POWER CRISIS & ITS FALLOUTS ON EXPORTS

S.M.ABBAS ZAIDI,
Research Analyst
, PAGE
Aug
 10 - 16, 2009

The outgoing financial year has witnessed number of internal and external challenges in Pakistan's economy and shortfall in energy sector is among the major problems.

Energy resources have no doubt depleted. Whatever resources are available are simply too expensive to buy or already acquired by countries which had planned and acted long time ago. Delayed efforts in the exploration sector have failed to find sufficient amounts of energy resources.

World over nations that have their own reserves are not supplying energy resources anymore; only the old contracts made decades ago are active. Our exports are coming to a standstill. Many industries have closed due to insufficient power supply.

At domestic level, alternate methods like solar, biogas, and other renewable resources are being tried for mere survival.

COMMERCIAL ENERGY CONSUMPTION

ELECTRICITY (Gwh)

COAL (000 metric tonne)

YEAR TRA HOUSE HOLD COM IND AGR STLT OTHER GOVT. HOUSE HOLD POWER BRICK KILNS CEMENT
2004-05 12 27601 4080 18591 6988 305 3750 .. 180 3906.7 3807.2
2005-06 13 30720 4730 19803 7949 353 4035 .. 149.3 4221.8 3342.8
2006-07 12 33335 5363 21066 8176 387 4373 1 164.4 3277.5 4451.2
July-Mar
FY08 7 25168 4101 15713 6477 321 3421 1 132.6 3325.4 3100
July-Mar
FY08 4 23643 3829 14563 6501 307 6767 0.8 110 2911.6 1,800.0 *e
TRA: TRACTION, COM: COMMERCIAL, IND: INDUSTRIAL, AGR: AGRICULTURE, STLT: STREETLIGHT
Various sources *e: estimated for coal

AFFECTS ON THE ECONOMY

Serious energy shortage, massive electricity failure from KESC and WAPDA, long spells of load shedding and falling of oil reserves are posing risks to the economy. Pakistan's already weak production base has been further hit hard by the energy crisis.

Electricity load shedding during the last one year has played havoc with the industrial sector as textile, plastic, steel, and other units have suffered heavily. Around 25% of textile units have closed down because of shortage of electricity while a sizable number of units are likely to be closed.

Out of around 1,200 textile units, 300 mills including spinning, weaving, and ginning are closed in Punjab while almost the same numbers of mills are facing grave problems. It has caused severe problems in production cycle and resultantly the cost of production has increased.

The export target of $19.2 bn set for 2007-08 went with the short fall of around 30% and the situation in 2009 was even worst due to the current power shortage. The government should make a comprehensive plan for overcoming the problem otherwise besides trade deficit unemployment and inflation are also likely to shoot up.

ENERGY DURING 2008-09

During the year, supply and consumption of energy remained lower than previous years. The consumption of energy remained low due to overall slowdown of the economy. While the major cause behind the lesser energy supplies was circular debt issue in the energy sector. Energy shortages impaired the performance of the economy especially large-scale manufacturing.

The consumption of petroleum products, gas, and coal during the first nine months (July-Mar 2008-09) decreased by 3.4%, 2.5% and 26.5% respectively over the corresponding period of the previous year.

On the other hand, supply of crude oil, petroleum products, coal, and electricity during the period under review decreased by 5.5%, 2.8%, 26.5%, and 17.9%, respectively over FY08.

Production of crude oil per day decreased to 66,531 barrels per day during July-March 2008-09 from 70,165 barrels per day during the same period last year, showing a decrease of 5.2%. The average production of natural gas per day stood at 3,986.5 million cubic feet during 9MFY09 as against 3,965.9 million cubic feet in the same period last year, showing an increase of 0.52%.

On average, the power sector consumed 37.2% of gas, followed by industrial sector (20.4%), household (16.8%), fertilizer (19.8%), transport (2.0%), commercial sector (2.7%), and cement (1.0%) during last 10 years i.e. 1998-99 to 2007-08.

EXPORTS 2HFY09
(MN US$)
PERIOD VALUE CUMULATIVE GR*
Jan-09 P* 1,279 11,479 -12.7
Feb-09 P 1,511 12,989 18.1
Mar-09 P 1,450 14,440 -4
Apr-09 P 1,487 15,926 2.5
May-09 P 1,489 17,415 0.2
Jun-09 P 1,807 17,781 -
Various sources
P*- Provisional GR*- Growth Rate

The total installed generation capacity has increased to 19.754 MW during July-March 2008-09 from 19,566 MW during the same period last year, showing a marginal increase of 1.0%. Total installed capacity of WAPDA stood at 11,454 MW during July-Mar 2008-09, of which hydro accounted for 57.2% or 6,555 MW and thermal 42.8% or 4,899 MW.

EXPORTS 2008-09

The government has again missed exports target by a wide margin of $4.319 bn as the country's exports reached only $17.781 bn against the target of $22.1 bn set for the last fiscal year 2008-09.

Government projected growth in exports by 15% in FY09 in the Trade Policy 2008, however, due to number of difficulties most importantly the energy crisis exports actually registered a negative growth of 6.67% during July-June.

CONCLUSION

The government should negotiate with the IPPs and evolve a strategy for rapid power production while as long-term plan it must focus on making dams and adding thermal, coal, and nuclear energy.

The protection of domestic consumer depends on smooth running of the industry and if the industry of the country faces closure threat then government may not be able to spur growth and exports.