Pakistan’s Energy Economics and Geo-Politics

Mehmood Ul Hassan Khan

Energy is life to economic development and Pakistan’s energy sector is at cross-roads. Energy sparks the socio-economic prospects of the country where its shortage has already spoiled our GDP (4 %) tremendously. It has also forced the closure of hundreds of factories (including more than five hundred alone in the industrial hub city of Faisalabad), paralyzing production and exacerbating unemployment.

Although government of Pakistan announced new national energy policy 2013-2018 along with so many incentives and priorities but its overall energy economics and geo-politics is a complicated and complex phenomenon. It has internal dynamics, regional spillovers and international repercussions too.

Pakistan’s mix of energy production has been tilted towards thermal power as compared to hydro-power by successive governments and eventually the government and as well as common people are in the line of fire, continuously facing the unbearable heat, humidity and price hike around the clock especially in the summer season. Expensive energy mix, circular debt and inefficiency of distribution companies are the major reasons for the current energy crisis in the country.

Line losses (20-35 percent due to poor infrastructure, mismanagement), lack of capacity building costing taxpayers an additional Rs2.70 per unit over and above the cost of generation (averaging around Rs12) and theft of power supplies (20-25 %, power theft alone amounts to more than Rs140 billion per annum) has already produced ripples in the fabric of Wapda and its associated subsidiaries.

Geography of provinces is also not so friendly with Pakistan’s energy production mechanism and national requirements. Intra-province conflicts, confusions and confrontations have been one of the main reasons of its energy resources progress and production as well. Moreover, lack of strategic visions and vested interests of the ruling elite badly damaged the energy sector of Pakistan. Imbalanced national preferences and priorities have weakened the energy sector in all parts of the country.

Source: Federal Ministry of Industries

It seems that unlike the global practice of producing electricity through cheapest energy sources, Pakistan is still fulfilling its energy needs through expensive oil and gas-based power plants, whereas in India and China, 68 percent and 79 percent of electricity is produced from coal respectively.

Source: Global Energy Report (2012-2013)

 Now national economy has been compromised due to energy deficit. Social development has not been up to the mark due to looming energy shortage. Foreign reserves (import bill up to $15-16 billion a year) have been utilized on the make-shift arrangements of energy production in the name of IPPs or rental power. Pakistan’s energy fuel mix is not sustainable and measures such as setting up hydel and coal plants and replacing oil-fired plants with coal plants to bring down the overall cost of power generation are required.

For the last so many years government has been doing its level best to import energy from other countries in order to fulfill the gap of energy. In this regard, so called dream gas pipeline (Iran-Pakistan-India) confined now to Iran-Pakistan, Turkmenistan, Afghanistan, Pakistan and India (TAPI) and Central Asia South Asia (CASA)-1000 have been rigorously followed. Nothing has yet been materialized.

The TAPI gas pipeline is based on mutual friendship, respect, and need. The project will also result in the economic prosperity, regional cooperation and above all smooth and easy availability of energy resources i.e. gas. The availability of gas will help build economic growth, development and eventually a stronger Pakistan.

TAPI specifications

 TAPI is a 1,680-km 56-inch diameter gas-pipeline starting from Dauletabad field in Turkmenistan to Fazilka at the Pakistan-India border, passing through Herat and Kandhar in Afghanistan and Multan in Pakistan. It is estimated that the pipeline will carry $3-5 trillion in oil and natural gas from the Caspian Sea basin via Turkmenistan, Afghanistan, and Pakistan. It will be profitable for investors. The project cost was initially estimated $3.3 billion in 2004 which has now been increased to $7.6 billion in 2008. Despite high inflationary ratios the project is still considered economically and financially viable. The Pakistan government has already awarded the contract for laying the TAPI gas pipeline project to the US-based International Oil Company (IOC).

IP gas pipeline

The IP gas pipeline ($ 7.4 billion) has apparently been finalized. It would initially transport 60 million cubic metres of gas (2.2 billion cubic feet) daily to Pakistan. Talks on the 2,600-kilometre (1,615-mile) Iran-Pakistan-India pipeline began in 1994 but have been stalled by tensions between India and Pakistan and disagreements over transit fee. Transit fee ranges from $400 million to $750 million a year and Pakistan may be able to earn, as much as $500 million a year if the proposed gas pipeline is materialized. In fact, Pakistan stands to earn about $14 billion in 30 years, including $8 billion in transit fee, $1 billion in taxes and $5 billion in savings.

Bitter ground realities

Call for accelerating power imports from neighboring nations like 1,000MW from Central Asian states, 500MW from India and 1,000MW from Iran would not easily work. Supply of energy from Turkmenistan, Afghanistan, Pakistan and India (TAPI), Iran-Pakistan dream pipeline (IP) and even India would badly suffer from the emerging geo-political and geo-strategic trends in the region. Durable peace and political stability in Afghanistan would be crucial for importing energy from the CIS.  In case of IP, US legislations and diplomatic pressure would not be easy to crack. Even after the lifting of sanctions from Iran, this project would not be easily processed due to ill designs.

Strategic policies of the recent regime

Prime Minister Nawaz Sharif launched the construction of the country’s biggest atomic power plant. The 2,200-megawatt plant is to be built with Chinese technical assistance on the Arabian Sea coast at Paradise Beach, 40 kilometres west of Karachi. . Pakistan Atomic Energy Commission engineers will work on the project with help from the China Atomic Energy Authority. It will make nuclear power as the biggest source of energy in Pakistan which is already operating three nuclear plants, supplying 740 megawatts of power, in the country for the last several years.

The fourth one is now also being built. The new project will be the fifth one. The construction of the 2,200 megawatt plant, the fist of the new series of six, has just been started. This $10 billion Coastal Power Project called K-2 and K-3 is scheduled to be completed in six years.

Government has already started work on wind energy generation of 2,500 megawatts, 1,000 megawatts under the Central Asia-South Asia project, and Tarbela-Five expansion project which is to be completed by 2017. Many Chinese, Korean, and many other countries are visiting Pakistan in order to explore win-win situation.

Many projects have already been started with the help of China especially in the fields of coal, solar and wind energy in Punjab. Its biggest solar and coal projects are being carried out in different parts of Punjab.  The government has also started work on the Pakistan Power Park at Gaddani, on the Arabian Sea Coast close to Dubai. It consists of 10 coal-based electricity projects. Each project will generate 660 megawatts of power.

The government also plans to import liquefied natural gas (LNG) from GCC to overcome the outages and load-shedding of natural gas, that especially hits the country’s industry. Cooperation and collaboration with UAE (Masdar, solar energy), Saudi Arabia (shale gas) and Qatar (LNG) would be win-win situation for all the countries.

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Economic Affairs Editor