UploadFolder_3777--THE ENERGY CRISIS IN PAKISTAN 1

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THE ENERGY CRISIS IN

PAKISTAN

Submitted By

GROUP 7

1. Abdul-Rehman (3702)

2 . Rehan Hussain (3777)

3 . U baid-ur-Rehman (3778)

4 . J unaid Ghayoor Hussain (3780)

5 . M uhammad Ansaar (3824)

6 . Abdul Sami khan (3825)







ABSTRACT

Electricity Crisis in Pakistan is one of the severe challenges the country is facing

today. Electricity is essential part of our daily life and its outage has severely

affected the economy and overall living of ours. Thousands have lost their jobs,

businesses; our daily life has become miserable. Pakistan is currently facing upto

18 hours of electricity outage a day, is expected to face more if not dealt with in

time.

The purpose of this study is to analyze the nature of this crisis and to propose some

short-term as well as long-term solutions to this problem.

This study is exploratory in nature. We have done our best to conclude and sketch

up some recommendations in the light of identified hurdles in the way of

implementing the appropriate solution to our problem.

Our study finds some major wholes in our system if they are covered up we can

not only overcome the deficiency of electricity in our systems but also we can be

able to export it to our neighboring countries.

The basic flaws that our study identified are related to circular debt, and the

inadequate capacity of our electricity production and distribution systems. Also we

emphasized on some prospective alternatives to our electricity production that are

cheaper and they provide more clean electric energy as compared to fossil fuel run

energy plants.



INTRODUCTION

y Background of the study:

Pakistan has been facing an unprecedented energy crisis since the last few years.The problem becomes more severe during summers. However, this winter was nodifferent. During the peak crisis there was a power outage of 3-4 hours everyday.Those without generators and UPS faced tremendous problems. The prices of bothcontinued to increase due to a sharp increase in their demand.

Almost two years ago the then WAPDA chairman who happens to be a caretaker minister admitted that WAPDA cannot meet the current demand for electricity. Its

surprising that such a senior and experienced person took so long to find this out.

On top of that the government which talked about Pakistan¶s supposedly boomingeconomy failed to understand the gravity of the situation. General Musharraf (R)after becoming Chief Executive used to talk about building dams especiallyKalabagh Dam. This was one of the many promises he failed to keep. Even after that very few power plants have been set up to meet the demand for electricity.

During the second government of Benazir some independent power plants were setup. Had they not been setup then we would have had a much bigger crisis with lifealmost coming to a standstill. I come from the software industry which has been

badly hit by the present power crisis. On an average the generator at my office is

on for three hours. Our work is not much affected but overall the company¶soperating expenses have increased.

The policy makers of Pakistan have so far failed to understand one thing. They dotalk about making dams and setting up nuclear power plants but why do they notunderstand the importance and benefits of alternate energy sources such as solar,windmill energy etc. They are cheap and quick methods for producing electricity.Pakistan is a very blessed country because solar energy is available in most cities

all year round similarly wind energy is readily available in the coastal areas. Theseenergy sources if tapped can be of great help in reducing the current demand

supply gap.

Pakistan is facing power shortage, natural crisis and oil crisis. In a report it isclaimed that Pakistan has faced 1000 to 2000 MW shortage of power. And it willlikely face 3000MW next year. Pakistan is facing 80 millions tons of oil shortageaccording to it's need. And is lacking behind the needs of natural gas at about 27million ton of energy in current year and this ratio will rise in upcoming years.



Energy Crisis In Pakistan

An energy crisis is any great shortfall (or price rise) in the supply of energy

resources to an economy. It usually refers to the shortage of oil and additionally toelectricity or other natural resources.The crisis often has effects on the rest of the economy, with many recessions beingcaused by an energy crisis in some form. In particular, the production costs of electricity rise, which raises manufacturing costs.For the consumer, the price of gasoline (petrol) and diesel for cars and other

vehicles rises, leading to reduced consumer confidence and spending, higher transportation costs and general price rising. Energy resources have depleted!Whatever resources are available are simply too expensive to buy or alreadyacquired by countries which had planned and acted long time ago. Delayed effortsin the exploration sector have not been able to find sufficient amounts of energyresources. Nations of the world which have their own reserves are not supplyingenergy resources anymore; only the old contracts made decades ago are active.

