Pakistan's Interminable Energy Crisis

166 Pages·2015·1.89 MB·English

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Pakistan’s Interminable
Energy Crisis:
IS THERE ANY WAY OUT?
EDITED BY
Michael Kugelman
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
Energy Crisis:
IS THERE ANY WAY OUT?
ESSAYS BY
Javed Akbar
Ziad Alahdad
Akhtar Ali
Shannon Grewer
Michael Kugelman
Robert M. Lesnick
Khalid Mansoor
Musadik Malik
Nargis Sethi
EDITED BY
Michael Kugelman

© 2015 The Wilson Center
www.wilsoncenter.org
Available from:
ASIA PROGRAM
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ISBN: 978-1-938027-46-8
Cover image: © Asianet-Pakistan / Shutterstock.com
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Contents
Easing an Energy Crisis That Won’t End 1
Michael Kugelman
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
vii
Contents
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
Recent Asia Program Publications on Pakistan 153
Information About Wilson Center Pakistan Scholar Program 156
viii
Easing an Energy Crisis
That Won’t End
MICHAEL KUGELMAN
In 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 as-
sistance (security and economic) that Washington provided to Islamabad
between 2002 and 2014. And it equates to 20 percent of Pakistan’s an-
nual 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 pur-
sued 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 for-
mer 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.
1
Michael Kugelman
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 DESTABILIZING4
To 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 electric-
ity 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 ex-
hausted 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 dol-
lars 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 pol-
icy: 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 econ-
omy 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 com-
panies, citing electricity deficits, have suspended operations in Pakistan.
2