Pakistan Energy Crisis: An Overview

Contents Power Sector Highlights Pakistan Energy Stats Causes of Power Crisis Circular Debt Issue GoP’s Initiatives for the Power Sector/Sectoral Recommendations VTT’s brief Portfolio

The Power sector was restructured in 1998 with the creation of PEPCO (Pakistan Electric Power Company)… Water & Power Development Authority’s (WAPDA) has been structured into distinct corporate entities comprising of 4 GENCOs, 10 DISCOs and one TransCO (NTDC). These 10 DISCOs are responsible for distribution to the end users. KESC meets its overall demand with its own generation plus purchase from NTDC, IPPs and from Karachi Nuclear Power Plant. The Current structure of the power sector is: Energy Sources Brief Description Thermal Thermal power generation stands at 8,300MW but the thermal plants have low conversion efficiencies and are expensive to maintain/operate. Most of the thermal power plants installed by IPPs, use furnace oil which has become very expensive over the recent past. Hydro Power Only 34 % of total electricity generation is achieved thru hydro power. Currently we are producing 6555 MW against the potential of 41000 to 45000 MW Wind Pakistan has a potential of producing wind energy ranging from 10000 MW to 50000 MW, yet power generation through wind is in initial stages in Pakistan and currently only a plant of 06 MW capacity has been installed in first phase in Jhampir by a Turkish company and 50 MW will be added shortly. Solar Pakistan has a potential of more than 100,000 MW from solar energy. Building of solar power plants is underway in Kashmir, Punjab, Sindh and Balochistan. Agricultural biomass /Biodiesel Pakistan has planned to generate 10 MW of electricity from municipal waste in Karachi followed by similar projects in twenty cities of the country Nuclear Pakistan’s nuclear power generation has a capacity of 425 MW, but there are plans to increase this capacity substantially. NATIONAL TRANSMISSION & DESPATCH COMPANY Source: An Overview of Electricity Sector In Pakistan, Islamabad chamber of commerce & industry Key Abbreviations: GENCO ( Generation Companies DISCOs ( Distribution Companies) and IPPs(Independent Power Plants)

Power Generation Statistics… Thermal Power Hydro Power Nuclear Power Power Producer Power Station Installed Capacity WAPDA Thermal Power Station, Muzaffargarh 1350 MW Thermal Power Station, Guddu 1655 MW Thermal Power Station, Jamshoro 850 MW Thermal Power Station, Larkana 150 MW Thermal Power Station, Quetta 35 MW Thermal Power Station, Pasni 17 MW KESC Thermal Power Station, Korangi 316 MW Thermal Power Station, Bin Qasim 1260 MW IPP Hub Power Project 1292 MW AES Lalpir Ltd, Mahmood Kot Muzaffargar 362 MW AES Pak Gen, Mahmood Kot Muzaffargar 365 MW Altern Energy Ltd, Attock 29 MW Fauji Kabirwala Power Company, Khanewal 157 MW Gul Ahmad Energy Ltd, Korangi 136 MW Habibullah Coastal Power Limited 140 MW Japan Power Generation, Lahore 120 MW Kohenoor Energy Limited, Lahore 131 MW Liberty Power Limited, Ghotki 232 MW Rousch Power, Khanewal 412 MW Saba Power Company, Sheikhupura 114 MW Southern Electric Power Company Limited, Raiwind 110 MW Tapal Energy Limited, Karachi 126 MW Uch Power Limited, Dera Murad Jamali, Nasirabad 586 MW Attock Gen Limited, Morgah Rawalpindi 165 MW Atlas Power, Sheikhupura 225 MW Engro Energy Limited, Karachi —– MW   Kot Addu Power Company Limited (Privatized) 1638 MW Saif Power Plant Qadirabad, Sahiwal Sitara Energy 80 MW Nishat Chunian Power 200 MW Nishat Power Limited Power Producer Power Station Installed Capacity WAPDA Tarbela 3478 MW Mangla 1000 MW Ghazi – Barotha 1450 MW Warsak 243 MW Chashma 184 MW Dargai 20 MW Rasul 22 MW Shadi-Waal 18 MW Nandi pur 14 MW Kurram Garhi 4 MW Renala 1 MW Chitral Jagran (AK) 30 MW Khankhwar 72 MW AllaiKhwar 121 MW Future Projects Kalabagh 3800MW Bhasha 4600mw Bunji 5400MW Dasu Power Producer Power Station Installed Capacity PAEC KANUPP 137 MW CHASNUPP 300 MW KHUSHAB 50 MW Steam Power WAPDA Steam Power Station, Faisalabad 132 MW Wind Power FFC Energy Jhimpir 6 MW Solar Power Gas Building of solar power plants is underway in Kashmir, Punjab, Sindh and Balochistan. WAPDA Gas Turbine Power Station, Shahdra 59 MW Gas Turbine Power Station, Faisalabad 244 MW Gas Power Station, Multan 195 MW Gas Turbine Power Station, Kotri 174 MW Gas Turbine Power Station, Panjgur 39 MW KESC Gas Turbine Power Station, Korangi 80 MW Gas Turbine Power Station, SITE 100 MW Source: PPIB, Ministry of Water & Power, Alternate Energy development board