Airplanes, trains, cars, motorbikes, buses and trucks, all modes of transportationare coming to a stand still. Many industries have closed due to insufficient power

supply. Price of oil has gone above the ceiling. At domestic level, alternatemethods like solar, biogas and other methods are being tried for mere survival.The above is a likely scenario of Pakistan and around the globe after 25 years. A

pessimistic view, but realistic enough to think about and plan for the future. Butare we doing anything about it? Lets have a look at the current energy situation of Pakistan and the world.Pakistan¶s economy is performing at a very high note with GDP growing at anexceptional rate, touching 8.35% in 2004-05.In its history of 58 years, there has

been only a few golden years where the economy grew above 7%. This year official expectations are that GDP growth rate will be around 6.5 ± 7.0%. For the

coming years, the government is targeting GDP growth rate above 6%. Witheconomy growing at such a pace, the energy requirements are likely to increasewith a similar rate. For 2004-05, Pakistan¶s energy consumption touched 55.5MTOE (Million Tons of Oil Equivalent).The energy consumption is expected to grow at double digit if the overall economysustains the targeted GDP growth rate of 6% by the government. Pakistan¶s energyrequirements are expected to double in the next few years, and our energy



requirements by 2015 is likely to cross 120MTOE. By 2030, the nation¶srequirement will be 7 times the current requirement reaching 361MTOE.Pakistan¶s energy requirements are fulfilled with more than 80% of energyresources through imports.On the other hand, international oil prices have not only broken all records but aretouching new highs, with every news directly or indirectly affecting the black goldindustry. Moreover, speculators all around the world expect oil prices to touch

$100 per barrel in medium term. With concerns over Iran¶s nuclear program,terrorist issues in Nigeria and high economic growth in China & India and their ever rising energy requirements, oil prices don¶t see any another way but to shootupwards.What is the government doing to ensure a sustainable supply of energy resourcesfor economic growth? What strategic steps are being taken to acquire energyresources in future? Is private sector willing to invest in Pakistan¶s oil industry?

What are the incentives being offered to the foreign players to continue working inthe exploration sector? What hurdles are stopping other big players around theworld to enter Pakistan? What is the role of gas distribution companies so far? Arethe citizens of Pakistan being robbed by energy giants with ever rising utility bills?What should be the real price of petroleum, kerosene and other oil products inPakistan? When will the nation have ³load shedding free´ electric supply? Have

we been able to make long term contracts with the countries to provideuninterrupted supply of energy resources? Will the government be able to provideenough sources to the citizens for a sustainable economic growth? Have we lost therace for acquiring maximum energy resources for future survival?

One of the major problems facing the new government, the energy crisis, is

intense, costly and multi-dimensional. The infuriating electricity and gasdisruptions and soaring fuel prices in turn pushing the cost of living have made lifedifficult for people. The even before it took office the new government was greetedwith two jumps in fuel prices, accounting for a 15% rise in two weeks. Meanwhile,crude oil prices have been registering all-time-highs, shooting 40% in the pastyear. The undeniable reality is that that this global spike will somehow have to be

accommodated in energy prices in Pakistan.

There is no quick solution to electricity shortage and the trend of surging prices isirreversible. There is very little the new government can do on this in theimmediate term. At best, the problem can be prevented from aggravating until asustainable solution is struck. Tough decisions will have to be made, and executedwith commitment.



The starting point of any remedial efforts should be an acknowledgement of thefact that the crisis is a self-inflicted one. It cannot be denied that something has

been wrong down the line that caused this crisis. The country has nearly goneenergy bankrupt while a total disaster appears to be round the corner unless

pragmatism is shown. It is also important that lessons be learnt from the pastmistakes on part of relevant circles. The crisis is still addressable as long as there isdue vision and devotion.

The golden age for energy in Pakistan has been 1960s and most of the 1970s, thatis when Tarbela and Mangla dams were put into operation and other dams,including Kalabagh, were actively pursued. In subsequent years, action in the fieldof energy has been utterly recklessness. The prevalent crisis is a consequence of imprudent energy policies over the last three decades.

One of the major limitations that have hindered energy prosperity in the country is

short-sightedness. There has not been a meaningful and coherent energy policy in place over this period. The approach has been ³project-oriented,´ rather than ³goal-oriented.´ Almost every regime has dealt with energy on an ad hoc basis. Long-term and sustainable planning of energy have been an alien concept. The reason isfairly simple; energy projects usually require huge investments and commitment,making them undesirable to any regime. The attitude of delaying new projects, asfar as possible, has been the common practice and is in fact the recipe of the

present crises. In doing so, when things start getting out of control, haphazard andquick-fix measures are sought. A typical example is the Independent Power

Producers (IPPs) saga of the 1990s. In an attempt to avert an approaching energycrisis, as a result of negligible capacity addition during the 1980s and the early1990s, the regime in 1993-94 decided to go for thermal generation through theIPPs. Undoubtedly, the IPPs provided a very healthy contribution at the supplyend, enhancing power generation capacity by more than 5000MW. Nevertheless,this power addition cost the country a fortune ± apart from the controversial tariff structure, the move was against the spirit of energy sustainability and security for the country. The fact that the IPPs were set up at the terms of the investors suggestthat it was a move made in panic.

