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PAK-CHINA COOPERATION IN ENERGY SECTOR
Low cost electricity is the need of the hour
By AMANULLAH BASHAR
Dec 08 - 14, 2003
FACTS SHEET ABOUT CHINA
$1.25 trillion (2002)
7.5 percent (2002)
0.5 percent (2002)
$135 billion (2002)
9.0 percent (2002)
4 percent (2002)
$266.6 billion (2001)
$243 billion (2001)
Undoubtedly, the high cost electricity being produced in Pakistan has become one of the major issues confronted not only to the economic growth but has steeply eroded purchasing power of the common man.
This formidable issue becomes more alarming especially in the face of globalization of the trade under WTO regime, in view of the high cost of production on account of expensive electricity which may render the domestic manufacturing sector paralyzed to compete with the much cheaper foreign products which have already flooded the local market.
The only way out apparently lies in bringing down the electricity charges for which the government besides taking certain corrective measures has also formed a task force with an assignment to find ways to find out the workable and effective ways and means to address the issue.
Out of the total over 17,726 megawatt generated in the country, about 69 per cent is thermal, produced by thermal/based system, while the remaining 29 per cent is produced through hydro-system while only 2 per cent is said to be produced by nuclear technology.
The government under its energy policy has chalked a comprehensive plan to produce electricity at affordable price by applying technology for cheaper fuels like gas, coal and the nuclear technology to meet the growing need of electricity in the days to come.
In order to achieve the desired results, the Government of Pakistan has entered into different agreement with friendly country China which has agreed to provide technical assistance in developing coal-fired electricity generating plants at Thar coal fields. Under this agreement, a Chinese firm will be erecting two coal-fired power plants of 300megawatt. These coal-fired power plants, in fact may have far reaching effect both on the social as well economic life especially in the deserts of Sindh.
COAL-BASED POWER PLANTS
Pakistan consumes about 78 per cent of imported fuel oil to generate electricity and other oil based industries which certainly is a costly affair.
Although the oil consumption fell 21 percent to 898,000 tons down from 1.14 million tons, yet the total cost on imports is too high for the national economy absorb.
Besides, the oil bill fell by 4 per cent to $679 in the three months up to from $708 million during the current year mainly due to shift on natural gas, yet its only an eye wash when compared to the cost of total oil imports which was over $3 billion last financial year.
Pakistan's gas demand is expected to grow to 5.5 billion cubic feet a day by 2012 from 2.6 billion cubic feet now. The government seeks to have most power plants funning on gas or coal by end of this year.
Oil bill and consumption will fall further in the current fiscal year as most of the power producers and cement makers will also switch to gas. Pakistanís imports of crude oil and oil products in the year to June 30 rose by 9 per cent to $3.06 billion from $2.86 billion.
In the wake of President Pervez Musharraf's visit to China last month, China has agreed to provide a credit line of $ half a billion on soft term basis which would be utilized for the projects to be undertaken with the assistance of Chinese companies.
The agreement on the installation of a 600mw Thar coal power generation plant has already been reached with a leading Chinese company Shanhua for developing a coal-fired power generation plant near Thar coal fields. In the first phase, the Chinese company will start work in about 50-square km of Thar coal area and install two coal-fired power generation plants each of 300mw capacity.
The Chinese company Shanhua was also actively busy in preparing the feasibility study of Thar coal to ascertain the gasification of the coal and coal bed methane (CBM). China would also help Pakistan in installation of 3000MW power generation plants after the completion of work on these two power plants.
Although the government plans to meet 20 per cent of total demand for energy through coal-fired power generation plants with a total generating capacity of 3000 megawatts all over the country, and 600 megawatt at thar, practical steps are require to be taken on war footing as the demand for the coal would increase in the days to come. Currently, most of the cement producing has already been shifted to coal while other industries, besides power generating units, are also intended to move towards this cheaper fuel. The growing demand for coal has a sharp impact on the prices of coal which have recorded about 100 per cent increase during last few months. According to a report, the Lakhra coal was selling at Rs700 per ton have jumped to Rs1500 per ton during last few months. This situation calls for immediate steps for development of Thar coal fields have huge reserves estimated at 185 billion ton. These reserves include the recently discovered huge deposits of coal estimated around 175.5 billion tones in Thar area. Significant coal deposits suitable for power generation are also available at Sonda and Lakhra areas in Sindh and at salt range of Punjab and other coal fields in the province of Balochistan.
It is interesting to note that so far the neglected areas where coal fields are situated have suddenly become prime lands and a windfall for the people who own these lands in different areas of Pakistan.
The natural gas has assumed a key role in the energy sector of Pakistan during last few years. The growing use of natural gas in the sectors like power generation, transportation and other industries in the current energy scenario of Pakistan, there are apprehensions in some quarters that the country might be facing a shortfall in the supply of natural gas in the years to come. The fast depleting reserves at Sui, so far having the largest reserves and a slow pace of development of the newly discovered gas sources in Sindh, there are feelings in some circles that Pakistan should also consider about the import of liquefied natural gas (LNG) to overcome the projected shortfall in future.
