Economics of energy supply and demand


By Mehmood-Ul-Hassan Khan

Easy and smooth supply of energy is has become the need of every country trying to achieve economic growth. Nearly all the governments around the globe and Pakistan is no exception, are trying desperately trying to find new and cheap, if possible, new resources of energy. Our country is facing an energy crisis caused by the lack of energy resources, this sacristy of resources (rise by 10-12 per cent annually) has already caused many multidimensional socio-economic problems in the country and saga still continues. A consortium of three financial institutions i.e. Islamic Development Bank, Asian Development Bank and World Bank has recently agreed to provide $1 billion to Pakistan, to import electricity from Central Asian Republics (CARs). For this reason ministers of four countries Pakistan, Tajikistan, Kyrgyzstan and Afghanistan signed a resolution to proceed further with the Central Asia/South Asia Regional Electricity Market (Casarem), a project envisaging transmission of 1,300 MW from Tajikistan and Kyrgyzstan to Afghanistan and Pakistan; but further commitment to the project will be linked to the availability of finances.

 

Participants

The two-day Inter-Governmental Council (IGC) meeting of Casarem was held on 3-4 August 2008, in Islamabad, which was attended by ministers and delegates from Afghanistan, Kyrgyz Republic, Pakistan and Tajikistan along with the International Financial Institutions (IFIs), i.e., Asian Development Bank, Islamic Development Bank and World Bank, besides there was also a project consultant.

During the meeting after incorporating the changes/modifications agreed upon by the minister, the resolution for the trade of electricity was signed by Water and Power Minister Raja Pervez Ashraf, from Pakistan side, Alhaj Mohammad Ismail Khan, Minister for Energy and Water, Afghanistan, Saparbek Balkibekov, Minister for Industry, Energy and Fuel Resources, Kyrgyz Republic and Farrukh Hamraliev, Chairman, State Committee for Investments and State Property Management, Republic of Tajikistan.

 

Modalities

Commercial term sheet of the project is to be negotiated by all the participating countries by the end of November, as it has been agreed to go forward with the project subject to the bids received being consistent to the cost estimated by the participants. It has to be kept in mind that the conditions of law and order, geo-political and geo-strategic scenarios in the participating countries will directly affect the project. The Central Asia-South Asia (Casa) 1,000 Project is anticipated to be commissioned by 2013. The project would go a long way in overcoming power shortages in Pakistan (1,000MW) as well as Afghanistan (300 MW).

 

Salient features

The project would ensure a supply of estimated 5.5 billion units of electricity per year to Pakistan from Sangtuda, Rogun, Talimardjan and Kambarata hydropower stations at 3.3-4.7 cents per unit. Two routes have been identified for the project; one route will run through Afghanistan’s Kunduz province, Salang Pass and Jalalabad before reaching Peshawar and would cost 4.4 cents per unit. The transmission line through this route would stretch 170km in Tajikistan, 430km in Afghanistan and 50km in Pakistan, this route is also supported by World Bank. Whereas, Pakistan supports a route via Wakhan and Chitral whose length is estimated at 700km and having per unit cost at Peshawar estimated at 4.9 to 5 cents. The line will run 360km in Tajikistan, 30km in Afghanistan (Wakhan) and 310km in Pakistan. It was also decided that Pakistan would bear the cost of all the losses in the transmission system.

The Casa 1000 MW power transmission project comprises developing, designing, procuring, financing, constructing and operating electricity transmission lines and related facilities to enable the trade of electricity among the four countries. It has been decided and finalised that 1300 MW of electricity will be imported from Kyrgyz Republic and Tajikistan of which 300 MW will be for Afghanistan and remaining 1000 MW for Pakistan. According to an official statement the transmission line will be 477-km long, comprising of 500 kV AC line from Kyrgyz Republic to Tajikistan and 750-km of 500 kV high voltage DC between Tajikistan and Pakistan via Kabul. Furthermore, IGC Secretariat will be established at Kabul and hopefully would become operational with immediate effect.

 

Multiplier effects

(a) The success of this project may decrease the high ratio of the energy shortage in the country as according to government officials, Pakistan faces 3,000MW to 4,000MW electricity shortfall per day.

(b) Pakistan and Afghanistan are going to share the amount to lay transmission lines for electricity imported from CARs.

