem for the government, which has relied on coal and highly polluting heavy industries to fuel its economic growth, especially in northern regions.
"In China, gas will be cheap, gas will be oversupplied, LNG will be oversupplied for the next 3-5 years and that will give an opportunity for policymakers to work harder to switch from coal to gas, but it will take time," said Torbjörn Törnqvist, chief executive of Swiss-based trade house Gunvor.
"Everyone in Beijing knows what the problem with coal fire stations in China is and they will go for gas."
Beyond China, Europe is also seen as a region where switching is likely to take place.
Trevor Sikorski, an analyst at consultancy Energy Aspects, said around 130 million tonnes of thermal coal was vulnerable to being replaced by gas for power generation on an annual basis in Europe.
Sikorski suggested that given the amount of new LNG projects due to come on line in the coming two years, gas prices could be low enough to encourage this level of switching by 2017.
Energy Aspects forecasts some 35 million tonnes of additional LNG supply hitting the market next year, a 16 percent increase on 2015.
Earlier this month oil and gas industry bosses again urged governments to ditch coal in favour of less polluting natural gas, which emits around half of the CO2 coal does, in power plants and heavy industry.
"LNG will continue to cannibalise the coal market, coal's not going to die, but it's hard to be bullish," said Jeffrey Landsberg, managing director of U.S. based consultancy Commodore Research. (Reporting by Sarah McFarlane, editing by David Evans)

Riaz Haq said...

Workers at a construction site at the Sahiwal coal power plant, owned by China’s state-owned Huaneng Shandong Ruyi Group, in Pakistan. The country’s coal capacity is set to grow 15,300 megawatts from 190.

When China halted plans for more than 100 new coal-fired power plants this year, even as President Trump vowed to “bring back coal” in America, the contrast seemed to confirm Beijing’s new role as a leader in the fight against climate change.

But new data on the world’s biggest developers of coal-fired power plants paints a very different picture: China’s energy companies will make up nearly half of the new coal generation expected to go online in the next decade.

These Chinese corporations are building or planning to build more than 700 new coal plants at home and around the world, some in countries that today burn little or no coal, according to tallies compiled by Urgewald, an environmental group based in Berlin. Many of the plants are in China, but by capacity, roughly a fifth of these new coal power stations are in other countries.

Over all, 1,600 coal plants are planned or under construction in 62 countries, according to Urgewald’s tally, which uses data from the Global Coal Plant Tracker portal. The new plants would expand the world’s coal-fired power capacity by 43 percent.

In China, concerns over smog and climate change have prompted a move toward renewables, as have slowing economic growth and a gradual shift in the Chinese economy away from heavy manufacturing and toward consumer industries. The addition of domestic capacity, though large on paper, does not mean there will be growth in coal consumption. The current coal plants are operating far below capacity because demand for coal-generated power has slowed considerably.

But overseas, the Chinese are playing a different game.

Shanghai Electric Group, one of the country’s largest electrical equipment makers, has announced plans to build coal power plants in Egypt, Pakistan and Iran with a total capacity of 6,285 megawatts — almost 10 times the 660 megawatts of coal power it has planned in China.

The China Energy Engineering Corporation, which has no public plans to develop coal power in China, is building 2,200 megawatts’ worth of coal-fired power capacity in Vietnam and Malawi. Neither company responded to requests for comment.

Of the world’s 20 biggest coal plant developers, 11 are Chinese, according to a database published by Urgewald.

Some of the countries targeted for coal-power expansion, like Egypt or Pakistan, currently burn almost no coal, and the new coal plants could set the course of their national energy policies for decades, environmentalists warn.

In Egypt, coal projects by Shanghai Electric and other global developers are set to bring the country’s coal-fired capacity to 17,000 megawatts, from near zero, according to the Urgewald database.

Pakistan’s coal capacity is set to grow to 15,300 megawatts from 190. In Malawi, planned coal projects would bring its coal-fired capacity to 3,500 megawatts from zero.

Chinese companies are not the only drivers of the global coal expansion.

The world’s single largest coal-plant developer is India’s National Thermal Power Corporation, which plans to build more than 38,000 megawatts of new coal capacity in India and Bangladesh. The corporation did not respond to an email query.

