Nov 01 - 07, 2004

Reviewing the goals of the Planning Commission (PC) at Islamabad recently, the Prime Minister had asked the PC to prepare a long-term energy plan by 15th December 2004. He reportedly urged the PC to suggest the plan for development of electricity, gas, coal and alternate energy resources keeping in view the future trends. Such a plan would help the government taking measures for enhancing energy security and in the preparation of future infrastructure/industrial development plans. The government, in the Economic Survey 2003-04, has acknowledge the need for creating an environment for the improvement of the energy sector in Pakistan so that reliable energy can be made more accessible and affordable to the people.

Pakistan due to its strategic location, geographical area, population, etc is an important country in the polity of nations. However, from total primary energy supply (TPES) point of view the country is not so happily placed. The average per capita TPES for World, OECD, Asia, India and Pakistan is 1.65 tons oil equivalent, 4.67 toe, 0.60 toe, 0.51 toe and 0.45 toe respectively. Similar is the position when looking at the per capita consumption of electricity. The average for the World, OECD, Asia, India and Pakistan is 2,373 kWh, 8,046 kWh, 563, kWh, 421 kWh and 384 kWh respectively. These figures, taken from Selected Energy Indicators for 2002 published by the International Energy Agency, clearly show the magnitude of efforts/finances the country has to commit to improve energy situation to a level essential for sustaining economic development.

By virtue of its size and importance, energy sector requires considerable investments in new and replacement supply capacity and the tendency has been towards construction of large capital-intensive supply facilities. These days, however, in addition to economic considerations, importance is also given to social, environment and political factors when considering investment in energy projects. As such, the PC, when analyzing investment projects from energy suppliers under Long Term Energy Plan, might rely on the integrated energy planning (IEP). The IEP process, supported by appropriate computer modeling, seeks to plan country's energy needs through the following steps initiated in consultation with different stake holders: (i) Analyzing how the fulfillment of energy needs will contribute towards attaining national economic and social goals; (ii) Analyzing the potential of energy supply systems (sub-sectors and linkage) and demand side management to meet current and future energy needs; (iii) Analyzing effects of global and technological developments on energy sector; (iv) Evaluating effects of legislative, institutional, contractual and regulatory requirements on energy supply and demand; and (v) Presenting results of data analysis.

The PC might consider extensive participation of various ministries/departments/institutions as well as private stakeholders, especially when obtaining input, stimulating interaction and agreeing on assumptions on growth rates, goals, policies (for power, gas, oil) and the contractual arrangements. A joint task force might be more appropriate.

The PC is already working on the next Five Year Plan, of which energy sector would be an important component. The IEP might be developed up to 2025, with following suggested objectives: (i) Promoting universal access to clean and affordable energy, with emphasis on energy supply to household, industry and agriculture; (ii) Major reliance for energy supply on hydro, indigenous coal, natural gas, nuclear power and alternate energy; (iii) Improving energy efficiency, management, transformation technologies and marketing; (iv) Reducing reliance on imported energy by developing local energy resources; (v) Supplementing local natural gas through economical imports; (vi) Ensuring environment compliance in energy supply, transformation and end use; and (vii) Rationalizing policy, legislation, taxation and regulation for discovery, development and utilization of energy resources.

For the IEP analysis, the PC would require extensive computer modeling of large reliable data on energy resources and factors such as economic growth, exchange rates, population growth and inflation. The PC has a specialized Energy Wing equipped with computer modeling facilities and a wealth of data on energy resources and projects, which might be expanded, up dated and authenticated before actual use. The core of any planning process is the ability to accurately predict the principle parameters. However, the further in time one projects, the results become less reliable. Therefore, the IEP analysis, to be really useful, might have to be updated periodically. The main parameters with considerable bearing on results of the IEP analysis in Pakistan are discussed below.

COAL: Thar coal is being developed primarily for generation of electric power to feed in the Wapda system for supply to different load centres including Karachi. Pakistan Steel is importing better quality coal and so are some of the cement factories in the country. If Thar coal or other local coal of acceptable quality becomes available, import of coal might be accordingly curtailed. The use of local coal energy presupposes the increased use of clean coal technologies.

CRUDE OIL: Crude oil in substantial quantity is imported to supplement local production, for feeding to local oil refineries. In addition, certain finished petroleum products are also imported to meet local demand. Import of finished products is expected to continue until local refining capacity is suitably enhanced. Also, more crude oil will be imported if its local production does not increase to fully meet the ever increasing fuel requirements.

NATURAL GAS: For supplementing local primary energy supply, natural gas is expected to be delivered to Pakistan from Qatar, Iran or Turkmanistan during the coming years, if the arrangements are agreed and the pipelines are built. Each pipeline has security or other constraints. It is likely that at least one pipeline would be realized, if not more. The imported natural gas would be fed in the existing systems of SSGC and SNGC.

OIL REFINERIES: It is cost effective to expand existing refining capacity than to build green-field refineries. The mix of in-put and out-puts of different refineries in the country might be reviewed vis-a-vis demand of petroleum products and regional needs. Consumption of fuel by different modes of transport must be made optimal with local supplies.

