«Pakistan’s Interminable Energy Crisis: IS THERE ANY WAY OUT? EDITED BY Michael Kugelman Pakistan’s Interminable Energy Crisis: IS THERE ANY WAY ...»
IS THERE ANY WAY OUT?
EDITED BY Michael Kugelman
IS THERE ANY WAY OUT?
This publication marks a collaborative effort between the
Woodrow Wilson International Center for Scholars’ Asia Program and the Fellowship Fund for Pakistan.
www.wilsoncenter.org/program/asia-program fffp.org.pk Pakistan’s Interminable
IS THERE ANY WAY OUT?
ESSAYS BYJaved Akbar Ziad Alahdad Akhtar Ali Shannon Grewer Michael Kugelman Robert M. Lesnick Khalid Mansoor Musadik Malik Nargis Sethi
EDITED BYMichael Kugelman © 2015 The Wilson Center www.wilsoncenter.org
Conclusions or opinions expressed in Center publications and programs are those of the authors and speakers and do not necessarily reflect the views of the Center staff, fellows, trustees, advisory groups, or any individuals or organizations that provide financial support to the Center.
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BOARD OF TRUSTEESThomas R. Nides, Chair Public members: William Adams, Chairman of the National Endowment for the Humanities; James H. Billington, Librarian of Congress; Sylvia Mathews Burwell, Secretary of Health and Human Services; Arne Duncan, Secretary of Education; David Ferriero, Archivist of the United States; Albert Horvath, Acting Secretary of the Smithsonian Institution; John F. Kerry, Secretary of State. Designated appointee of the president from within the federal government: Fred P. Hochberg, Chairman and President, ExportImport Bank of the United States Private Citizen Members: Peter Beshar, John T. Casteen III, Thelma Duggin, Lt. Gen Susan Helms, USAF (Ret.), Barry S. Jackson, Nathalie Rayes, Earl W. Stafford, Jane Watson Stetson
WILSON NATIONAL CABINETAmbassador Joseph B. Gildenhorn & Alma Gildenhorn, Co-chairs Eddie & Sylvia Brown, Melva Bucksbaum & Raymond Learsy, Paul & Rose Carter, Armeane & Mary Choksi, Ambassadors Sue & Chuck Cobb, Lester Crown, Thelma Duggin, Judi Flom, Sander R. Gerber, Harman Family Foundation, Susan Hutchison, Frank F. Islam, Willem Kooyker, Linda B. & Tobia G. Mercuro, Dr. Alexander V. Mirtchev, Thomas R. Nides, Nathalie Rayes, Wayne Rogers, B. Francis Saul II, Ginny & L. E. Simmons, Diana Davis Spencer, Jane Watson Stetson, Leo Zickler Contents
Pakistan’s Energy Crisis: Challenges, Principles, 23 and Strategies Musadik Malik How Coal Can Help Address Pakistan’s Energy Crisis 40 Khalid Mansoor The Role of Indigenous Natural Gas in Meeting Pakistan’s 53 Primary Energy Needs Robert M. Lesnick Alleviating the Energy Crisis: An Action Plan for 63 the Gas and Electricity Sectors Akhtar Ali Addressing the Present Energy Crisis by Avoiding 86 Mistakes of the Past Javed Akbar
How to Incentivize Energy Innovation and Efficiency, and 102 Encourage the Rapid Deployment of Affordable Solutions Shannon Grewer Power Sector Reforms: Pakistan’s Energy Crisis and 120 Ways Forward Nargis Sethi Pakistan’s Energy Sector: Putting It All Together 134 Ziad Alahdad Information About Wilson Center Policy Brief Series on 152 Pakistan’s Energy Crisis
MICHAEL KUGELMANIn April 2015, China did something extraordinary: it gifted a $46 billion investment package to Pakistan.
That figure is more than six times the $7.5 billion in development assistance that the United States authorized to Pakistan between 2009 and 2014. It is also significantly more than the $31 billion in total assistance (security and economic) that Washington provided to Islamabad between 2002 and 2014. And it equates to 20 percent of Pakistan’s annual budget.1 A majority of the $46 billion—approximately $35 billion—will be allocated to energy projects. These include coal-fired power plants, a dam, a solar power park, and a gas pipeline to Iran (Islamabad has pursued the latter project for years, but a lack of financing has been a major obstacle). Together, these projects are expected to create about 17,000 megawatts (MW) of power.2 Not surprisingly, Chinese and Pakistani authorities boasted of the benefits these investments will bring to Pakistan’s energy security. A former Chinese ambassador to Pakistan expressed hope that they would “help curb Pakistan’s crippling energy crisis.” Pakistani Prime Minister Nawaz Sharif went much further, boldly predicting that Pakistan “would soon be rid of its electricity and gas crisis.” The media got in on the act as well, with one Pakistani newspaper giddily predicting that China’s investments could “pave the way for the end of decade-long power outages.”3 If only it were that simple.
MICHAEL KUGELMAN is the senior program associate for South Asia at the Woodrow Wilson International Center for Scholars.
The mere acts of building new energy infrastructure and adding more generation capacity will not make Pakistan’s energy crisis go away—no matter how much money the Chinese may make available. The crisis is simply too complex.