Riaz Haq said...

#Pakistan to build 15,300 MW of #coal power. #Indian co building 38,000 MW coal power in #India & #Bangladesh #CPEC

When China halted plans for more than 100 new coal-fired power plants this year, even as President Trump vowed to “bring back coal” in America, the contrast seemed to confirm Beijing’s new role as a leader in the fight against climate change.

But new data on the world’s biggest developers of coal-fired power plants paints a very different picture: China’s energy companies will make up nearly half of the new coal generation expected to go online in the next decade.

These Chinese corporations are building or planning to build more than 700 new coal plants at home and around the world, some in countries that today burn little or no coal, according to tallies compiled by Urgewald, an environmental group based in Berlin. Many of the plants are in China, but by capacity, roughly a fifth of these new coal power stations are in other countries.

Over all, 1,600 coal plants are planned or under construction in 62 countries, according to Urgewald’s tally, which uses data from the Global Coal Plant Tracker portal. The new plants would expand the world’s coal-fired power capacity by 43 percent.

In China, concerns over smog and climate change have prompted a move toward renewables, as have slowing economic growth and a gradual shift in the Chinese economy away from heavy manufacturing and toward consumer industries. The addition of domestic capacity, though large on paper, does not mean there will be growth in coal consumption. The current coal plants are operating far below capacity because demand for coal-generated power has slowed considerably.

But overseas, the Chinese are playing a different game.

Shanghai Electric Group, one of the country’s largest electrical equipment makers, has announced plans to build coal power plants in Egypt, Pakistan and Iran with a total capacity of 6,285 megawatts — almost 10 times the 660 megawatts of coal power it has planned in China.

The China Energy Engineering Corporation, which has no public plans to develop coal power in China, is building 2,200 megawatts’ worth of coal-fired power capacity in Vietnam and Malawi. Neither company responded to requests for comment.

Of the world’s 20 biggest coal plant developers, 11 are Chinese, according to a database published by Urgewald.

Some of the countries targeted for coal-power expansion, like Egypt or Pakistan, currently burn almost no coal, and the new coal plants could set the course of their national energy policies for decades, environmentalists warn.

In Egypt, coal projects by Shanghai Electric and other global developers are set to bring the country’s coal-fired capacity to 17,000 megawatts, from near zero, according to the Urgewald database.

Pakistan’s coal capacity is set to grow to 15,300 megawatts from 190. In Malawi, planned coal projects would bring its coal-fired capacity to 3,500 megawatts from zero.

Chinese companies are not the only drivers of the global coal expansion.

The world’s single largest coal-plant developer is India’s National Thermal Power Corporation, which plans to build more than 38,000 megawatts of new coal capacity in India and Bangladesh. The corporation did not respond to an email query.

Riaz Haq said...

Electricity Prices Plummet as Gas, Wind Gain Traction and Demand Stalls
Texas is a microcosm of pressures facing power generators; ‘It’s too late’ for coal

The rapid rise of wind and natural gas as sources of electricity is roiling U.S. power markets, forcing more companies to close older generating plants.

Wholesale electricity prices are falling near historic lows in parts of the country with competitive power markets, as demand for electricity remains stagnant while newer, less-expensive generating facilities continue to come online.


Release Date: November 7, 2017 | Next Release Date: December 12, 2017

EIA expects the share of U.S. total utility-scale electricity generation from natural gas will fall from an average of 34% in 2016 to about 31% in 2017 as a result of higher natural gas prices and increased generation from renewables and coal. Coal's forecast generation share rises from 30% last year to 31% in 2017. The projected annual generation shares for natural gas and coal in 2018 are 32% and 31%, respectively. Generation from renewable energy sources other than hydropower grows from 8% in 2016 to a forecast share of about 9% in 2017 and 10% in 2018. Generation from nuclear energy accounts for almost 20% of total generation in each year from 2016 through 2018.
Wind electricity generating capacity at the end of 2016 was 82 gigawatts (GW). EIA expects wind capacity additions in the forecast to bring total wind capacity to 88 GW by the end of 2017 and to 96 GW by the end of 2018.
Total utility-scale solar electricity generating capacity at the end of 2016 was 22 GW. EIA expects solar capacity additions in the forecast will bring total utility-scale solar capacity to 27 GW by the end of 2017 and to 31 GW by the end of 2018.

