Chapter4

Securing Energy Security Indigenously

This chapter looks at the ways in which Pakistan will meet its energy requirements,

through its own domestic sources of energy. Highlighting the present situation for the

different sources, it focuses on various government plans to make better and more

optimum utilization of its own sources of energy, including, oil gas, hydro, coal and

nuclear. In order to make the study more comprehensive, this chapter also looks at the

problems being faced in the course of policy option.

Stress on Self-Reliance

Since its inception as an independent nation-state, Pakistan has stressed on the goal of

self-reliance and proper exploitation of its own indigenous resources, in order to

minimise dependence on imports and, thereby lessen the burden on the national

exchequer as well, apart from achieving its established goal of self-reliance1• Through

this, it was also possible to leave more revenues for the development of the country on

all fronts2• Pakistan is continuing to stress on this policy of self-reliance even now. It

is focussing on using more and more of its own resources optimally and lessen

dependence on the outside to the most possible extene. According to Pakistan Foreign

Minister (2002-2007), Khurshid Mehmoud Kasuri, Pakistan's energy security ought

to be secured " through the diversification of indigenous national energy resources

with reduction of dependence on foreign energy resources".4 This had already been

made evident during the 1973 oil crisis that had shaken the structure of dependence of

1 Mirza, Umar K.et. al. (2003), "Status and Outlook of Solar Energy Use in Pakistan", Renewable and Sustainable Energy Reviews, 7(6): 501-514. 2 Government of Pakistan, Ministry of Petroleum and Natural Resources, URL: bttp://202.83.164.26/wps/portal/Mopm 3 Kazmi, Zawahar Haider, "Accessibility and Availability of Energy for Socio-Economic Development of Pakistan. Self-Sufficiency is the Only Way Out", [Online: Web] Accessed on 6 April2008 URL: http://217.206.197.194:8190/wec-geis/congress/papers/kazmiz0904ys.PDF, "energy.com.pk" [Online: Web] Accessed on 5 April2008, URL: http://www.energy.com.pk/news%20and%20views.htm 4 Kasuri, Khurshid Mehmood (2005), "Pakistan's Foreign Policy", Speech of Foreign Minister Kasuri presented at the concluding ceremony of the European Union Documentary Film Festival held at the Pakistan Institute oflntemational Affairs, 31 May, 2005, Karachi, PaJ...istan Horizon 58(3): 45-54.

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Pakistan on energy imports, a practice it was carrying on since independence to meet

its energy requirements. It had made the concept of "energy security" extremely

important for Pakistan, along with other countries around the world5• Pakistan's

energy policy has, since then, stressed on a balance between different sources of

energy in the short as well as the long run, taking market forces into account as we116•

Based on the experience of the last six decades, and judging on the basis of the

present needs of the country, Pakistan has been able to hone out a few basic objectives

in regards to its energy sector, in order to combat its energy problems7: a) ensuring

adequate energy supplies through the development of indigenous energy resources,

import of energy at competitive prices to meet energy deficits and the development of

infrastructure of delivery of energy to the consuming sectors and systems to ensure

reliability, efficiency and economy of supply; b) ensuring security of energy supply

through the diversification of the energy mix to manage risks and external shocks; and

c) ensuring long term viability of the energy sector by shifting from absolute central

control of the energy sector to a scenario where it maintains only a strategic presence

with active private sector involvement. Supporting policies to achieve this objective

included appropriate distribution of responsibility within the Government institutions

for policy formulation, regulation and administration to avoid overlaps and conflicts.

Policies and regulations that provided appropriate incentives and encouraged

competition in the private sector were to be practiced. These policies and plans

targetted further development of indigenous conventional energy resources including

oil and gas, hydel and coal by providing appropriate incentives and a level playing

field to the private sector. Longer-term strategies also focussed on meeting the energy

deficit by establishing energy trade corridors to capitalize on the proximity of

Pakistan with resource rich neighbours. Table 4.1 indicates the rising gap between the

demand and supply of energy presently and in the future.

5 Siddiqi Toufiq (1995), "India-Pakistan Cooperation on Energy and Environment: To Enhance Security", Asian Survey, 35(3): 280-290. 6 Bailey, Richard (1977), Energy: The Rude Awakening, Berkeshire: Me Graw Hill 7 Ahmed Mukhtar (2007), "Meeting Pakistan's Energy Needs", Hathaway et. al. Fuelling the Future: Meeting Pakistan's Energy Needs in the 2151 Century, Washington D.C.: Woodrow Wilson International Centre for Scholars.

161

Table 4.1: Demand Supply Gap in Energy Supply of POL, Gas and Coal

S.No. Description 2004- 2009- 2019- 2029-05 10 20 30

1. Imported POL Production -4.8 -8.69 -27.47 -48.84 (million tonnes)

2. Deficit Gas (MMCFD) 860 -141 -6113 -16735

3. Imported Coal (Million -3.5 -3.0 -0 -0 tonnes)

Source: "Energy Security", [Online: Web] Accessed on 4 April 2007, URL: www.

pakistan.gov.pk

Understanding the need for urgent action, the Medium Term Development

Framework 2005-10, laid out strategic directions for the development of the energy

sector and sustainable supply of energy at a competitive price to all sectors of the . economy. These directions included: (i) supply to be based on an optimum energy

mix; (ii) maximum utilization of the indigenous resources to meet the increasing

energy demand with a major emphasis on increasing the coal share in the total energy­

mix by developing indigenous coal reserves, and setting up integrated coal mining,

power generation, petro-chemical plants and coal gasification; development of hydro

for power generation; increasing local oil and gas production by enhancing drilling

activities particularly in off-shore areas; replacement of imported oil with imported

gas; and promotion of accelerated nuclear and renewable/alternate energy sources

(wind, solar) in overall energy mix; (iii) enhancing participation in the sector,

including manufacturing of plants and equipment by strengthening regulatory

frameworks and related institutions and development of infrastructure; and (iv)

development ofhuman resources with emphasis on technical skills and expertise. The

strategy also included extension of LPG supply to the domestic sector, encouragement

of CNG utilization in the transport sector and import of LNG to meet short-term gas

requirements, if feasible. Incentives would also be provided for mechanized

development of coal gasification technology. 8

8 Government of Pakistan (2005), Planning Commission, Medium Term Development Framework 2005-10, URL: http:/ /www.planningcommission.gov.pk!Five%20YeatJ/o20Pians.html

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The Medium Term Development Framework also outlined objectives for the

indigenous development of the energy sector. It stressed on the enhancement of

exploration and domestic production in order to maximize the indigenous

development of the energy resources of the country, the exploitation of the vast

available reserves of the hydel potential, enhancement of coal and alternate energy

including nuclear energy and bringing in energy through pipelines from energy

surplus countries.9

Another important document in relation to energy, issued by the Government of

Pakistan in 2005 has been the Energy Security Action Plan of 2005 10• As per this

document, various objectives listed out for the energy sector included ensuring

availability of sufficient energy on sustainable basis and at affordable prices to

achieve planned GDP growth targets (2005110- average 7.4%; 2011-2030- average

8%). This was to be achieved by Pakistan by increasing its power generation capacity

by 143,000 mw in the next 25 years to 162,590 mw from the existing 19,540 mw in

2005. 11 Also, the maximum utilization of indigenous resources (coal, gas, hydel

nuclear, oil, alternate fuel like ethanol and renewable) was to be done to meet the

growing demand on a sustained and affordable basis, thereby providing energy

security, sovereignty and sustainability to the country12. The promotion of R&D for

improvement in energy efficiency and conservation and development of energy

efficient appliances was to be fostered 13• It was aimed to improve the quality of

consumer services and create a competitive environment to solicit maximum private

sector participation.

9 Pakistan Development Forum (2005), "Overview of Government's Medium Term Development Framework", [Online: Web] Accessed on 4 April 2008 URL: http://www.pakistan.gov.pkldivisions/economicaffairs-division/media!Sessionli-Salman.pdf 10 Government of Pakistan (2005), Ministry of Planning and Development, Energy Security Action Plan - 2005, [Online: Web] Accessed on 27 February, 2008 URL: www.pakistan.gov.pklministries/planninganddevelopment-ministry/ annual%20plans/2006-07/Chapter_6/Energy.pd, Ali, Fahd, (2005), "Pakistan's Future Energy Needs", South Asian Journal, No. 9: 49-58. 11 "Pakistan Approves 25-Year Energy Plan", Daily Times, 23 March 2005, [Online: Web] Accessed on 10 May 2008, URL: http://pakistantimes.net/2005/03/23/business4.html, Siddiqi, no. 5. 12 "Plan to Meet Energy Needs", The Tribune, February 17, 2005. 13 Government of Pakistan, (2005), Ministry of Environment, ENERCON, The National Energy Conservation Centre, "National Energy Conservation Policy 2005", [Online: Web] Accessed on 12 January 2007, URL: http://www.pakistan.gov.pkldivisions/environment­division/media/National_ Energy_ Conservation _Policy.pdf

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Thus, there was need for creating a conducive environment to mobilize private sector

investment14 It was also aimed to improve the strategic oil reserves from 20 days to

45 days15, to integrate coal mining & power generation and coal gasification to

increase the indigenous coal share in the energy mix i.e. up to 20% in 25 years plan

and lay the foundation for the future share to go up to 50% 16, to reduce dependence

on imported oil through accelerated exploitation of indigenous resources 17 and resort

to import of natural gas and LNG through multiple sources on best possible terms if

indigenous resources fell short to maintain GDP growth18• Improvement of Value

Addition to energy consumption ratio through better efficiency - at least 10%

improvements19, maximization of indigenization of design20

, the facilitation of the

establishment of refineries and petrochemical industry based on coal, gas and oil and

the promotion of nuclear and renewable/alternate energy sources (wind, solar) to have

10% share in energy mix in 25 years21 was also sought. It was also aimed to promote

human resource development to ensure availability of required manpower to achieve

Plan objectives22 and to exploit potential for cross-border energy transactions?3

Importantly, an integrated approach towards energy development was adopted by the

Government to achieve these objectives24• The absence of one has been seen by the

14 The World Bank (1996), Amphora, Anil K. "Private Participation in Infrastructure: Lessons from Asia's Power Sector", URL: http://www.worldbank.org/fandd/english/1297 /articles/071297 .htm 15 Hakeem, Fazal (2008), "Overcoming the Energy Crisis in Pakistan", [Online: Web] Accessed on 5 June 2007, URL: http://www.opfblog.com/3181/overcoming-the-energy-crisis-in-pakistan/ 16 Government ofSindh, no.l6. 17 "Pakistan To Reduce Dependence On Imported Oil" (2002), Alexander's Gas and Oil Connections, News &Trends: E&SE Asia, 7(23). 18 "Import Gas Pipeline Projects", 3'd Pakistan Oil and Gas Conference (2007), 18-20 February, 2007, Islamabad, [Online: Web] Accessed on 12 January 2007, URL: www.pakoil-gas.com 19 Malik Afia (2008), "How Pakistan is coping with the Challenge of High Oil Prices", [Online: Web] Accessed on 23 June 2007, URL: mpra.ub.uni-muenchen.de/8256/l/MPRA_paper_8256.pdf 20 Matthews, Ron (1994), "Country Survey IV: Pakistan", Defence and Peace Economics, 5(4): 315-338. 21 Government of Pakistan, Pakistan Council for Renewable Energy Technologies, URL: www.pcret.gov.pk/ 22 Husain, Ishrat (2005), "Financing Human Development in Pakistan", [Online: Web] Accessed on 23 July 2007, URL: http://www.sbp.org.pk/about/speech/human _ development/2005/HUMAN _ DEV _ 25 _ 2005.pdf. 23 Government of Pakistan, no. 10 24 Kakakhe, Ijaz (2008), ''National Energy Model In Pipeline To Manage Future Energy Demand", Daily Times, 22 February 2008 [Online: Web] Accessed on 28 February 2008, URL: Daily%20Times%20-%20Leading%20News%20Resource%20ofl/o20Pakistan%20%20Nationai%20Energy%20Model%20i n%20pipeline%20to%20manage%20future%20energy%20demand. webarchive

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ADB to be one of the main reasons keeping Pakistan away from the road towards

optimal development of its energy resources. According to the former, Pakistan's

energy situation has been dotted with the presence of one too many ministries, e.g.

Ministries of Petroleum and Natural Resources; Water and Power; Planning and

Development; and Environment, Transport and Communications and the Pakistan

Atomic Energy Commission, instead of having any single regulatory authority with

overarching authority5•

A table showing energy mix plan projections for the future, in the short and long term,

is given below:

Table 4.2: Energy Mix Plan Projections (2004-30)

Current Short Term Medium Term Long Term

2004 2010 2015 2020 2025 2030

Total 50.8 79.39 120.18 177.35 255.37 361.31

MTOE

Oil 15.20 30% 20.69 26% 32.51 27% 45.47 25.7% 57.93 22.7% 66.84 18.5%

Natural 25.45 50% 38.99 49% 52.98 44% 77.85 44% 114.84 45% 162.58 45%

Gas

Coal 3.30 6.5% 7.16 9% 14.45 12% 24.77 14.0% 38.28 15% 68.65 19%

Hydro 6.43 12.7% 11.03 13.9% 16.40 13.6% 21.44 12.1% 30.50 12% 38.93 10.8%

Renewable 0.00 0.0% 0.84 1.1% 1.60 1.3% 3.00 1.7% 5.58 2.2% 9.20 2.5%

Nuclear 0.42 0.8% 0.69 0.9% 2.23 1.9% 4.81 2.7% 8.24 3.2% 15.11 4.2%

Source: Government of Pakistan (2010), Medium Term Development Framework

2005-10.

The above table shows a shift in the energy mix from what it has been in the last sixty

years. Thus, while, earlier on, all through the 1950's, 60' and 70's, the economy of

25 Chaudhry, Sajid (2007), "Complex Regulatory Structure Mars Pakistan's Energy Sector: ADB", Daily Times, 07 November, 2007, [Online: Web], Accessed on 22 October 2008, URL: http://www.dailytimes.com.pk/default.asp? page=2007%5C11 %5C07%5Cstory _7-11-2007 _pg5 _13

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Pakistan relied heavily on imported oif6, this trend began to change towards natural

gas slowly and steadily since the 1980s27 after the entire world was hit with an energy

crisis owing to dependence on oil imports, the prices of which skyrocketed during this

time. Over the next decade, and since the 1990s,, Pakistan has been witness to a

growing trend within its energy sector: an increasing stress on indigenization28, and an

increase in efforts to make use of the resources that it has. In this respect, coal, hydel,

nuclear and renewable energy were being forecast to benefit the most.

The government has been in the process of developing an integrated energy model for

analysing the impacts of various strategies for meeting national energy requirements,

including those relating to financial, economic, energy supply, national resources,

energy use, environment impacts, technologies, energy efficiencies, and socio

political impacts.29 The setting up of this integrated energy model was to be aided by

the ADB, within the larger game plan of the organization trying to develop a Strategic

Energy Plan for Pakistan for the duration 2009-2029.30 The ADB was to help Pakistan

in financing the hiring of international consultants who were to then help review

existing data for Pakistan on three fronts: (i) import and domestic energy supplies of

all sources, (ii) energy consumption by sector and by type, and (iii) environmental

efficiency and sociopolitical matters31•

26 Kolodziej, Edward (1982), "Implications of Security Patterns among Developing States", Air University Review, September-October 1982, [Online: Web] Accessed on 21 July 2007, URL: http:/ /www.airpower.maxwell.af.mil/airchronicles/ aureview/ 1982/sep-oct/kolodziej .html 27 Looney, R.E. (1995) "Pakistan: Energy Development and Economic Growth in the 1980s", OPEC Review, 19(2): 149-167. 28 IAEA (2007), International Atomic Energy Agency "Capacity Building for Sustainable Development in Pakistan", URL: http://tc.iaea.org/tcweb/publications/factsheets/ ASIA-Energy­PakistanEnergy Assessment. pdf 29 ADB (2007), Asian Development Bank, "Islamic Republic of Pakistan: Integrated Energy Model", URL: http://www.adb.org/Documents!fARs/P AK/41129-PAK-TAR.pdf. 3° Chaudhry, Sajid (2007), "ADB to help reform Pakistan Strategic Energy Plan 2009-29", [Online: Web] Accessed on 12 February 2007, URL: http://www.dailytimes.com. pk/default.asp?page=2007%5C07%5C29%5Cstory _ 29-7-2007 _pg5 _ 2 31 "ADB to help reform Pakistan Strategic Energy Plan 2009-2029" (2007), [Online: Web] Accessed on 18 February 2007, URL: http://www.steelguru.com/search _in_ news_ container/sg_ news_ search _result.html

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Role of the Private Sector in Indigenous Development

The private sector has been actively courted in Pakistan since the beginning and the

trend has continued. In the Pakistani energy scenario, it has rendered contribution in

various forms including revenue to government services and resource development32•

On the domestic level, it helped in the following ways: a) Development of Oil and

Gas Reserves towards alleviating imports, or strengthening hard currency exports,

promoting favourable energy-mix strategies, e.g. promoting gas, nuclear, hydel and

renewable energies' development as a source of relatively cheaper and more

environmentally friendly fuel and creating access to relatively more cost-effective

sources of energy for consumers, b) contribution to government revenues in the form

of royalties, bonuses, profit from oil or gas and taxes and special purpose funds, e.g.

research and development, training, etc. apart from mandatory contribution toward

social welfare programmes and c) contribution to communities and linkages by

creating new national/local jobs, fostering technology transfer, local skills

development, and training, sourcing national/local goods, generating direct

contributions to welfare of local communities and shared infrastructure and d) other

long-term benefits such as growth in enabling infrastructure, promoting wider

participation and creating depth in the domestic energy and thereby creating a more

vibrant environment for investments and potential demonstration impact of successful

projects. 33

For these above-mentioned reasons, the country saw an increasing and expanding role

of the private sector in all sectors of energy. The role of the private sector in the

sustainable development efforts of Pakistan was also visible in the social dialogue

taking place in Pakistan, culminating in the finalisation of the Employment

Generation Strategy for PRSP II (Poverty Reduction Strategic Plan) which focussed

on maximum employment generation in all sectors of the economy as its primary

32 Minocha, Sanjeev (2007), "Promoting Private Sector Participation in Oil and Gas Projects", Hathaway et. al., no.7 33 Minocha, no. 32.

