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Pakistan’s Energy Struggle: A Crisis in Perspective

Monday, October 10th, 2011

Karachi is Pakistan’s main economic, banking and industrial center and home to the country’s largest corporations. At the height of its popularity, it was globally known as the “city of lights” and a strong symbol of Pakistan’s economic growth. However, Pakistan is currently facing the worst energy crisis it has had in history, stalling further economic development and plunging cities like Karachi into darkness – unplanned power outages that last eight, ten or, even twelve hours.

Pakistan’s government and its people are scrambling to adopt all possible measures to mitigate this crisis: from load-shedding and energy conservation on a national scale to utilizing all available forms of energy production the nation could muster. The country is also working plans for importing energy from neighboring countries like Iran as well as harnessing the alternative energy resources of solar, wind and hydroelectric power to generate electricity.

Unless Pakistan addresses the underlying problems behind this energy struggle and makes a serious and determined effort to develop a comprehensive energy policy, the nation would have to face a serious stagnation in its economic growth and development as well as delay improvement for its citizens’ quality of life.

Pakistan’s Current Energy Needs and Generation Capacity

According to estimates from the Pakistani government, generation capacity should increase by at least 50 percent by next year in order to meet the continuing increase in demand. For the past several years, Pakistan has become heavily dependent on imported petroleum products brought about by a significant increase in oil consumption and the lack of internal refining capacity to support the country’s own oil production.

The Pakistan Energy Year Book released by KASB Securities reported that in 2010, 38 percent of Pakistan’s total electricity generation came from oil. Natural gas and hydroelectric comes second, each accounting for 29 percent of power generation, while the remaining percentage comes from nuclear and other power generation resources.

Energy Deficit – The state-owned Pakistan Electric Power Company or PEPCO reported that the country has a power shortage ranging from 1,500 to 2,500 megawatts per day during the winter season, which shoots up to 3,000 to 4,500 megawatts during summer. Currently, the country can only generate approximately 11,500 megawatts per day which is not enough to support the 14,000 to 15,000 megawatts of daily demand.

Gas Shortage – Most of Pakistan’s domestic natural gas production is consumed internally, and rising needs will force the country to explore import options to sustain this demand growth. LPG or liquefied petroleum gas and CNG, or condensed natural gas, is used primarily by household and motor vehicles and a lack of supply is disrupting daily activities in most urban areas. Daily gas production is only at 4.5 billion cubic feet and is way below daily consumption demands of 6.5 billion cubic feet as of June this year.

What’s Behind Pakistan’s Energy Crisis?

The Pakistani public is in an uproar resulting from this lack of energy and disruption of normal day-to-day activities. Many believe that the crisis was brought about by energy mismanagement by Pakistan’s ministry officials as well as energy executives. Others blame the crisis on corruption and apathy from their own government officials.

According to energy analysts however, Pakistan’s struggle with energy is brought about by the failure to generate enough capacity to support the country’s economic growth. The country has been overly reliant on oil-based electricity and problems with global price fluctuations and internal production inefficiencies compounded the country’s energy woes even more.

Critics from around the world pointed at Pakistan’s slow action in adopting and developing alternative and renewable sources of energy – relying too much on imported petroleum products to support its economy. The diagram above from the report “Energy Security of Pakistan: Prospects and Challenges” presented by Mr. Azim Riaz, and energy expert and researcher, clearly shows the potential Pakistan has for energy generation using different resources – but only a small percentage is realized and into production due to lack in investments and infrastructures.

Aside from the lack of investments and infrastructures to support Pakistan’s energy needs, there are other problems brewing that are threatening to compound the country’s energy woes even more. Recently, the Karachi Electric Supply Corporation (KESC) which is Karachi’s largest and main energy provider has been trying to cut costs by laying off more than 4,500 workers – sparking an industrial dispute with employees’ unions who have now launched a massive indefinite strike, crippling operations even more. The KESC has been plagued with distribution losses, with up to 30 percent of electricity generated lost or stolen due to illegal connections by Karachi residents rigging distribution wires and power meters.