The last few years provide a perfect example of failure to make a timely responseto the growing energy needs. A threefold increase in energy demand over the lasttwo decades has been responded to with an ill-proportioned increment at thesupply end. Consequently, with the advent of 2008 the gap between demand andsupply grew to 4,500MW indicating a 40% deficit of electricity. The prevalentenergy crisis has not appeared overnight ² the omens were evident for a number of years but the authorities failed to react in time. Senior WAPDA officials claim



that in 2002 the government was officially warned about the approachingelectricity crisis and was asked to take immediate measures to enhance generationcapacity. The timely warning failed to receive any appreciation. The attitude of therelevant authorities has thus indirectly contributed to the growth of the dire crisis.Another example worth quoting here is that of the 969MW Neelam-Jehlumhydroelectric project. It was to be constructed in 2003 at a cost of $1.5 billion. Itgot abandoned until the present power crises intensified towards the end of 2007.

The revised estimate is around $2.25 billion. The delay is costing the country afortune ± an extra $750 million in terms of project cost, apart from enormousmonetary dents inflicted by the five-year delay. It is also noteworthy that WAPDAhas traditionally pursued the major projects of national interest but failed to get thedue positive response from the policy- and decision- makers. Interestingly,WAPDA plays the role of a scapegoat, because the common man blames WAPDAfor his sufferings.

It is also important to plant relevant and qualified people at the key policy anddecision making positions. Quite often, these positions are offered to utterlyirrelevant, ill-qualified and incompetent people. The track record suggests thatenergy offices are amongst the most coveted ones in any regime, simply becausethey are considered to be the most lucrative ones. There are examples whenundergraduate and utterly irrelevant people have been appointed to run energyoffices. There are also cases when the crucial positions have been used asincentives during political bargaining. The unhealthy attitude towards sensitiveenergy positions is enough to explain how the field of energy has been traditionally

toyed with.

Another aspect of the bankrupt policies is politicisation of projects of nationalinterest. The paramount example is that of Kalabagh Dam. It has been politicisedto such an extent that its orchestration now appears to be next to impossible.Evidences suggest that the issue has been used to serve the vested interest of regimes and certain political and ethnical forces. With the emerging post-lectionsense of national reconciliation on the political arena, it is expected that such

projects would be looked into with cool heads. It is time to move on. The technicalissues, if there be any, have to be addressed on the drawing board, rather in

processions. It has to be realised that the delay in project has not only made thecountry suffer but also people that come from all provinces.

In order to tackle the existing crisis and ensure a prosperous energy future, the backbone of the future energy policies would have to be reliance on domesticresources (hydropower, coal and solar and wind energy) and energy conservation.Decisions on energy projects should revolve around national interest rather than



naïve political and personal gains. Energy offices should be run by qualified,committed and deserving people equipped with due mandate. Relevant ministriesand departments should also be overhauled.

y Inflation and energy crisis targeted Pakistan:

Pakistan isfacing a number of constraints in the path of social economic and politicaldevelopment. One of them is the ever-increasing inflationary pressure on thegeneral public. This inflationary pressure created a social instability andmisconception among the messes towards the Government. General public

considers the government responsible for this inflation. Government gave the blunt

gift of inflation, unemployment, terrorism and energy crisis to the public. Thegovernment offended the masses. Some economists argue that such type of increase in prices was never seen before the regime of Musharaf. The prices of essential domestic commodities have touched the psychological boundaries. Thefixed income employees and creditors are affected by this inflation.During five years the prices of red chilli increased by 62.7%, flour 66.2%vegetable oil 120% sugar 30.9% rice 69.9% and other essential domesticcommodities like vegetables, chicken etc also showed increasing trend of prices.According to official reports the inflation rate is 7.2% and according to non-officialreports like UN 8.6% World Bank 8.9% and Asian Development Bank 9.1%. This

inflationary pressure has psychologically affected the employees and employers.Some renounced economists argue that the reason of this increasing inflation rateis the standard year 2001 according to which inflation rate is measured. In 2001 theforeign aid was given to Pakistan therefore low standards were made to measurethe inflation rate. Although the increasing trend in the prices of fuel and other things in the international market is another factor but the standard year is also afactor.

