Monday, January 6, 2014

Challenges of Energy Sector in Pakistan

During the India and Pakistan division in 1947, Pakistan inherited a total of 60 MW of electricity generation capacity, in the form of a small hydroelectric facility and a thermal power plant. It now has about 20,000 MW of installed capacity. An estimated 60% of its population of over 160 million people has some access to electricity. Pakistan has a per capita GDP of about $2,400 (adjusted for purchasing power parity) but is now ranked at 136 in the United Nations Human Development Index, out of 177 states, below India, Bhutan, Burma, Laos, Myanmar, and Botswana and other countries with lower per capita GDP. Over its six decades, Pakistan has found that its energy policies, especially those associated with exploitation of its crucial gas and hydroelectric resources, are a source of profound political problems. The poor law and order situation in remotely situated gas fields of Balochistan, Khyber Pakhtunkhwa and Sindh is a major challenge for government to promote oil and gas exploration among investors, Bad law and order situation is the only problem faced by the local and foreign oil and gas exploring companies involved in Pakistan.

 The co-operation of local administrations in remote areas is very significant for oil and gas exploring companies but still the private sector has to deal with local tribesmen to continue with development work.  Interestingly, the security issues in remotely located gas fields are exclusive to Pakistan and nowhere in the world including Middle East, Europe and US the heavy construction industries face such a situation. The Pakistan’s economic cost each year is over $10 billion, shaving around a third off the growth rate. In the industrial town of Faisalabad, where the crisis has shut down several factories, a group of young boys was seen attacking the local electricity company’s offices with sticks and bricks Only the wealthiest are inured from the crisis. Generators are now a status symbol in Pakistan.

The energy crisis is a product of years of steady neglect in a country of scarce resources, a growing population, poor management decisions and a conveyor belt of corruption. For decades, Pakistan has relied on pricey oil imports. As the price of oil rose and the Pakistani rupee weakened against the dollar, the cost of keeping the lights on spiraled upward. The bad law and order in those parts of the country which are rich in energy resources is also a hurdle to economic growth. A strong writ of the state in remotely located gas fields can bring a big change to the economy of Pakistan, as a large number of foreign companies and investors are interested to invest here One of the biggest issues confronting the country right now is a so-called circular debt of $5 billion. The importers of oil are owed money by the companies that generate the electricity, which in turn are owed money by the distribution companies, which are then owed cash by consumers who don’t pay up, from the government and the private sector. In recent years, defaulters have included the presidential palace, the Supreme Court, the top intelligence agency and the Sharif family’s steel business. The government estimates that $2 billion is lost each year through graft in the energy sector.

 International Monetary Fund, which is currently in talks with Pakistan about issuing a fresh loan. As the  Sharif’s government is keen to normalize relations with neighboring India through stronger trade ties. The Indian government is offering us 500MW of electricity through a system that will be installed over the next two years. The Indian private sector is making a cheaper offer that could see fruition in six months’ time.

The Sharif government had hoped that its Saudi allies, sensing Pakistan’s desperate needs, would come through with an oil deferred-payments package. But when it comes to the supply of gas, Pakistan may end up following through with a pipeline with Iran that would not only offend Riyadh, but also trigger sanctions from USA.

The U.S. has spent nearly $250 million on hiring expert consultants and enhancing infrastructure. The improvements, including new turbines for a major dam, are said to have added 900 MW. The prospect of striking energy deals with India and Iran. It makes good economic sense, and it makes for good regional diplomacy. As the Pakistan has rich natural resources which if planned well can help Pakistan resolve the financial as well as energy crisis. It is the need of the country to have public, private forums to develop a ten year plan to explore these resources as well as attract foreign investments, companies with better technologies to work in Pakistan.

 The Pakistan needs to bring better technologies from the west thereby increasing the productivities and reducing the cost of operations. Pakistan’s nuclear energy program has been a very small part of the energy mix so far. Despite this, the Pakistan Atomic Energy Commission has great political power and preferential access to scare resources of capital and technical skills Pakistan’s energy plans are ambitious and appear unrealistic.

It is hard to see how it can generate and sustain the vast capital investments it would need to meet its energy goals, given its political instability, poor governance, and myriad groups that are willing to use violence against the state because democratic processes have not been allowed to develop. Should funds become available, and current plans begin to be put into effect, conflicts will likely worsen. A necessary condition for a viable energy policy in Pakistan is that it be built on foundations of democracy and social justice and watched over by a vigilant and powerful civil society. These basic political foundations still need to be laid and the social movements insert text need to be built

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