Riaz Haq said...

'Spectacular' drop in renewable energy costs leads to record global boost
Falling solar and wind prices have led to new power deals across the world despite investment in renewables falling

Renewable energy capacity around the world was boosted by a record amount in 2016 and delivered at a markedly lower cost, according to new global data – although the total financial investment in renewables actually fell.

The greater “bang-for-buck” resulted from plummeting prices for solar and wind power and led to new power deals in countries including Denmark, Egypt, India, Mexico and the United Arab Emirates all being priced well below fossil fuel or nuclear options.

Analysts warned that the US’s withdrawal from the Paris climate change agreement, announced last week by Donald Trump, risked the US being left behind in the fast-moving transition to a low-carbon economy. But they also warned that the green transition was still not happening fast enough to avoid the worst impacts of global warming, especially in the transport and heating sectors.

The new renewable energy capacity installed worldwide in 2016 was 161GW, a 10% rise on 2015 and a new record, according to REN21, a network of public and private sector groups covering 155 nations and 96% of the world’s population.

The new record capacity cost $242bn, a 23% reduction in investment compared to 2015, and renewables investment remained larger than for all fossil fuels. Subsidies for green energy, however, are still much lower than those for coal, oil and gas.

New solar power provided the biggest boost – half of all new capacity – followed by wind power at a third and hydropower at 15%. It is the first year that the new solar capacity added has been greater than any other electricity-producing technology.

“A global energy transition [is] well under way, with record new additions of installed renewable energy capacity, rapidly falling costs and the decoupling of economic growth and energy-related carbon dioxide emissions for the third year running,” said Arthouros Zervos, chair of REN21.

Riaz Haq said...

PTI Government unhappy, but Pakistan to stay with coal

Out of the 21 energy projects to be completed on a fast track (by 2019) with a cumulative capacity of 10,400 MW, nine are coal power plants, seven wind power plants, three hydropower, and two are HVDC transmission line projects.

Nearly USD 35 billion of the USD 60 billion worth of loans for producing energy from the China Pakistan Economic Corridor (CPEC) will be used to build new power stations, mainly coal-fired.

The projects completed include two mega coal power plants of 1,320 MW each, one in Punjab’s Sahiwal (commercially operating since May 2017) and the other in Karachi’s Port Qasim (Commercially operating since April 2018) using imported bituminous coal with modern supercritical coal-fired units. According to news reports, the country’s National Accountability Bureau has initiated an alleged corruption probe into both the costly projects.

Another one under completion is in the Thar desert in Sindh, about 400 kilometres from the port city of Karachi. It includes mining and setting up two 330 MW power plants at a cost of USD 2 billion. Once completed, it will be the first large power generation project using local coal.

The Sindh Engro Coal Mining Company has finally reached the coal seam in the desert. According to the company’s chief executive officer, Shamsuddin Shaikh, by October the company would have dug down to 162 metres to be able to dig up “useful” lignite coal. At the same time work at the first of the two power plants is 85 per cent complete and commissioning will begin by November-December this year when it will start supplying power to the national grid on an experimental basis. Once the first plant is fired, it will gobble up 3.8 million tons of coal each year.

Other projects in the pipeline include three 1,320 MW coal power plants. The ones at Rahim Yar Khan (in Punjab), and Hub (in Balochistan) to be completed between December 2018 and August 2019 respectively, will use imported coal. The third one, at Thar Block VI (in Sindh), will use indigenous lignite coal.

That does not mean that Pakistan is going to be completely coal-driven. Vaqar Zakaria, managing director of environmental consultancy firm Hagler Bailly Pakistan, put the figure to “just about 10 per cent of current power generation” which is from imported coal. However, he pointed out that coal-based power generation will increase to about 30 per cent of the country’s capacity requirement in the next three years once plants on Thar coal come online, and those at Hub and Jamshoro expand on imported coal.