Not only these factors caused hyperinflation but also energy crisis played a vitalrole in this hyper change in the prices of daily use domestic and capital

commodities.There are three main resources used to fulfil the energy requirements Electricity,Fuel and Gas. Despite having the treasure of natural energy resources, Pakistan¶senergy production plants are not fulfilling the country¶s requirements effectively.The present energy crisis is affecting the economy entirely. Industrial and daily life

has paralysed by this energy crisis. WAPDA is just fulfilling the country¶s energyneed near to 46% the remaining is fulfilled by the alternative expensive resources.



The energy crisis created cost pull inflation in the country, as electricity is the keymaterial for any production plant. There is a general observation of 5-10 hours of load shedding, but some times it hits the level of 18 hours. Even the industrialcapital of Pakistan (Karachi) is suffering from the same situation.Why in the era of energy reservation Pakistan is not utilizing its energy resources?Pakistan is just relaying on the electricity production by Dams. But Pakistan hasnot enough dams or water to generate electricity. Although WAPADA is enjoying

the monopoly but government has to pay 2 rupee/unit as incentive. Our neighbouring country India has built a number of Dams to overcome the energycrisis but Pakistan government has paid no heed on this issue. Many projects aredelayed due to provincialism the glaring example is of Kala Bagh Dam. The costlymachinery amounted US $9 million is now functionless due to (rust) delay in theconstruction of Kala Bagh Dam, Some scientists predicted that in next 10year world has to face the water shortage also.

If the government fails to construct dams for the generation of electricity due toProvincialism government should have to adopt alternative options to accomplishthe energy needs of the country. As Iran has large treasure of natural energyresources like natural gas and fuel, despite this Iran is engaged in the attainment of nuclear power generation plant. Pakistan, despite being an atomic power does notthink about the nuclear electric generation plant. International community is

imposing sanctions on Iran due to uranium enrichment but Iran pays no heed tothem. Then why is the Pakistani government reluctant to use its nuclear plants totackle energy crisis?Secondly, Pakistan¶s western area especially Thar is enriched by natural coal,which is the fifth largest treasure of the world. Pakistan has signed a contract withChina to generate 300 Mega watts by coal deposits in 2003, but due to somereasons it has not been completed till now.Industrialists due to high prices of electricity use alternative resources (petrol) inelectric generators to fulfil their energy needs but, the fuel (petrol) prices ininternational market cross the psychological limits of US $110/beryl recently. Thehigh prices of fuel and electricity created a long-term cost pull inflation (increasein the prices of raw material of one commodity cause high prices of other commodities).

There are a lot of expectations with the new government as Nawaz Sharif pledgedthat if he came in rule he will fix the prices of domestic commodities likevegetables oil, floor, sugar and rice for two years. Now the new government shouldtake basic steps to eradicate inflation. I think energy crisis is the real cause of thisinflationary pressure. We are hopeful that new government will take some positivesteps to fulfil its promises and public expectations.



y The looming energy crisis in Pakistan:

Energy costs, from where they stand now, could rise by more than 50 percent inthe next few years. The cost of power on this scale would be difficult to manage by

most emerging economies All oil-consuming countries, particularly the third worldhave suffered due to the consistently rising demand-driven cost of energy

From 2004 onwards, the price of oil started soaring in the international market, andfor the first time in October 2004, oil prices crossed the benchmark of US$ 50 per

barrel. It continued to fluctuate but kept moving up each year and in 2007 brieflycrossed US$ 100 per barrel. For the past few days it has been hovering at US$ 103

plus per barrel. The oil industry has been plagued by two main deficiencies whichis a drop in exploration activity following the economic slowdown of the mid-

1990s. Coupled with that, the global refining capacity did not keep pace with therise in demand by developing countries, especially in China, India and the Far East beginning 2000. Yet, both OPEC and the vertically integrated oil industry havedisplayed no interest in increasing the output, which needs additional investment inexploration and at last 4 to 5 years to build additional refining capacity.All oil-consuming countries, particularly the third world countries have suffereddue to the consistently rising demand-driven cost of energy. Pakistan is one of thecountries worst hit by the rise in price of energy. The domestic energy generationsources are restricted to hydropower, limited production of oil and gas, andnegligible use of coal as the input for power generation. Even the conversion of

cement industry to use coal did not help much as the required quantity was beingimported from Indonesia and some other countries. This brings us to the shortage

being faced in supply of electricity for domestic and industrial purposes (In figuresI and II below the position of domestic demand and supply for electrical energy ishighlighted).According to the PPIB website, during 2008 Pakistan would be short of electricitysupply to the tune of 1,457 mwh. Given this supply shortfall, and few choices for