DEEP AND DESTABILIZING4To be sure, supply shortages are one component of the crisis. Even in the present era of cheaper global oil, Pakistan faces energy deficits of 4,500 to 5,000 MW (in recent years, these shortfalls have sometimes soared to 8,500 MW—more than 40 percent of national demand). Pakistan’s urban areas regularly experience several hours of daily outages, while in some rural regions residents are lucky to receive four hours of electricity per day. In the case of Pakistan’s two most heavily utilized sources of energy (oil and gas), consumption levels are so high that Pakistan’s national oil and gas company, Oil and Gas Development Company Limited (OGDCL), predicts that indigenous oil reserves will be exhausted by 2025, and that Pakistan will run out of domestic sources of natural gas by 2030.
Nevertheless, Pakistan’s energy problems are arguably rooted more in shortages of governance than of pure supply. The energy sector suffers from widespread inefficiencies, including transmission and distribution (T&D) losses that exceed 20 percent, as well as from several billion dollars of debt. The losses are caused by bad equipment, poor maintenance, and energy theft. The debt—often described as “circular” in nature—is a consequence of cash flow problems. Energy generators, distributors, and transmitters lack funds. This is due in part to a flawed pricing policy: the Pakistani government charges a pittance for energy, and yet few customers pay their bills. As a result, revenue is scarce, and the sector literally cannot afford to provide energy.
Pakistan’s energy crisis has troubling implications for its fragile economy and volatile security situation. In recent years, power shortages have cost the country up to 4 percent of gross domestic product (GDP).
Hundreds of factories (including more than 500 in the industrial hub city of Faisalabad alone) have been forced to close. Some Western companies, citing electricity deficits, have suspended operations in Pakistan.
Easing an Energy Crisis That Won’t End
In January 2015, the Moody’s ratings group warned that energy shortages will damage Pakistan’s credit worthiness.
Meanwhile, the energy crisis has sparked demonstrations that sometimes turn violent. Protestors, angered by unscheduled outages, have blocked roads and attacked the homes and offices of members of major political parties. Additionally, militants are happy to exploit Pakistan’s energy insecurity. Over the last four years, separatists in the insurgencyriven province of Baluchistan have targeted more than 100 gas lines. In January 2015, insurgents in Baluchistan blew up two key towers near a major power station, tripping the national grid and plunging 80 percent of the country into darkness. Just a few days later, a similar assault reduced gas supplies to the provinces of Punjab and Khyber-Pakhtunkhwa by 25 million cubic feet. It is not just Baluch insurgents wreaking havoc on Pakistan’s electricity infrastructure. Back in April 2013, the Pakistani Taliban blew up the largest power station in Khyber-Pakhtunkhwa province. Half of Peshawar, the provincial capital with a population nearly as large as that of Los Angeles, lost power.
Wide expanses of Pakistan’s population are affected by the energy crisis. Shortages not only prevent people from working, but also from cooking and receiving proper medical care (in some hospitals, services have been curtailed). Not surprisingly, public opinion polls in Pakistan identify electricity shortages as one of the country’s top problems.
In short, the energy crisis threatens Pakistan’s economy and its precarious security situation, while also deleteriously affecting the lives of everyday residents across the board. In July 2014, recognizing the significance of this story, the Woodrow Wilson Center’s Asia Program and the Fellowship Fund for Pakistan hosted an all-day conference on Pakistan’s energy crisis. The papers presented at this Washington, D.C. conference appear in edited form in this volume. Three conference presenters also produced policy briefs. These briefs were published soon after the 2014 conference and are available online.5
THE VIEW FROM ISLAMABADBy no means has Pakistan’s current government downplayed or neglected the energy crisis; on the contrary, it has focused laser-like on it
since taking office in May 2013. Even back on the campaign trail, the now-ruling Pakistan Muslim League-Nawaz (PML-N) party accorded extensive attention to energy. The PML-N’s election manifesto dedicated an entire section to energy, which constituted one of the longest in the entire document.6 In this volume’s opening essay, Musadik Malik, the prime minister’s energy adviser at the time of the Washington conference, lays out Islamabad’s vision for addressing the energy crisis. He proposes new “organizing principles” to guide the government’s response. Above all, he argues, Pakistan must engineer three changes in its power market structure. First, there must be less bureaucracy and more efficiency—a shift that will entail more meritocracy, transparency, and accountability.
Second, heavy regulation needs to give way to more competition. This requires Pakistan to demonstrate a genuine commitment to resolving its energy crisis: “With this kind of commitment, and if we are able to put resources behind this commitment,” Malik declares, “people will begin to have a little bit of confidence in Pakistan, and they will begin to invest in Pakistan.” Once investors express interest, the government should “do competitive bidding, let the best bidder win, and then get out of the way.” Third and finally, Pakistan needs to craft a more balanced and cheaper energy mix—one that does away with the current heavy dependence on expensive imported oil. These three changes, Malik concludes, will transform a “red tape” market into a “red carpet” one.
The government’s short-term priorities include generating more power capacity; reducing the supply-demand gap and bringing it down to zero within the next five years; and lowering T&D losses to 16 percent (and to 10 percent “over a reasonable period of time”). In Malik’s view, bringing down T&D losses will be much easier now that Pakistan has started using smart meters—devices that record energy consumption rates at rapid intervals and allow for efficient monitoring. This technology, he writes, enables Pakistani energy policymakers to engage in more “evidence-based decision making.” Officials are developing “dashboards” for Prime Minister Sharif that capture the performance of thousands of grid station feeders, and that depict load-shedding rates across the country on a monthly or yearly basis. Already, useful discoveries have been made: the length of a feeder is directly associated with T&D loss levels (longer feeders have higher losses), and there is no relationship
between losses and load shedding (feeders with low losses often experience more load-shedding than those with higher losses).