Due to rising demand, power infrastructure issues, and poor governance severe electricity shortages have ensued … Power outages have led to widespread rolling blackouts that have paralyzed industry and led to major civil unrest. As of June 2013, the electricity demand stood at about 11,000MW against generation of about 8,000MW. As a result, the utilities were resorting to about 10 hours of load-shedding per day across the country. This acute energy crises in Pakistan has its roots in the following causes, namely; Historic Demand and Supply situation in Pakistan Lack of Integrated Energy Planning & Demand Forecasting and absence of central & focused entity responsible for the Energy Sector Circular Debt. Imbalanced Energy Mix with heavy reliance on gas (47.5%) and Oil (30.5%) (72% imported) Non-utilization of vast indigenous resources of Thar Coal and Hydel potential Lack of effective project structuring, planning and implementation of identified and viable projects Transmission, distribution loses/theft Inadequate revenue collection by DISCOs Crisis having direct impact on 48.4% decrease in FDI as compare to last year Closure of Industries resulting in Unemployment (According to the labor department sources, approx. 800,000 labors have lost their jobs ) Agriculture land irrigation Household s, schools and hospitals ROOTS OF PAKISTAN’S ENERGY CRISIS Source: http://en.wikipedia.org/wiki/Energy_policy_of_Pakistan The Cause and Impacts of power sector circular debt in Pakistan – Planning Commission/USAID ICCI Electricity Report A NEW ENERGY MIX FOR PAKISTAN-EMR Consult

Circular Debt Primary Reasons One of the foremost reasons for Pakistan’s Energy crises is the Circular Debt Issue that needs immediate remedies… Primary Causes 2010 (Billion Rs.) 2011 (Billion Rs.) 2012 (Billion Rs.) Reserve Debt (start of year) 235.65 365.66 537.53 Non-Collection of DICSOs Receivables from: Federal Govt. 1.79 1.57 0.19 FATA (78.34) 4.30 13.42 Provincial Govts. 16.72 36.07 15.84 AJK Govt. 2.00 5.50 6.05 Tube wells (Agri) 3.46 (3.68) (3.12) Private Consumers 25.59 39.29 54.55 KESC 4.04 (1.79) 13.78 Total Non-collection (24.74) 81.26 100.69 Tariff & Subsidy Issues 154.75 90.62 234.18 Total Circular Debt 872.41 Circular Debt is the amount of cash shortfall within the Central Power Purchasing Agency (CPPA) that it is unable to pay to the power supply companies. Circular Debt Primary Reasons Result of the difference between the actual cost of providing electricity in relation to revenues realized by the power distribution companies (DISCOs) Insufficient payments by DISCOs to CPPA due to poor revenue collection/governance Delays in tariff determination & fuel price fixation Delayed payment by the Ministry of Finance Transmission & distribution losses Stay orders granted by courts on fuel price adjustments charges Unfavorable generation mix of the GENCOs GOPs neglect in promoting demand-supply management, energy efficiency & renewable energy resources Improper payment arrears settlement and the need for enforceable authority of CPPA to collect due payments from DISCOs Share of Increase in Circular Debt - FY2011-12 Source: PEPCO DISCOs Performance Stats Report 2012, Data from MoWP , USAID PDP Analysis