167

objective34 among those of lessening dependence on fossil fuels, increasing

dependence on renewables and growing energy productivity35 .In this respect, it

emphasized on solar, biomass and wind power as sustainable sources of energy6• It

was defined as "Development that meets the needs of the present without

compromising the ability of the future generation to meet their own needs."37

The concept of sustainable development is a normative one. This also gives rise to the

concept of sustainable growth, including within such concepts like social and

corporate responsibilitY8• Growth when looked at from the perspective of sustainable

development, needs to incorporate three features39: it should lead to the satisfaction of

basic human needs, it should be in harmony with the environment and it should

strengthen self-reliance.

A brief account of the Government's plans for the better development of the different

sectors of energy is discussed below:

Power

The development of the Power sub-sector has become very important for Pakistan.

This is because the demand for power is increasing at an extremely swift pace,

considering the expansion taking place in the Pakistani economy and its population.

34 Siddiqui, Fasihul Karim "Thermal Issues In Pakistan's Sustainable Development Framework & The Role Of Business Sector'', [Online: Web] Accessed on 5 April 2008, URL: http://www. un.org/esa/sustdev/csdlcsd 14/statements/siddiqi_l Omay.pdf 35 WBGU (2004), German Advisory Council on Global Change, World in Transition: Towards Sustainable Energy Systems, London: Earth scan. 36 Asif M. (2008), "Sustainable Energy Options for Pakistan", Renewable and Sustaina]l.]e Energy Reviews, 13(4): 903-909. 37 Marcuse, Pete~ (2006), Sustainability is not Enough, The Netherlands: Springer. 38 Blackburn, William R. (2007), The Sustainability Handbook, London: Earth scan. 39 Reddy Amulya Kumar N. (1989), " Energy for Sustainable Development in Kishore V.V.N. and N.K. Bansal (ed.), Renewable Energy for Rural Development: Proceedings of the National Solar Energy Convention, Hyderabad, India. December 1-3, 1988, Delhi: Tata Me Ggraw Hill.

168

By 2006, as Pakistan began to face an imminent "energy crisis"40, a new power policy

was needed. It had to ensure cheap electricity generation, coupled with tariff controls

to ensure wider access throughout the nation. Thus, along with providing power to the

urban population, village electrification, too, was being sought, to extend electricity

coverage to all rural areas over the next few years. A challenge in this was to make an

appropriate pricing that could ensure financial viability of the utility, through

restructured distribution companies, while also providing an affordable basic level of

service, including connection fees, for the lowest income groups41•

In order to build an indigenous framework for the development of power, the

government in the decade of the 1990s undertook various initiatives. Thus, the 1994

Power Policy announced the "Policy Framework and Package of Incentives for

Private Sector Generation in Pakistan" that was to encourage the involvement of the

private sector in power generation42• This policy resulted in a healthy response,

mainly in thermal power plants and lead to a FDI of around $4 billion43. In the 1995

Hydel power policy44, the Government announced the "Policy Framework and

Package of Incentives for Private Sector Hydel Power Generation Projects in

Pakistan"45, Forty-one Letters oflnterest and 13 Letters of Support were issued under

its provisions. In July 1998, the Government announced the "Policy for New Private

Independent Power Projects". This policy was based on the concept of minimum

levelised tariff through international competitive bidding. In 2002, the Government

40 Vucetic, Vladislav and Achilles G. Adamantiades (2009), Hathaway, Robert M. and Michael Kugleman (ed.) Powering Pakistan: Meeting Pakistan's Energy Needs in the 2Y1 Century, Oxford University Press: Oxford 41 Qureshi, Sabira (2007), "Energy, Poverty Reduction and Equitable Development in Pakistan", Hathaway et. al no. 7. 42 Government of Pakistan (1994), "Policy Framework and Package of Incentives for Private Sector Power Generation Projects", March 1994, (Online: Web), Accessed on 17 October 2010, URL: www.ppib.gov. pk!PowerPolicy 1994.pdf 43 "An Overview of Energy Scenario in Pakistan", Economic Review, May 1995. 44 WAPDA (1995) Water and Power Development Authority, Government of Pakistan "Power Policy 1995", [Online: Web] Accessed on 23 July 2007, URL: http://www.wapda.gov.pk/htmls/power-policy-1995.html 45 TED Case Study, "Pakistan Power", [Online: Web] Accessed on 15 August 2007, URL: http:/ /www.american.edu/TED/pakpower.htm

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announced yet another policy, the "Policy for Power Generation Projects Year 2002",

which envisaged the implementation ofboth solicited and unsolicited proposals46•

During the 1990s, the Government of Pakistan, noticing the poor performance of the

power sector, laid out a plan of reforms for its better utilisation47• Broadly, they were

as follows:

Structural Elements: (a) unbundling of WAPDA into several separate thermal

generation companies (GENCOS), one national transmission and dispatch company

(NTDC), and nine distribution companies (DISCOS).48 The companies were to be

legally registered under corporate law and have their tariffs determined by the

National Electric Power Regulatory Authority (NEPRA)49• (b) Establishment of

appropriate. electricity trading and financial settlement arrangements, first based on a

regulated single-buyer model, followed by progressive introduction of competition

and more liberalised generation and supply markets50• This structural aspect of reform

lead to improved transparency in trading, dispatch, and financial management,

enabling better identification of inefficiencies and their location and causes51• The

trading arrangements would involve the Central Power Purchasing Agency (CPP A),

which would buy electricity from all generation companies and sell it to the DISCOS

and KESC52•

46 Mirza et. al. (2007), "Hydropower Use in Pakistan: Past, Present and Future", Renewable and Sustainable Energy Reviews, 12( 6): 1641-1651 47 Lama, M.P. and A.R. Kema1 (2003), "Power Sector Reforms in India and Pakistan: Scope for Cross­Border Trade in Power", [Online: Web] Accessed on 23 May 2007, URL: http:/ /www.saneinetwork.net/pdf/SANEI _IV /Power_ Sector_ Study. pdf 48 Government of Pakistan, Pakistan Electric Power Company Limited, [Online: Web] Accessed on 27 June 2007, URL: http://www.pepco.gov.pk/, "WB to approve WAPDA's Corporatisation", Daily Times, 22 July 2003, [Online: Web] Accessed on 17 August 2008, URL: http:/ /www.dailytimes.com. pk/default.asp?page=story _ 22-7-2003 _pg7 _ 3 7 49 Government of Pakistan, National Electric Power Regulatory Authority, URL: http://www.nepra.org.pk/ 50 "Privatisation of Faisalabad Electric Supply Company, Preliminary Information Memorandum" (2006) [Online: Web] Accessed on 17 September 2007, URL: http://www.privatisation.gov.pk/PDF­Files/FESC0%20PIM%202006.pdf. 51 Boyle, Michael (1997), "The Advantage Of Restructuring Electricity For Pakistan", Economic Review, September 1997, [Online: Web] Accessed on 15 January 2008, URL: http://findarticles.com/p/articles/mi_ hb092/is _/ai_ n28693647 52 Vucetic and Achilles, no. 40

170

Institutional Elements: This referred to the separation of policy, regulatory, and

ownership functions53. This reform envisaged improvement in transparency,

efficiency and quality of regulation, policy development and implementation, and

sectoral and corporate governance, through appropriate division of responsibilities

among the institutions and strengthening their capacitl4• Regulation meant the

establishment of an independent regulatory agency to set tariffs, issue licenses,

establish and enforce technical and safety operating standards, and approve

investment and power acquisition programs of the utility companies55. Policy

development and implementation meant the increased capacity of the governmental

agencies, especially the Ministry of Water and Power, to develop and implement

power sector policies56• Corporate governance and management meant a stronger

government role and capacHy to exercise ownership responsibilities over state-owned

companies in the sector, with improved practices in corporate governance and

management, including competent and businesslike boards of directors, appointed

through a transparent and merit based process57. For an interim period, a separate

governmental agency-Pakistan Electric Power Company (PEPCO)--was to act both

as a holding agency over the state-owned WAPDA-successor companies and as an

agency managing W APDA restructuring58•

Ownership and Investment Elements: This included privatisation of the existing

distribution and generation companies and expansion of the sector through investment

in existing and new companies. This was intended to bring in investment capital and

53 World Bank (2007), "Emerging Factors Conducive To Electricity Trade", URL: http:l/siteresources.worldbank.org/SOUTHASIAEXT/Resources/223546-1192413140459/4281804-1192413178157 /4281806-1194474073434/CMSAR_ Energy_ Trade_ Nov_ 07 .pdf 54 "Pakistan Restructuring and Regulation of the Electricity Sector", [Online: Web] Accessed on 11 February 2008, URL: http://www.asci.org.in/resource-center/Restruct_Regulation/reguln.htm 55 Khan, Zafar Ali (2007), "Pakistan Power Sector Structure and Regulations", [Online: Web] Accessed on 23 June 2008, URL: http://www.ficci.com/media-room/speeches­presentations/2007 /march!PPT /Session2/Zafarali. ppt. 56 Government of Pakistan, Ministry of Water. and Power, URL: http:/ /202.83.164 .26/wps/portal/Mowp 57 ADB, Asian Development Bank, "ADB To Help Improve Pakistan's Power Sector", 5 September 2008, [Online: Web] Accessed on 24 May 2008, URL: http://www .adb.org/Media/ Articles/2008/ 1259 5-pakistani-electricities-proj ects/ 58 Government of Pakistan, Pakistan Electric Power Company Limited, URL: http://www.pepco.gov.pk/

171

managerial know-how, enhance commercial performance and customer services, and

reduce the burden of the sector on public financing59•

A number of challenges were faced in the reform plan and otherwise in the

development of the power sector60. Mostly, they were faced in the distribution aspect

of the power sector61 . This was related to the lack of financial autonomy in the hands

of the DISCOS, which made their working stilted and inefficient62. Apart from this, it

was difficult to establish a fully transparent wholesale market and rule-based financial

management system in the power sector. Such lack of financial and managerial

autonomy was present even in the case of generation and transmission63.

Furthermore, the development of indigenous resources, such as coal, hydel, oil, gas

and renewable resources took place at a v~ry slow rate64. The deadlocks over major

hydel projects (reservoir/damns), the non-availability of feasibility studies of potential

sites, limited capabilities of public sector agencies such as PDMC and SCA, were all

instrumental towards contributing to the slow development ofhydel and coal reserves.

The limited infrastructure in the country also hindered the development of oil and

gas6s.

59 Gafoor, Abdul and Rizwana John Weiss (1999), "Privatisation of Electric Power Sector of Pakistan: Some Important Issues", The Pakistan Development Review 38(1): 69-84. 60 Government of Pakistan, Ministry of Planning and Development (2005), Energy Security Action Plan 2005, [Online: Web] Accessed on 27 February 2008, URL: www.pakistan.gov.pk/ministries/planninganddevelopment-ministry/annual%20plans/2006-07/Chapter 6/Energy.pd 2005 61 Saleem, Muhammad (2007), "Benchmarking and Regulation for the Electricity Distribution Sector in Pakistan", South Asia Economic Journal, 8 (1): 117-138 62 Malik, Afia, "Regulatory Governance: Electricity Industry in Pakistan", International Journal of Regulation and Governance, 7(1): 1-8. 63 IMF (1998), International Monetary Fund, "Pakistan: Enhanced Structural Adjustment Facility Policy Framework Paper, 1998/99--2000/01 ", URL: http://www.imf.org/externallnp/ptp/pakistan/ 64 Hussain, Fida (2006), "Government To Run Nuclear Plants At Higher Capacity", Daily Times, 20 January 2006, [Online: Web] Accessed on 11 September 2008, URL: http://www.dailytimes.com.pk/default.asp?page=2006%5C01 %5C20%5Cstory _ 20-1-2006 __pg7 _ 49 65 Looney, no. 27.

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The benefits of privatisation trickled in at a very slow pace, even after the unbundling

of WAPDA into the NTDC, GENCOS, DISCOS and the creation of NEPRA66•

Government policies and plans were still not synchronized for the creation of an

efficient, cost effective and reliable power sector. This sector also suffered from

improper coordination not only between the private and public sector but also

between the Government and other public sector agencies. To make matters worse,

the approach towards the management of balancing, workload forecast, project

identification, tariff regime and future investment requirement was unprofessional 67•

Since independence there was a bend towards cheap hydel power in Pakistan's energy

mix which began shifting towards imported thermal thereby increasing import bills

and delaying development of indigenous resources68• Though the declining

hydropower trend was checked, it will still take consid{1rable time to correct the

situation as the gestation period for hydro based generation is relatively long69•

A tariff structure, which subsidised some consumers at the expense of others,

impacted negatively in the development of a competitive power system70• Also, the

local electrical engineering industry was not being fully encouraged in the

development of the power sector though practically most items required for

transmission and distribution were locally manufactured and available at international

standards on competitive prices 71• This despite the considerable energy losses and

wastages due to poor and old equipment design and make resulted in at least 20%

66 Bhattachraya, Subhes C. (2007), "Power Sector Reforms in South Asia: Why Slow and Limited So Far?" Energy Policy, 35(1): 317-332. 67 Pakistan Institute of Development Economics (PIDE) Working Papers, Malik, Afia (2007), "Effectiveness of Regulatory Structure in the Power Sector of Pakistan", [Online: Web] Accessed on 23 July 2008, URL: http://www.pide.org.pk/pdfi'Working%20Paper/Working%20Paper-25.pdf 68 "US Pakistan To Hold Energy Dialogue Shortly'', Associated Press of Pakistan, [Online: Web] Accessed on 11 September 2008, URL:http://www.app.com.pk, "Need To Focus On Sustainable Power Generation Stressed", The News, 12 February 2008, URL: http://www. thenews.com. pk/print 1.asp?id=9 5 849 69 "Hydropower Generation: NEPRA Develops Mechanism To Attract Investment", The Nation, 17 July 2008, [Online: Web] Accessed on 23 September 2008, URL: http://www.nation.com.pk. 70 Malik, no. 67. 71 Aslam, Syed M. (1998), "Engineering Industry", Pakistan Economist, 5-11 January 1998, [Online: Web] Accessed on 23 May 2008, URL: http://www.pakistaneconomist.com/database2/cover/c98-26.asp

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wastage of total energy consumption72• A focus on energy conservation was also

lacking73• E.g. electric steel making in Pakistan consumed 700-800 kWh per ton vs.

250-300 kWh in advanced countries. An estimated amount of at least 20% of total

energy consumption was wasted74• (Amount USD one billion).

