Pak energy sector - an analysis

Pakistan's Energy Sector clearly has not been able to deliver to the nation with sufficient and sustainable energy supply, be it oil, gas,
coal or electric both for commercial and domestic uses. Being fragmented into multiple ministries and several organizations, each pulling
in different directions and trying to impose their own agenda has simply not helped out. The lack of a focused entity with overall
responsibility of meeting the nation' energy requirements is one of the key factors behind the failure of the sector. Secondly the various
state organisations, public utilities, oil & gas, E&P and OMC companies, the Planning Commission and the regulators, namely NEPRA and
OGRA, have mostly been victims of ineffective leadership, bad governance, political interference, manipulation for personal gains and
many other malaises. The lack of autonomous, result- oriented and effective management has further contributed to the inability of the
state organizations in formulating and implementing a comprehensive and integrated national energy plan.
In order to get a clear picture of the Energy Sector and to asses the current situation, the following factors need to be considered;
Poor Governance:
Many glaring examples of poor performance and flawed management are in public knowledge, in organizations such as WAPDA, PIA,
Railways, PTCL, PSM, NHA, and various other state and provincial corporations and organizations. A silver lining had emerged a few years
back in the Oil/Gas/Petroleum sector, due to the provision of autonomy and enabling of good corporate governance in the oil/gas
companies in the public sector. This resulted in the sector companies achieving efficient, reliable and profitable operations. Unfortunately
this sector has also now become a victim of political manipulation, forced inductions and interference in governance and operations. The
consequences in all such state organisations and public sector companies and energy utilities is all too apparent. It should now be
abundantly clear to the present government also that the Nation, the citizens and the government itself has much to loose if immediate
corrective actions are not taken.
Supply - Demand mismatch
In the electric power sector it is distressing to note that the 2007 gap of about 3,000 MW has increased to about 4,500 MW- 5,000 MW in
the 2008 - 2009 periods. On a base demand of 12,500 MW this translates to about 10 hrs load shedding. Further of greater concern is the
situation wherein the demand has dropped by 1,500 - 2,000 MW from 2007 due to closure of a large number of industries, especially
small - medium enterprises and textile units. Such a situation does not bode well for the economy, employment and export targets.
The projected increase in electric power supply level based on all rentals, IPP'S, small hydels and short-term/fast track projects coming
on line in 2009 is about 5,000 MW. However a close review has revealed that about 2,000 MW projected capacity may not be materialize.
This mostly consists of rental projects for which PEPCO has been unable to arrange for SBLC'S and some IPP'S that have not attained
financial close.
Consequently in December 2009 the power gap will remain at the PEPCO projected level of 1,500 MW + the above 2,000 MW for a total of
3,500 MW. This would be further compounded by idle capacity of IPP'S and GENCO'S due to oil/gas supply constraints, as being
experienced currently. In the short term scenario upto January 2012, the gap situation cannot be seen improving unless effective
management steps are taken and the financial issues of the Power Sector are resolved. So much for the Minister of Water & Power claims
to end load shedding by December 2009.
In the gas supply scenario, in the SSGC & SNGPL network a shortage of about 600- 800 MMcfd has emerged in the current period. This is
clearly due to the failure of OGDC and MOL to complete schedule projects to add 350 MMcfd and 250 MMcfd respectively to the network
capacity. Again it is distressing that OGDC has failed even to start the development work on Pashaki, Kunnar, Tay, Dars etc which was
scheduled for completion in 2008 - 2009. The project tenders have bee repeatedly advertised and cancelled since 2006, as apparently
suitable negotiations could not materialize. Also the proposed fast track LNG import project (200 MMcfd) continues to be delayed due to
policy issues and procedural delays. The gas supply situation will thus continue to deteriorate over the next three years with the gap
increasing to 1300 MMcfd in January 2012.
Inadequacy of Energy Infrastructure
While the Nation is clearly faced with the scenario of increasing energy shortages, in all three sectors of electric power, gas and
petroleum products, the situation is further compounded by the obvious constraints in infrastructure. The electric power transmission
system has bottlenecks at several junctions, while many segments in the 500 KV and 220 KV transmission network are operating under a
single contingency. Most power transformers in the high summer peak period are loaded beyond the optimal 80% level, while some
operate at dangerous levels of 90% -100% or even more. This is a sure recipe for disaster and may result in power system instability
and cascade tripping as has been experienced several times in the past few years.
