Professional Documents
Culture Documents
Research Report On Electricity Shortage in Pakistan ReseaResearch-Report-on-Electricity-Shortage-in-Pakistanrch Methodology
Research Report On Electricity Shortage in Pakistan ReseaResearch-Report-on-Electricity-Shortage-in-Pakistanrch Methodology
Husnain Afzal
Page 1 of 37
mc060401747
Husnain Afzal
Page 2 of 37
mc060401747
Executive Summary:
Electricity Shortage in Pakistan becomes more severe during the year 2005-2006 due to extensive use luxurious appliances of electricity by domestic users.According to the report, in the fiscal year 2005-06, some 2,250MW power was required to operate some 7.7 million electric home appliances i.e. number of refrigerators in the country were 1,100,000 and power required for them was estimated at 110MW, the number of deep freezers were estimated at 200,000 and required power for them stood at 60MW, some 1,000MW power was required to run 2 million air conditioners. These figures are so alarming for Pakistan because in the decade starting from 1991 these appliances are less than a half million. the study was made on the topic shortage of electricity in Pakistan in comparison with air conditioners imported and produced during 2005-2006.in this study the hypothesis were set as, is Electricity shortage in Pakistan is caused by Industrial growth or massive use of Air conditioners by domestic users. However after finding out and analyzing the data that the increased domestic use of air conditioners is the cause of electricity shortage in Pakistan.
Husnain Afzal
Page 3 of 37
mc060401747
Table of Contents:
Topic Acknowledgement 1.Introduction 1.1.Introduction to the Problem 1.2.Objective 1.3.Significance of the study 2.Literature review 3.Problem Statement 4.Theoretical Framework 4.1.Inventory of Variables 4.2.Direction of Relation 4.3.Explanation of the Relation 4.4.Propositions 5.Hypothesis 6.Research Design 6.1.Data Collection Techniques 6.2.Population and Sample 6.3.Tools of Data Collection 7.Data Collection, Processing and Analysis 8.Findings 9.Conclusion and Recommendations 10.References 11.Questionnaire Page No. 6 6 9 9 10 15 16 16 16 17 17 18 19 19 19 19 22 32 33 34 35
Husnain Afzal
Page 4 of 37
mc060401747
Acknowledgement
Thanks to the ALLAH Almighty who gave me courage and willpower to complete the task I have been given.
Husnain Afzal
Page 5 of 37
mc060401747
1.
Introduction:
Husnain Afzal
Page 6 of 37
mc060401747
estimate that Pakistan will need billions of dollars and up to ten years to fully rebuild. Pakistan and India decided to extend aid to one another after the earthquake. They also agreed to continue confidence building measures, which include the notification of missile testing, creating new bank branches and increasing the number of airline destinations in both countries. In recent years, the combination of rising oil consumption and flat oil production in Pakistan has led to rising oil imports from Middle East exporters. In addition, the lack of refining capacity leaves Pakistan heavily dependent on petroleum product imports. Natural gas accounts for the largest share of Pakistans energy use, amounting to about 50 percent of total energy consumption. Pakistan currently consumes all of its domestic natural gas production, but without higher production Pakistan will need to become a natural gas importer. As a result, Pakistan is exploring several pipeline and LNG import options to meet the expected growth in natural gas demand. Pakistans electricity demand is rising rapidly. According to Pakistani government estimates, generating capacity needs to grow by 50 percent by 2010 in order to meet expected demand.
Husnain Afzal
Page 7 of 37
mc060401747
Hydroelectricity, 15.69%
3. Introduction of load shedding problem in Pakistan due to increase in the usage of air conditioners:
Pakistan is facing a huge electric power crisis today. This crisis appears insurmountable in the near or even long-term future, unless proper understanding and correct implementation is undertaken on priority basis. At present total power production capacity in the country is about 19,500 MW, out of which Hydel Power is only 6,500 MW, balance of 13,000 MW is thermal either using Natural Gas or Furnace Oil. Small capacity of 450 MW is Nuclear and only 150 MW is through coal. The problem of massive load shedding in Pakistan was properly introduced in 20042005.Because in these days the overall GDP growth was very high near about 9% per year. In these years the business progress was very well and banks industry grows at a vigorous speed. Banks introduces new schemes in which peoples were provided home appliances on lease. Thus resulting an increase in production and exports of home appliances. These home appliances not only include the necessity objects like refrigerator but also the Luxury objects like Air conditioners. Although most of the air conditioners were made in Pakistan but 60% of the raw material used in air conditioners was imported from different countries of the world. Due to these reasons Pakistan was hit badly by two basic problems such as budget deficit and shortage of electricity.