Distribution companies are facing line losses due to multiple reasons, but electricity theft and non-payments by the consumers are burning issues… Pakistan lost Rs. 90 billion during the last five years in electricity theft and line losses DISCOS (Losses/Theft) Billion (PKR) FESCO 0.6 GEPCO 0.360 LESCO 2.35 MEPCO 0.280 SEPCO 3.6 HESCO 7.47 PEPCO 16.17 KESCO 59 Pak-UK Chamber of Commerce & Industry President has urged upon the authorities to reduce 44 per cent losses and thefts in the electricity being produced in the country.  Rs 360bn receivables strategy is required by PEPCO: More than Rs 360 billion became overdue towards public holding offices of central and provincial governments along with local power consumers, which created hurdles in minimizing the circular debt volume of the power sector. Source: http://freepdfdb.com/pdf/country-report-on-energy-security-amp-power-crisis-68585068.html ICCI Electricity Report The News, Daily times, Nation

Pakistan is one of the emerging economies of South Asia, where the government has declared the Power Sector as its top priority of investment… The Government of Pakistan is taking all the necessary measures to build a more conducive environment, to resolve issues as quickly as possible. Long term planning and goals must be focused towards streamlining the foreign policy according to the country’s economic and energy needs. Improving and increasing ties with future energy rich countries must not be neglected. Electricity Agreements / Prospects with Other Countries Brief details China Ongoing projects include Karot, Taunsa, Kohala and Bunji hydro-power Projects China has offered help in the construction of 50 MW wind power project in Jhampir (Sindh) that is to be completed in 2012 Moreover, China has planned to invest in 300 MW solar power projects in Pakistan. India India has offered to provide Pakistan with 5,000 megawatt electricity to fulfill its energy requirements on an urgent basis regularly which could be transmitted through Punjab. Iran 100 MW import project have been finalized and are ready for groundbreaking. Pakistan and Iran would move forward on import of 1,000 MW power project from Iran. Tajikistan Central Asia South Asia (CASA-1000) is one of the biggest regional projects through which Tajikistan would export up to 1000 MW of electricity to Pakistan. Germany AZUR energy group of Germany planned to setup 50MWAtt solar project in Pakistan, for which a feasibility report and site surveys of Multan and Bahawalpur were conducted. Qatar Pakistan is also interested in importing 500 million cubic feet per day of LNG from Qatar that produces 77 million tones per annum of LNG. The imported LNG will be initially provided to the power houses in the country to generate 2,500 mega watt of electricity. Norway Norwegian company NBT has expressed interest in establishing a 500-megawatt wind power project in Pakistan, by investing about $1 billion in alternative energy Kuwait Kuwait has extended $40 million to Pakistan for the construction of the de-sander, a vital part of the strategic $333.3 billion Neelum-Jhelum hydropower project. Upon its completion it will generate approximately 1,000 MW of electricity.

Pakistan is a suitable country for the installation of solar, wind power, coal fired plants, and can become an Asian leader in renewable energy due to its strategic endowments… Pakistan falls under the list of countries with ‘Excellent’ category wind speed of 7.7 m/s. As per a USAID Report, Pakistan can potentially produce 132,000 MWh of wind energy. The wind corridor, in Sindh province, alone has the ability to generate 40,000 MWh of wind electricity. The ratio of Debt to Equity is 80:20, with a guaranteed return on equity, by the government, in the form of partial paybacks of fuel costs, operations and maintenance cost, and taxes/duty. Pakistan has potential of more than 100,000 MW from solar energy. Building of solar power plants is underway in Kashmir, Punjab, Sindh and Balochistan. Alternative Energy Development Board (AEDB) is working for 20,000 solar water heaters in Gilgit Baltistan. Pakistan has estimated as the world's third-largest known coal reserves of 33.0 trillion tons in the south-eastern part of the country i.e. Thar The electricity production from coal is also cheaper than thermal generation as 2 percent usage of Thar coal could produce 20,000 Megawatts electricity. Pakistan’s coal reserve has ‘ZERO’ contribution in it’s energy mix. Hence, there is a substantial room for investment considering , Abundant coal reserves, and a guaranteed 17% USD based return. Source: The Cause and Impacts of power sector circular debt in Pakistan – Planning Commission/USAID ICCI Electricity Report USAID