Zakaria pointed out that the main argument in favour of Thar coal was the “lower reliance on imported fuel”, and to meet the “demand particularly when hydropower drops in winter” although the capital cost was high as the mines also have to be developed. However, he predicted the country will “see a slowdown in capacity addition in Thar in future”.

But projects relying on imported coal were questionable, especially those that are being carried out now, said Zakaria. “The earlier ones were justified [by the government] on the basis of load shedding and early induction of power to fill the demand-supply gap like the one at Port Qasim and Sahiwal plants that are already online; but the ones at Hub and Jamshoro cannot be justified on that basis. It is hard to understand why a project on imported coal was added so late in the game,” he said.

Riaz Haq said...

(Bloomberg) — As developed nations turn away from coal-fired power, Chinese funding has helped the dirtiest fossil fuel take off in Pakistan.

Coal’s surge in the South Asian nation is symbolic of the difficult choice that the region’s developing countries face as they seek affordable energy to support economic growth while trying to limit chronic air pollution. Asian demand is expected to support the commodity as its usage drops in most of the developed world in a transition to cleaner or renewable energy sources.

Is Canada's real estate forecast too optimistic?

Pakistan’s coal-fired power generation jumped 57% to a record in the fiscal year through June, according to data from the government’s National Electric Power Regulatory Authority. Coal accounted for about a fifth of total output, backed by supplies from the country’s first coal mine in its Thar region, developed as part of China’s Belt and Road plan.

Coal is set to expand further as China pushes funds into building more power plants in the country and mines to feed them. Pakistan is one of the flagship markets for China’s Belt and Road initiative, with more than $70 billion of projects including coal and liquefied natural gas fired power plants helping the nation end decades of electricity shortfalls.

“China has been cutting back on coal at home but it has no compunction about using coal in things that it funds outside of China,” said James Dorsey, a senior fellow at the S. Rajaratnam School of International Studies in Singapore. “Chinese can be willing but they need a partner to go along with them. In this case it’s the Pakistani government.”

Belt and Road progress has slowed recently with overseas energy spending last year dropping to the lowest in a decade, dogged by accusations that China is luring poor countries into debt traps for its own political and strategic gain. China’s President Xi Jinping has publicly urged more clean energy as part of the program, and the plan found new life in Pakistan recently with an agreement to build two hydro-power generation projects.

Until 2016, Pakistan had just one coal-burning power plant. It now has at least nine and more are in the making. The first target of these plants has been to replace expensive fuel oil-based generation facilities that burdened the nation’s economy with heavy costs and pollution.

The rise in coal power has come because of supplies from the Thar coal mine, Power Ministry spokesman Zafar Yab Khan said. The country will balance rising coal use with more renewable energy and its coal plants will use low-emissions technology, he said.

With the shift to coal, average generation costs dropped 11% during the fiscal year, according to data from Karachi-based brokerage Arif Habib.

“Pakistan has increased coal-based generation to make it its new base to replace its previous expensive fuel oil-powered power plants,” said Tahir Abbas, head of research at Arif Habib. “This has also helped bring down the power prices, energy import bill and increase the share of an indigenous energy source.”

Riaz Haq said...

According to the details shared by Pakistan LNG, PLL was the lowest bidder, which quoted a remarkable rate of *5.7395%* of Brent (approx. USD 2.2/mmbtu) for the cargo. Prices quoted by the other three bidders are Gunvor 7.8421%, PetroChina 8.3500%, Trafigura 10.3811%.

PLL received an offer for an Aug 27-28 delivery cargo at about $2.20/mmbtu. It is worth mentioning that Pakistan has been out of the spot market in 2020, and this is their first tender since November 2019.

A.A.H Soomro, managing director at Khadim Ali Shah Bukhari Securities told ProPakistani,

This is a game-changer! It’s time for Pakistan to relook at long term LNG contracts and move towards Spot purchase. Let’s assess the possibility of cancellation of the contracts. Bargain in your favor. This solves half of Pakistan’s problems if we speedify the LNG terminals. The economy would grow in leaps and bounds if we reduce energy costs now.

This is lower than the Asian LNG spot price LNG-AS for August which on Friday was estimated to be about $2.35 per mmBtu. The prices are expressed in the document as a “slope” of crude oil prices, a percentage of the Brent crude price, and are typically a pointer for the opaque spot LNG market.