In view of these challenges, various scholars have given suggestions to make the

above mentioned reforms more implementable. Recommendations include making

DISCOS accountable for their performance. For this it was decided to set distribution

margins for individual distribution companies. 75 This was to increase the financial

autonomy of the sector entities and transparency in the sectoral financial flows 76•

Secondly, the Government was to make a more enlightened disbursement of

subsidies, keeping in mind the different requirements of different strata of people and

geographical locations. Also, disbursement was to be carried out timely, by the

government.77 Thirdly, the Government was to ensure that subsidies and end-user

tariffs were sufficient enough to cover supply costs78• Also, it was to ensure better

cost-reflectivity, reduce cross-subsidies, simplify tariff structure, and better target

assistance to the poor79• Fourthly, regulation was stressed upon. This was very

important for the power sector. Some of the areas that needed to be addressed include

an effective mechanism to resolve potential disagreements between NEPRA and the

72 Asad, S. (2006}, "Essential Components for Industry Electricity'', Economic Review, November 2006, [Online: Web] Accessed on 22 September 2008, URL: http://findarticles.com/p/articles/mi_ hb092/is _/ai_ n29369133 73 Sharif, M. "Pakistan's Energy Crisis: Short and Long Term Solutions", [Online: Web] Accessed on 22 August 2008, URL:http://www.optblog.com/1499/pakistans-energy-crisis-short-and-long-term­solutions/

75 Mustafa, Khalida (2008), "NEPRA Hints At 35pc Rise In Power Tariff Of DISCOS", Pakistan Defence, 18 August 2008,, [Online: Web] Accessed on 12 March 2007, URL: http://www.defence.pk 76 "INCSR Volume II: Pakistan", [Online: Web] Accessed on 31 August 2008, URL: http:/ /www.state.gov/documents/organization/82219 .pdf 77 "Pakistan's Power Distribution System Should Be Strengthened: ADB Experts", Business Recorder, 09 September 2008, [Online: Web] Accessed on 22 September 2008, URL: http://www.brecorder.com/ 78 TED Case Studies "Pakistan Power", [Online: Web] Accessed on 12 March 2008, URL: http://www.american.edu/TED/pakpower.htm 79 Alexander, Ian et al. (2003), "KESC's 2002 Multi-Year Tariff Determination: Lessons for Pakistan and South Asia", [Online: Web] Accessed on 11 July 2007, URL: info. worldbank.org/etoo1s/docs/library/86459/ses2.1_ kesc2002tariff.pdf

174

government; disputes between NEPRA and the licensees that it regulated and the

monitoring of the performance of the licensees and the market.80

Fifthly, it was counselled that governance arrangements also needed to be

strengthened81• Agencies were needed to be made ready to bear the financial

consequences of the performance of the companies. This was to strengthen the

incentives for performance-oriented management82• The governance was to be further

enhanced by the members of the boards of directors being selected through a

transparent, merit-based process aimed at creating competent, businesslike boards,

and by putting appropriate checks and balances in the governance system in place. 83

Sixthly, it was thought advisable for the government to be active in choosing

individuals with technical expertise as well as financial might through a competitive

and transparent process84• Additionally, the government could choose to facilitate

privatization with additional support-for example, by formally guaranteeing

government policy and financial undertakings (such as regulatory framework,

consumer subsidies, etc.)--to reduce the risk to the private sector and, thus, the cost to

investors and, in turn, to consumers85• Seventhly, more investment in the power sector

was recommended. Pakistan's power sector needed investments in all segments­

generation, transmission and distribution in order to be able to meet new demand86•

This had to be in conjunction with the government's established Private Power

Policl7, which would lead to better identification and prioritization of investment

80 Malik, no. 67. 81 World Bank (2004), Brook, Penelope J. "Power Sector Challenges", Presentation to the Pakistan Development Forum, March 18 2004, (Online: Web] Accessed on 15 July 2008, URL: http:/ I siteresources. worldbank.org/P AKIST ANEXTN/Resources/Pakistan-Development-Forum-2004/PSC.pdf 82 ADB (2004), Asian Development Bank, Shah Marshuk Ali, "Pakistan's Economy and Donor Agencies: Advising, Financing, and Conditionalities" [Online: Web] Accessed on 23 September 2008, URL: www.adb.org/Documents/Speeches/2004/sp20040 13.asp 83 Government of Pakistan, Ministry of Privatisation and Investment, [Online: Web] Accessed on 17 September 2008, URL:http://www.ppib.gov.pk/road_show/dubai!Waseem_Haqqie_BOI.pdf 84 Mangi, Naweenn A. (1996), "The Power Sector: Developing a Competitive Power Industry For Economic Development", Pakistan Economist, July 6-12. 85 Bokhari, Syed Anwar-ul-Hasan (1996), "History and Evolution of Privatisation in Pakistan", Paper presented at the national Seminar, "Privatisation" held on 18-19 September 1998, Shanghai, China. 86 Faisalabad Electric Supply Company (2006), "Privatisation of Faisalabad Electric Supply Company'', URL: www.privatisation.gov.pk/PDF-Files/FESC0%20PIM%202006.pdf 87 Private Power Infrastructure Board, URL: www.ppib.gov.pk/

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projects, faster mobilization of investment financing (from private investors,

commercial lenders, international financing organizations, etc.), lower investment

cost, and more effective implementation of investrnent88•

The government, in 2000, developed several measures in order to improve the

operating efficiency and financial condition of the power utilities. These ranged from

introducing a 21% weighted average increase in power tariffs to be followed by an

increase in gas prices, reduction of cross-subsidies by limiting the tariff increase for

the industrial and commercial consumers by 14%, settlement of the provincial

governments' arrears to WAPDA, formulating a high level steering committee to

provide guidance and co-ordination and to accelerate WAPDA's programme of

restructuring, creating of a holding company to take over the functions of W APDA' a

power wing, while leaving the jurisdiction over the irrigation and hydropower sectors

in its domain to the transformation ofNEPRA into a fully -autonomous and effective

regulatory agency for the power sector and the acceleration of the privatisation

process in generation and distribution of power. 89

The private sector was also encouraged to participate in the power sector in the ways

of assisting in the import of electricity from CAS, hydroelectric generation where

proposals were invited from the private sector for seven projects with a total capacity

of 1620MW, power generation from Thar coal where the private sector was involved

in the preparation of feasibility studies for mining and power generation, power

generation from imported coal where the private sector was offered incentives to set

up power generation units in the coastal areas and power generation from renewable

sources where a renewable energy policy framework was drafted and an incentive

package defined for fast track capacity addition. 90

88 Shaikh Sajail (2007), "Powering Pakistan", [Online: Web] Accessed on 23 January 2008, URL:http://www. wartsila.com/W artsila/global/docs/en/about_ us/twentyfour7 /3 _ 2007 /powering­pakistan-one-stop-service. pdf. 89 Qureshi, no.41. 90 Ahmed, no. 7.

176

In this respect, the Government of Pakistan set up the PPIB in order to act as a

facilitator in attracting private investment in the power sector91• Its projects included

coal, gas, oil, dual fuel, and hydel power plants, with expected commissioning

between 2007 and 201492• Regarding the exploration and development of coal, MOUs

were signed for a 1 ,800 MW capacity with an Australian group and a Chinese

group93• The government also invited EO Is for a 450 MW plant at the Lakhra field,

and two private sector companies were issued LOis (letters of intent) for a 350 MW

capacity near other coalfields94• In the alternate energy arena, Pakistan implemented a

few small-scale projects for wind and solar power. Pilot projects with a total

generation of 100 MW of wind power were implemented, involving five private

sector investors95• Once the target was achieved, the government planned to gradually

increase the capacity to about 10,000 MW by 203096•

The downside of privatisation, however, is understood to be that privatisaton would

not be as effective as expected without the presence of regulation and proper

supervision97.

Overtime, post-2000, the Government of Pakistan was able to hone out a set of

policies and strategies for the development of its Power Sector. These included : (a)

utilisation of indigenous resources for power development and generation and tilting

the hydrothermal generation mix towards hydee8• In this respect, W APDA was to

undertake a study with the P AEC for maximising hydel power generation from all

91 World Bank, Fraser, Julia M. "Lessons from the Independent Private Power Experience in Pakistan", URL: http://info.worldbank.org 92 Bhutta, Zafar (2008), "Rental Power Plants: Government Fixes Power Generation Requirement", Daily Times, 6 August, 2008, [Online: Web] Accessed on 5 January 2008, URL: http://www.dailytimes.com. pk/default.asp?page=2008%5C08%5C06%5Cstory _ 6-8-2008 _pg5 _ 2 93 "NTPC links MOU with Australian Varsity for Coal Mining Research", [Online: Web] Accessed on 21 November 2008, URL: http://www.indopia.in/India-usa-uk-news 94 Government of Pakistan, "Pakistan: Coal Power Generation Potential", [Online: Web] Accessed on 31 January 2008, URL: http://www.nepra.org.pk!Policies/Coal%20Potential%20in%20Pakistan.pdf 95 Government of Pakistan, Alternative Energy Development Board, Ahmed Shahid, "Alternative Energy Sector in Pakistan", [Online: Web] Accessed on 5 August 2008, URL: http://www.aedb.org % Umar, Asad "The Role of the Private Sector in Pakistan's Energy Sector", Hathaway et. al., no. 7 97 Ghafoor Abdul and John Weiss (1999), "Privatisation of Electric Power Sector in Pakistan: Some Important Issues", The Pakistan Development Review, 38(1): 69-84. 98 Looney, Robert E. (2007), "Sustaining Economic Expansion in Pakistan in an Era of Energy Shortfalls: Growth Options to 2035", OPEC Review, 31(2): 125-157.

177

rivers, particularly Indus, to identify strategy and project for increasing hydel power

share. Moreover, provinces were to undertake public-private partnership or BOT

projects for power generation on canal and other mini/micro hydel, with indigenous

manufacturing of plant and equipment (about 700 MW on 800 sites).99 (b) Generation

was to be maximised through indigenous coal, the share of which was to increase by

at least 18% (20,000 MW) by 2030. 100 (c) emphasis on nuclear power resources to

increase generation to 8,800MW by 2030 (P AEC would be responsible for

maximising local content to reduce capital cost) was to be emphasized.101 (d) Captive

power for old and new industries capacity available in sugar mill during off crushing

season to be made available on national grid was to be facilitated. 102 (e) Participation

of private sector in power generation, transmission and distribution was to be

enhanced. 103 (f) The secondary transmission and grid system was to be upgraded

continuously enabling full capacity utilisation and ensuring uninterrupted energy

needs to the end users. 104 (g) W APDA and KESC were to undertake an energy loss

reduction, load management and distribution rehabilitation programme to bring down

the losses from 26.5% in 2005 to 21.5% by 2010. 105 (h) The power prices keeping

lifeline tariff intact for low consumption domestic consumers were to be

99 Abdullah M. (2005), "Quick Returns from Mini Hydro Power Projects", The Dawn, 07 March 2005, [Online: Web] Accessed on 15 September 2006, URL: http://www.dawn.com/2005/03/07/ebrlO.htm, "Energy Security'', [Online: Web] Accessed on 4 April2007, URL: www. pakistan.gov.pk 100 "WB TO PROVIDE US $26 MLN FOR PAKISTAN'S THAR COAL ENERGY BOARD", Asia Pulse, 3 November 2008, [Online: Web] Accessed on 24 August 2007, URL:http://nz.biz.yahoo.com/081104/19/9065.html, "Energy Security'', no. 99. 101 Pakistan Nuclear Update 2003, The Risk Report (November-December 2003), 9(6) [Online: Web] Accessed on 14 June 2007, URL: http://www.wisconsinproject.org/countries/pakistan/nuke2003.htm, "Energy Security'', no. 99. 102 "Energy Security'', no. 99. 103 Government of Pakistan (2007), "Public-Private Partnership Policy of GOP", November 2007, [Online: Web] Accessed on 15 April 2007, URL: www.ipdf.gov.pk/tmpnew/PDF/Public_Private_Partnership_Policy_of_the_GoP_November_2007_Fin al.pdf 104 "Pakistan, Iran to Launch Electricity Transmission Line", [Online: Web] Accessed on 11 June 2007, URL: http://www.powerandwaterme.com/images/pdf/Pakistanlrantolaunchelectricitytransmissionline21Sept0 8IRNA.pdf, "Energy Security'', no. 99. 105 Chaudhry, Muhammad Bashir (2002), "Reforming Pakistan's Power Sector", Pakistan and Gulf Economist, July 15-21 2002, "Energy Security", no. 99[0nline: Web] Accessed on 27 May 2007 URL: www. pakistan.gov.pk

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rationalised. 106 (i) Efforts were to be made to stagger load profiles and reduce

consumption at peak hours and increase load factors. 107, (j) The possibility of linking

and developing the regional power grid for efficient and reliable use of power with

emphasis on import of power from neighbouring Central Asian nations such as

Tajikistan and Kyrgyzstan was to be explored. 108 (k) The regulatory bodies needed to

be strengthened and made truly autonomous, effective, transparent and credible.

NEPRA was to be strengthened to enhance its effectiveness in regulating the power

sector. The Government was to provide a conducive environment for the purpose,

which in turn was to ensure the efficient and competitive functioning of the power

sector and the protection of the consumer/entrepreneur interests in the future. 109 (I)

The local engineering industry for the power sector was to be promoted110, (m) The

utilisation of renewable energy especially for remote areas was to be encouraged. 111

In this respect, The AEDB was to be strengthened as well in order to give a boost to

the renewable energy sector112• (n) The Pakistan Nuclear Regulatory Authority

(PNRA) would also be strengthened to regulate the safety related issues of the nuclear

sub-sector of the energy sector113•

106 "Power Tariff Rationalisation Within A Week: Raja Pervez" Daily Times, 6 November 2008, "Energy Security'', no. 99[0nline: Web] Accessed on 27 May 2007 URL: www. pakistan.gov.pk 107 ''TUSDEC to set up CFC for Energy Savers' Manufacturing", Daily Times, 10 April 2008, "Energy Security'', no. 99Accessed on 28 May 2007 [Online: Web] URL: www. pakistan.gov.pk 108 "Pakistan to Sign Power Import Agreement with Central Asia", 8 August 2008, [Online: Web] Accessed on 2 June 2007, URL: http:/lkyrgyzstan.neweurasia.net/2008/08/08/pakistan-to-sign-power­import-agreement-with-central-asia/, "Energy Security'', no. 99[0nline: Web] Accessed on 14 April 2008 URL: www. pakistan.gov.pk 109 Kemal, A.R. (2002), "Regulatory Framework in Pakistan", The Pakistan Development Review, 41(4): 319-332, "Energy Security'', no. 99[0nline: Web] Accessed on 14 April 2008 URL: www. pakistan.gov .pk 110 Kakahel, Ijaz (2008), "11 Changes Proposed For Boosting Engineering Industry Output", Daily Times, 31 May 2008, "Energy Security", no. 99[0nline: Web] Accessed on 28 May 2007 URL: www. pakistan.gov.pk 111 Nayyer, Alam Zaigham (2005), "Prospects of Renewable Energy Sources in Pakistan", COSMATS Conference, Islamabad, 2004, [Online: Web] Accessed on 15 July 2007, URL: www.energy .com.pk/RenewEnerPakistan-NAZ.pdf 112 AsifM. no. 36 113 Ahmad Mumtaz et. al. (2008) "Prospects OfNuclear Energy in the 21st Century in Southwest Asia: An Assessment for Pakistan And Afghanistan", International Journal of Global Energy Issues, 30(1-4): 204-227, "Energy Security'', no. 99[0nline: Web] Accessed on 12 May 2008 URL: www. pakistan.gov.pk

179

Keeping in mind that the transmission lines and grid stations, i.e. primary

transmission was not fully developed, and that the existing ones were overloaded,

plans were made during the MTDF to increase power transmission from South to

North and from North to South and for interconnection of the new generation project

to the national grid114• Four primary transmission lines and six 500/220 kv grid station

projects were approved that had been planned for implementation during the

MTDF115• Regarding secondary transmission, its further development was also to be

continued to improve the quality and stability of the supply system and to increase the

overall access to electricityll6• Moreover, regarding distribution of gas, plans were

made to address the problems of heavy overloaded grid stations, high distribution

losses, transmission line constraints and poor quality of service117. To achieve success

in ameliorating these problems, the distribution network of WAPDA's distribution

companies, i.e. the DISCOS and KESC was to be extended to increase the service

area and to ensure reliable and sustainable electricity supply. 118

It was also envisaged to lessen the trend of power losses from 26.5% in 2004-05 to

21.5% by 2009-10, through energy loss reduction, load management and distribution

and rehabilitation programme119. This programme was to be implemented by

distribution companies, operating in a competitive environment and providing

efficient and affordable service to the consumers120• Similarly, in order to increase

efficiency in the whole process of transmission and distribution of gas, a programme

was to be undertaken with the aim of sustaining and improving the current activities

in the various sectors of the economy with primary focus on identification,

demonstration, data gathering and systemic implementation of low and medium cost

114 Government of Pakistan, no. 114. 115 Government of Pakistan, no.8. 116 World Bank, "Projects and Operations: Power-W APDA", URL: http://web.worldbank.org 117 Asian Development Bank (1997), "Sector Synthesis Of Post Evaluation Findings In The Power Sub Sector", URL: www.adb.org/Documents/PERs/SS-Power.pdf 118 "Energy Security", no. 99 119 Government of Pakistan, no.8. 120 World Bank (2008), Pakistan: Electricity Distribution and Transmission Improvement Project", URL: http:/ /web. worldbank.org

180

measures to achieve conservationm. Efforts were also to be made to reduce peak

loads by shifting usages from peak to off-peak times and thereby defer construction of

new facilities. This was to be achieved through the use of time of the day or seasonal

tariffs. Low power rate to agricultural tube wells during off-peak hours through

special metres was also to be offered 122•

Plans for the village electrification programme included joint funding by provincial

and district governments. Keeping in mind the policy of devolution of power, the

future village electrification programme was to be duly verified by district

Governments. During the MTDF, plans were to electrify about 12,585 villages.

The table below offers a spotlight on power generation in the short, medium and long

term through its various energy components.

Table 4.3: Power Generation Plan in Short, Medium and Long Term

Nuclear Hydel Coi}l Renewable Oil Gas Total Cumulative Existing 400 6460 16~ 180 6400 5940 19540 MW (2005) Addition - - - -2010 - 1260 900 700 160 4860 7880 27420 2015 900 7570 3000 800 300 7550 20120 47540 2020 1500 4700 4200 1470 300 12560 24730 72270 2025 2000 5600 5400 2700 300 22490 38490 110760 2030 4000 7070 6250 3850 300 30360 51830 162590 Total 8800 32660 19910 9700 7760 83760 162590 Note: KANNUP to be retired in 2019

Source: "Energy Security", Accessed on 4 April 2007 [Online: Web] URL: www.

pakistan.gov.pk

A programme for energy conservation was also to be undertaken. "Energy

Conservation" is a concept that is going hand in hand with the rest of the energy

121 Government of Pakistan, Ministry of Environment, The National Energy Conservation Centre (ENERCON), [Online: Web] Accessed on 12 May 2008, URL: http://www.enercon.gov.pkl 122 "Energy Security", no. 99.