According to an estimate, Pakistan will begin facing gas shortfalls to the tune of 839mmcfd in 2010, which is expected to reach the 6,708mmcfd mark by 2025.
Quoting these estimates from the government documents, officials of a foreign bank have advised Pakistan's top energy and financial authorities to go for the liquefied natural gas imports and restructure electricity tariffs to attract LNG investors because cross border gas pipeline imports carried a lot of political and economics risks.
This advice was given at Pakistan Energy Forum organized by ABN AMRO Bank last week. The forum was presided over by Finance Minister Shaukat Aziz and high officials from power producing companies including WAPDA, KESC and other private sector power producing companies.
The bank's officials were of the view that low cost sources of energy i.e. hydel and nuclear could also not be offered to the private investors because of their highly political nature.
They said that Pakistan's plans for cross border gas pipeline from Turkmenistan, Iran and Qatar contained extremely high political risks outside Pakistan and were very difficult to be sold to the international investors and financial institutions given their price tag ranging from $2-4 billion.
Contrary to that, the LNG prices were on the decline in the international market due to over production and some of their sources in the middle east were in the chose proximity of Pakistan and its shipping and transportation costs would be low, however, they did not mentioned how long the international LNG market would remain depressed.
Pakistan has been trying to replace high cost fuel oil with the increased domestic gas production and imported gas to minimize the foreign exchange expenditures. It has so far seriously pursued gas imports from Turkmenistan, Iran and Qatar through pipelines.
The ABN-AMRO officials however said there were a lot of opportunities in gas sector which suggested foreign investors and financial institutions to invest in the vibrant energy sector of Pakistan.
Some of these opportunities were included the growing power demand in view of economic growth, deregulation and privatization policies of the government, availability of a log of domestic oil and gas reserves, investment for system expansion, attractive fiscal incentives, the improved financial profile of the gas utilities and positive outlook of Pakistan sovereign credit rating. The forum was informed that the government had planned to construct gas storage facilities to ensure availability of gas during winter peak season to the northern part and power sector of the country.
Pakistan's Water and Power Development Authority (WAPDA) has signed a $128 million contract agreement with the Chinese firm Dong fang Electric Corporation for construction of Jinnah Hydro-Power Project on Engineering procuring and construction basis.
The project implementation comprises of designing execution and completion of civil, electrical and mechanical works including remedial works to rectify any defect developed during the process. The Memorandum of Understanding (MoU) for this project was signed some two years ago.
Under this turnkey contract agreement, the Chinese firm would arrange 85 percent of the contract price under supplier's credit and rest of the 15 per cent would be arranged by WAPDA as advance payment. Pan Jising, Vice President and Chief Economist of Dong fang Electric Corporation has termed this agreement as another milestone in the friendship between the two countries.
The proposed Jinnah Hydro-Power Project will be constructed on the right side of the existing Jinnah Barrage on the river Indus, five kilometers downstream of Kalabagh in Mianwali district. The low head hydro-power project will utilize a gross head of 4.88 meters to move 8 power units and generate 96 megawatt. The cost of electricity produced by this project is estimated at 3.30 cents per unit. This project is should be completed in 48 months from the date of commencement of work at site.
Historically speaking, China has lent a strong helping hand to Pakistan in developing for several other mega projects such as Chashma Nuclear Power plant, Heavy Mechanical Complex, development of Thar Coal and Saindak Copper and Gold projects and of course the construction of the most prestigious project of a third deep sea port at Gwadar in Balochistan.
The Pakistan Atomic Energy Commission (PAEC) has been advised by Prime Minister Zafarullah Khan Jamali to prepare a vision 2025 on a priority basis with a focus to develop a strong base of nuclear power plants in Pakistan. Application of nuclear technology for generating electricity in Pakistan deserves high priority in view of its nature of being environment-friendly and cost-competitive aspect.
In fact, the need for producing cheap electricity for rapid development becomes imperative in the face of fast changing global economic scenario demanding to go for all options such as coal, gas; hydro and nuclear resources which should be exploited to the fullest for economic progress of the country.
It is learnt that plans by China to build a second nuclear power plant in Pakistan are nearing completion. At present details are being worked out to give the project a final shape.
It may be recalled that a memorandum of understanding for the project was first signed in March when Prime Minister Jamali had visited to China.
As a result of negotiations, China agreed then to finance and build a 300 megawatt nuclear power plant at Chashma. Pakistan and China further spruced up the plan in November when President Pervez Musharraf visited China. China has already built a nuclear power plant at Chashma. It started power generation in December 2000.
Cooperation between China and Pakistan regarding nuclear energy generation is purely for peaceful purposes and does not violate any non-proliferation obligations or China's export controls. Chinese nuclear energy cooperation with Pakistan being carried out under safeguards put in place by the UN's International Atomic Energy Agency (IAEA).