(c) Pakistan is to invest some $600 million while the remaining amount will be paid by Afghanistan.

(d) Tariff of the imported electricity will stand at 6 cents to 8 cents per kWh as compared to the tariff of Independent Power Producers (IPPs) that is 12 cents to 14 cents/kWh.

(e) It is predicted that the project, if completed and implemented in time, will result in considerably solving the electricity crisis of the country.

(f) The success of the project is extremely important, as it will set a new era of mutual co-operation on electricity.

(g) It will increase trade and economic activities among the participating countries.

(h) It will foster regional electricity market and brings together countries of Central and South Asia and also open new vistas of trade and energy among energy rich and energy deficit countries.

(i) It will enable lower cost (mainly hydroelectric) power to be transmitted from Central Asia to markets in South Asia.

(j) It is estimated that it will increase the exports and lower the cost of production boosting industrial and agricultural productivity in these countries.

 

World Bank’s assessment

The World Bank has been trying to persuade Pakistan to import 4,000mw of cheap electricity from Central Asian states, besides working on domestic sources to overcome electricity shortage. 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 wide variations in water availability. The demand is expected to exceed 20,000mw by 2010. The World Bank says Pakistan should immediately start importing 1,000mw from Tajikistan and the Kyrgyz Republic and then increase imports to 4,000mw in the second phase. According to the World Bank, the cost of supply from Sangtuda, Rogun, Talimardjan and Kambarata power stations will range between 2.26 cents and 3.75 cents per unit compared with the existing average generation cost in Pakistan of 5.6 cents. Another attractive feature of the imports, according to the bank, is that Pakistan’s peak demand occurs in summer when Central Asian power systems have large surplus from their hydroelectric generation stations.

 

Energy dynamics of Kyrgyzstan and Tajikistan

* Kyrghyzstan had a surplus of 4,000 megawatts of electricity out of which it could supply 3,000mw to Pakistan. This could help improve the power supply situation in Pakistan

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(a) Kyrgyzstan

Category       2005 Data

Population      5.3 million

GDP (USD PPP)        $2.44 billion

GNI per capita (USD) $440

GDP Growth   -0.6 %

Inflation        4.4 %

FDI (per cent of GDP)         3.5 %

Unemployment (% of labour force) 9.9 %

Source: World Bank Country Brief

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Power production is one of the core industries in Kyrgyzstan. Most of the country’s electricity is generated at hydroelectric plants and is low cost. It accounted for 14.7 per cent of industrial output in 2001. The country has nine large power plants with combined capacity of 3.6 mm kw, including seven hydroelectric plants with a capacity of 2.9 mm kw along with two heat and power plants with a capacity of 728,000kw. Kyrgyzstan has the third largest hydroelectric resources in the CIS after Russia and Tajikistan. Kyrgyzstan exported about 800 mm kwh of electricity in the first eight months of the year 2004, nearly double that produced in the same period year before. Kazakhstan received 421 mm kwh, Uzbekistan received 200.3 mm kwh, Tajikistan received 173.9 mm kwh, and China received 650,000 kwh.

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Kyrgyzstan supply scenario to 2020

Category       2004   2010   2020

Total electricity

generation, growth    11,813 16,030 17,370

Installed power

plant capacity, MW    3,713  3,768  4,243

Source CIS EPC and EURELECTRIC

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(b) Tajikistan

Category       2006 Data

Population      6.5 billion

GDP (US$)     $2.31 billion

GNI per capita (US$) $330

GDP Growth   7.5 %

Inflation        7.1 %

FDI (per cent of GDP)         13.1 %

Unemployment (% of labour force) 40.0 %

Source: World Bank Country Brief

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According to the WB (2004), Tajikistan obtained an overwhelming majority of its electricity supply from hydropower plants, 90 per cent in 2003, and 97 per cent in 2004.

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(c) Future production of Tajikistan electricity

Category       2002   2010   2020

Total electricity

generation, growth    15,300          19,500          33,000

Installed power

plant capacity, MW    4,422  5,097  9,517

Source: CIS EPC and EURELECTRIC

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Concluding remarks

Pakistan is a energy deficient country and project like Casarem would be beneficial for it. Political commitment, better coordination, suitable geo-strategic scenarios and above all harmony among all the member countries would be instrumental to achieve energy independency for stable and sustainable socio-economic growth.

Source: The News, 15/9/2009

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