181

policies of various countries around the world, including Pakistan, in their effort to

promote energy security for themselves, as a strategic option for reducing energy

shortages. 123 It includes such principles as use of more efficient technology and more

rational utilisation of energy in the face of increasing demand for energy and

inadequate supply. 124 It also stresses on the use of renewable sources of energy in the

face of the dwindling supply of the traditional fuels in use in Pakistan, referring to the

fossil fuels 125. This programme was to include enactment of necessary laws by

Ministry of Science and Technology/ ENERCON for building energy efficient

construction design and the use and manufacturing of energy efficient appliances. Co­

generation technology to conserve energy was also to be promoted. ENERCON was

to be responsible to develop a mechanism to monitor strict compliance of energy

conservation laws.

The contributing components towards power generation, i.e. Oil and gas, coal, hydel,

nuclear and renewable are discussed below.

Oil and Gas

The main objectives being pursued by the Government of Pakistan in relation to the

oil and gas sector post 2000 included a number of options. 126 The Government

planned to enhance the exploration and production activities of oil and gas 127 by

encouraging the country's indigenous resource base optimally as far as the

development and the use of natural gas was concerned. This was done as the

Government of Pakistan had ambitious plans to exploit natural gas in the future, and

give it prime position in the future energy mix. It wanted to make gas the "fuel of

123 AsifM.,no. 36. 124 Allen, Hammond L. et. al. (1973), Energy and The Future, Washington D.C.: American Association for the Advancement of Science. 125 As ish K. (1996) "Development of Alternative Energy Resources", Asia Energy Vision 2020:Sustainable Energy Supply, International Seminar, New Delhi: Concept Publishing Company 126 "Energy Security", no. 99. 127 "Pakistan To Award Sixteen New Oil And Gas Blocks", Alexander's Gas & Oil Connections: E & SE Asia", 11(3), 9 February, 2006

182

choice" for future electric power generation. This would lessen expenditure on the

national exchequer, as gas was a suitable substitute for fuel oil, which was used vastly

for power generation. 128 The Government also planned to encourage the private sector

in this sub-sector, due to the former's capacity to be able to bear risks and provide

capital129 and to develop the local energy scenario of the country in the context of the

regional perspective as wel1.130

The table below demonstrates the number of wells that need to be drilled in the future . in order to meet Pakistan's growing energy demand.

Table 4.4: Number of Oil and Gas Wells to Be Drilled to Meet Energy Demand

Description 2004-05 2005-10 2010-20 2020-30

Total Wells

(Public +Private)

Exploratory 22 300 1080 1800

Appraisal I Development 32 200 720 1200

Total 54 500 1800 3000

OGDCL

(Public +Private)

Exploratory 8 175 480 800

Appraisal I Development 10 100 300 500

Total 18 275 780 1300

Private

Exploratory 14 125 600 1000

Appraisal I Development 22 100 420 700

Sub Total 36 225 1020 1700

Source: Government of Pakistan (2010), Medium Term Development Framework

2005-10.

128 Ali, no. 10. 129 Khan, no. 55. 130 Government of Pakistan (2007), Ministry of Planning and Development, Ch. 10: Energy [Online: Web] Accessed on 15 March 2007, URL: http://www.pakistan.gov.pk/ministries/planninganddevelopment-ministry/annual%20plans/2007-08/10-.Energy.pdf.

183

In order to achieve the above mentioned objectives, various strategies were planned

for adoption in this sub-sector. The existing policy in regard to oil and gas was to be

reviewed in order to encourage gas exploration especially in off shore areas and to

remove the impediments in the way of private sector involvement.l31 Secondly, the

production of ethanol from molasses was to be increased for mixing with the motor

spirit. 132 Thirdly, in order to expedite exploration and exploitation of gas, refinery

operations were to be made competitive in order to provide a level playing field for

both the public and private sector. 133 Fourthly, the Government also planned to offer

the option of not having to take its permission for setting up new refineries or

expanding existing ones as an incentive to the private sector134• Fifthly, the existing

policy to encourage the use of CNG in vehicles was to be continued and the existing

price differential between CNG and motor gasoline was to be maintained as an

incentive for CNG use. 135 Sixthly, public sector companies such as SNGPL and

SSGCL, OGDC and other energy sector entities were to be disinvested or

privatised136• Seventhly, the role of research and human resource development was to

be enhanced in the fuel sector137•

The main strategies for fulfilling the above-mentioned policies were varied. Emphasis

was to be given to enhance drilling activities by removing impediments in the policies

131 "Pakistan Oil and gas Report: Q3 2008- Companies and Markets add New Report", [Online: Web] Accessed on 15 October 2008, URL: http://www.pr-inside.com/pakistan-oil-and-gas-report-q­r825941.htm 132 Rashid, Tahir and Zafar Altaf (2008), "Potential And Environmental Concerns Of Ethanol Production From Sugarcane Molasses In Pakistan", http:/ /precedings.nature.com/ documents/ 1499 /version/1 133 "Pakistan: Energy Policy", [Online: Web] Accessed on 15 October 2008, URL: http://www.asci.org.in/resource-center/EnergyPolicy/energypolicy.htm 134 "Pakistan Energy Overview", [Online: Web] Accessed on 21 September 2008, URL: http://www.sari-energy.org 135 "Govt To Encourage Low-Cost Fuel Efficient Vehicles", Pakistan Times, 22 May 2008, [Online: Web] Accessed on 13 September 2008, URL: http://www.pak-times.com, Government of Pakistan, Ministry of Petroleum, Hydrocarbon Development of Pakistan, "Compressed Natural Gas", [Online: Web] Accessed on 11 July 2008, URL: http://www.hdip.com.pk, Rafique, Adnan (2008), "Govt encouraging fuel efficient vehicles: Gilani", 14 September 2008, [Online: Web] Accessed on 12 November 2008, URL:http://dailymailnews.com/ 136 Government ofPakistan, no. 114. 137 Government of Pakistan, Planning Commission, "Pakistan Millennium Development Goals Report 2004", URL: www.tco.gov.pk

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related to oil and gas exploration138• The pace of exploration and development wells

was to be increased to drill hundred wells per year by 2010 with further increases to

150/200 wells per year from 2010 to 2030. More concession areas were to be awarded

to companies for oil and gas exploration having a good track record. Exploitation of

dormant gas fields, Sui deep reserves and Tal Block in Kohat was to be undertaken

based on a fast track action plan139• Transmission and distribution infrastructure for

gas supply was to be expanded through private sector investment140• In order to

develop the gas market, gas pricing and taxation was to be reviewed141 and gas

conversion work accelerated through links between gas manufactures and gas

distribution companies and defining and promoting rules and safety standards for gas

conversion of electricity based equipment. Strategic storages were to be increased

from 20 to 45 days in order to meet the contingency demands of the country with

incentives being given to the private sector k.eeping in view the strategic and

economic trade-offs142• Furthermore, in order to ensure the availability of LPG the

policy of having competitive and viable prices for this energy source even in far-flung

areas where supply of natural gas through pipelines was not economically feasible

was to be continued143• Moreover, an area in the northern part of the country was to be

allocated specifically for the petro-chemical industry especially for establishing

naptha cracker as a matter of priority144•

138 Jadoon, Amanullah Khan (2007), Federal Minister for Petroleum and natural Resources," New Technologies To Enhance Oil & Gas Discovering Rate", www.pakistan.gov.pk/ministries/petroleum­ministry/news/ current 139 Government of Pakistan, Sui Southern Gas Limited, [Online: Web] Accessed on 23 November 2008, URL: http://www.ssgc.com.pk 140 EIA Energy Information Administration, "Pakistan: Electricity'', http://www.eia.doe.gov/emeu/cabs!Pakistan/Electricity.html 141 World Trade Executive, "The Pakistan Oil and Gas Report", http://www. wtexecutive.com/ ems/ content.jsp?id=com. tms.cms. section. Section_ bookstore _pakistanoilg as 142 World Bank (2003), Oil and Gas Policy Division, Oil, Gas, Mining and Chemicals Department, Private Sector Development and Infrastructure, "Pakistan: Oil and Gas Sector Review", URL: siteresources. worldbank.org/P AKIS T ANEXTN/Resources/pdf-Files-in-Events/Oil-and-Gas­Sector/POGSR-2003 .pdf 143 Government of Pakistan, Ministry of Petroleum and Natural Resources, Year Book 2004-05, www.pakistan.gov.pkldivisions/petroleum-division/media/Y earBookPrinted.pdf 144 "Pakistan: Gas and Oil", http://WWMT.pakboi.gov.pklword/Oil%20&%20Gas%20.doc.

185

In keeping with the policy to encourage the participation of the private sector, this

sector was invited to participate in the following areas of the oil and gas sub-sector145:

LNG Project: Consultants were engaged to provide advice on technical, financial and

commercial issues. The Government sought to develop an infrastructure for LNG

import with the help of a public sector gas distribution company, SSGC146• In this

respect, the SSGC appointed ABN Amro and Poten & Partners as consultants147• In

the first phase, a firm supply of 3.5 TOE was targeted by 2010. The second phase

involving another 3.5 mtpa was to be completed by 2012. The LNG project was to

cover LNG procurement, marine transportation, construction, ownership, operations

and maintenance of an LNG import terminal and re-gasification facility. A 20-year

sale/purchase agreement was to be signed with the project developers. All investments

in LNG import were to be made by the private sector while the government's role in

LNG imports was to be limited to off-take guarantees by SSGC148•

Gas Import Pipelines: Technical parameters were defined through pre-feasibility

studies and technical working groups and joint working groups were established to

address technical, commercial, project financing and other issues149•

Oil Rermery: Expressions of interest were invited for a 200,000 to 300,000 BPD

coastal refinery located near Karachi150.

Oil Marketing: The Government aimed to divest 51% of its share holdings in the

Pakistan State Oil Company Limited, the largest oil marketing company in the

country with approximately 70% share of the market151.

145 Government of Pakistan, no. 42 146 Shahzad, Syed Salam (2005), "Pakistan comes out Fighting", South Asia, December 21, 2005, www.atimes.com 147 3'd Pakistan Oil &Gas Conference, no. 147. 148 Umar, no. 96 149 Mukhtar, Ahmed, Advisor to the Prime Minister of Pakistan on Energy , "Meeting Pakistan's Energy Needs", Text of Presentation Delivered at Woodrow Wilson International Center for Scholars, Washington D.C., June 2006 150 Mukhtar, no. 149. 151 "Pakistan Energy'' [Online: Web] Accessed on 22 September 2008, URL: http://worldhumanrights.com/s/pakistanenergy _old 11 •

186

Gas Transmission And Distribution: The Government aimed to divest 51% of its

share holdings also in SNGPL and SSGCL, which accounted for 86% of the gas

transmission and distribution business in the country152•

Petroleum E and P: The Government planned to divest 51% of its share holdings

also in Pakistan Petroleum Limited and Oil and Gas Development Company Limited,

that accounted for 45% of gas and 53% of oil production respectively153•

The Musharraf Government, in recognition of the importance of the oil and gas

industry in the overall economic development of the country also announced a set of

policy guidelines in 2000 to promote investor confidence in the country. These

included the acceleration, exploration and development of oil and gas fields to

increase efforts to attract foreign investment through major concession for on shore

and off shore exploration154, to develop recently discovered gas reservoirs with

estimated recoverable reserves of 6.5 tcf, to establish new regulatory authorities to

oversee the development and operation of the oil and gas sectors 155, to encourage the

use of gas in power generation156 and to develop upstream infrastructure including

pipelines through increased investment through the private sectors. The director

general of petroleum concessions invited international oil companies to bid for oil and

gas explorations in the Sindh and Baluchistan Provinces and the off shore Indus

Basin. Petronas and Lasmo were among the companies that were awarded exploration

licences. Import substitution was expected to meet 50% of Pakistan's requirements of

crude oil by the end of the decade (2010). Efforts were made to revitalize the energy

sector through private investment157• Large investments in the energy sector amounted

to $ 22 billion that was likely to give boost to the industrial and service sectors on

152 Pakistan Year Book 2005-06, [Online: Web] Accessed on 30 August 2007, URL: http:/ /www.pakistan.gov.pk/divisions/petroleum-division/media!Y eaR_ Book_ 2005-06.pdf. 153 "Pakistan Energy", no. 153. 154 Masbayekhi A. (1988), ''Natural Gas Supply and Demand in Less Developed Countries", Annual ReviewofEnergy, 13:119-129. 155 Naseem, S.J. (2004), "An Introduction to Oil and Gas Regulatory Authority", Pakistan Development Review, 41(4), Part 2: 929-936. 156 Siddiqui R. (2004), "Energy and Economic Growth in Pakistan", Pakistan Development Review, 43(2): 175-200. 157 The Economist Intelligence Unit (1994), Pakistan, 41

b Quarter 1994 quoted in Bhatia B.M (2003), "Making of Pakistan's Current Economic Crisis" in Sreedhar (ed.), Pakistan after 9111, New Delhi: Manas Publications.

187

account of easing of the energy shortage158• Deregulation of the oil and gas sector and

to this end the enhancement of private sector participation, the profits of which were

to be used to serve as external debt159 was to be encouraged. The price of LPG was to

be deregulated160•

As a result, the Oil and Gas Regulatory Authority (OGRA) was set up on 28 March

2002, under the Oil and Gas Regulatory Authority Ordinance to regulate the

petroleum, oil and gas activities and look after the interests of the consumers161. Its

additional duties also included fostering competition, to increase private investment in

the midstream and downstream petroleum industry and to protect public interest while

respecting individual rights, all the while aiming towards effective and efficient

regulations. Subsequently, the Natural gas Regulatory Authority (NGRA) was

subsumed by the OGRA 162.

Additionally, the Government Holdings Private Limited also became operational163•

The Government's participation in petroleum exploration joint ventures was handled

by this holding company. Furthermore, the deregulated prices of POL were

determined by the Oil Companies Advisory Committee (OCAC) on a fortnightly

basis. The off shore petroleum policy was also revised and a production sharing

formula introduced to attract private investment in high risk off shore petroleum

exploration. The Gas Infrastructure Development Project meant to augment the

transmission system of gas utilities was also completed through this 164• As a result,

158 Bhatia, no. 157. 159 Husain, Ishrat (2005), "Economy of Pakistan: An Overview", Key Note Address at the Expo 2005 Conference, 3 February 2005 Karachi, [Online: Web] Accessed on 23 August 2010, URL: sbp.org.pk 16° Kemal, no. 109. 161 Government of Pakistan, Oil and Gas Regulatory Authority, [Online: Web] Accessed on 12 July 2008, URL: http://www.ogra.org.pkl 162 "Oil and Gas Laws of Pakistan", [Online: Web] Accessed on 4 April, 2008, URL: http://www. tahseenbutt.com/oil_gas _laws _pakistan.html 163 Government Holdings Private Limited, [Online: Web] Accessed on 5 September 2008, URL: www.ghpl.com.pkl 164 ADB, Asian Development Bank "Consultancy Services for the Feasibility Study for Thermal Power Plant(s) based on Gas from Small Gas Fields of Pakistan", [Online: Web] Accessed on 22 August 2008, URL: http://www.adb.org/Documents/ ADBBO/Other _Notices/paklloan2178-fs-tpps-pak.asp

188

about 1 billion cubic feet of gas per day could be injected into the system for supply

to both the power sector and the industry. 165•

Additionally, an increase of around 500 wells was planned during the MTDF

period166• Moreover, the OGDC planned to undertake 8,050 L. Kilometre 2D seismic

survey and 1765 sq. km. 3D seismic surveys as well to undertake further development

later on. The number of rigs would also be increased from 25 to at least 50 and

optimal utilisation would be ensured167•

Another important feature being planned in this sub-sector was the further

development of pipeline transmission networks within the country168. These were to

be increased from 8606 kms. to 9770 kms. and distribution networks from 62,623kms

to 94,000kms. It was also to be ensured that the transmission and distribution losses

for the gas companies namely SNGPL and SSGCL presently 6% and 6.5%

respectively did not increase during the MTDF. Additionally, in order to satisfy the

needs for white oil supplies to the Peshawar region and also to reduce the potential

environmental hazards due to the transportation of petroleum products through tank

wagons, a white oil pipeline was to be undertaken by the private sector. 169

During the MTDF, refining capacity was to also increase from 12.73 mtoe per annum

to 18.73 mtoe per annum by installing an additional refining capacity of 6 mtoe per

annum as a coastal refinery in the private sector. This was being planned by the

Attock Refinery Limited (ARL) based on the latest process technologies170•

Additionally, during this period, it was also planned to increase the number of gas

consumers from 4.2 million to 4.4 million within the country. Due priority was also

165 "Energy Security", no. 99. 166 Government of Pakistan, Ministry of Planning and Development, [Online: Web] Accessed on 15 August 2007, URL: www.pakistan.gov.pk/ministries/planninganddevelopment-ministry/mtdf.htm 167 "Energy Security", no. 99. 168 "Pakistan Develops Full Potential ofNatural Gas Resources with GIS", [Online: Web] Accessed on 22 June 2008, URL: http://www.esri.com/news/arcnews/spring07articles/pakistan-develops.html 169 Government of Pakistan, no. 8. 170 "Attock Refinery Limited", [Online: Web] Accessed on 17 March 2007, URL: http:/ /www.arl.com. pk/profile. php

189

given to the schemes for supply of gas to towns/villages and localities not only for the

purpose of energy supply but also to fulfill the aims of improving environment and

reducing povertym. For this last purpose, the use of CNG was also to be expanded

during the MTDF in the transport sector especially. It was expected to increase from

21,000 mcf per annum to 33,900 mcf per annum. A detailed programme of city

transport was to be adopted in the federal and provincial capital initially.