Some quarters, having a negative approach, however did not like the close cooperation between Pakistan and China and were trying giving color that China was providing assistance in production of nuclear war heads.
With a view to brush aside all rumors, China has categorically stated that China would not help other countries to develop nuclear weapons or any nuclear facility not placed under IAEA safeguards.
China will also not conduct personnel and technological exchange or cooperation with any other country. This was stated in a white paper on China's Non-proliferation Policy and Measures issued by the Chinese government last week.
The paper in implied term sets aside all allegations of China's help to Pakistan or any other country to develop nuclear weapons of any kind whatsoever.
China has reiterated its firm stance of opposing the proliferation of all kinds of weapons of mass destruction including nuclear, biological and chemical weapons and resolutely opposed the proliferation of such weapons and their means of delivery.
Exports of Pakistan to china have been growing since 1996-97 mainly due to increasing exports of Pakistani textile products to China, but the trade balance is in favor of China. Pakistan's exports to China increased from $103.4 million in 1996 to $303.9 million in 2000-01 but declined to $229.1 million 2001-02 whereas imports from China decreased from $542.9 million in 1996 to $394.4 million in 1998-99 but again increased to $575.4 million 2001-02.
China had provided the concrete and meaningful support to Pakistan in accomplishing some complicated and basic industries and infrastructure projects in the country. These projects include Karakoram Highway, Heavy Mechanical Complex, Forge and Foundry Project, Heavy Rebuild Factory, Guddu-4 Thermal Power Station, Jamshoro-2 Thermal Power Station, Heavy Electrical Complex near Haripur and appreciable assistance in agriculture sector. China has also offered technology transfer in 300 agro-based projects to private sector under its 'Spark Program' and handed over the list of projects to the Karachi Chamber of Commerce and Industry as the prospective joint ventures among the private sector of both the countries.
Both countries are also cooperating on a mega project to provide sea and land route, international import-export, transit trade and traffic facilities for Afghanistan and Central Asian States as well as via Gwadar along with Balochistan coast.
Jia Qinglin, Chairman of National Committee of the Chinese Peoples Political Consultative Conference (CPPCC), who is currently visiting Pakistan, has said that Pakistan-China traditional friendship will remain dynamic forever.
The visiting Chinese leader expressed his strong belief that in the years to come, our exchanges and cooperation in all the areas will continue to grow and our traditional friendship will remain dynamic forever. He said this while speaking at a dinner hosted for the visiting Chinese delegation by Senate Chairman Mohammadmian Soomro.
He said Pak-China friendship dates back to ancient times, adding that as early as 2000 years ago, the Silk Road linked our two countries together.
Referring to President General Pervez Musharraf's recent visit to China, he said President Musharraf and President Hu Jintao signed the China-Pakistan joint declaration on the directions of bilateral cooperation, which identified the way forward for our bilateral relations in the new historical period.
Jin Qinglin said our all weather friendship and all directional cooperation were a model of peaceful and amicable co-existence between the countries of different social systems and cultural backgrounds.
Twenty-odd years ago, China had adopted the policy of reform and opening up, and embarked upon the road of building socialism with Chinese characteristics. China has since concentrated on the modernization drive and improvement of its people's living standards, and has, thus made remarkable achievements.
A long-term international environment of peace and stability, and a friendly relationship and cooperation with the countries across the world were essential for China's development.
The Chinese government highly values the friendship with its neighbors. We will adhere to the principle of making friends and partners with our neighbors, strengthen friendly and cooperative relations with them, including those in South Asia and promote regional cooperation.
With the concerted efforts of the people of China and South Asian nations, China-South Asia relations will be better and a closer cooperation.
On the occasion the Senate chairman Mohammadmian Soomro appreciated the Chinese support to the development of Gwadar Deep Sea Port which would be linked through a network of roads to northern Pakistan and China.
Although Pak-China cooperation especially in the power generation sector is moving in the right direction, yet the consumers need immediate relief. According to five year plan for rationalization of the electricity charge, the existing tariff structure is discouraging investment in the producing sector and has severally affected the consuming sector as well. The power data of last couple of years has shown a persistent decline in the consumption of energy in industrial sector. This indicates stagnant growth in the manufacturing sector besides stalled investment in the manufacturing sector mainly because of high rates of electricity in Pakistan. It is unfortunate that both WAPDA and KESC despite all efforts are failed to check its losses on account of power theft which is estimated over 40 percent in both the utility companies. People especially in low and middle income groups resort to power theft because of high tariff and the trend is likely to continue unless the government provides electricity to the consumers at affordable rates in conformity to the average income of the masses. Besides high cost of power generation, the real factor for raising the electricity price is the levy of heavy taxes on consumption of electricity in Pakistan. These government levies on electricity consumption are recommended by the IMF which has turned these utility companies into tax collecting agencies. The economic managers, while taking decisions are required to look into the matter within our own perspectives, instead of seeing through the colored glasses of the people who are not accustomed with the harsh realities experienced by the masses in this country.