plugging this gap with indigenous energy resources; the planned and projectedgrowth in GDP appears highly unlikely. If Pakistan chooses to rely on fossil fuel to

generate electricity it would be a constant burden on the country¶s foreignexchange reserves, and due to continuously increasing price of oil, our exportablesurplus would become progressively more uncompetitive and goods for localconsumption would become costlier. This may result in closure/ bankruptcy of

some industries and the country could face some economic weaknesses. It istherefore imperative that Pakistan finds workable remedies to the looming energycrises and remedies are found with practical solutions to facing up to the problems



arising out of growing population and the growing energy needs to supportreasonable GDP growth.For the last 10 years Pakistan has been importing crude oil and refined petroleum

products to generate electricity, besides meeting the increasing demands of itsexpanding transport sector.

The alternate energy sources and tueir crisis :

1. Nuclear energy:KANUPP was established with the help of the Canadian

Government in the 1960¶s and nearing end of its lifecycle. The ³Chashrna Nuclear Power Plant´ has been designed and built in collaboration with People¶s Republic

of China, and is being operated and maintained by Pakistani scientists andengineers, delivering full power of 300 mw to the national grid. With the Karachi

Nuclear Power Plant also operational since 1971, Pakistan is the only country inthe Muslim World operating nuclear power plants. Nuclear power is safe,economical and environment-friendly.

2. Natural gas exploration:Pakistan still has huge untapped gas reserves. If

we allocate more resources to their exploration there is a possibility that in the near future part of the energy resource gap may be met from new reserves.The currentgas prices and the limits they place on increasing the profitability of this sector

would not attract any reasonable amount of investment, whether local or foreign,since the cost of exploration has gone up substantially and current well head pricesdo not justify further investment at the current rate of return. The other factor discouraging exploration of new gas reserves, which would continue to haunt us, isthe law and order situation in most of the areas where gas finds can be a

possibility.

3. Natural gas import:The IPI (Iran-Pakistan-India) gas pipeline project is

also a long story (global political situation is not being discussed for obviousreasons) but the current plan to lay the 54 inch pipeline through the coastal area hasa major flaw. Even if Pakistan starts building the pipeline on priority basis, it maytake 5 years to complete the project (i.e. by 2013), and it may plug the energy gap

only thereafter.

4. Solar energy:



At present, except for low-ampere domestic use, solar energy is a distant possibility, although in a country like Pakistan where clouds area rarity for most part of the year it could be a workable option. There is a simpleway of harnessing this energy for the industry, which is dependent on steamgeneration through oil or gas-fired boilers. Water can be pre-heated by convergingsun rays on tanks made of metals/alloys that can easily absorb the heat. This pre-heating can reduce the cost of producing steam and reduce the energy resource gap

to an extent, though negligible.

5. Coal:Pakistan has enormous coal reserves (probably the third largest in the

world) that remain untapped and even the industries that have converted from gas

to coal as their energy source have to import coal mostly from Indonesia, which isagain a drain on Pakistan¶s scarce foreign exchange reserves.

6. Wind energy:The government is following a policy to encourage

investment in wind energy. Two corridors have been identified in Sindh, and landhas been allocated to various wind energy projects. The issues confronting the

wind power sector are as under:(a) Scarcity of equipment: wind power equipment is in short supply, the worldover. Propelled by GDP growth needs, demand for energy has been growingglobally, and as cost of energy derived from fossil fuels has increased two-foldduring the last three years, the demand of wind power equipment has also grown

manifold.(b) Due to growth in demand and increase in the cost of metals, especially steeland its products, the price of equipment required for wind power has also increasedmanifold.(e) Although the cost of equipment and know how is high, the advantages of wind

power are quantifiable, and after a number of years, electricity generated by thistechnology would become the cheapest compared to alternate sources of energy atthat point of time.

To install this initially expensive but eventually very economical technology, in thefirst instance Pakistan may start importing and installing the equipment to generate

electricity but in the long run it must encourage domestic production of theequipment. If Pakistan can replicate the sophisticated machinery and equipment for uranium enrichment and also can produce or cause to be produced very high RPMcentrifuges, machinery, electric circuits, vacuum valves and allied equipment then,

probably, then it also has the capacity to produce equipment for wind power. In



this regard, Pakistan can also enter into technology transfer agreements withforeign manufacturers.The considerations that place wind energy on top of the list is mainly due to thefact that generating energy using this technology requires no fuel, and the energy

production process does not pollute the environment.

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