Subsequently, the programme was to be extended to other urban centres as well. The

use of LNG and LPG was also to be promoted during the MTDF. The supply of LPG

was to increase from 1,600 tonnes per day to 1,800 tonnes per day. Pakistan's first

LPG import terminal with 10000 tonnes of storage capacity was also set up by the

· Engro Paktank Terminal Limited (EPTL) at port Qasim172• Additionally, Sui Southern

Gas (SSG) also recently commenced the construction of an LPG extraction plant at

Badin gas field, which was estimated to produce about 4,600 b/d of LPG173. In order

to promote the use of LNG, the Government was willing to encourage private sector

involvement, e.g. in importing LNG. Also it was ready to facilitate or provide

necessary infrastructure e.g. berth handling facilities at Port Qasim 174• The needs of

industry were to be given priority during the MTDF. The new Fatima Fertiliser Plant

was envisioned to require around 110 MMCFD besides 78 MMCFD of gas for

Balancing, Modernisation and Revamping (BMR) of the existing fertiliser plant

during the MTDF175•

171 Kureishy, H.M. (1993), "Development of Gas Producing Fields in Pakistan", [Online: Web] Accessed on 22 September 2008, URL: http://fmdarticles.com/p/articles/mi_ hb092/is _/ai_ n28630027 172 Government of Pakistan, no. 42. 173 Vahidy et. al. (2002), "Pakistan's Gas Discoveries Eliminate Import Need", Oil & Gas Journal, 100(4): 24-34. 174 Port Qasim Authority "Future Development at Port Qasim", [Online: Web] Accessed on 5 April 2008, URL: http://www.portqasim.org.pk/future.htm 175 "Energy Security'', no. 99.

190

Table 4.5: Installed Capacity and Projected Demand during MTDF

SI Benchmark Targets

2005-06 2006-07 2007-08 2008-09 2009-10

Installed

1 Capacity 20289 20753 22594 2594 24899 27389

(MW)

Hydro 6459 6540 7021 7021 7476 7719

Gas 5940 6230 7130 7130 8630 10620

Oil 5940 6400 6560 6560 6560 6560

Coal 150 150 150 150 600 1050

Nuclear 462 150 462 462 462 462

Renewable 180 480 680 680 880

Growth Rate % 2.3 5.6 5.6 10.2 10

Maximum 10.2179 2 14621 15511 17904 19534 21462

Demand(MW) 04

Growth Rate % 3.4 6.1 8.3 8.3 9.1 9.7

Source: Government of Pakistan (2005), Medium Term Development Framework

2005-10

As regards infrastructure development related to oil and gas, work continued to be

carried out to better the transport and transmission facilities. In the case of oil, a new

900-km pipeline was under construction to supply crude oil from Port Qasim to

Mahmood Kot, to supply the 0.1m b/d Pak-Arab Refinery (Parco). Similarly, Pakistan

State Oil, the country's largest company engaged in storage, marketing and

distribution of petroleum and related products implemented an 80 km, 14 inch

pipeline from Zulfiqarabad terminal to the Hub Power plant to transport up to 18.32

million barrels of fuel oil. It also planned the construction of 15m-33m barrel fuel oil

191

pipeline from Zulfiqarabad to Jamshoro176• As regards gas, the Government in 2004

directed the two gas utility companies, namely, SNGPL and SSGCL to embark upon

gas infrastructure development projects to enhance their gas handling capacity for the

transportation of 928 MMCFD gas expected to be available for replacement of

furnace oil in power plants to save foreign exchange. These infrastructure

augmentation plans have involved huge capital investment of almost Rs. 20,000

million. On completion of these plans transmission capacity of SNGPL will increase

by 42.9% and SSGCL also by the same figure. 177

The Government actively promoted the use of gas as a substitute of oil due to the

latter's skyrocketing process due to its slow depletion. A project that was to increase

the capacity of Sui natural gas by more than 400 MMSCFD to 1.4 BSCFD was

activity envisaged. Additionally, the project involved setting up the transmission

infrastructure for transporting gas from the Sui gas field to the northern and central

regions of the country. It aimed at supplying gas for residential consumers and

independent power producers 178•

The Government ofPakistan in its Petroleum Policy of2009 has further laid out some

objectives to better develop this sector. These include attempts to accelerate E&P

activities in Pakistan with a view to achieving maximum self-sufficiency in energy by

increasing oil and gas production, to promote direct foreign investment in Pakistan by

increasing the competitiveness of its terms of investment in the upstream sector, to

promote the involvement of Pakistani oil and gas companies in the country's upstream

investment opportunities, to train the Pakistani professionals in E&P sector to

international standards and create favourable conditions for their retaining within the

country, to promote increased E&P activity in the onshore frontier areas by providing

globally competitive incentives, to enable a more proactive management of resources

through establishment of a strengthened Directorate General of Petroleum

176 "Pakistan State Oil (PSO) Plans To Complete Various Development Projects Worth $2.7 Billion In The Field Of Oil By The End 1999", [Online: Web] Accessed on 23 September 2008, URL: http:/ /www.paksearch.com/br96/ Apr/14/PSOTOCOM .htm 177 Pakistan Almanac 2003-04, Karachi: Royal Book Co. 178 Government of Pakistan, no. 42.

192

Concessions (DGPC) and providing the necessary control and procedures to enhance

the effective management of Pakistan's petroleum reserves, to undertake exploitation

of oil and gas resources in a socially, economically and environmentally sustainable

and responsible manner. 179

Limitations in the Oil and Gas Sub-Sector

A consistent limitation with gas development has been the ensuing rivalry between

the Government and the local tribes of the areas where the gas fields are found, over

the issue of gas royalties, that makes the law and order situation, especially in

Balochistan and NWFP, quite bad, hampering exploration activities. 180. This is due to

the long-standing problem of separatism that has been experienced in Pakistan, where

in the area of Balochistan, comprising of the Baluch tribals have been demanding

autonomy increasingly181• The underlying cause of these insurgencies is in the

development of nation-building post-independence and uneven economic

development which together lead to the marginalisation of certain ethnic groups,

including the Baluchs182•

Coal

Coal has enormous potential for development in the future energy mix of Pakistan.

There are vast reserves of coal in Pakistan, mostly in the Thar desert of the Sindh

province. Despite this, and due to the fact that coal in Pakistan is of low-grade,

179 Government of Pakistan (2009), Planning Commission of Pakistan, "Petroleum Policy 2009", (Online: Web), Accessed on 18 October 2010, URL: http://www.planningcommission.gov.pk/Five%20Yeat'/o20Plans.html 180 Muneer T. and M. Asif (2007), "Prospects for Secure and Sustainable Electricity Supply for Pakistan" Renewable and Sustainable Energy Reviews, 11(4): 654-671. 181 Akhtar, Assim Sajjad (2007), "Balochistan vs. Pakistan", Economic and Political Weekly, 23 November 2007. 182 Behera, Ajay Darshan (1997), "Separatist Insurgencies in Pakistan", Grover, Verinder ad Ranjana Arora (ed.), 50 Years of Independence: Independence and Beyond: 1947-1997, Delhi: Deep and Deep Pub.

193

difficult to develop, it has been left unexploited. However, this policy has been in the

process of being reversed under the stress that the Government of Pakistan has been

laying on indigenous development.

In the post 2000 atmosphere, the Government planned a few policies and strategies

for the utilisation of indigenous coal. These included the provision of incentives for

expediting the exploration and exploitation of the bountiful coal reserves of the

country and technology like coal gasification for promoting the utilisation of coal183

and utilisation of coal in various industries on a large scale including in power

generation by the private sector. 184 Research and development of coal utilisation

technologies was to be undertaken such as gasification of coal, coal bed methane, coal

liquefaction and coal briquetting. Furthermore, establishment of washeries by the

private sector was encouraged as well for improving the quality of coa1. 185 The share

of coal in the overall energy mix was to increase to 9% by 2010 and 19% by 2030

through development of Thar and Sondh-Jherrick coal deposits and by increasing the

productivity of present operational mines. 186 Major utilisation option for coal in power

generation, gasification, fuel and chemical extraction was to be considered as wel1.187

The latest and most efficient cost effective and environmentally sound technologies

for co production of power fuel and chemical from coal were to be acquired188•

Measures to develop human resource for large-scale mining operations at Thar and

183 lEA (2004), International Energy Agency, "The Potential for Coal Use in Pakistan", [Online: Web] Accessed on 27 July 2006, URL: http://www.iea-coal.org.uk, "Energy Security", no. 99, Bhutto, Abdul Wahid "Pakistan's Coal Resources", Dawn, 20 September 2004, [Online: Web] Accessed on 17 October 2008, URL: http://www.dawn.com/ 184 "Energy Security", no. 99. 185 Khan, M.I. (1998), "Power Sector Development in Pakistan and Economic policy Issues", Pakistan Development Review, 37(4): 795-809, "Energy Security", no. 99. 186 Alizai. M.Y (1998), "Energy Situation and Pakistan", Paper presented on the "Studies in Pakistan Geography'', Department of Geography, Applied Geography, Urban and Regional Geography, University of Peshawar, Pakistan, 187 Allardice D and B.C. Young (2000), Australian Coal Review, "The Utilisation of low Rank Coals", Allardice Consulting, [Online: Web) Accessed on 11 January 2008, URL: http://member.melbpc.org.au/-alladlfiles/pittcc 111.pdf 188 Jin Y. and X Liu (1999), "Clean Coal Technology Acquisition: Present Situation, Obstacles, Opportunities, and Strategies for China", The Third Meeting of the Second Phase of the CCICED, The Working Group on Trade and Environment, [Online: Web) Accessed on 21 October 2008, URL: www.iea.org/Textbase/papers/2005/cp _ synthesis.pdf

194

Lakhra coalfields were to be adopted189• Provincial Governments were to augment the

presently available facilities and establish new ones based on latest technologies190

and the establishment of coal briquette plants on coal was to be facilitated as well191•

The potential candidates for shifting from furnace oil/gas to coal were the cement

manufacturing industry as well as boilers of textile and sugar industries192• In fact,

during the MTDF, all the cement plants were envisioned to be converted to coal,

resulting in an increase in the demand for coal to 2.5 million tonnes, one of the

objectives of the recent Government planning regarding the coal sector193• It was also

planned to install more indigenous coal based power plants. The viability of the Thar

and the Bakkar coalfields was to be determined, for gasification. The utilisation of

lignite in Sindh for purposes of power generation, gasification, fuel and chemicals

extraction and briquetting was also planned194. The hard coal of Punjab, Balochistan

and the NWFP was also planned to be enhanced in the brick kiln, cement industries

and in town gasification by enhancing coal production from mines through

improvements in mining techniques 195. Efforts were to be made to also mechanise the

operational coalmines196• Additionally, in order to enhance the exploration and

evaluation activities during the MTDF, the GSP was to conduct a complete evaluation

and appraisal of coal in various coalfields in Balochistan, NWFP and "Azad Jammu

189 "Pakistan hands over Thar Coal Project to Sindh", Khaleej Times Online, I 0 July 2008, [Online: Web] Accessed on 17 November 2007, URL: http://www.khaleejtimes.com/, "Energy Security", no. 99Accessed on 4 April2007 [Online: Web] Accessed on 22 July 2008 URL: www. pakistan.gov.pk 190 NEPRA, The National Electric Power Regulatory Authority, "Pakistan: Coal Power Potential", [Online: Web] Accessed on 7 February 2009, URL: http://www.nepra.org.pk/Policies/Coal%20Potential%20in%20Pakistan.pdf, "Energy Security", no. 99. 191 Kazmi, Shabbir, H. (2001), "Coal: Untapped Potential", Pakistan Economist, July 9-15, 2001, [Online: Web] Accessed on 22 August 2008, URL: http://www.pakistaneconomist.com 192 ADB (2003). Asian Development Bank. "Pakistan: Economic Update", July 2002-June 2003, [Online: Web] Accessed on 14 November 2007, URL: http:/ /www.adb.org/documents/economic _ updates/pak/eco _update _pak05.pdf. 193 "Cement Industry to shift to Coal", [Online: Web] Accessed on 20 November 2007, URL: http://www.chemtechsearch.com/industry.asp, 194 Government of Pakistan, Provincial Assembly of Sindh, [Online: Web] Accessed on 12 September 2008, URL: Cindex.php/business/stn/en/19/20 195 Government of Pakistan, Pakistan Mineral Development Corporation, [Online: Web] Accessed on 13 December 2008, URL: www.pmdc.gov.pk/pmdc-final/cm.htm 196 [Online: Web] Accessed on 14 March 2008, URL: www.pakistan.gov.pk/divisions/Contentlnfo

195

and Kashmir"197• A new national integrated coal mining and power generation

authority, which could be a joint venture among the federal government, Government

of Sindh and local/foreign private sector, was also to be created to exploit the coal

reserves for power generation in the country. 198

Simultaneously, for the development ofThar Coal deposits on a fast track basis a task

force was constituted199• Herein, a Chinese company undertook a feasibility study to

develop a block in Thar coal for power generation of 600 MW in phases200• A German

company also did the same for a thousand MW power generation project201

Problems/Limitations in the Coal Sector

The large potential of coal in the country was inadequately tapped because of various

reasons, the key ones being inadequate drilling programmes for confirmation of

reserves and project development202, protracted delays and unattractive terms for

197 Government of Pakistan, Geological Survey of Pakistan (GSP), "Mid-Year Review: Physical Progress '03-'04", [Online: Web] Accessed on 27 October 2008, URL: http://www.gsp.gov.pk/achievements/mid _year _review.doc 198 United States Energy Information Administration (1996). "Pakistan: Coal", [Online: Web] Accessed on 17 December 2008, URL: http://www.converger.com/eiacab/pakistan.htm, "Energy Security", no. 99. 199 Government of Pakistan (2008), Government of Sindh, "Meeting Of Members Of Committee On Thar Coal & Energy Board", [Online: Web] Accessed on 28 July 2008 URL: .http://www.cmsindh.gov.pk!Press%20Releases/2%20Update.htm 200 Siddiqui, Hussain Ahmad (2006), "Thar Coal Power Project: An Unrealised Dream", Dawn, 29 May 2006, [Online: Web] Accessed on 31 November 2007, URL: http://www.dawn.com/2006/05/29/ebr8.htm, Mustafa, Khalid (2008), "Go Ahead Given To Exploit Energy Potential of Thar Coal", The News 9 February 2008, [Online: Web] Accessed on 22 February 2008, URL: http://www.thenews.com.pk/top_story_detail.asp?Id=12859 201 "Energy Security", no. 99. 202 Government of Pakistan (1988), Planning Commission of Pakistan, "Eighth Five Year Plan: Energy", [Online: Web] Accessed on 3 March, 2008, URL: http:/ /202.83.167 .93/pcportaVfive%20year'/o20plans/7th/Part%20III%20E/part3eOOO 10 1.pdf, Donnelly, Larence J. (2004), "Geological Investigations at a High Altitude Remote Coal Mine on the North West Pakistan and Afghanistan Frontier Karakoram Himalaya", International Journal of Coal Geology, 60 (2-4): 117-150.

196

award of concessions203, unviable block sizes leased to companies without proven

necessary technical, and administrative skills and financial resources20\ ambiguities

and shortcomings of fiscal and financial incentives205, poor institutional framework

for coal development lacking confidence and commitmenr06, lack of experience and

know how in state-of-the-art techniques for large scale mechanized mining operations

and mine management207 and jurisdictional issues between Federal and Provincial

Governments208•

Coal development, as a result was severely neglected for over 50 years despite major

finds at Thar, Lakhra and Sonda Jherak due to lack of capability and proper

institutional set up.