Husnain Afzal
Page 8 of 37
mc060401747
Now a days the consumption of Air conditioners in Pakistan is slow comparing to 20052006.But the Load shedding Problem becomes more severe.
1 . 3. Objectives of my research:
The main objective of my research is to find out either the consumption of air conditioners in Pakistan is responsible for Load shedding or the growth in industrial sector in Pakistan is responsible for load shedding, or no installation of new power plants is responsible for the problem. From different resources it is also confirmed that during 2002-2006 Pakistans industry sector was also at boom so without testing the hypothesis we cannot say that the Load shedding problem is due to usage of Air conditioners. Here we also have to note down that the ratio of growth in consumption of electriicty to production of electriicty. To find out the past trends of electriicty consumption and present and future situations is also an objective of my research.
Husnain Afzal
Page 9 of 37
mc060401747
2. Literature Review:
Almost two years ago the then WAPDA chairman who happens to be a caretaker minister admitted that WAPDA cannot meet the current demand for electricity. Its surprising that such a senior and experienced person took so long to find this out. On top of that the government which talked about Pakistans supposedly booming economy failed to understand the gravity of the situation. General Musharraf (R) after becoming Chief Executive used to talk about building dams especially Kalabagh Dam. This was one of the many promises he failed to keep. Even after that very few power plants have been set up to meet the demand for electricity. During the second government of Benazir some independent power plants were set up. Had they not been setup then we would have had a much bigger crisis with life almost coming to a standstill. I come from the software industry which has been badly hit by the present power crisis. On an average the generator at my office is on for three hours. Our work is not much affected but overall the companys operating expenses have increased. The policy makers of Pakistan have so far failed to understand one thing. They do talk about making dams and setting up nuclear power plants but why do they not understand the importance and benefits of alternate energy sources such as solar, windmill energy etc. They are cheap and quick methods for producing electricity. Pakistan is a very blessed country because solar energy is available in most cities all year round similarly wind energy is readily available in the coastal areas. These energy sources if tapped can be of great help in reducing the current demand supply gap. After the founding of Pakistani State in 1947, the Governments economic policy concentrated attention on developing an economic infrastructure, achieving selfsufficiency in food, and developing export industries. However, an intrusive and over sized public sector, an over regulated economy, excessive discretionary powers often incompatible with the level of the official, and an absolute lack of transparency, provide the optimal environment for opportunities of corruption restricting the economic development in the country. Combination of these factors with weak accountability ensures that economic backwardness get entrenched into the entire fabric of society. Despite the pervasive pessimism that is undoubtedly felt, we have come across many who would willingly embrace new practices if only the scourge of corruption could be lifted from their lives. The countries that have surged ahead, on the other hand, are characterized by high level of human capital accumulation where the educated labor force has raised the level of output and the rate of growth over a sustained period of time. Inefficient public expenditure process, higher cost of basic input, lack of skilled human resources, corruption and nepotism restrict Pakistan far behind in development according to recently announced World Bank report. Pakistan is suffering from shortage of infrastructure in the water, irrigation, power, and transport sectors. Infrastructure is essential for sustained growth and competitiveness both in the local and international markets. The gaps between demand and supply in these sectors are alarming. The plans needs to put in place urgently, these critical shortages would continue to undermine the efforts to improve socio-economic indicators and to reduce poverty. Without adequate
Husnain Afzal
Page 10 of 37
mc060401747
irrigation resources, power and transport infrastructure, the very sustainability of Pakistan as an independent nation may be at stake as shortages could lead to increased social discontent and disharmony amongst the federation and the provinces. Pakistan is on the list of the most water stressed countries in the world, and forecasts indicate that available resources are depleting rapidly, possibly leading to a state of water scarcity in the next two decades. Much of the water infrastructure is in poor repair and Pakistan has to invest almost Rs 60 billion per year in new large dams and related infrastructure over the next five year. In the energy sector, Pakistan will face severe power shortages of approximately 6,000 megawatts by the year 2010 (equivalent to about three Tarbela dams) and 30,700 MW by the year 2020.The per capita energy consumption in Pakistan is amongst the lowest in the world and a lack of adequate energy resources precludes industrial growth affecting all sectors of the economy. Similarly, the transport sector inefficiencies are costing the economy between 4 to 5 percent of GDP each year indicating the need for massive investment in roads, rail, air and ports as indicated in the World Bank report. There were large gaps have been observed between the actual and allocated funds for infrastructure development projects. Public agencies were taking too much time and delivery was too little. Majority of the developmental projects were based on political priorities. The infrastructure projects