SYNTHETIC FUELS: Besides natural gas, CNG and LPG are finding increasing use in household and transport. Arrangements for setting up of a gasification plant have been reportedly finalized in Bhakkar, Punjab. The plant will produce three million cubic feet of gas per day by consuming 250 tons of coal daily. The plant would also produce 100 tons of coke per day as by-product. A coal briquetting plant reportedly has been set up near Chakwal in 2003. Perhaps more plants for gasification or producing coal briquettes would be set up in the coming years. The technologies might be appropriate.

EXPLORATION: Increasing reserves and production of crude oil and natural gas will increase security of supply and contribute to foreign exchange savings. Now exploration rights in more areas including off-shore are being awarded to local and foreign oil/gas companies. This activity might be extended for doubling of reserves in the next five years.

ELECTRICITY GENERATION: Hydro, nuclear and coal-based electricity generation remain the preferred policy during the IEP period. Projects identified under Wapda Vision 2025 as well as small hydro plants identified by the provincial governments would be taken up in the public and private sector. Increased use of natural gas to generate electricity might be constantly kept under review as our reserves of local gas are rather limited and new discoveries/import options are not progressing as fast as expected. Tariff on power generated from Thar coal is important and might be handled very carefully. The Chinese and the German companies might be offered a fair deal. Technical and economic feasibility studies for establishing more nuclear power plants might continue. Nuclear energy might be harnessed to operate desalination plants in different coastal and other areas facing shortage of potable water.

ENERGY EFFICIENCY: A large portion of the primary energy is transformed into other forms of energy more appropriate for final use. Transformation of energy and the transport of the final product to the end-user have a number of losses, which need to be minimized. The two major energy transformations concern the generation of electricity and production of liquid fuels (including petrol and diesel) from crude oil. Energy efficiency measures would result in cost savings and production of less carbon dioxide.

LOAD FACTORS: Electricity tariff is relatively high in Pakistan and so are the rates for different fuels, making our exports less competitive. The practice of running some of the plants at higher capacity while resting the others might lower the overall generation or refining costs. This has the potential of reduced tariff, lower end-user prices and sparing construction of additional capacity.

THE IPPS: The Independent Power Producers (IPPs) own about one-third of the total thermal power capacity in the country. With forthcoming privatization of KESC and other plants on the privatization list, share of the IPP's would increase further. The IPPs need to be looked after fairly and equitably and their financing needs might be met be the banking sector on priority basis. The PPIB, NEPRA and the Provincial private power cells might be strengthened and their roles rationalized for facilitating investment for increased power generation.

ENERGY BANK: There is need to reactivate the Private Sector Energy Development Fund (PSEDF) of the government, earlier entrusted to NDFC for administration, now with the National Bank of Pakistan (NBP) with which NDFC has since been merged. The PSEDF might be made a bank for the financing of energy and energy related infrastructure projects. This should facilitate the implementation of gas pipelines and new power generation capacity.

PLANT MANUFACTURING CAPACITY: Until now major components of the power plants, oil refineries, etc have been imported. Local component has been small. To conserve foreign exchange and to enhance level of local capabilities, Pakistan should start manufacturing such plants locally. This would beneficially engage our existing engineering plants such as Karachi Shipyard and Engineering Works, HMC, Pakistan Machine Tool Factory, etc which are grossly under-utilized.

DIVERSIFICATION: It is important to diversify energy resources to renewable energies to improve supply security, improve environmental performance and facilitate regional development. The government might enhance areas under forest so that fuel wood at reasonable price is available to the urban population, not adequately served by piped gas or LPG. Wind and solar generation produce when the source (wind or solar) is available. Energy from these sources for the time being could be suitable for specialized uses.

RURAL AREAS: Wapda has been implementing the government's programmes of village electrification. As time passes, more and more villages will receive electricity. Consumer durables such as refrigerators, TV sets and tube-wells will be used more in the rural areas. Cottage and small industries would also flourish. The national grid might have to be extended considerably.

GOVERNANCE: At a time when energy monopolies or public-sector enterprises are being replaced by the private players, the government needs to: (i) Intervene for protection of consumers; (ii) Considering trade offs between least cost energy production and factors such as job creation, political and social imperatives, etc; (iii) Strengthening of existing net works of pipelines, transmission lines, etc; and (iv) Capacity building of companies and institutions for planning, financing, implementing and operating energy projects.

ENVIRONMENTAL POLICIES AND FUNDING: Data about polluting industries might not be fully available. Possibly, there is ambiguity about environmental taxing and international funding. The financing of effluent treatment plants by the federal, provincial and city governments jointly with the industries was announced with Trade Policy. For WTO compliance, it is imperative that effluent treatment projects are implemented at the earliest. Delays due to what ever reason would adversely affect our exports.

OTHERS: Energy companies such as KESC, PSO, NRL, etc are on the privatization list. Liberalization of energy market might require policy instruments beyond simple deregulation. Many of the industries are opting for captive generation. This has implications for the distribution companies, which should improve reliability and reduce cost.