However, in an effort to go beyond ·such problems that were limiting the full

development of this mineral, the government in 2007, established a five-member

committee, consisting of environment ministers and the chairmen of Sindh Coal

Authority, to fully utilize coal reserves and to facilitate foreign investment in coal

extraction.209

203 Government of Pakistan (2004), Ministry for Industries and Production, Experts Advisory Cell "Digest oflndustrial Sectors in Pakistan", July 2004, [Online: Web] Accessed on 15 September 2008 URL: http://www.pakistan.gov.pk/divisions/industriesandproduction-division/media/SectorsFile.pdf , Planning Commission of Pakistan (1988), Government of Pakistan, "Eighth Five Year Plan: Energy'', [Online: Web] Accessed on 3 March, 2008, URL: http:/ /202.83 .I67 .93/pcportaVfive%20yeaf'l/o20plans/7th/Part%20III%20E/part3eOOO I 0 l.pdf 204 Government of Pakistan, no. 202 205 John T. Boyd Company, [Online: Web] Accessed on I5 April 2009, URL:http://www.jtboyd.com/government.htm, Government of Pakistan, "Eighth Five Year Plan: Energy", no. 202. 206 Iqbal, Farkhand and Basharat Hasan Bashir (2006), "Pakistan Country Paper", [Online: Web] Accessed on I2 June 2007, URL:http://www.apo­tokyo.org/biomassboiler/D I_ downloads/presentations/Nepal_Program _ DEC2006/Country _ Papers/Paki stan/Pakistan CP.doc, Government of Pakistan, no. 202 207 'Thar Co-;;1 to become National Asset", Fortnightly Engineering Review (2006), [Online: Web] Accessed on 13 April2008, URL: http://www.engineeringreviewonline.com, Siddiqui, Hussain Ahmad (2008), "Viability of Thar Coal Company" 27 March 2008, Pakistan Defence. [Online: Web] Accessed on I7May 2008, URL: http://www.defence.pk 208 Shivani Prem (2008), "Disbandment of Thar Coal Board Urged", Dawn, I August, 2008, [Online: Web] Accessed on I2 May 2008, URL: http://www.dawn.com/2008/08/0llnat7.htm, Government of Pakistan, no. 202. 209 Asad, no. 96.

197

Hydel

According to the Policy for Power Generation Projects 2002, Pakistan planned to

commission 12 large-scale hydel power plants, besides other relatively smaller

projects210• The larger objective of the government, at this time, regarding its hydel

policy was to change the hydel-thermal ratio in the national energy mix in favour of

hydel power by 2025211. To pursue this, the government planned to follow a "fast

track development of hydel power generation"?12 Keeping this in mind, the

government decided to give priority to hydropower projects in both private and public

sectors213•

Furthermore, under the Water Vision 2025 plan, hydroelectricity and its optimal

exploitation was accorded preference in order to generat~ more power214• The projects

envisaged to be constructed under this plan were Duber Khwar (130 MW), Allai

Khwar (121 MW), Golan Gol (106 MW), Jinnah (96 MW) and Khan Kwar (72

MWi15• In addition, the WAPDA also proposed to install to high efficiency

combined cycle power plants on natural gas of 450 MW each at Faisalabad and

Balloki. All these plants were planned to be completed before 2010216•

The "Vision 2025" programme was approved by the federal cabinet in 2000217.It was

to be implemented in three phases218• Under Phase 1 of the three-phase programme,

210 ''Hydro Power'', [Online: Web] Accessed on June 2007, URL: www.ppib.gov.pk/policy _ text2002.pdf 211 Bhutta, S.M. and N.M. Bhutta (2002), "Opportunities and Challenges for Hydro Development of Pakistan", International Journal of Hydro Power and Dams, 9(1): 41-44. 212 Ali, no. 10. 213 Mirza, Umar K. et al (2007), "Hydropower Use in Pakistan: Past, Present and Future", Renewable and Sustainable Energy Reviews, 12( 6): 1641-1651. 214 "Pakistan's Water Vision for 2025", [Online: Web] Accessed on 17 August 2008, URL: www. worldwatercouncil.org!V isions/Documents 215 "Energy and Global Challenges", [Online: Web] Accessed on 5 August 2008, URL: www.hmaconsultants.com/pdf!POWER.pdf 216 Pakistan Almanac, no.177. 217 "Pakistan Water Resources: Development and Management", [Online: Web] Accessed on 30 May 2008, URL: www. waterinfo.net.pk/pdflarticle _ water.pdf 218 Rizvi, Shamim Ahmad (2001), "WAPDA-Vision 2025", Pakistan Economist, 30 July -5 August 2001, [Online: Web] Accessed on 21 September 2008, URL: http:/ /www.pakistaneconomist.com/issue200 1/issue31 /i&e3 .htm

198

W APDA was to be given the authority to undertake detailed engineering and

feasibility studies for Basha Dam and the Greater Thai Canal, as well as for Kachi

Canal in Balochistan, the Chashma Right Bank Canal in NWFP, the Thai reservoir

project in Punjab, and three projects in Sindh: Riveme Area Development, Thar Canal

and Sehwan Barrage219• The total cost of these projects was estimated at $11.71

billion (at the current exchange rate of 64 rupees to the US dollar). Priority

hydroelectric generation projects in Phase I included: Jinnah ($162 million),

Malankand-III ($80 million), Allai Khawar ($110 million), Golen Gol ($104 million),

New Bong ($110 million) Khan Khawar ($86 million), Duber Khawar ($109 million,

and Pehur High Level ($8 million)220• In 2001, the federal government also approved

Phases II and Ill of the "Vision 2025" programme.221 The hydroelectric projects that

were developed under Phase II included raising the height of Mangla Dam to increase

its reservoir storage and power generation capacity ($850 million), Thai Reservoirs

($58 million), Doyian ($346 million) Neelkum-Jhelum ($1.5 billion), Kohala ($1.4

billion), Matiltan ($11 0 million), Guipure ($150 million), Abbasian ($250 million),

Rajdhani ($113 million), and several combined cycle power generation projects ($2.9

millioni22• Phase III included 16 schemes, including dams and generation projects

such as Basha ($6 billion), Dasu•($3.1 billion), Patan ($2.97 billion), Thakot ($2.56

billion), Bunji ($2.69 billion), Munda ($1.56 billion), Chakothi ($167 million), Naran

($262 million), Suki Kinar ($750 million), Patrind ($167 million), "Azad Pattan"

($266 million) Karot ($252 million), Thar Coal Project ($1.6 billion) and Lakhra Coal

Project ($360 million, and several combined cycle power generation projects ($1

billion i 23•

219 "Power Sector Situation in Pakistan", [Online: Web] Accessed on 11 August 2008, [Online: Web] Accessed on 17 July 2008, URL: www.rural-electrification.com 220 Looney, no. 98 221 Majeed, Abdul (2001), "Pakistan Water Resources- Development and Management", [Online: Web] Accessed on 17 July 2008, URL: http://www.waterinfo.net.pk/pdf/article _water. pdf. 222 Mirza. Umar K. et al (2008), "Hydropower Use in Pakistan: Past, Present and Future", Renewable and Sustainable Energy Reviews, 12( 6): 1641-1651 223 WAPDA (2001), Water and Power Development Authority, "WAPDA-Vision 2025", [Online: Web] Accessed on 4 April, 2008, URL: http://www. pakistaneconomist.corn/issue200 1/issue31 /i&e3 .htm •

199

The "Vision 2025" programme, though a very ambitious development programme of

Pakistan, faced the constraint oflimited finance. It was therefore dependant on foreign

aid224• Among the international lending agencies that had shown interest in co­

financing the "Vision 2025" programme had been the Asian Development Bank

(ADB)225• The World Bank had also shown interest in partly financing this

programme, but its support was said to be conditional upon counterpart financing by

the Pakistan government and W APDA226• According to the Economic Affairs

Division, financing for the programme was also discussed directly with China, Saudi

Arabia, the United Arab Emirates and other friendly countries227•

In the future energy scenario, the Government aimed to use much more of its hydel

potential than was being used at that time.228 In 1992, out of a total generating

capacity of 9,293 MW, while 62.7% was thermal, only 35.9% was hydroelectric229•

However, the Government intended to pursue the swift development of the hydel

sector, tilting the country's energy mix in favour ofhydel, as compared to the existing

dominance by thermal.230 According to the Policy for Power Projects Year 2002,

Pakistan had planned to build and commission 12 large-scale hydel power plants,

besides other relatively smaller projects231. These are presented in Table 4.6 below:

224 Faruqui N. (2004}, "Responding to the Water Crisis in Pakistan", International Journal of Water Resources Development, 20(2): 177-192 225 AEDB (2005), Alternative Energy Development Board, "Power Sector Situation in Pakistan", [Online: Web] Accessed on 4 March 2007, URL: www.aedb.org/ 226 Nizamani, Ghulam Nabi (2006}, "Pakistan- Actions towards Biwako Plus Five", [Online: Web] Accessed on 12 February 2008, URL: http://www.worldenable.net/agents2006/paperpakistan.htm 227 WAPDA (2001}, Water and Power Development Authority, "WAPDA-Vision 2025", Accessed on 4 April, 2008, [Online: Web] URL: http://www.pakistaneconomist.com/issue200llissue31/i&e3.htm 228 Habib, Zaigham (2006). "Water management and Reservoirs in Pakistan", South Asian Journal, Vol. 11, Jan-Mar 2006 229 "Pakistan Energy'', no. 153. 230 Douggar, M.G. (1995), "The Potential of Hydro, Biogas and Solar Energy in Pakistan", International Energy Journal, 17(1) 231 Ali, no. 10

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Table 4.6: Hydropower Projects Between 2012 and 2020

Installed Capacity Name of Project

(MW) Commissioning Date

Neelum Jhelum, "AJK" 960 June 2010

Doyian, NA 425 June 2015

Kalabag 2400 Postponed until consensus

reached among all concerned

Koala Jhelum, "AJK" 740 June 2010

Munda Dam, NWFP 600 Dec 2015

SukiKinari 652 Dec 2015

Karrang, NWFP 454 Dec2020

Tarbela 15 16, NWFP 960 Dec 2008

Spath Gah, NWFP 851 Dec 2015

Basha, NA 3600 Dec 2012

Dasu (Indus) NA 2712 Dec 2015

Pathan (Indus) NA 1172 Dec 2015

Thakot (Indus) 1043 Dec 2015

Bungi (Indus) 1500 Dec 2015

ChorNallah 1500 Dec 2020

Source: Government of Pakistan (2002), Power Generation Policy 2002

Problems/Limitations in the Hydel Sector

The exploitation of the hydropower option has had its share of problems too. Most

importantly, since 1997, Pakistan has faced a severe shortage of water due to a cycle

of drought and reduced capacity of the country's two major reservoirs, Mangla and

Tarbela232•

232 Muneer and Asif, no. 180.

201

Secondly, there is fear that development in the hydel sector may take place at the cost

of sustainable development. For example, there is fear that this development may take

place at the cost of the environment. This is because of the harmful effects on the

Indus Delta system that may be caused by hydel projects. This can be gauged from the

fact that the reduced outflow to the delta had resulted in its visible degradation. At

same time the dammed rivers also lead to a four -fold reduction in the silt discharge

from an original annual discharge level of 100 million tons. The subsequent effects of

these were felt by the mangroves, which are a foundation of the Indus Delta

Ecosystem. It was estimated that for sustainable growth and maintenance of the Indus

Delta Ecosystem 34 MAF of water is required, which was 7 MAF more than the

inflows into the sea in 2003.233•

Thirdly, there was fear that the development of the hydel sector may take place at the

cost of social displacement as a huge number of people would be unsettled as a

result.234 Another problem was of financing the big hydel projects as the Government

lacked enough funds. The funding from international donors for such a project was a

difficult option to pursue, considering their commitment to facilitate investments in

private thermal based power plants. Furthermore, even if the government possessed

funds for such projects, massive amounts of money were also needed to be taken into

consideration in terms of resettlement compensation?35 Delayed decision on major

dams due to inability to integrate stakeholders was another problem 236 as was the

non-utilization of hydro potential on canals?37 Yet another limitation in hydel sector

development was the under capacity dispersal of Ghazi Brotha Hydro Power Plant

due to lack of transmission infrastructure, apart from the problems of project funding,

233 Shaheen Rafi Khan (2003), "The Case Against Kalabagh Dam", Kasier Bengali (ed.), The Politics of Managing Water, Islamabad: Sustainable Development Policy Institute and Karachi: Oxford University Press. 234 Moreira, Jose Roberto and Alan Douglas Poole (1993), "Hydropower and its Constraints", Johansson et. al.(ed.), Renewable Energy: Sources for Fuels and Electricity, London: Earth scan. 235 Ali, no. l 0 236 United Nations "Kalabagh Dam Project: Delay in Implementation", ESCAP Virtual Conference, [Online: Web] Accessed on 5 April, 2008 URL: http:/ /wwww. unescap. org/ drpad/vc/ conference/ ex _pk _57_ kdp .htm 237 Government of Pakistan, no. 60

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labour disputes and contractor payment238• Absence of indigenous design,

engineering, technology and manufacturing inputs was another constraint239.

Nuclear

Under the Energy Security Action Plan of 2005, Pakistan had full intentions of

developing its nuclear capacity, increasing the standard capacity of its nuclear power

programme from 300 MW to 600 MW and eventually taking it to 1000 MW in the

coming years.240 It included plans for lifting nuclear capacity to 8400 MWe, 900

MWe of this by 2015. Pakistan, with the aid of China, began work on a third nuclear

reactor at Chasma. The government also announced plans to build two further

Chinese reactors, of600 MWe each.241

Uranium was viewed as an extremely strategic energy resource in the Pakistani

nuclear programme. This is because one tonne o{ Uranium metal in electricity

production was equivalent to 10,000 TOE or 15,000 tonnes of Standard Coal or

21,000 tonnes ofThar Coal. For this reason, therefore, it was said that there was an in­

built energy security in a nuclear power plant242• In the last sixty years, in fact, only

25% of the favourable area for uranium in Pakistan has been explored, having

estimated reserves of more than 11 ,200 tonnes. The cost of mining Uranium in

Pakistan was comparable to international costs. The ECNEC approved a project worth

Rs. 723 million for exploration of Uranium during the next five years, i.e. till 2010. A

fresh core of a 300 MW Nuclear Power Plant (CHASNUPP-1) contained Uranium

238 "Ghazi Barotha Run-Of-River Hydroelectric Project, Pakistan" [Online: Web] Accessed on 5April 2008, URL: http://Www.Power-technology.com/projects/ghazil 239 Government of Pakistan (2005), Ministry of Planning and Development, Energy Security Action Plan 2005, [Online: Web] Accessed on 27 February 2008 URL: www.pakistan.gov.pklministries/planninganddevelopment-ministry/ annual%20plans/2006-07 /Chapter_ 6/Energy.pd 240 Daily Times, no. 11, Ali, no. 10 241 Asad Umar, (2007), "The Role of Private Sector in Pakistan's Energy Sector", Hathaway et. al. , no. 7 242 Government of Pakistan (2007), Ministry of Foreign Affairs, "Record of Press Briefing on 20 August, 2007 by Spokesperson", [Online: Web] Accessed on 31 June 2008, URL: http:/ /www.mofa.gov.pk/Spokesperson/2007 I Aug/Spokes_ 20 _ 08 _ 07 .htm

203

fuel (3.5% enriched) adequate for 3 years of electricity generation.243 Using

indigenous fuel (236 tons of Uranium), KANUPP generated electricity equivalent to

2.2 million TOE, since 1980. This involved two programmes of re-licensing to

complete safety upgrades. The plant was restarted and synchronised with the national

grid in December 2006 and given operating license by the Pakistani Nuclear

Regulatory Authority (PNRA) up to 90 Mwe for a period of two years, effective from

December 31, 2007.244

Problems/ Limitations in The Nuclear Option

It has been difficult for Pakistan to develop its nuclear option in the energy sector for

some salient reasons. Firstly, nuclear plants tended to be capital intensive and had

long gestation periods245• Thus, for instance, while the proposed CHASNUPP-2, a

replica of CHASNUPP-1, was to cost Rs. 52 billion or approximately US$ 900

million including a Chinese loan of Rs. 150 million, a coal or natural gas power plant

with three times the capacity of CHASNUPP-2 would require similar investment,

rendering the latter more cost-effective. Secondly, the nuclear power plants were to be

made mostly with the assistance of other nations or agencies, which would increase

dependence of Pakistan on them, which would go against the very policy of the

Energy Security Action Plan246• Thirdly, there were many security and safety

concerns attached to nuclear power plants247• Safe disposal of nuclear waste and risk

of potential accidents had become major issues. Compared to other cheaper options

243 Government of Pakistan (2005), Ministry of Planning and Development, Energy Security Action Plan 2005, [Online: Web Accessed on 7 March, 2008 URL: www.pakistan.gov.pk/ministries/planninganddevelopment-ministry/annual%20plans/2006-07 /Chapter_ 6/Energy.pd 244 P AEC, Pakistani Atomic Energy Commission "KANUPP The First CANDU Reactor to get License to Operate beyond its design life", [Online: Web] Accessed on 15 May 2008 URL: http://www. paec.gov. pk/paec-news.htm#p-j f08-news 15 245 International Atomic Energy Agency (I 993 ), IAEA "Financing Arrangements for Nuclear Power Projects n Developing Countries" [Online: Web) Accessed on 11 May 2008, URL: www.iaea.org/ 246 "Weapons of Mass Destruction (WMD): Pakistan Nuclear Weaporis", [Online: Web) Accessed on 12 May 2008, URL: www.globalsecurity.org 247 "Safety of Nuclear Power Reactors", [Online: Web] Accessed on 12 June 2008, URL: http://www. world-nuclear.org/info/inf06.html

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(coal and natural gas), nuclear energy option did not seem to be in the national

interest. Fourthly, Pakistan has also lacked development in nuclear technology for

power generation.

