Risk & Insurance Management

Energy Crisis & Its Impact on our Economy

Created By: Umair Awan MBA (Finance) Page 1

Energy Crisis and Its Impact on our Economy
What is Crisis?
Crises have four defining characteristics that are "specific, unexpected, and non-routine events
or series of events that [create] high levels of uncertainty and threat or perceived threat to an
organization's high priority goals." Thus the first three characteristics are that the event is
1. Unexpected (i.e., a surprise)
2. Creates uncertainty
3. Is seen as a threat to important goals
What is Energy Crisis?
An energy crisis is any great shortfall (or price rise) in the supply of energy resources to an
economy. It usually refers to the shortage of oil and additionally
to electricity or other natural resources. The crisis often has effects
on the rest of the economy, with many recessions being caused by
an energy crisis in some form. In particular, the production costs of
electricity rise, which raises manufacturing costs. For the consumer,
the price of gasoline (petrol) and diesel for cars and other vehicles
rises, leading to reduced consumer confidence and spending,
higher transportation costs and general price rising.
Electricity sector in Pakistan:
Electricity in Pakistan is generated, transmitted, distributed and retail supplied by two
vertically integrated public sector utilities: Water and Power Development
Authority (WAPDA) for all of Pakistan (except Karachi), and
the Karachi Electric Supply Corporation (KESC) for the City of
Karachi and its surrounding areas. There are around 16 independent
power producers that contribute significantly in electricity generation
in Pakistan.
For years, the matter of balancing Pakistan's supply against the demand for electricity has
remained a largely unresolved matter. Pakistan faces a significant challenge in revamping its
network responsible for the supply of electricity.
Risk & Insurance Management
Energy Crisis & Its Impact on our Economy

Created By: Umair Awan MBA (Finance) Page 2

While the government claims credit for overseeing a turnaround in the economy through a
comprehensive recovery, it has just failed to oversee a similar improvement in the quality of
the network for electricity supply.
The following is the list of Electric Supply companies in Pakistan.
Faisalabad Electric Supply Company
Gujranwala Electric Power Company
Hyderabad Electric Supply Company
Islamabad Electric Supply Company
Karachi Electric Supply Corporation
Lahore Electric Supply Company
Multan Electric Power Company
Peshawar Electric Power Company
Water and Power Development Authority
World Wide Electricity production and Ranking:

Energy Crisis in Pakistan:
Energy resources have depleted! Whatever resources are available are simply too expensive to
buy or already acquired by countries which had planned and acted long time ago. Delayed
Rank Country Electricity - production (billion kWh)
1 United States 4,167
2 China 3,256
3 Japan 1,195
4 Russia 1,016
5 India 665.3
6 Canada 612.6
7 Germany 594.7
8 France 570
9 Korea, South 440
10 Brazil 437.3
-
-
32
-
-
Pakistan
-
-
93.26
-
-

33 Belgium 82.94
Risk & Insurance Management
Energy Crisis & Its Impact on our Economy

Created By: Umair Awan MBA (Finance) Page 3

efforts in the exploration sector have not been able to find sufficient amounts of energy
resources. Nations of the world which have their own reserves are not supplying energy
resources anymore; only the old contracts made decades ago are active. Airplanes, trains, cars,
motorbikes, buses and trucks, all modes of transportation are coming to a standstill. Many
industries have closed due to insufficient power supply. Price of oil has gone above the ceiling.
At domestic level, alternate methods like solar, biogas and other methods are being tried for
mere survival.
The above is a likely scenario of Pakistan and around the globe after 25 years. A negative
view, but realistic enough to think about and plan for the future. But are we doing anything
about it? Lets have a look at the current energy situation of Pakistan and the world.
Pakistans economy is performing at a very high note with GDP growing at an exceptional
rate, touching 8.35% in 2004-05.In its history of 58 years, there has been only a few golden
years where the economy grew above 7%. This year official expectations are that GDP growth
rate will be around 6.5 7.0%. For the coming years, the government is targeting GDP growth
rate above 6%. With economy growing at such a pace, the energy requirements are likely to
increase with a similar rate. For 2004-05, Pakistans energy consumption touched 55.5 MTOE
(Million Tons of Oil Equivalent).
On the other hand, international oil prices have not only broken all records but are touching
new highs, with every news directly or indirectly affecting the black gold industry. Moreover,
speculators all around the world expect oil prices to touch $100 per barrel in medium term.
With concerns over Irans nuclear program, terrorist issues in Nigeria and high economic
growth in China & India and their ever rising energy requirements, oil prices dont see any
another way but to shoot upwards.
Pakistan's Economic Downturn - Causes and Effects:

