Insufficient energy supply key reason for sluggish economic performance

KARACHI: An insufficient energy supply remained one of the major reasons for Pakistan’s sluggish economic performance in recent years and continues to act as a major impediment to faster economic growth. However, owing to a series of positive developments that the country’s energy sector witnessed, the year 2016 unarguably can be regarded as a year that cannot be forgotten.

Economist Muzammil Aslam said Pakistan achieved several milestones during the outgoing year that would go a long way help the country achieve energy security.

“Signing of liquefied natural gas supply deal with Qatar, development of coal-based energy generation projects, introduction of market-based tariff regime and improvement of transmission, distribution network are positive developments. The country would be able to reap the benefits in 2017 and 2018,” Muzammil added.

He; however, was quite skeptical of the government’s apathy towards the issue of circular debt, which – still hovering around Rs400 billion - has plagued the entire energy sector supply chain.

The exploration and production side remained unattended despite lowest levels of the global oil prices. The country saved around $10 billion of foreign exchange owing to smaller import bill, but this opportunity was not materialised.

Lt Gen Nadeem Ahmed, managing director of Mari Petroleum, said that this was once in a lifetime opportunity and the government should have made the most of it. “A large and high potential area of the country still remains unexplored due to security concerns. If a fraction of these savings are invested in providing security to E&Ps companies in Balochistan; this would help the country a lot in attaining energy security.”

Ahmed also criticised inordinate delays in the auction of new exploration blocks, which were to come up in 2016.

Meanwhile, Petroleum and Natural Resources Minister Shahid Khaqab Abbasi said the government is attracting foreign companies to undertake new exploration and production activities by giving attractive incentives.

“The government is considering incentives in the Petroleum Policy 2016 to attract investment in the exploration and production of shale / tight gas reserves.”

Overall, 2016 remained quite positive for electricity generation, wherein the government remained focused towards developing indigenous resources, including coal and renewable energy.

Mujtaba Khan, CEO of Reon Energy, appreciated the government for switching feed-in-tariff regime to market-based bidding for tariff mechanism. “This is a very positive development and would reduce the generation tariffs by at least 30 percent and bring efficiency in the system.”

Mujtaba said delays in the proper implementation of net-metering regulations was impeding small-scale solar and wind-based generation.

For sustainable resolution of the energy crisis, the government, on the one side, has made some power reforms to supplement investor-friendly Power Generation Policy 2015, while on the other, it is also promoting private sector participation in the power sector.

The Private Power Infrastructure Board (PPIB) is currently processing 27 multiple fuel (oil, coal, gas and hydel)-based Independent Power Producers (IPPs) projects with a cumulative capacity of 15,852MW. Of these, 16 projects of 6,339MW cumulative capacity are hydropower projects, whereas, 10 projects of 9,393MW are based on coal.

In addition, PPIB is also processing RLNG-based power projects of around 4,600MW generation capacity in public and private sectors.

In the light of Pakistan's challenges to fund and execute important infrastructure projects domestically, the China-Pakistan Economic Corridor (CPEC) offers a huge opportunity to tackle longstanding bottlenecks in the power and logistics sectors.

Considering the broad support that the CPEC enjoys in Pakistan and the political and military capital invested in it, the commencement of the projects outlined in the CPEC will help boost energy supply in the years ahead.

During a briefing of the Senate Standing Committee, Ministry of Water and Power
Secretary Younis Daga had said that Pakistan would have an energy surplus by 2020. But, the execution of energy projects under the CPEC will probably face delays and problems, as infrastructure developments in Pakistan are fraught with complications such as security risks.

Moreover, the actual electricity produced by the power plants in Pakistan is approximately half of the generating capacity, according to a Pakistani planning group tasked with analysing the energy sector and the impact of CPEC. For example, even if the government succeeds in its plans and executes power projects with a capacity of 10GW by 2020, the schemes could produce only 5.2GW.

The planning group estimates that the electricity deficit will actually rise by 2020. According to it, the deficit will expand from 7.7GW in 2015 to 10.8GW by 2020, as consumer demand for electricity, growing at an annual pace of 10–12 percent per annum, will outstrip new generation capacity. Rapid demand increases - every year approximately 700,000 people and 500,000 air-conditioners are added to the system - will continue to put a strain on the country's electricity grid.