A research from SDPI, Pakistan, on Economics of nuclear energy in Pakistan showed

that nuclear energy was more expensive than conventional thermal energy. It said the

levelised cost of nuclear energy was 10.5 cents per unit compared to 8.2 cents per unit

for thermal energy. Nuclear energy, was, hence not an affordable option according to

some scholars248• The human cost of nuclear energy in a nuclear power plant were

also gauged to be high, as sometimes even safety measures could not rule out an

accident which would be fatal to human existence249•

Renewable Energy

Various global energy scenarios have suggested that renewable energy has immense

potential in the long run and could become the dominant source of energy in the

future, viewed beyond 205if50. The global move towards this had already begun in

the UN World Summit on Sustainable Development in Johannesburg in 2002,

followed by the converging of delegates from 154 nations for "Renewables 2004", a

conference held by Germany, where they passed a Political Declaration and an Action

Programme in favour of renewable energy51.

248 "Pakistan's Energy Future: Is Nuclear Energy the Answer?"(2004), SDPI Research and News Bulletin; SDC Special Bulletin, 11(6) [Online: Web] Accessed on 23 June 2008, URL: http://www.sdpi.org/help/research_ and_ news_ bulletin/Nov_ Dec_ 2004/pakistans _ energy.htm 249 "Pakistan's Energy Future: Is Nuclear Energy the Answer?"(2004), SDPI Research and News Bulletin; SDC Special Bulletin, 11(6) [Online: Web] Accessed on 23 June 2008, URL: http:/ /www.sdpi.org/help/research_ and_ news_ bulletin/Nov_ Dec_ 2004/pakistans _ energy.htm 250 Shell (2001) Energy Needs, Choices and Possibilities: Scenarios to 2050, Shell International Report, [Online: Web] Accessed on 25 May 2010, URL: sustainabilityreport.shell.com/2009/ .. ./download.php?file=shell_report _ 2001 WBGU, no. 35. 251 Scheer, Hermann (2007), Energy Autonomy: The Economic, Social and Technological Case for Renewable Energy, London: Earth scan

205

The following quote best explains the importance and value of renewable energy.

"The gradual shift taking place towards renewable sources of energy is sometimes

known as the phase of 'energy transition'. Along with this transition in energy,

transition will take place in economy and society. Renewable energy is the power of

choice. It works in rural and urban setting in centralised or decentralised systems.

Renewable energy development is a gradual process that unfolds with many small

investments. A mistake, today, does not foreclose another option tomorrow. Banking

on renewable energy and energy efficiency is fundamentally the most conservative

energy course we can take. Risks are minimised, options preserved." 252

While the above mentioned change towards renewable energy is taking place at a very

slow place, it is also accompanied by mistakes. However, its importance is being

increasingly recognised in today's world when fossil fuels, the cornerstone of the

global economy currently, are fast depleting and causing havoc in energy markets

across the world with grave repercussions for individual nations. This is true

especially, for developing nations like Pakistan, which are experiencing climbing

curves in terms of GDP and GNP but face a threat of economic slow down if timely

sources of energy are not discovered. In this context, Pakistan has seriously begun to

look towards renewable sources of energy to meet its growing requirement.

Developing countries such as Pakistan have an added attraction to use renewable

resources also because they are more economical. This gets even more highlit when

one looks into the additional costs of conventional sources in terms of the devastation

being caused to he environment and the depletion reserves of natural resources.

Renewable energy resources do not have such costs and have low gestation periods as

well, especially important to developing countries like Pakistan with rising energy

demand. 253•

252 Deudney, Daniel and Flavin Christopher (1983) Renewable Energy: The Power to Choose, A World Watch Institute Book, London: W.W. Norton and Co. 253 Dayal Maheshwar (1989) "Renewable Energy: Environment and Development". Delhi: Konark.

206

Taking this into account, the Government of Pakistan, decided in 2003 that by 2015,

ten percent, or 2700 MW, of all of its energy mix to comprise of renewable sources of

energy. For this purpose, it established the Alternative Energy Development Board

(AEDB) as the apex organization to coordinate renewable energy promotion, on the

basis of an ordinance promulgated by the President254• The AEDB was set up in the

Prime Minister's Secretariat and was to report directly to the prime minister. Various

initiatives were undertaken by the AEDB. Special importance was given to the

development of hydropower, wind power and solar power as this was considered to

have good potential in Pakistan.255 Hydropower and solar power provided one-fifth of

the world energy in 1983. Their potential was planned for exploitation in Pakistan as

well. In the late 1990s, around 400 villages are already benefiting from solar home

systems that have been financed through micro-finance256•

Wind power has also been proposed to be harnessed, considering the fact that more

than a 1000 kms. long coastline in the south and some places in the northern

mountainous areas provide an excellent resource of wind energy, that will serve both

for community and wind-farm purposes?57 Over 140 micro wind turbines of 500

Watts each have been operational in Sindh and Balochistan, providing electricity to

691 houses in eighteen (18) remote, off-grid villages. The Alternative Energy

Development Board (AEDB) was assigned by the Government of Pakistan with the

target of producing 700 MW of wind power by the year 2010 and 9700 MW by the

year 2030, through the private sect~r.258 In 2006, there were 84 IPPs in the country,

who were planning to install 50 MW wind farms each, on a "BOO" or "BOOT" basis,

under the "Policy for Development of Renewable Energy for Power Generation 2006"

254 Government Of Pakistan, Law, Justice And Human Rights Division Islamabad, 11th May, 2006, The Gazette of Pakistan, Islamabad, 13 May 2006, [Online: Web] Accessed on 15 May 2008, URL: http://www.aedb.org/ordinance.php 255 Douggar, M.G. (1995), "The Potential of Hydro, Biogas and Solar Energy in Pakistan", International Energy Journal, 17( 1) 256 Raja, I.A. (1996), Solar Energy Resources of Pakistan, Oxford Brookes University 257 Mirza, Umar K. et al. (2006), "Wind Energy Development in Pakistan", Renewable and Sustainable Energy Reviews, 11(9): 2179-2190. 258 "Wind Power Projects And The Role Of The Government",[Online:Web], Accessed on 10 November 2010, URL: www.ontario-sea.org/ .. ./27/1882_ wind __power_ in _Pakistan_&_ Govt-3.pdf

207

issued by the Government of Pakistan259• Also, for the indigenous production of

various components of wind turbines in Pakistan, Wind Turbine Manufacturing

Consortium (WTMC) was formed. The Board negotiated with international

companies to start micro wind turbine manufacturing and manufacturing of parts of

large wind turbines in this consortium260•

Plans for the development of bio-diesel were also launched261• A pilot project was

started to produce bio-diesel and..,gevelop a commercial programme. In addition, the

government of Pakistan was also able to put in place a number of market-based and

fiscal incentives for the development of renewable energi62• These included

accelerated depreciation for investors and low import duties and taxes for renewable

energy technologies already in place in Pakistan263• AEDB was also preparing several

additional mark~t-based incentives such as the introduction of tax holidays, further

reducing import duties on a greater range of technologies in order to attract

investments in renewable energies and establishing renewable energy manufacturing

facilities in Pakistan264• A cost-benefit analysis structure was planned by the AEDB,

which was to allow renewable energy to compete with conventional energy. To

address the energy shortage, and as part of its decentralization policy, the government

also delegated authority to the provinces to develop their own generating capacity of

up to 50 megawatts to meet their energy needs265• Installation of small-scale power

generation technologies located close to the load being served, or distributed

259 AEDB, Alternative Energy Development Board "Renewable Energy Sector", [Online: Web] Accessed on 5 Aprill 2008, URL: http://www.aedb.org/re_sector.php 260 AEDB, Alternative Energy Development Board "Resource Potential of Wind Project", [Online: Web] Accessed on 16 May 2008, URL: http://www.aedb.org/respotential_microwind.php 261 Mirza, Umar K. et al (2007), "An Overview of Biomass Energy Utilisation in Pakistan", Renewable and Sustainable Energy Reviews, 12(7): 1988-96. 262 Khanji, Harijan (2008), "Renewable Energy for Managing Energy Crisis in Pakistan", Communications in Computer and Information Science, Vol. 20:449-455. 263 Chaudhary, Ashraf M. et al (2009), "Renewable Energy Markets in Pakistan: Prospects and Challenges ",Renewable ad Sustainable Energy Reviews, 13(6-7): 1657-62. 264 Khan, Azam (2008),"Use of Renewable Energy Resources Stressed", The Nation, 11 December 2008, http://www.nation.com.pk 265 ADB, The Asian Development Bank, "Pakistan Renewable Energy Development: Sector Investment Programme", [Online: Web] Accessed on 23 March 2007, URL: http://adb-

• pakistanrenewableenergy.com/

208

generation, was also seen to have significant advantages as it would not only help

meet the power shortage, but also ensure greater power reliability and qualitl66•

The AEDB was also slotted to develop and implement off-grid electrification

programme of rural areas. Efforts were to be made to ensure the installation of 100

MW wind power at Kati Bander and Gharo Sindh. In addition under the remote

village electrification programme through alternative energy, 54,000 homes would be

lit by solar/wind/micro hydropower during the MTDF. AEDB was to also undertake a

comprehensive plan for the development of solar products like solar light, solar fans,

solar cookers and solar geysers through the participation of the private sector.267

In 2006, the Economic Coordination Committee (ECC), approved incentives for the

first ever-renewable energy in .order to meet future power needs. The Government

launched the "Policy for Development of Renewable Energy for Power Generation,

2006"268• This policy offered many fiscal and financial incentives to private, public­

private and public sector renewable energy power projects. Thus, the Government

decided to use all alternative energy sources to generate electricity to meet the

growing demands by 10% to 12% annualll69. The main incentives offered in this

regard were many. Firstly, a waiver of customs duty and sales tax on import of

h. . f I . f d 27o mac mery eqmpment or spare parts o a temahve sources o energy was rna e .

Secondly, for this category of energy, exemption from income tax including tum over

rate tax and withholding tax on imports repatriation of equity along with dividends

was declared271• Thirdly, permission was given for raising local and foreign

266 Pandey Bikash (2007), "Clean Energy Options for Rural Pakistan: Lessons from South Asia", Hathaway et. AI "Fuelling the Future: Meeting Pakistan's Energy Needs", Woodrow Wilson International Centre for Scholars: Washington D.C. 267 "'Energy Security", no. 99. 268 Government of Pakistan (2006), Ministry of Water and Power, "Development of Renewable Energy for Power Generation", [Online: Web] Accessed on 5 April 2008, URL: www.pakistan.gov.pk/ministries/water-power-ministry/ media/PakistanREDevelopmentPolicy­Dec092006.pd 269 Akhter P. (2001), "Renewable Energy Technology-An Energy-Solution For Long-Term Sustainable Development", Science Technology and Development, 20(4): 25-35. 270 World Bank Discussion Paper (1997), "Financial Incentives for Renewable Energy Development", Proceedings of an International Workshop, 17-21 February 1997, Amsterdam, Netherlands 271 Chaudhary, AshrafM. et al, no. 263.

209

finance272• Fourthly, penmsswn for issuing corporate registered bonds, shares at

discounted prices and purchase of securities was given for this sector73• The four

categories of private sector to have been included within this were independent power

projects for supply of power to grids only, self-use and sale to utility projects, captive

power projects, small stand alone projects which will not require tariff determination

from NEPRA274• In the immediate term (Jan 2006 to Dec.2007), this policy intended

to create awareness among the stakeholders of the need to develop renewable energy.

It was to identify barriers for development, study ways in which it was developed in

other parts of the world. In the medium term (Jan 2008 to Dec. 2010) it was to see the

establishment and consolidation of renewable energy-specific marketing and

financing mechanisms, and a growing indigenous manufacturing and technical

capability. The long term (2011 onwards) was dedicated to long term planning.275

Renewable sources of energy have many advantages that Pakistan wants to exploit.

Firstly, they are available readily and indigenously and not only do they save foreign

exchange but also generate local employment.276 Secondly, they can be easily

established in remote and rural areas where the cost of transmitting electrical power

and transporting conventional fuels are high 277. Thirdly, they are much safer than

other sources of energy such as nuclear energy that has the potential of causing

extreme social and environmental threats and more environmentally friendly than

fossil fuels.Z78

272 Goswami Y. (2004), "Transitioning to a Renewable Energy Future", Refocus, 5(2): 60. 273 World Bank (1980), "Pakistan: Issues and Options in the Energy Sector", 5 June 1980, [Online: Web] Accessed on 12 September 2008, URL: 274 [Online: Web] Accessed on 23 August 2008, URL: http://www.aedb.org 275 Khan, Shazia Mahmood ( 2007), "Global Renewable/ Alternative Energy Scenario and Pakistan" Defence Journal, January 2007 276 Rai, G.D. (2006), Energy Sources, Delhi: Khanna Publishers. 277 National Academy of Sciences (1976), Energy for Rural Development: Renewable Resources and Alternative Technologies for Developing Countries, Agency of International Development: Washington D.C. 278 Allen, et. al, no. 124

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Problems/Limitations of Renewable Energy

There are several barriers to the development and use of renewable energy in Pakistan

that have slowed down their growth process in the country. The barriers to

development of renewable energy can be broadly classified as policy and regulatory

barriers, institutional barriers, fiscal and financial barriers, market-related barriers,

technological barriers and information and social barriers279• Some of these are

discussed below.

A lacuna in the use of renewable sources of energy was centred on the disbursement

of equal opportunities to renewable energy as enjoyed by conventional energy

(primarily thermal power from oil or coal). Such was indicated by international

experience and unless the former are given the same opportuQ.ities as the latter, it is

doubtful that the government will be able to meet its goal of deriving 10 percent of its

energy mix from renewable energy sources by 2015. This was made apparent by the

fact that there have been hidden subsidies on the fuel costs for conventional power

generation that allowed for lower generation costs. In addition, the costs of

environmental externalities from pollution were genenilly not included in the pricing

of power from conventional power generation280•

Another problem is that although there has been development in the use of alternative

energy in Pakistan, it has not been enough due to various constraints?81 Wind energy

has not been able to be utilized as yet due to lack of data on wind energy.282

Moreover, renewable energy systems are extremely capital intensive and this may

279 Mirza, Umar K. et al (2009), "Identifying and Addressing Barriers to Renewable Energy Development in Pakistan", Renewable and Sustainable Energy Reviews, 13(4): 927-931. 280 Pandey Bikash, no. 266. 281 Government of Pakistan (2005), Ministry of Planning and Development, , Energy St;curity Action Plan 2005, [Online: Web] Accessed on 27 February 20:08 URL: www.pakistan.gov.pk/ministries/planninganddevelopment-ministry/ annua1%2'0plans/2006-07 /Chapter_ 6/Energy.pd 282 Chaudhary, Ashraf M. et al (2009), "Renewable Energy Markets in Pakistan: Prospects and Challenges ",Renewable ad Sustainable Energy Reviews, 13(6-7): 1657-62.

211

place a strain on the existing capital market, and will require a major effort on the part

of the government to mobilize funds283

Another problem is related to the integration of renewable resources into the national

energy grids284• The problem occurs because the characteristics of the different

renewable resources are different, being site-specific and resource specific285• The

underlying potential of the different renewable resources is of two types: where the

pattern of electricity generation can be controlled (e.g. for landfill gas, biomass and

hydro) and where it cannot be controlled, because the pattern of electricity generation

is dependent on external factors (e.g. for wind, wave, tidal and solar resources

dependent on the speed of the wind, the height and period of the waves and the

velocity of the tidal current etc.)286• The capacities of both are different, that of the

later category being variable capacity. These different characteristics have to b~ taken

into account by the national electricity grid 287•

Pakistan's Energy Problem as a Social Issue

A socio-economic problem related to energy in Pakistan has been the unbalanced

relationship between the economic status of the majority of the population i.e. rural

population and the sources of energy promoted by the government. This is connected

to the problem of poverty. A huge proportion of the population of Pakistan, mainly

the rural poor, lacks access to the modem energy sources, such as electricity and gas.

As a result, they have continued to use traditional, though inefficient sources of fuel

such as fuel wood and biomass. In fact, estimates have pointed out that Pakistan was

283 Hagel, John III (1976), Alternative Energy Strategies: Constraints and Opportunities, New York: Praeger. 284 Pakistan: Energy and Carbon Intensity", [Online: Web] Accessed on 4 March 2008, URL: http://kitakyushu.iges.or.jp/docs/mtgs/seminars/theme/uaqm!Presentations/Karachi.doc. 285 "World Energy Council-Renewable Energy Handbooks" [Online: Web] Accessed on 5 May 2008, URL: www.scribd.com 286 Boyle, Godfrey (ed.) (2007), Renewable Electricity and the Grid: The Challenge of Variability, Earth scan: London. 287 Sinden, Graham (2007) "Renewable Energy Characteristics and Network Integration" , Boyle, no. 286.

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using wood much beyond permissible limits, which could have created ecological

stresses and health problems as well in the present and may, in the future288• The rural

population waste more time in obtaining these sources of energy than the well to do a

(who use modem sources of energy), and infect expend a larger portion of their

income on energy than the well to do because firstly their incomes are relatively

smaller and secondly because the fuels they use are more inefficient289• This group pf

population's lack of access to modern energy sources has been due to such barriers

like lack of access to the energy network and affordability concerns.