1) Electricity and Gas Shortage: Electricity and Gas shortage in the country is also
creating havoc for industries in Pakistan. Long hours of load shedding of electricity and
gas throughout the country restricting the industries to work smoothly and completely
and to produce the goods for catering local needs as well as foreign orders also creates
Risk & Insurance Management
Energy Crisis & Its Impact on our Economy

Created By: Umair Awan MBA (Finance) Page 4

other problems such as industry losing its customers and orders and ends up at last in
closing of industry.
2) Political instability also played its role always in decline trend of the economy
because political stability is important for any economy and its activities to flourish
smoothly but unfortunately Pakistan lacks this and faces most of the time political
uncertainty.
3) Tax Culture: The tax culture in Pakistan is poorly administered and developed. The
most of big and large sectors do not pay taxes to the government or pay less while
most of the taxes are being paid by the salaried and middle class. They pay taxes
regularly along with some business sectors but big part is still not in the tax umbrella.
Also no agricultural tax is here due to no commitment in the policy makers to do this.
4) Uncontrolled Growth : In Pakistan, almost every government didn't paid its needed
attention to production related matters and enhancing it for local market and its
consumption which resulted in the need of more and more goods imports from abroad
and higher dependency on other countries
5) Terrorism in the country especially in the big cities created fear among the peoples and
common man that what will happen now, what will be their future? Contributed to
already ailing Pakistan economy to more extent which also triggered most capital
outflow. Investment from foreign sources in few years back was more than $700, 63
million dollars but afterwards it remained only $329 million according to last quarter of
2008 estimate.
Pakistan: Power crisis feared by 2007:
The country may plunge into energy crisis by the year 2007 due to rising electricity demand
which enters into double digit figure following increasing sale of electrical and electronic
appliances on lease finance, it is reliably learnt through.
The country may face energy crisis by the year 2007 following healthy growth of 13 per cent
in electricity demand during the last quarter, which will erode surplus production in absence of
Risk & Insurance Management
Energy Crisis & Its Impact on our Economy

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commissioning of any new power generation project during this financial year, informed
sources told the Nation.
As per Pakistan Economic Survey 2003-04, electricity consumption has increased by 8.6 per
cent during first three-quarter of last fiscal year. However, a top level WAPDA official
maintained that electricity demand surged up to 13 per cent during last quarter.
The survey said household sector has been the largest consumer of electricity accounting for
44.2 per cent of total electricity consumption followed by industries 31.1 per cent, agriculture
14.3 per cent, other government sector 7.4 per cent, commercial 5.5 per cent and street light
0.7 per cent.
The country needs a quantum jump in electricity generation in medium-term scenario to
revert the possibilities of load shedding in future due to shrinking gap between demand and
supply of electricity at peak hours.
According to an official report, the gap between firm supply and peak hours demand has
already been shrunk to three digit (440 MW) during this fiscal and will slip into negative
columns next year (-441 MW) and further intensify to (-1,457 MW) during the financial year
2006-07.
Electricity Demands and Production in Pakistan:
Installed capacity
Electricity - total installed capacity: 19,505 MW (2007)
Electricity - Sources (2007)
fossil fuel - 12,580 MW - 65% of total
hydro - 6,463 MW - 33% of total
nuclear - 462 MW - 2% of total

Electricity production
Electricity - production: 88.42 TWh (2005)
Electricity - production by source (2003)
fossil fuel: 63.7% of total
Risk & Insurance Management
Energy Crisis & Its Impact on our Economy

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hydro: 33.9% of total
nuclear: 2.4% of total

Growing demand

Electricity Shortage:
Pakistan is facing about 5000~7000 MW shortage in supply of electricity, which causes long
hour load-shedding in all over Pakistan now-a-days.