in Pakistan cost twice as much and take three times longer than planned time there are few number of known firms in Pakistan and majority of big projects were given to them. There are implementation, monitoring and feedback missing in the projects and the average cost of every project increases more than double due to several gaps. Given the paucity of human resources and materials, the poor planning and management skills, and the inability to timely attract substitute external implementation resources, it appears difficult that the large infrastructure projects can be implemented on-time and within budget unless some drastic reforms are undertaken. Out of the four broad thematic areas of business environment, human resources (HR), plant and equipment and construction materials, HR and business environment were identified as having the maximum number of constraints. Delays in project implementation reflect poor planning, programming and weak implementation capacity. Public agencies take on too many projects in their development programs and end up delivering little, and what they do deliver is often determined by political priorities. The delays in payment, imbalanced contracts, inefficiencies and corruption in the system force contractors to incur additional financial and economic costs resulting in squeezing the already poor margins in the industry. The contractors and consultants are not being paid the right cost for products and services. Costs of materials and equipment inputs in Pakistan were found to be about 200 percent higher as compared to other countries in the region, while contractors rates in Pakistan were more or less the same as those prevailing in the region. Local rates despite appearing to be competitive in a regional context are in fact unworkable - most contractors also contend that rates are low, precluding adequate profit margins and allowing better salaries to professionals and workers. Given the current disparity between market rates and actual product costs, demand-supply gaps will widen when the Medium Term Development Framework (MTDF) program is implemented, unless rates are increased. Pakistan should lesson from international case studies on the development of the construction industry and the literature reviews clearly show that a holistic long-term planning and a detailed strategy must be evolved with a clear vision and commitment towards developing the industry,
Husnain Afzal
Page 11 of 37
mc060401747
and this process may take as long as a decade or more of sustained effort. The Government needs to make serious efforts to strengthen revenue mobilization, contain its unproductive expenditure, and utilize scarce external assistance more efficiently.The country is facing a huge electric power crisis today. This crisis appears insurmountable in the near or even long-term future, unless proper understanding and correct implementation is undertaken on priority basis. At present total power production capacity in the country is about 19,500 MW, out of which Hydel Power is only 6,500 MW, balance of 13,000 MW is thermal either using Natural Gas or Furnace Oil. Small capacity of 450 MW is Nuclear and only 150 MW is through coal. Although gas is to be provided for 5800 MW to various thermal plants, but in actual fact much less gas is being made available, the deficiency is being filled through furnace oil. It can be inferred that in the recent past, only furnace oil was used as fuel for about 9000 MW generation. It is very important to understand the consequence of the prevailing situation. Current price of furnace oil is about Rs 49,000 per ton, which amount upto Rs 49/- per kg. On an average one kg of furnace oil produces 3.8 kWh of electricity. Thus, the cost of furnace oil for generating one unit of electricity is about Rs 13. On top of this the fixed cost of a thermal plant works out to be about Rs 3 per unit. Therefore, one unit (kWh) of the electricity produced by all thermal plants using furnace oil is Rs 16 per unit. According to WAPDA/IPP agreement, the private power producers will charge WAPDA the actual fuel cost for which they have a direct contract with PSO. As we all know that WAPDA tariff charged from the consumers is about Rs 5 per unit (kWh).The production cost of furnace oil electricity is Rs 16 per unit, add to it the transmission, distribution cost (including loses), the total cost of such electricity works out to approximately Rs 22 per kWh. The difference between WAPDA tariff and the furnace oil electricity is Rs17 per kWh. It is estimated that the country consumes at least 25 billion units of electricity produced annually through furnace oil, which amounts to the total deficit of Rs 425 Billion. If WAPDA has to balance its books it would require a subsidy of Rs 425 Billion. This deficit is somewhat reduced due to cheap power produced through hydel energy and natural gas, but the deficit cannot change substantially, unless bulk of electricity is produced through hydel energy. Obviously, a deficit of Rs 300-350 Billion cannot be sustained, the government does not have resources to pay such a huge subsidy, and it is also not feasible to increase the power tariff very much. Therefore the power crisis is far greater than what is being perceived. In the absence of extremely heavy subsidy, WAPDA is delaying payments to IPPs and also to the oil companies. The result is that IPPs are now producing much less electricity than their capacity. To any planner, it should be obvious that the country cannot afford electricity produced through oil. Indigenous fuels like coal, gas, atomic will have to be developed and developed quickly. The final solution however lies in depending on the hydroelectric renewable energy, but unfortunately the narrow minded bickering on construction of dams has persuaded the planners to find an easy solution, which we cannot afford any more. Since the shortage or high price of electricity has severe detrimental effect on all sectors of economy, the situation calls for concerted short-term, medium-term and long-term actions to overcome the problem of energy shortage. Way Forward: In the short-term, the shortages have to be somehow met. The foremost immediate action which can give some relief is the conservation of energy. The government has already announced certain measures like shutting down power on billboards, hoardings and neon signs. Recently in Lahore super
