Jahangir's World Times First Comprehensive Magazine for students/teachers of competitive exams and general readers as well.
Pakistan should look for all alternatives to increase its electrical energy production by 10,000 MW in two years. This is a very challenging and difficult task. But if it fails to achieve the target, all other indicators will go negative leaving behind a disastrous situation.
Energy is assuming central stage due to the rapid economic growth in different parts of the world, pushing energy demand higher. Unfortunately Pakistan is facing major energy crisis nowadays. The energy crisis is affecting all walks of life in the country. The situation further deteriorated because of the stoppage of the supply to industrial units by Sui Gas Company. The Company was already going through a system of load-shedding itself due to excessive use of gas by CNG users. Many electricity generation units were shut off due to non-availability of the gas. The IPPs who were operating on furnace oil could not get the regular supply of the furnace oil due to the circular debt issue. And then naturally the blame game started, starting from the water shortage in Dams to furnace oil transportation problem, violence in Sind and maintenance activity in some independent power producers. The government admitted that in last 10 years not a single MW was added. The fact is that Pakistan is sustaining an acute shortage of Power. Its demand is increasing and production is declining due to aging of the plants. And no solution is in sight. The projects which are in pipeline will not come in line before 2013. And even the magnitude is such that it will not be able to fulfill the demand of today.
The energy solution was in building of the big dams but this became controversial issue due to the Kala Bagh dam. Nobody took any step to resolve either Kala Bagh issue or start some new dam. The WAPDA is still in favour of large dams considering that the delay in construction of large dams was the basic reason for the shortage of power. But the construction of big dam will take at least 10 years and we cannot wait that long. If this situation persists, our economy will then come to a stage where it will need any power at any rate. Even today both businesses and households are spending huge sums on the import of power generators and their fuel. The funds spent on these imports are putting enormous drain on the economy. Although larger industries can put more money in the electricity generation, the real problem is with the small and medium enterprises which are facing the real crunch. The SMEs sector has to be facilitated due to its importance as engine of growth in the economy. In the present situation, it cannot afford its own electricity generation.
Expensive import-based, oil-run power generation is not the answer. These have already increased Pakistan’s fuel import bill. Moreover, uncertainty prevailing in the oil producing region is adversely affecting the oil prices which are showing a steady rise in the last few years. A decade ago oil was being traded on $20 and nobody ever thought that the price will cross the $147 mark in a short span of time. There is some drop in the price but oil is still being traded around $90 today. This is putting huge burden on economies of the developing world including Pakistan. The country is facing another problem. Its power generating infrastructure especially thermal units are aging with every passing day and their power generation capacity is reducing. The acute shortage has increased agony of the nation through load-shedding. The economy of the country was on the path of economic recovery but the shortage has further delayed it. The energy shortage is causing at least 3-4 percent loss in the GDP. The shortage along with global financial crisis, war on terror and floods has pushed back the economy into low growth path. The delay in the decision of building big dams has resulted in high cost of electricity generation by imported oil.
“An official energy demand forecast indicates that the demand for natural gas, which makes up about 50% of Pakistan’s energy consumption, would increase by 44% to 39 MTOE from 27 MTOE currently.”
“There should be more emphasis on renewable energy resources but conventional hydro, thermal and coal-fired power plants should be established in the short-to-medium-run.”
“For example, if we start building 1-3 KW micro hydro, wind or solar power plants in Pakistan ‘sufficient to provide energy to one home’ we can sell electricity to individual families direct at low installments. The cost will be recovered in the utility bills.”
Gas Sector: Pakistan mostly relay on indigenous natural gas which is the largest source of energy supply in Pakistan. Currently, this sector contributes 27.7 million Tonnes of Oil Equivalent {TOEs} (45.4%) in the overall energy supply of the country, followed by mainly imported oil products at 21.3 million TOEs (34.9%). The other sources have relatively smaller contribution e.g. hydel power at 7.5 million TOEs (12.3%), coal, mainly imports, at 3.7 million TOEs (6.1%) and nuclear power at 0.8 million TOEs (1.3%). The country has seen rapid growth in the consumption of indigenous natural gas in all sectors of the economy whether it is residential, commercial, industrial, transport or power. This is the result of liberal government policy on the price control and use of CNG. Over the past 15 years, the CNG sector has shown enormous growth in the consumption of gas. The outcome of this policy was a vast natural gas distribution and transmission network in the country. Moreover, the low gas prices provided a significant disincentive to the investment in this sector. No significant new investment came to this sector in the past 15 years. The indigenous reserves of natural gas depleted at an alarming speed.