Prioritized Items for Improvement of Pakistan Energy Crises The current energy crises in Pakistan warrants immediate measures for resolution, some recommendations for improvement are… Promote hydro power and other domestic alternate sources of energy including solar, wind, coal and agriculture biomass/biodiesel Energy conservation and demand management programs be initiated GOP to remove the current overhang of circular debt and prevent its recurrence Power sector reforms to be initiated and existing power plants be overhauled to achieve maximum efficiency Undertake policies/programs to improve governance/performance of energy sector entities Decrease costs and Increase cash flows Ensure operational/financial integrity of the sector Implement international best practices including smart metering / automated meter reading (AMR) systems and Time of Use (TOU) tariff Resolve Tariff and subsidy disputes between provincial governments and CPPA/DISCOs Curb electricity thefts with stringent penalties Political appointment culture needs to be replaced with professionalism/merit Fuel allocation policies be introduced Relocate gas towards power production as its cheaper than imported furnace oil New Government Plans "The government has planned to gradually retire the power sector's huge circular debt to streamline the electricity generation chain that would bring the load-shedding under control.” Prioritized Items for Improvement of Pakistan Energy Crises "The malfunctioning hardware as well as the incompetent operators at different power plants will be replaced, adding lists of all those who had so far been found sleeping on their jobs are already on the concerned authorities tables" Source: An Overview of Pakistan Energy Sector Report by Islamabad Chamber of Commerce & Industry (ICCI), The News

New Government has summarized some key problems in the current system and has proposed short, medium and long term solutions to resolve the energy crisis and they are highlighted in the 16 points... Creation of a Ministry of Energy and Natural Resources through the merger of Ministries of Water and Power and Petroleum and Natural Resources Reforms of National Electric Power Regulatory Authority (NEPRA) Reforms of Distribution Companies (DISCOS) Reforms of Generating Companies (GENCOs) Permanent elimination of circular debt Rationalization of energy tariffs in line with international prices across all fuels. Reforms of Oil and Gas Regulatory Authority (OGRA) Aggressive wellhead pricing for Oil and Gas exploration companies in order to substantially increase production of oil and gas High priority to import gas through pipelines Expeditious setting up of coal and LNG import terminals, and coal transportation facilities Development of Thar coal fields and setting up of at least 5,000 MW of new coal fired power plants under the lPP mode in Sindh. This will both create employment in rural Sindh and help solve our energy crisis. The plants to be designed on lignite quality coal and at first to be run on imported coal and when Thar coal is available, the plants to be switched to domestic coal Developing consensus among the various stakeholders to facilitate setting up hydropower projects by the Federal and Provincial Governments. This will augment and conserve our water resources and also generate less expensive and clean electricity Developing alternative renewable energy sources, such as solar, wind, bagasse, biogas, and biomass projects, especially for off-grid and micro-grid applications. Setting up national energy efficiency standards. Introducing solar-thermal water heaters for domestic and industrial use. Decentralizing and creating a wholesale market for electricity. These measures will not only solve Pakistan’s lingering energy crisis but also shift the focus of the energy sector from high cost imported fuels to indigenous energy resources and reduce the total energy import bill and add at least 3.5% to the annual GDP. At the same time investment of about US$ 20 billion to generate 10,000 MW of electricity in the next 5 years will stimulate overall growth of the economy. Source: http://pkpolitics.com/2013/05/16/pmln-energy-policy/

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