Impact of Pakistan’s Energy Struggle

Pakistan’s energy crisis is severely affecting the country’s social and economic fabric, with a third of the country’s 170 million people living below the poverty line affected the most. 60 percent of the population subsists on less than US$2 a day, and with a high inflation rate of 15 percent, these people can barely afford to pay for most household essentials and basic necessities. With energy bills continue to skyrocket and lack of supply disrupting socio-economic activities – the country is faced with its worst dilemma in ages.

Business Slowdown – Pakistan’s industrial sector has lost more than US$4 billion during the last 18 months due to energy shortages. Power disruptions that last up to 8 or 12 hours a day occur during critical business hours, affecting sales and business activities in the commercial and industrial sectors. Load shedding affected the country’s manufacturing industries, resulting in up to a 40 percent rise in their overall cost of production. Companies who cannot keep up are forced to shut down or lay-off a significant number or their workforce.

Civil Unrest – The lack of electricity and gas, leading to business disruptions and unemployment is sparking massive protest actions across the country, with strikes occurring every day in big cities and disrupting daily Pakistani life even more. Media has shown protesters venting their anger and frustration at Pakistani authorities, and many escalating into riots with people setting tires on fires, destroying parked cars, and inflicting damage to offices owned by the electric companies. In a statement from Mahfooz Elahi, President of the Islamabad Chamber of Commerce and Industry, he feared things could get worst and said, “I think if this energy shortage continues, the public will get fed-up, and there are chances of an uprising like in Tunisia or Egypt, although the cause might be different.”

Economic Stagnation – As the country’s industries struggle with power shortages, Pakistan’s GDP growth and struggling economy is pulled down even further. Large companies can keep up for a while by draining funds to import large power generators. However, small to medium enterprises which have always been the backbone and primary driver of Pakistan’s economic growth cannot afford such capitalintensive machineries – forcing many to close down or putting thousands of people out of work.

Strategies to Overcome the Energy Need

To stem the tide of the worsening energy crisis and prevent the further downfall of the country’s economy, Pakistan’s leaders have adopted multiple avenues and strategies to overcome this energy struggle.

Load Shedding – Cutting down on power is a logical but should be a temporary step to take whenever the demand for energy is more than what generation capacity can provide. However, the country has been implementing load shedding for three years now and has actually doubled in duration over the last 18 months and has affected various sectors of Pakistani society. Energy officials are doing their best to keep the power shortages according to announced schedules to allow people to plan their energy usage accordingly, and prevent random cut-offs that severely disrupts households and businesses.

International Support – Pakistan is seeking support from the international community for energy supplies and financial advisory services. Foremost among these initiatives is the planned Pakistan-Iran gas pipeline project, with Iran pumping 750 million cubic feet of gas daily to Pakistan by the year 2014. The Pakistani government has assigned the Inter State Gas System (ISGS) Company as project manager and has invited Expressions of Interest (EOI) from both foreign and local banks. Aside from the pipeline, the country is also planning to import up to 500 million cubic feet per day of LBG or Liquefied Natural Gas by next year, with up to 17 international and local firms showing interest in the project.

Building Alternative Power Plants – The Pakistani government is also planning on tapping alternative energy resources as a more permanent solution to the energy crisis. These projects included the building of new coal power plants, hydro-electric dams, tapping of gas reserves in Balochistan, wind energy and solar energy power plants. Pakistan has the sixth largest coal reserves but only 5 percent of this capacity is used for energy generation. There is also a great potential for solar energy, with the country enjoying nine to ten months of sunlight throughout the year. Another renewable energy resource with the biggest potential in Pakistan is wind energy, particularly with the enormous potential for wind power along the Karachi to Gwadar coastline.

Future Trends and Outlook into Pakistan’s Energy Sector

Unless long term solutions are established, the energy crisis in Pakistan is expected to get worse in the coming years and has the potential to last until the year 2018 if the power demand in the next seven years is not factored in. The energy shortfall is currently at 3,000 to 4,500 megawatts but has the potential to skyrocket to 20,000 megawatts in the next ten years unless a clear and working energy policy is established.

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