The gas crisis is now taking its toll on the job market of the country, rendering millions of workers jobless especially in the industrial cities of Punjab. Textile is the major industry in the country employing millions of workers. Regrettably, cut in gas supply only to Faisalabad was causing one billion rupees loss daily to the economy and $3 billion annual to exporting sector. A survey shows that about 3 million workers are being affected by the gas load-shedding. The steel industry is the second largest exporting industry and provided employment to 500,000 people but now 300,000 people were unemployed after the gas crisis.
The country has to seriously try to increase gas supplies. In the past 15 years it could not increase gas supplies, either through increased domestic exploration activities or via imports of liquefied natural gas (LNG) or regional gas pipeline imports. The forecasting on the current gas policies indicate that Pakistan’s natural gas supply will sharply decline from current 4 billion cubic feet per day (bcfd) to less than 1 bcfd by 2025/26. This will result into a heavy gas/energy shortfall reaching at 8 bcfd (over 50 million TOEs) by 2025/26. The economy will face the brunt of this shortage and it will depress Pakistan’s average GDP growth rate. Moreover the possibility is that Pakistan will not be able to develop its other indigenous energy sources such as hydel power and coal by 2025/26 under current policies, and the energy import requirements of the country may grow from the present 30% to over 75% of the energy mix by 2025/26 costing over $ 50 billion per annum in foreign exchange. It has to take some measures to ensure continuing gas supplies to its residents, industry and commercial enterprises. Because the price is an important instrument to bring efficiency in the gas usage, so government-controlled natural gas pricing which is significantly lower than pricing of alternate fuels should be readjusted to resolve the high gas demand and low supply situation. The mechanism of pricing slabs for different gas consumption levels is also not working and it has created demand distortion as well as encouraged unethical practices. The need of the time is to make the natural gas pricing be compatible with pricing of replacement fuels in different sectors (LPG, fuel oil, LNG/pipeline imports) via an enhanced gas surcharge and pricing for new natural gas supplies, both domestic and imports, be de-regulated. At the same time the price slabs be abolished, with a single natural gas price for all volumes. The other important issue of the gas sector is that this state-controlled resource is being used for political leverage, resulting in over-commit-ment of gas supply leading to natural gas shortages. There is no check on the theft and it reached at alarming proportions. The existing gas utilities be unbundled and a single state-controlled natural gas transmission company be created for transmitting gas on an open-access basis. Natural gas distribution & marketing be privatized to multiple gas companies to provide improved business discipline and customer management. A competitive gas market be created with de-regulated prices and open-access to the gas distribution grids for third-party gas suppliers. Natural gas theft be declared a “non-bailable offence†with a high penalty. Gas price incentives for the exploration and production (E&P) in Pakistan are not attractive for major new investments to be undertaken. Security situation and uncertainty in continuity of E&P policies by successive governments are barriers for major E&P investments. The exploration sector needs to be progressively de-regulated and, as a first step, be allowed to sell new natural gas discoveries at market-based pricing. Exploration sector be able to sell natural gas directly to consumers via open access to the gas transmission and distribution grids. Pakistan’s current credit rating of below investment grade is not conducive for long-term LNG contracts, in which the LNG suppliers require payment securities. Pakistan does not possess LNG import infrastructure and its current port conditions are inadequate for large-sized LNG vessels. Merchant LNG import terminals be set-up by the private-sector, under capacity-utilization guarantees by the government for an initial period, to enable early spot/short-term LNG imports. Import terminals needs to be opened to create a competitive LNG market. Development of ports be undertaken by the government on a fast-track basis to provide accessibility for large-sized LNG vessels.