Pakistan LNG has a separate tender to buy two LNG cargoes for delivery in September which closes on August 4.

Fitch Solutions stated that Asian spot LNG prices continue to hover at historical lows as COVID-19 continues to drag economic activity and demand.

The spot prices in Asia have remained depressed accordingly, falling by more than 50% since the start of the year to hit USD 2.5/mmBTU at the time of writing in July, from USD 4.0/mmBTU in January. YTD prices are shown to have averaged USD 2.7/mmBTU, halved from USD 5.4/ mmBTU in 2019 and less than a third of the USD 9.7/mmBTU averaged in 2018.

LNG imports into key importing markets in Asia – apart from China – have registered large y-o-y declines across the board as gas consumption across industry and commercial sectors slowed to a crawl as strict COVID-19 containment measures were observed.

The outlook for LNG prices was hardly rosy coming into the year even before the onset of the coronavirus pandemic, amid a negative backdrop of slowing coal-to-gas switching in China and a milder winter, although it looks to have deteriorated further as energy demand sinks across the region.

Riaz Haq said...

Pakistan to burn more domestic coal despite climate pledge
Islamabad expands use of lignite to ease burden of expensive imported fuel

Work on the third phase of the Thar Coal Block II mine expansion is set to begin this year at an estimated cost of $93 million, according to the Sindh Engro Coal Mining Company (SECMC), a public-private enterprise operating the mine since 2019 in the southeastern district of Tharparkar. The second phase of expansion is underway with the help of China Machinery Engineering Corp. and Chinese bank loans, in addition to local financing. The series of expansions will scale up the annual production of lignite from 3.8 million tons to 12.2 million tons by 2023.

The output from the second phase of expansion will feed two 330 MW coal-fired power plants being built under the $50 billion China Pakistan Economic Corridor projects, part of Chinese President Xi Jinping's flagship Belt and Road Initiative. The power plants are expected to come on line this year.

Lignite is brown coal with low calorific value due to high moisture and low carbon content.

The expansion of the Thar coalfields is aimed at curbing coal imports to ease a staggering current-account deficit made worse by soaring international commodity prices and shipping costs. Pakistan's current-account deficit ballooned to an unprecedented $9.09 billion between July and December last year, as imports continued to outstrip exports during the post-COVID economic recovery. Pakistan had to seek a $3 billion loan and a deferred payment facility on the import of petroleum products from Saudi Arabia last year to stabilize forex reserves.

In recent years, high volatility in international oil prices, soaring LNG prices and dwindling local gas reserves have spurred public-private spending, particularly Chinese investment, in Pakistan's coal power sector. Until now, four coal-fired power plants with 4.62 GW of total installed capacity have joined the grid, while another three plants with an aggregate capacity of 1.98 GW are expected to come online over the next two years -- all under CPEC. In addition, growing demand from cement factories banking on a global construction boom has tripled coal consumption over the last five years to 21.5 million tons per annum.

Consequently, the share of coal in Pakistan's import bill for the year ended June 2021 shot to 24% from over 2% in previous years, according to data from the Pakistan Bureau of Statistics. Currently, only the power plant at Thar Coal Block II is running on indigenous coal.

A spike in coal power generation is in line with global trends, where countries including China, the U.S. and India have turned to coal to meet heightened demand following the lifting of COVID-19 restrictions.


Authorities contend that the expansion of Thar Coal Block II will reduce the price of indigenous coal from $60 to $27 per ton -- making it the country's cheapest power source and leading to annual savings of $420 million. Pakistan is currently importing coal at around $200 per ton.

"We are compelled to use this cheap source of energy because we cannot keep using dollars to run power plants running on expensive furnace oil and RLNG (re-gasified liquefied natural gas)," Sindh Provincial Energy Minister Imtiaz Shaikh told Nikkei Asia. "We would like to mix 20% Thar coal [in power plants running] with imported coal. Then we will move towards converting coal to liquid and coal to gas."

The cost of operating thermal plants has become punishing due to expensive fuel and the cost of diverting scarce freshwater, which leads to underutilization of the plants, said Omar Cheema, director of London-based renewable energy consultancy Vivantive.