The gas transmission and distribution network of SSGC, SNGPL has however kept pace with increasing demands but is not capable to
handle large volumes of import thru IPI pipeline or multiple LNG projects. A considerable expansion of the gas network would be required
if these projects materialize in the near future.
The fuel oil, and petroleum products, import, transmission & distribution network is currently strained and requires a proper assessment
and augmentation in the short term. The fuel oil supply network for IPP'S, GENCO'S and Rentals clearly does not have the ability to even
meet the current full thru - put volumes. With several new power plants already contracted, and scheduled for completion in 2009 -
2011, it is imperative for the OMC'S, Railways, & Road transporters to plan and increase the capacity on war footing. Else the current
situation of low fuel stocks at most Power Plants will further aggravate resulting in idle capacity and increased load shedding.
Imbalanced Energy Mix:
The Energy Mix is of crucial importance to the Energy Supply chain. A proper balance between multiple indigenous sources, as well as
forms, sources and modalities of energy import, must be formulated to ensure an affordable and sustainable energy basket.
Unfortunately in Pakistan no heed has been given to this crucial aspect of Energy Planning.
The sector has continuously been the victim of ad-hoc actions by various governments, who have relied on quick fix, short-term
solutions. The mid-nineties inductions of about 3,500 MW new IPPs, mostly on imported fuel oil while providing interim relief, should have
been augmented by a balance of hydel, coal, gas and alternate energy plants. Unfortunately this was not done, resulting in the current
gross imbalance in the primary energy mix, which has 48% local natural gas, 25% imported oil, 5% local oil, 13% hydel, 2% local coal,
5% imported coal and 2% nuclear, LPG etc.
This situation is clearly unsustainable with a reliance of 30% on hi-cost energy imports which will rise to 50% by 2012 due to increased
oil imports (+5%) and planned gas imports of about (+15%) to cover new demand and decline in local gas production. If gas imports
(LNG, IPI pipeline) do not materialize as is the current situation, the shortage would have to be met by a step increase in oil imports, for
which requisite infrastructure has not been planned.
Policy Failure
It would be obvious to the experts and professionals that the situation in the Energy Sector is clearly a reflection of poor policy and even
worse implementation. The people of Pakistan neither expect a miracle overnight nor a magic wand that would provide a solution to their
woes. What is needed is a clear policy, effective strategy and modality for project implementation based on (i) Crisis Management (ii)
Energy Conservation (iii) Demand Side Management (iv) Supply Side Management (v) Power Generation Expansion/Augmentation and
(vi) Revision of Energy Mix.
Further the GOP's own Power Sector Reform and Restructuring programme has to be put on track, with effective, forceful, & professional
management in place and doing away with ad-hocism's and political interference. The World Bank and ADB also must not be oblivious to
the open violation of agreed actions of the reform & restructuring programme. The basic causes of the reasons for the large supply -
demand gap must be understood and resolved, be it the power, gas or petroleum sector, and an effective policy must be formulated.
On the Natural Gas and Fuel Oil supply and distribution aspects, the coordinated action plans proposed by the Power Systems Planning
(PSP) and Operations Committees (PSOC) have not been implemented. With such a situation, it is not surprising that the Energy Crisis
has further worsened in the past nine (9) months. Of even more concern is the fact that various projects in the Power as well as Oil/Gas,
LNG, LPG Sectors, have been derailed or held-up due to inability of MOF to provide requisite guarantees or arrangements for finance. It
appears that the Energy Sector as a whole has failed to get the priority policy attention from the government.
The end result is clearly the path to self-destruct and is leading towards an energy suicide scenario for the nation. The government and
all stakeholders must awaken to the impending situation, and take effective measures to redeem the crisis, else all claims and good
intensions will be to no avail.
The writer is CEO - EMR-Consult and former MD PEPCO, MD SSGC.
This article is the second of a five-part series.