Pakistan’s Energy security and foreign reliance

By Khaleeq Kiani

When President Bush and President Musharraf launch-ed the US-Pakistan Strategic Dialogue in March 2006, they agreed to undertake strategic steps in many areas including energy, economic growth and social sector development.

While it was clear from the very beginning that unlike India, access to nuclear energy would remain out of bound for Pakistan no substantial progress could be achieved in other energy fields so far to meet Pakistan’s growing energy needs and strengthen its energy security.During the last month visit of Prime Minister Yousaf Raza Gilani to the United States, the two sides agreed to hold US-Pakistan Economic Dialogue in Islamabad on August 11, 2008. These consultations have been postponed immediately after Prime Minister Gilani’s return and are now likely to be rescheduled sometime in September.

The $30 million Pakistan Energy Development Programme initiated by the United States focuses on improving power availability, affordability and efficiency. So far, the US support has been limited to provision of solar energy panels for small villages in troubled Federally Administered Tribal Areas (FATA). Funded by the USAID, more than 300 villages in the tribal region are expected to benefit from the solar energy.

The Bush administration had encouraged its companies to invest in Pakistan’s wind power but tangible progress could not be achieved because of their inexperienced Pakistani partners, bureaucratic wrangling and much higher than expected power production cost as the prices of wind turbines went up globally.

Meanwhile, Pakistan’s power production cost has increased more than ever before. The authorities have given the impression that continuing spate of load shedding is because of capacity shortages. The ground situation, however, is much different.

While a seasonal fluctuation with hydropower generation is understandable, the authorities have intentionally downplayed non-utilisation of over 2500MW of Wapda’s thermal power generation capacity because of financial crunch.

Insiders suggest the power purchase cost from most of the thermal power plans has gone beyond Rs22 per unit and it is the hydropower that rescues the economy. Wapda’s generation companies have not been able to run their own thermal stations to their optimum capacity because of their inability to finance expensive furnace oil and diesel.

Wapda’s cumulative cash shortfall have gone beyond Rs150 billion and it has been struggling to make payments for fuel supplies, resulting a huge pile up of inter-corporate circular debt that has engulfed fuel suppliers like Pakistan State Oil and gas utilities.

Non-payment or underpayment of dues to independent power producers has also been resulting in less than contracted power supplies, leading to much higher capacity payments to the IPPs even without its full utilisation.

This situation has given birth to a new debate in the official quarters. The recent international competitive bidding for fast track development of 1500 MW of thermal power projects attracted reasonable response from the private sector but there is a strong feeling that Pakistan should not sign contracts for more than 1000MW because of affordability issues.

The tariffs offered by the bidders have ranged between 11-15 cents per unit (kWh) but critical examination showed that these tariffs practically translated into 15-20 cents per unit because of some hidden allocations, which have to be sorted out.

Also, the authorities believe that about 1500-1800MW of additional electricity would be come on line from October 2008 and December 2009. Since, most of these projects would provide electricity at an average 18 cents per unit, it may not be economically prudent to add further expensive thermal plants.

The major problem with thermal projects is that fuel and inflation are pass-through items, making it unaffordable with rise in international oil market. Already, the hydro-thermal ratio has declined from historic 30:70 to 25:75 in the recent years.

That means the new thermal projects which are in pipeline would tilt this ratio heavily in favour of expensive thermal sector to the extent of 15:85. That would mean the consumer tariff would not be less than Rs20 or so from the current rate of Rs5-6 per unit.

On the other hand, most of the initiatives planned by the previous government over the last eight years have not materialised and seem to be non-starters. For example, the Iran-Pakistan-India pipeline that would have fuelled Pakistan’s power generation over the next decade remains uncertain.

US opposition aside, the three nations have not been able to sign a formal agreement on the project and Tehran has backed out of gas price it had agreed with Islamabad. Import of gas from Turkmenistan and development of five dams in the country, too, seem out of sight at least for the time being.

Interestingly, the United States has been supportive of importing electricity and natural gas from energy-rich central Asian states as an alternative to import of gas from Iran as part of its strategy to economically isolate Tehran. While there still remain a number of unresolved issues with import of gas from Ashgabat, the future of electricity imports from Kyrgyz Republic and Tajikistan would hangs in balance because of security situation in Afghanistan. The only assurance that Afghan energy minister Alhaj Muhammad Ismail could offer last week was that “your brothers and sisters in Afghanistan would ensure security to the (650 km) transmission line in Afghanistan”.

The four nations – Pakistan, Afghanistan, Tajikistan and Kyrgyzstan – signed an inter-governmental agreement last week for the import of 1300 MW from central Asian states to Pakistan (1000MW) and Afghanistan (300MW), many crucial aspects including commercial, legal, security, tariff and technical did not even come under initial discussion and would be taken up later. This import could later be increased to 4,000MW subsequently. That would require a lot of time, energy and commitment.

The World Bank has long been advising Pakistan to start working on import of 4,000MW of cheap electricity from Central Asian states, besides working on domestic sources to overcome electricity shortage owing to a 43 per cent expected increase in demand to 20,000MW by 2010. The Bank estimates that Pakistan’s peak

demand now exceeds 14,000MW and the present installed capacity of 19,500MW has become inadequate on account of the wide variations in the water availability, which greatly reduces the firm capacity available.

Electricity demand at the generation level is forecast to grow at 7-8 per cent per year to about 20,000MW by fiscal year 2010 and 44,700MW by 2020.These imports, the World Bank believes, have two major advantages. First, the cost of supply from Sangtuda, Rogun, Talimardjan and Kambarata power stations in the CARs would range between 4 -6 cents per unit compared thermal power plants being contracted at 18 cents per unit.

Second, the attractive feature of the imports form CARs is that Pakistan’s peak demand occurs in summer, when the Central Asian power systems have large surpluses from their hydroelectric generation stations.

Successive governments have already lost a lot of precious time. The crisis is too serious and requires even serious approach. Apart from controversial big dams, Pakistan has over 25,000MW of hydropower potential based on run-of-the-river model.

Its tariff even at eight US cents per unit maintains declining trend as time passes unlike thermal which keeps on rising. Then there is huge coal deposit in Sindh. Pakistan’s coastal Sindh province alone can generate nearly 11,000MW of electricity from wind.

Solar energy, too, has excellent potential in Pakistan that receives high levels of more than 19 mega joules per square meter of solar radiation throughout the year.

About 70 per cent of rural population lives in some 50,000 villages could be electrified with solar power, leading to load reduction on national grid. Pakistan also has the potential of generating more than 20,000MW from waste energy plants in big cities like Karachi, Lahore, Faisalabad, Multan and Peshawar.

There is nothing wrong if all domestic avenues are exhausted before looking for help abroad. That needs national thinking.


Source: Daily Dawn, 11/8/2008

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