Furthermore, while rural electrification in Pakistan has been increasing, it has been

doing so incrementally, and not so swiftly to the rural areas which are located in the

interiors of the country as there has always been a lack of energy infrastructure in

these places290• Gas distribution networks have been more concentrated in the cities

and have not been able to reach the rural areas291• This logistical problem is

compounded by the social problem of rampant poverty. Thus, even if electricity did

reach some villages, the rural poor have been unable to afford the high connection

costs to grid-supplied services. Even while some in the rural areas were able to afford

electricity, they wanted to buy it only if it could reap them a dividend by investing it

in an income-generating activity, which, however, was missing in the rural areas, a

deficiency in the development system ofPakistan292.

Moreover, the government failed to give any importance to traditional fuels even

though they comprise the most important source of energy in Pakistan in rural

households. In the 1990s, about 22% of total energy produced in Pakistan was

288 Parikh, Jyoti K. (1980), Energy Systems and Development: Constraints, Demand and Supply of Energy for Developing Regions, Delhi: Oxford University Press. 289 Qureshi, Sabira (2007), "Energy, Poverty Reduction and Equitable Development in Pakistan", Hathaway et. al. "Fuelling the Future: Meeting Pakistan's Energy Needs", Woodrow Wilson International Centre for Scholars: Washington D.C 290 Kapur, J. C. (1989), "Renewable Energy for Rural Development", Kishore V.V.N. and N.K. Bansal (ed.) Renewable Energy for Rural Development: Proceedings of the National Solar Energy Convention, Hyderabad, India. December 1-3, 1988, Delhi: Tata Me Graw Hill. 291 Pandey Bikash (2007), "Clean Energy Options for Rural Pakistan: Lessons from South Asia", Hathaway et.al "Fuelling the Future: Meeting Pakistan's Energy Needs", Woodrow Wilson International Centre for Scholars: Washington D.C. 292 Qureshi, no. 41.

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achieved from traditional fuels293• However, the Government's emphasis has been

increasingly on developing commercial, formal and large-scale sectors focusing on

economic growth. This is because looking at these sectors is important from a point of

view that focuses on increasing economic growth in the country but not from a rural

point of view and their consumption of energy94• It has been proposed by many

scholars that the Government in this aspect of rural electrification ought to give

importance to solar and hydel energy, for not only are they renewable but also easily

available in rural areas. For, energy is needed in rural areas for two main purposes: for

electrification and as fuel for cooking and heating, and without proper availability of

energy, the problem of poverty, too, cannot be eradicated295• The problem is further

compounded due to insufficient knowledge about rural areas, for unless proper

knowledge of rural areas is had, it s not possible to implement new technologies there

successfully96• Sustainable development of rural areas can also be ensuring with

adequate knowledge of rural areas297• This is inclusive of such factor as the

development of those sources of energy that are already prevalent in rural areas like

biogas and solar and hydro and also stresses on decentralisation of rural electrification

to make it a sustainable policy option in rural areas298•

There is a connection between poverty and energy subsidies too, that needs to be

discussed. Even though the Government offers subsidies in energy these are only in

such sources of energy as oil, gas and power. These subsidies as a result benefit only

the well to do and the middle class and nit the rural poor, who do not use thee sources

293 U.N. (1992) United Nations Energy Statistics 1992 New York: United Nations. 294 U.N. (2007) United Nations, "Energy and Poverty in Pakistan: Challenges and the Way Forward", New York: United Nations Development Programme. 295 Hydrocarbon Development Institute of Pakistan, Kazmi, Zawahar Haider, "Accessibility and Availability of Energy for Socio-Economic Development of Pakistan: Self-Sufficiency is the Only Way Out", [Online: Web] Accessed on 6 April 2008 URL: http://217.206.197.194:8190/wec­geis/congress/papers/kazmiz0904ys.PDF, Rao, Hemlata (1990), Rural Energy Crisis: A Diagnostic Analysis, New Delhi: Ashish Publishing House. 296 Barnett, Andrew (1982), "Rural Energy Needs and the Assessment of Technical Solutions", Barnett, Andrew et. AI. Rural Energy and the Rural World, London; A Wheaton, Kaushik, Sushma and Tej Verma (1996) Rural Energy Management, New Delhi: Elegant Publishers. 297 Dua P.P. and S.B. Rao (1996) "Sustainable Energy Systems for Rural Areas", Asia Energy Vision 2020:Sustainable Energy Supply, International Seminar, New Delhi: Concept Publishing Company 298 Anand, I.S. and S.N. Karma (1996) "Decentralised Rural Electrification for Sustainable Long Term Policy Option", Asia Energy Vision 2020:Sustainable Energy Supply, International Seminar, New Delhi: Concept Publishing Company.

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of energy at all and therefore, do not benefit from these subsidies. On the other hand,

the Government does not offer subsidies on traditional fuels. Thus, with enlightened

subsidy planning and greater access of modem sources of energy to rural areas, the

latter can be spread to the rural areas as well.

Thus, the gradual eradication of poverty needs to roped into the larger energy game

plan, in the form of a high-priority development issue which will in tum help towards

the aim of energy self-sufficiency for one and all in the country. Mutually enforcing

policies between income generation and energy availability need to be followed,

keeping the preferences of all social sectors such as women and backward classes into

account, taking the aspect of human development into account299. This aspect of the

link between development and security, energy security in this case, is an idea which

was last mooted by Kofi Anan, the Secretary-General of the United Nations in 2005,

when he spoke of the 'Peace-building Commission', an idea that found acceptance not

only in the developed but also the developing countries300•

Environmental Issues Related to Energy

The major energy related environmental concerns in Pakistan include concern for the

degradation of the environment in major cities due to increasing emission of polluting

substances like Carbon Monoxide and Sulphur Dioxide from large industries,

transport vehicles etc. 301, use of outdated technology and lack of pollution control

devices in major energy consuming facilities, general adverse environmental impact

due to large hydro dams, e.g. submergence of land associated with dislocation of

299 World Bank (2002), "Poverty In Pakistan - Vulnerabilities, Social Caps, And Rural Dynamics", [Online: Web] Accessed on 5 April, 2008 URL: http://earthtrends. wri.org/povlinks/poverty _resource.php?poverty _resource_ ID=2165, Qureshi, Sabira (2007), "Energy, Poverty Reduction and Equitable Development in Pakistan", Hathaway et. AI "Fuelling the Future: Meeting Pakistan's Energy Needs", Woodrow Wilson International Centre for Scholars: Washington D.C. 300 Dodds, Felix and Tim Pippard (2007), "Human and Environmental Security: An Agenda for Change", VA: Earth scan 301 Dougar, Mohammed G. (1995), "Energy Situation in Pakistan: Options and Issues", Renewable Energy, 6(2): 151-157.

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populations and deforestation and loss of soil fertility due to large-scale use of fuel

wood and other commercial fuels. Environmental degradation is likely to result from

the expected large-scale future use of indigenous poor quality coal with high sulphur

content, apart from the fact that its usability becomes extremely low302•

A major challenge that faces Pakistan in providing itself with energy security is to

ensure sustainable development at the same time as well303• Environmental

considerations, in this regard, become very important while evaluating which is the

best form and source of energy supply in Pakistan. This is because different sources

have differing but certain environment related detrimental effects that are crucial to

forming a long-term energy policy for Pakistan. Oil related problems include oil spills

resulting from offshore oil development304. Coalmines contribute to acid drainage that

pollutes water supplies305 and the combustion of low-quality coal that is available in

Pakistan presents a serious air pollution hazard, apart from other major problems like

coal mine worker health and safety, reclamation of arid lands from surface mining,

toxic trace elements in coal combustion, acid fallout and global effects of Carbon

Dioxide in the atmosphere306• A source of air pollution in Pakistan is due to the

combustion ofbio-fuels in residential stoves, a rural source of fuel. Another cause of

concern is the irresponsible deforestation taking place in the hilly areas that is leading

to siltation problems in the rivers that are a source of electricity generation. There is

linkage, therefore, between the problems of paucity of fuel wood for energy with that

of difficulties in hydroelectric power generation307•

302 Yannacone, Victor John Jr. (1974), Energy Crisis: Danger and Opposition, New York: West Publishing Company. 303 Siddiqi, no. 5. 304 Burger, Joanna (1997), Oil Spills, New Jersey: Rutgers University Press, Conan G. (1982), "The Long -Term Effects of the Amoco Cadiz Oil Spill", Philosophical Transactions of the Royal Society of London. Series B, Biological Sciences, 297(1087): 323-331. 305 Likens, Gene E. and Herbert F. Bormann (1974), "Acid Rain: A Serious Regional Environmental Problem", Science, 184(4142): 1176-1179. 306 Shy, Carl M. (1979), "Toxic Substances from Coal Energy: An Overview", Environmental Health Perspectives, 32: 291-295. 307 Dunn, Karen Turner (1991), "Pakistan's Energy Position: Problems and Prospects", Asian Sun'ey, 31(12): 1197.

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The direct environmental impact that stems from the energy sector activities and

emissions are varied. They range from land disturbance, displacement of people,

habitual destruction, erosion and watershed disturbance, water pollution, loss of

organic matter and air pollution. The most worrying, is air pollution, which is causing

adverse environmental changes globally.

Energy use and its further production needs to take place keeping in mind the fact that

environmental degradation does not take place. To ensure the sustainable

development of the economy, environmental degradation should not increase with

time but be reduced or at least remain constant. This is because if it increases, it

means that Pakistan is moving away from the very goal of sustainability, while if it

decreases, it means that the country is moving closer towards it. It has been seen by a

study that in fact, 1% increase in GDP growth leads to 0.84% increase in growth rate

of carbon dioxide emissions, and an increase of 1% in the energy intensity growth rate

causes almost 0.24% increases in growth rate of carbon Dioxide emissions. This

indicates that in Pakistan, the process of economic development is dependent on the

level of energy use308•

While on one hand, there exists the view that Pakistan does not contribute

significantly to environmental pollution on the global level because it is an "energy

deficient" nation, on the other hand, it is also an "energy profligate"309 that

experiences high "energy intensity" levels that show basically that the use of energy

in Pakistan is extremely inefficient310• This has adverse environmental implications at

the national level. A few basic reasons contribute towards this inefficient use of

energy.311 They include the transmission and distribution losses in power distribution

308 Alam et.al (2007), "Sustainable Development In Pakistan In The Context Of Energy Consumption Demand And Environmental Degradation", Journal of Asian Economics, I8(5): 825-837. "

309 Government of Pakistan, Environment Division, "National Conservation Strategy", [Online: Web] Accessed on 22 June 2008, URL: http://www.pakistan.gov.pk/divisions/environment­divisionlmedia/ncs.pdf 310 "Pakistan: Country Analysis Briefs", [Online: Web] Accessed on II July 2008, URL: http:/ /www.eia.doe.gov/ 311 Khan, Rafi Shahrukh (2000), 50 Years ofPak Economy, Karachi: Oxford University Press.

217

(an average 25 % since the 1980si12, fuel price subsidies on diesel, which lead to

more use of this hydrocarbon causing pollution, rendering it more popular to other

non-polluting sources of energy like renewable fuels or natural gas313, use of high lead

content fuel31\ an ageing vehicle fleet (50% over ten years old) and which is

primarily diesel powered (75%)315, tariff concessions on imported second-hand

machinery embedded in overall industrial production, 316 fuel switching trends where

oil has become more popular than biomass and natural gas. This is also the case with

power generation with thermal power option leaning as heavily towards oil than on

natural gas. Oil causes more pollution as compared to natural gas317• Lastly, future

scenarios envisage major investments from the private sector. The lacuna is that these

investments focus on imported low quality furnace oil and high-sulphur content Thar

coal reserves as the primary two sources offuee18•

Ii is being increasingly recognised today that with "energy gaps" expanding at such a

furious pace, another alternative to be explored in order to close them is the policy of

"energy conservation"319• In order to promote the policy of energy conservation, the

government had set up the National Energy Conservation Centre (ENERCON) in

1986320• This organisation is responsible for the planning and coordination of

activities related to energy conservation and improvement of energy efficiency in all

sectors of the national economy. Apart from this, the work profile of ENERCON

includes providing technical support to various energy consumers, manufacturers,

312 "Transmission and Distribution Losses: Power'', [Online: Web] Accessed on 12 January 2008, URL: http://www.teriin.org/upfiles//pub/papers/ft33.pdf. 313 Khwaja, Mahmood A. and Shaheen Rafi Khan (2005), "Air Pollution: Key Environmental Issues in Pakistan", SDPI Research and News Bulletin, 11(2-5) 314 Parikh, Pravin P. et.al. (2004), "Lead Content of Petrol and Diesel and its Assessment in an Urban Environment", Environmental Monitoring and Assessment, 74(3): 255-62. 315 Bhutto, Abdul Waheed (2007), "Reducing Vehicle Emissions in Big Cities", Dawn, 12 March 2007, [Online: Web] Accessed on, 12 October 2008 URL: http://www.dawn.com/2007/03/12/ebr9.htm 316 (CAl-Asia) Centre (2006), Asian Development Bank and the Clean Air Initiative for Asian Cities "Pakistan: Country Synthesis Report on Air Quality Management 317 EIA (2006), Energy Information Administration "Country Analysis Briefs: South Asia Overview", http://www.eia.doe.gov/emeu/cabs/South _ Asia/Full.html 318 Shah, Marshuk Ali (2002), "Private Sector Investment in the Energy Sector: Case of Pakistan", Karachi: Asian Development Bank. 319 Beg D. and J.R. Armstrong (1989), "Energy conservation in Pakistan: a unified approach", Power Engineering Journal, 3 (6): 337- 343. 320 Government ofPakistan, no. 121

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public agencies etc. in the form of energy audits, demonstration programmes,

feasibility studies or simply rendering expert advise on energy conservation321• The

specific measures envisaged by the ENERCON were for the industry, buildings,

agriculture, transport and power.322 For the industry, they included technical

services323 comprising (a) boiler/furnace tune-up ; (b) steam system survey; and (c)

electrical system survey, each leading to an average efficiency improvement of 5 to

8% and a demonstration project to illustrate energy saving attainable through the use

of electronic-combustion-analysis technology, waste-heat-recovery systems, burner

control systems, energy accounting systems, etc324• For buildings, the measures

included retrofitting of existing buildings325 and improving the design of new

buildings, taking into account recommended specifications of the National Energy

Conservation Building Code326•

For agriculture, the measures included retrofitting of tube wells327 and effeciency

improvement of tractors through dissemination of proper information to the

farmers. 328 For Transport, the measures included autoengine tune-ups with the help of

electronic engine analysers329 and the use of CNG as a motor fuee30. For Power, the

steps formed were reduction of transmission and distribution losses through the

321 Noman, Omar (2006), "The Environment and Economic Policy Trends in Pakistan", Journal of International Development, 5(2): 225-235. 322 Dougar, no. 301.. 323 Yang, M. and P. Rumsey (1994), "Energy Conservation in Typical Asian Countries", Energy Sources, Part A: Recovery, Utilization, and Environmental Effects, 19(5): 507-521. 324 http://www.enercon.gov.pk/ 325 Tahir, Pervez (2007), "Energy Waste and Efficiency'', 13 August 2007, Dawn, [Online: Web] Accessed on 13 November 2008, URL: http://www.dawn.com 326 ''National Conservation Strategy'' [Online: Web] Accessed on 3 August 2007, URL: http://www.pakistan.gov.pk/divisions/environment-division/media!ncs.pdf. 327 Khan S. and P.M. Moshabbir (1994), "Retrofit Measures For Improvement In Farmer Operated Tube wells In Pakistan", Expert Consultation of the Asian Network on Water Lifting Devices for Irrigation, 27 Sep- 1 Oct 1993, Bangkok, Thailand. 328 Beg, D. and J.R. Armstrong (1989}, "Energy Conservation in Pakistan: A Unified Approach", Power Engineering Journal, 3(6): 337-343. 329 Halsnaes, Kirsten (2001}, "Transport and the Global Environment: Accounting for GHG Reductions in Policy Analysis", Developed by UNEP Collaborating Centre on Energy and Environment, [Online: Web] Accessed on 17 May 2008, URL: www. uneprisoe.org/UcceeNews/NovemberO 1.htm 330 [Online: Web] Accessed on 22 January 2008, URL: www.cng.com.pk

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rehabilitation of equipment and improved load management measures331 and

appropriate tariff and non-tariff measures leading to overall energy conservation in

the power sector and the reduction of peak demand332•

It was estimated by ENERCON that Pakistan could save up to 250, 000 toe per annum

or in financial terms, up to Rs. 4 billion each year through energy conversion. In this

respect, the MTDF paid specific attention to programmes having primary focus on

identification, demonstration, data gathering and construction of information systems,

creating awareness and education and system implementation, low-cost and medium

cost measures to achieve energy conservation333•

331 ADB (2006), Asian Development Bank Technical Assistance Report, "Islamic Republic of Pakistan: Preparing the Power Distribution Enhancement Multitranche Financing Facility", (Financed by the Japan Special Fund) Technical Assistance Report, [Online: Web] Accessed on 23 May 2007, URL: www.adb.org/ 332 Siddiqui, R. (2004), "Energy and Economic Growth in Pakistan", Pakistan Development Review, 43(2): 175-200. 333 "Energy Security", no. 99.

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