Solutions for Energy Crisis of Pakistan

Load shedding in Pakistan and Government Policies
Pakistan is facing very serious energy crisis of electricity. Load shedding has become a
nightmare for all Pakistanis. Government has not taken sufficient steps to solve this problem.
Government is practicing on the policy of "Wait and See". Price of Electricity in Pakistan is
Supply and Demand of Electricity in Pakistan
Supply and Demand Position: 2008-2020 (MW)
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
Existing
Generation
15,
903
15,
903
15,
903
15,
903
15,
903
15,
903
15,
903
15,
903
15,
903
15,
903
15,
903
15,
903
15,
903
Proposal /
Committed
Generation
530 4,2
35
7,2
26
10,
115
10,
556
13,
307
13,
520
14,
607
16,
134
18,
448
18,
448
18,
448
18,
448
Total
Existing/Co
mmitted
Generation
16,
484
20,
138
23,
129
26,
018
26,
459
29,
210
29,
423
30,
510
32,
037
34,
351
34,
351
34,
351
34,
351
Expected
Available
Generation
13,
146
16,
110
18,
503
20,
814
21,
167
23,
368
23,
538
24,
408
25,
630
27,
481
27,
481
27,
481
27,
481
Demand
(Summer
Peak)
16,
484
17,
868
19,
352
20,
874
22,
460
24,
126
25,
919
28,
029
30,
223
35,
504
34,
918
37,
907
41,
132
Surplus/Def
icit
Generation
-
3,3
38
-
1,7
58
-
849
-60 -
1,2
93
-
758
-
2,3
81
-
3,6
21
-
4,5
93
-
8,0
23
-
7,4
37
-
10,
426
-
13,
651
Source: Private Power and Infrastructure Board - Govt. of Pakistan
Risk & Insurance Management
Energy Crisis & Its Impact on our Economy

Created By: Umair Awan MBA (Finance) Page 7

almost Rs. 11 per unit. And it is doubled when all taxes included in the monthly bill. Moreover it
is also said that electricity charges will increase after every two months due to accepting IMF,
American and World Bank Policies. Some people are ready to buy electricity at any cost but
ironically it is not available to those also. Electricity is available to only those in Pakistan who
are enjoying this "Luxury of Electricity" free of cost on government expenses and who don't pay
for it.
1) Load shedding and Iran Offer
Iran has offered to Government of Pakistan to supply the electricity urgently on very cheap
rates of about one third of Regulated Price Plan (RPP). Iran has its offer of providing 1100MW
since 2008 and now Iranian Embassador Marsha Allah Shakeri said that Iran is ready to
double its offer to 2200MW to Pakistan. Iran has built infrastructure to the borders of
Pakistan, now Pakistan have to only built infrastructure on its side to use the electricity.
Pakistan may ask to Islamic Development Bank for the financial assistance and Iran too can
help in this regard to Pakistan. Iran is already exporting electricity to Turkey, Afghanistan and
Armenia. Although Iran is itself in problems now a days but its offer to Pakistan is very great.
2) Load shedding and China Offer
China has offered to supply the electricity at the cost of Rs. 300/month for unlimited usage.
China is our neighboring country which helps Pakistan in every need of hour. We must take its
offer seriously.
3) American Behavior in Energy Crisis
Pakistan is in severe energy crisis but America is not doing any sort of help to solve this
problem. However it is enforcing to the government of Pakistan to impose new taxes on
electricity and fuel prices and ultimately increase the rates of electricity and oil.
Government of Pakistan should act in accordance with the interest of people of
Pakistan to reduce their sufferings by providing uninterrupted electricity at reasonable rates.
Government of Pakistan should stop taking the dictation from USA and IMF and immediately
accepts the offer of cheap electricity of Iran and China.


Risk & Insurance Management
Energy Crisis & Its Impact on our Economy

Created By: Umair Awan MBA (Finance) Page 8

Recommendations:
To overcome present energy crisis, Pakistan needs to take the followings steps in the form of;
Short term plan
o Increase the number of IPPs (Independent Power Producers).
o Reactivate the closed power generating units.
o Overhaul the existing poor distribution system.
o Import electricity to fulfill the current need for industries on ad hoc basis.
Medium term plan
o Transformation of existing system to renewable energy resources.
o Developing and installing biogas, solar, wind and micro hydro based project in
villages.
Long term plan
o Developing and installing coal based powerhouses.
o Initiate agreements for mega projects with the energy extensive countries for
suitable energy resources.
o Explorations of more oil, gas and coal reserves.
o Provides incentives for up-gradation and training to the engineer for new
technology.

References:
1. http://en.wikipedia.org/wiki/Crisis
2. http://www.friendsmania.net/forum/all-subjects-notes-guess-papers-exams-
help/73652.htm#ixzz1OIkNE465
3. http://pak-tech.blogspot.com/2010/05/solutions-for-energy-crisis-of-pakistan.html
4. http://pak-tech.blogspot.com/2010/02/electricity-demands-and-production-in.html
5. http://expertscolumn.com/content/pakistans-economic-downturn-causes-and-effects
6. http://www.indexmundi.com/g/r.aspx?t=10&v=79&l=en
7. http://en.wikipedia.org/wiki/Electricity_sector_in_Pakistan
8. http://en.wikipedia.org/wiki/List_of_electric_supply_companies_in_Pakistan
9. https://www.cia.gov/library/publications/the-world-factbook/geos/pk.html