Husnain Afzal
Page 12 of 37
mc060401747
size televisions have been installed on important traffic points. In order to keep the temperature down air conditioners are installed behind these sets. In spite of government directions, the energy saving measures is not being implemented. Shops use excessive lights, which can be conveniently reduced. A suggestion that cities are divided in zones, and the market on these zones be closed on different days, can also save peak time energy usage. In order to implement conservation measures, the nazims, naib nazims should visit the areas and try to convince and negotiate with the people, shopkeepers etc requesting them to cooperate in the overall interests. At present the IPPs, and WAPDA owned thermal plants are averaging about 50 percent plant factor, which means that they are not being used to their potential level, 70 to 80 percent plant factor is quite feasible; this would require better maintenance of such plants. A higher plant factor on these power stations can provide 20 to 30 percent more energy, which will circumvent the present shortages to a certain extent. Improving the plant factor of the existing plants is far more economical then setting up new plants, although new plants will still be needed. One of the reasons for low plant factor is that the funds are not made available for the purchase of oil; solution for this factor will help in short term increase in energy production. The government has announced that immediately 1200 MW of additional plants will be setup. If these plants will operate on furnace oil, the deficit will further increase. At present the country has about 28 Trillion cft of recoverable gas available, the yearly consumption is about 1.2 Trillion cft, which means that even if gas consumption is increased, the existing recoverable gas will be sufficient for the next 15 years. Therefore the additional thermal generation should be based on gas, but in order to make additional gas available, the gas pressure and its transmission system will have to be enhanced. The money saved by using gas instead of furnace oil, should be invested in developing new gas fields which have already been discovered. Mid and Long Term: The oil prices are not going to come down drastically; therefore all efforts are needed to stay away from oil. For thermal plants only Coal and Natural Gas should be used. Vast deposits of coal exist at Thar, but it is inconceivable why the mining of this coal has not yet started. There is a number of new gas fields discovered; but their development has been put on the back burner, again for some unknown reasons. The gas purchase agreement with Iran be finalised immediately, even without India. A large power station using this gas can be installed at Gwadar, 500 KV transmission lines can bring the power to load centres. In addition agreement with Kazakistan is persued diligently for the import of gas. Currently the country loses 29 billion units of electricity annually due to heavy losses in the system. All efforts must be genuinely applied to reduce the losses. If losses are reduced by even 5 percent, the saving will be over 7 Billion rupees. For hydroelectric projects, the large ones can only be built on the Indus River, where not only hydroelectricity can be produced, but highly needed water storage can also be a by-product. Some legitimate objections on the environment and social impacts of large dams are there, but solutions for such objections can be satisfactorily found. The will of the government leaders is needed, with the present coalition partnership in the centre, matters can be resolved. Experts from various provinces can get together and put forward a solution for mitigating the objections. It was due to the clear vision of the leadership that the Tarbela Dam was constructed, without which where would we have been today. Similar visionary approach is needed and needed now. There are a number of other attractive runs of the river hydel projects which are being offered to the Private Sector. None of these projects have yet
Husnain Afzal
Page 13 of 37
mc060401747
started, because the tariff is still not finalised. With the huge losses being accumulated in thermal plants, again it is strange that the hydel projects in the private sector are not being encouraged. Under the present circumstances, a rational and market oriented policy has to be adopted, hopefully the present government will immediately look into this. It is good to know that the work on Neelum Jhelum Hydro Project (900MW) has started by WAPDA.The current power crisis is grossly due to very high oil prices, and the country has to prepare itself at least for the next several years to somehow cope with it, since no immediate cheaper alternate solutions are available. It has been a big set back that new Hydel Projects have not been undertaken, neither the indigenous coal mining has started, investments in the existing as well as new gas field have been lacking. The policy orientation needs a drastic modification and indigenous resource like hydel energy.
Husnain Afzal
Page 14 of 37
mc060401747
3. Problem Statement:
Do the increased consumption and production of Air conditioners in Pakistan is responsible for severe load shedding in Pakistan or other factors like growth in industry and no installation of electricity capacities were responsible for that.
Husnain Afzal
Page 15 of 37
mc060401747
4. Theoretical Framework:
After analyzing the Pakistans energy shortages and their different reasons for these shortages the following variables were identified.
Electricity Shortage
NEC Installed
Industrial Growth