Pakistan endowed with energy resources: World Bank report
RECORDER REPORT
FAISALABAD (April 05 2010): Pakistan is quite well endowed with energy resources. An estimated 54 trillion cubic feet (TCF) of gas reserves have been discovered to date, and about 32 TCF (about 900 bill m3) remain unproduced. In 2008, domestic gas production was about 1.3 TCF (37.5 bill m3). About 937 million barrels of oil have been discovered, of which 354 million barrels remain unproduced.
The coal reserves are estimated to 185 billion tonnes, nearly all located in the Thar Desert in Sindh province. Notably, Pakistan also has a hydropower potential of about 40,000 MW, of which about 6,450 MW has been developed, the remaining economically exploitable potential is around 20,000 MW (or more as alternative fuel costs rise), a World Bank Project Report on "Pakistan Energy Sector" says, which was prepared recently.
To address the electricity shortages, WB Report mentioned that Pakistan government has taken steps to fast track the development of additional power generation capacity. Two medium-sized plants of 165MW and 225MW, owned by independent power producers (IPPs), have recently been added, and a further 450 MW (in 2 IPPs) are likely to be added in 2010. The fast-track IPP projects and new, mostly oil-fuelled rental plants were expected to add about 2,000 MW of new capacity by end of 2009; however, seven of the rental plants, totalling about 1000 MW, will be delayed. Thus, load shedding is likely to continue in 2010 as well.
he operational and commercial performance of the public sector entities is quite low; about 25 percent of generated electricity is lost in transmission and distribution compared to an international norm of less than 15 percent.
The gas transmission and distribution system is experiencing losses or Unaccounted-for Gas (UFG) of about 8 percent as compared to about 1 percent for well-run systems internationally.
In view of the weak fiscal position, the government is no longer able to subsidise the power sector to the same extent as in the past, and it has (a) committed to restrict subsidies to the power sector to Rs 55 billion ($ 670 million) in FY10 and to cease all operating subsidies from the subsequent fiscal year. Furthermore, the government has (b) amended the legislation to automatically (on a monthly basis) pass through to the end consumers any changes in fuel prices and also make other quarterly tariff adjustments to cover changes in non-fuel costs; (c) agreed to allocate more gas to the power sector, thereby improving efficiency and reducing cost by diminishing the need to run the oil-based power plants; (d) taken on itself the burden of public policy-induced liabilities that were earlier vested with the power companies - by assuming debts and other liabilities that the power sector companies had incurred during FYs 07-09 to finance their operations; and (e) agreed with the above finance institutions to increase electricity tariffs by overall about 26 percent in the period from October 2009 through June 2010. Power tariffs were increased by 6 percent on October 1, 2009, by 12 percent on January 1, 2010, and further 6 percent is scheduled for April 2010.
To further address the challenges in energy sector, the government has formulated an Energy Sector Development Strategy whose primary objective is to enhance the supply of energy in a sustainable manner while reducing the dependence on imported oil. The Strategy includes implementation of both policy and investment measures.
On the policy side:
-- Enable a financial recovery of the energy sector from large losses accumulated over several years and ensure the continued improvement of the financial viability of the sector.
-- Design and implement measures to enhance gas supply to the power sector, including incentives to increase gas production from existing fields and encourage new exploration and production of natural gas, reduction of UFG, review of current priorities of natural gas use, and institution of conservation measures.
-- Design and implement a social protection programme that would ensure that vulnerable sections of the population would receive a minimum amount of electricity in an affordable manner.
-- Promote demand-side energy efficiency measures
-- Enhance regional co-operation in energy trade as a means of diversifying energy supply and thereby increase energy security
-- Streamline the institutional set up within the government to increase the efficiency of decision making in policy formulation, planning and investments, and private sector participation; strengthen the autonomy and accountability of the sector entities which continue to be public sector owned, especially distribution companies, and refine the industry structure to enable more private sector participation with less government guarantees, and promoting power trading.
As to investment measures to support the strategy, WB report pointed out that the government would prioritise investments that can improve efficiency in electricity and gas supply, lead to conservation of energy, and develop the country's hydropower potential and other renewable energy. Investments to strengthen the energy grids are considered important both for reducing technical losses and providing more reliable supply.
Furthermore, the government focuses on the options for electricity import from Central Asia under the Central Asia-South Asia Regional Electricity Market (CASAREM) and gas imports in the form of LNG or through pipeline projects (IPI - Iran-Pakistan-India, TAPI-Turkmenistan-Afghanistan-Pakistan-India).Also, the government supports the utilisation of domestic coal sources, and likewise supports two IPP power plant projects based on imported coal.
Under new proposed Natural Gas Production Enhancement and Efficiency Project WB will provide $ 236 million for Pipeline system replacement, metering and control systems in Pakistan.
WB report stated that Pakistan's second Poverty Reduction Strategy Paper (PRSP-II) places a high priority on developing the energy sector, which presupposes significant investment in the sector to underpin economic growth and to pull its citizenry out of poverty. The energy sector in Pakistan is going through a difficult period characterised by shortages of electricity supply necessitating loadshedding of up to a quarter of peak demand. The problems are exacerbated by the sector's precarious financial situation precipitated by the high oil prices and lagging power tariff adjustments (during November 2003 - February 2007 period). The problems are further compounded by shortages of natural gas, which fuels a third of the generation capacity.
In 2006-07, gas-fired power plants accounted for nearly half of the electricity generated, whereas nearly a quarter was based on furnace oil. All natural gas consumed in Pakistan is indigenous, and there has been no addition to the existing reserves lately.
There are significant inefficiencies in the gas distribution system, and priority is given to allocating gas to socially sensitive consumers (fertiliser production and households). The government of Pakistan's strategy for energy sector development, and the proposed bank sector assistance programme over the short and medium term (covered by this PCN), focuses on enhancing gas supply and make more of it available to the power sector, says the WB report.
Copyright Business Recorder, 2010
Business Recorder [Pakistan's First Financial Daily]