By Dr Charles K. Ebinger & Kashif Hasnie, Dawn, 17 May, 2010
THE promised four Es — employment, education, energy, environment — of the current PPP government in Pakistan are disintegrating.
Promises to tackle the recent energy crisis by building 8,000MW of new coal, solar, hydroelectric and wind electric generation plants have fallen through the cracks of the proverbial dilatory Pakistani political and bureaucratic elites.
With power demand at about 14,680MW and current supply at 10,200MW, the power supply shortage stands at 4,480MW, providing fertile ground for social and economic chaos. After researching the supply/demand gap and total installed electricity capacity (19,000MW), we concluded the following reasons for the shortage:
1. While hydropower contributes 6,500MW of electric installed capacity, recent excessively dry seasons, mismanagement and trans-boundary water disputes have restricted this capacity to only 1,500MW resulting in a shortage of 4,000MW.
2. Independent power producers (IPPs) generate 6,250MW; however, owing to non-payment in the energy pyramid, a circular debt (currently around $1.3bn) has been created, resulting in a shortage of 1,500MW.
3. Government-owned power generation plants are under-utilised. Most of them operate far below their capacity, either as a result of a lack of funds for maintenance or a shortage of spare parts.
4. Power infrastructure, especially in transmission and distribution, is old and defective, causing heavy line losses of electricity.
5. There is power theft. Public and private theft of power contributes to 32 per cent of these ‘line losses.’
Keeping the above factors in mind, we know that the Pakistani authorities are trying to gather foreign financial and technical assistance to address this crisis. A new $125m USAID energy programme will upgrade five major power stations and replace more than 11,000 tube wells producing water for agriculture, while boosting Pakistan’s overall power production by 10 per cent.
In mid-January, US Special Representative for Afghanistan and Pakistan Richard C. Holbrooke launched the first phase of these energy projects in Islamabad, announcing the United States will contribute up to $1bn to the energy sector. Technical support from the US also is being provided by the private sector following a meeting between General Electric’s CEO, Jeff Immelt and President Asif Ali Zardari last year where in an MoU General Electric agreed to provide help in the energy, water and transportation sectors.
Despite these overtures, the crisis cries out for far more help than is being offered. For the Pakistani government and the international donor community wanting to help it, here is an agenda of actions that will begin to stabilise the country’s economic and political future.
1. Both of Pakistan’s natural gas companies (Sui Northern Gas Pipelines Ltd and Sui Southern Gas Company) should make it a priority to produce an additional 300-400 million cubic feet of gas which is quite possible if gas tariffs are raised to economic levels. This will provide enough gas to fuel an additional 2,000MW of electricity.
2. The circular debt ( where none of the energy companies really pay their obligations) between every company in the electricity mix — the Pakistan Electric Power Company, the Water and Power Development Authority, IPPs, fuel suppliers and refineries — needs to be settled to bring modern accounting practices into the sector.
3. The power infrastructure should be upgraded with a modern efficient grid. Without such an investment there will be little improvement even if major new generation facilities are built.
4. Accounts receivables from the public and private sector, including the military, for electricity should be recovered.
5. The relationship of furnace oil and natural gas prices should be monitored closely. Since furnace oil is more expensive, its excessive use has contributed $571m out of the current $1.3bn of circular debt.
6. Energy prices throughout the economy must be rationalised and raised to the level required to pay for their full cost while returning a profit to the producers. Where subsidies are required for social reasons, they should be targeted and paid for out of government revenues not by energy producers.
7. Government-owned power generation companies should be technologically refurbished. This could close the demand and supply gap by 1,500MW.
8. Finally, Pakistan needs to manage its water resources more efficiently. Today, Pakistan faces the Malthusian-plus challenge of dealing with rapidly growing water demands (for energy, agriculture and people) from a resource base that is likely to change substantially as the glaciers of the western Himalayas melt and monsoon patterns change under the onslaught of climate change.
We were compelled to write this article to highlight the fact that even if the Taliban and its Pakistani allies were to disappear tomorrow, Pakistan in the absence of a plan to deal with its energy crisis will remain in darkness — literally and figuratively.
With promises and prospects of a long-term engagement, we believe that ‘smart American power’ projection lies in addressing issues such as energy and water. While short-term aid and a few promises can start to mend a relationship, sustained partnerships, as we have learned in Afghanistan, require a lot more.
Charles K. Ebinger is senior fellow and director of the Energy Security Initiative at The Brookings Institution in Washington, DC. Kashif Hasnie is an expert on international security and natural resource management issues.