Research Analyst
Dec 6 - 12, 2010

Access to affordable energy is a prerequisite for continued economic growth as well as sustainable social and economic development and environmental protection. The importance of energy in economic growth is illustrated by the experience of Asia and other rapidly industrialising regions, where dynamic economic growth has recently led to a sharp rise in demand for, and in some cases a shortage of energy. At the same time, many citizens of least developed countries, particularly in rural areas, lack access to the most basic energy services. Investment to improve the supply and access to energy, particularly cleaner energy, is needed throughout industrialising and rural areas in the developing world.


Electricity 15.3%
Coal 10.4%
Gas 43.7%
Oil 29.0%
LPG 1.5%

Pakistan having about 30 percent standby electricity few years back has been facing a severe power crisis for the last three years. The present crisis is considered to be the worst of four such crises that Pakistan has been facing since 1974. Due to a fast growing demand, high system losses, and seasonal reduction in the availability of hydropower, the gap between the demand and supply of electricity is resulting in routine load shedding.

Recently, it is estimated that approximately $21.8 billion financial requirement for Pakistan's energy sector reforms meant to help it add 6950 MW electricity to national grid in the next three years. The government of Pakistan needs at least $7.7 billion for completing six thermal power projects on top priority basis and another $14.1 billion investment should come from private sector for streamlining the energy sector of Pakistan.

In the absence of such measures in the country, the present energy gap of 18 million metric tonnes of oil equivalent (MTOE) will grow to an unsustainable 56 MTOE by 2015-16. The energy import requirement would simultaneously increase from $10 billion to $38 billion, i.e., almost double the country's present export earnings.

Furthermore, the government of Pakistan wants to overcome major issues like resolve as earlier as possible circular debt issue and the prevention of its recurrence by ensuring cost recovery tariffs in the country.

Energy efficiency has not been a priority in mainstream policy development in the sector. As a result, Pakistan's energy intensity is high. It uses 15 percent more energy than India and 25 percent more than the Philippines for each dollar of its gross domestic product. There are high transmission and distribution losses in the power system estimated at about 22 percent.

The development of domestic energy resources such as hydrocarbons, hydropower, coal, and renewable is far below potential and can be developed to a much larger scale. Currently, hydropower contributes only 6,500 MW to the energy mix against its estimated potential of 54,000 MW. Therefore, the investment in energy needs to be strengthened at a time when the intensification of the war against terrorism is on. The security situation has also blocked oil and gas exploration and production activities in border provinces.

In addition, the government should set up fast track six additional thermal power plants in the public sector to add 3,700 MW installed capacity; fast track small and medium-sized hydropower projects to generate 600 MW of additional electricity and reach financial closure on one large hydropower project; support investments and projects for energy efficiency and generation transformation to save 1,550 MW; reduce T&D losses to save 700 MW and rehabilitate destroyed and damaged energy infrastructure in all conflict and flood affected areas; and accelerate private sector investments to support additional power generation, gas exploration and LNG imports, and upgrade oil refineries.

Pakistan has insufficient capacity to meet the financing needs of the energy sector. Because of a lack of consistent demand from energy investors, the financial sector has not been able to develop sophisticated financial engineering products to serve the energy market. More recently, the power ship would play an important role in helping overcome the power crisis in the country and the people of Karachi will be the first users of the electricity produced by the plant, which has been hired for five years. This plant will start producing 220 MW of power within the next month while another ship with a capacity of generating 132 MW will arrive in two months. This plant has a capacity of storing 3,000 tons of furnace oil and a life of 26 years. In the country, only hydropower produced through dams can provide cheap electricity and in its absence rental power projects will prove to be a relief.


Energy investments consist of long-term projects that are based on returns over decades. In developing countries, they lay the groundwork for improved quality of life, and are the stepping-stone to broader commercial activity. Special attention should be given to instances where governments are not able to establish a consistent policy framework because of the difficulty to make credible long-term commitments. However, Pakistan did identify the reasons, which resulted in worsening its energy crisis in recent years, but it did nothing to attract investment to change the situation in its favour by completing much-needed energy producing projects.