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PESTLE ANALYSIS OF ENERGY INDUSTRY OF PAKISTAN

INTRODUCTION Pakistan is also one of those developing countries, who have got some relief by the recent fall in crude prices. However, for a country that uses oil for almost 40% of its primary energy needs, the fact that crude prices are rising again is enough to remind it of the energy crisis that continues to haunt it. With increasing demand from China in recent times, prices of all energy sources have seen a steep rise. Most affected has been oil, which after the seventies, has again reached threatening proportions. Pakistan's energy crisis is thus more of an oil price crisis rather than a real energy crisis. This is so because Pakistan has enormous coal reserves, worth about $ 30 trillion, and yet, the share of coal in its energy mix is less than 6%. The energy sector in Pakistan depends primarily upon oil (43%), followed by natural gas (38%) and hydroelectric-nuclear power (10%). The problem with underutilization of coal arises from its under exploration, which is partly because of poor technology use, partly because of inadequate investment in the sector, and partly a result of poor planning and inadequate private entrepreneurship. Another issue is the distance. While most coal reserves are located in the West, most of the demand exists in the Eastern Pakistan. As of today, about half of the households in the country are not connected to the National Power Grid. This however is changing very fast, and as that happens, the per capita as well as overall demand of energy in the country will skyrocket very soon. Rising income levels are bound to bring with them a steep rise in household power consumption. Even before that happens, there is a reasonable possibility that the oil prices will rise, creating an energy crisis that the country cannot avoid.

POLITICAL ANALSIS: Pakistan has extensive energy resources, including fairly sizable natural gas reserves, some proven oil reserves, coal, and large hydropower potential. However, exploitation of energy resources has been slow due to a shortage of capital and domestic and international political constraints. For instance, domestic gas and petroleum production totals only about half the country's energy needs, and dependence on imported oil contributes to Pakistan's persistent trade deficits and shortage of foreign exchange. 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. 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. Contrary to Pakistani government and expatriate claims, Pakistan suffers from a massive electricity shortage. Electricity generation in Pakistan has shrunk by 50% in recent years

due to an overreliance on hydroelectric power. In 2008, availability of power in Pakistan falls short of the population's needs by 15%. Pakistan was hit by its worst power crisis in 2007, after the assassination of Benazir Bhutto and the following riots. Production fell by 6000 Megawatts and massive blackouts followed suit. The blame was laid on the then president, Pervez Musharraf, and was instrumental in his defeat. Load Shedding (deliberate blackouts) and power blackouts have become severe in Pakistan in recent years. The main problem with Pakistan's poor power generation is raising political instability, together with rising demands for power and lack of efficiency. With power shortages in Pakistan, Iran has been offering to export electricity to Pakistan at subsidized rates but the government of Pakistan has not yet responded to the offers for unknown reasons.

ECONOMIC ANALYSIS: Energy sector issues and developments continued to severely constrain Pakistans economy in 200910. Against a backdrop of a sharp increase in the international price of oil through calendar 2009, which put enormous upward pressure on the cost structure in the power generation (and transport) sector, in particular, large domestic supply shortages of electricity and gas occurred. Lower accumulation of water reserves in dams compounded the severity. The cumulative effect of the energy crisis on the economy is estimated at upward of 2 percent of GDP during 200910 alone. These developments engendered a negative feedback loop in the electricity sector, giving rise to the intercorporate circular debt issue in the entire energy supply chain. The lower availability of hydel resources for generation, and a higher than normal shortage of gas, skewed the fuel mix of the electricity generation sector towards fuel oil. Since this occurred at a time of a doubling of the international oil price, the effect on the cost structure of the utilities was amplified greatly. With no change allowed in the electricity tariff between 2003 and 2007, the compounded effect on the viability of the energy sector has been devastating i.e., the growth rate of Pakistans primary energy supply, which began decelerating in 200708, has turned negative in 200809 and 200910 (JulyMarch). Final energy consumption is estimated to have declined by 5.3 percent during calendar 2009.

Circular Debt Situation and Steps Taken The circular debt problem plaguing the power sector stems from a disparity between cost and tariffs of Energy. The inability to increase the consumers energy tariff prior to fiscal year 200708 even though generation cost kept increasing gave rise to substantial costtariff differential. This situation was further complicated by the increase in the international price of oil during 2008 (see Fig 3), a major input in the generation of electricity. As the subsidy element (difference between cost and tariff) grew, large amounts of circular debt were created whereby

power producing companies were unable to receive payments from distribution companies, inturn the power producers could not make payments to the fuel suppliers. Currently the government is regularly revising the power tariffs in line of international oil prices changes to recover the cost of power. As evident from the rising furnace oil prices thereby increasing the electricity prices (see Fig 3) Circular Debt Resolution On 01062009 Rs 214 billion On 30062009 Rs 216 billion On 18052010 Rs 120 billion

Assumption of Rs. 301.0 billion by Power Holding Company will to be complete soon. Markup payments of loan are being made regularly Rs. 40.0 billion paid. Power tariff differential claim (subsidy) paid to power sector companies Rs. 95.0 billion. Government has picked up entire past liability of FATA of Rs 85.0 billion. Government of Pakistan picked up PEPCOs receivables on account of FATAs current dues. Rs. 16.7 billion. Office of Government Adjuster has been activated to improve recoveries from provinces. PEPCO is being persuaded to proactively recover the dues from defaulting private consumers. Power tariff are being reviewed regularly to recover the cost of power. Measures are being taken to restructure the sector in order to improve its efficiency. Energy Summit has been convened on 1920 April, 2010 to resolve Power Sector issues. An amount of Rs. 116.0 billion will be provided to the system under a plan submitted by Finance Division.

Out of which Rs. 66.0 billion will be disbursed by Federal Government. Rest by the Provincial Governments.

SOCIO-CULTURAL ANALYSIS: Despite hefty increases in enduser electricity tariffs over the past two years, a significant gap still exists between generation cost and recovery, due in large part to the adverse developments outlined above. This imbalance between cost of generation and distribution, and the final tariff, is the root cause of negative attitudes of the people towards the sector. The major breakdowns for the unlimited minutes and hours has made the sector to confront with the severe damages to the infrastructure and property as the consequences of societys intense aggression. Contrary to this, the number of consumers has been increasing due to expansion of electric network to villages and other areas. Village electrification has become the new trend. People at the villages are beginning to accept the importance of the electrification in their lives. Hence the growth in number of consumers increased by 4.5 percent during JulyMarch 200910 against the 4.2 percent rise in same period last year. Besides this the industry also faces the need to turn around popular habits of the people of Pakistani society which hardly help to curtail the usage of electricity, with wastages and deliberate inefficiencies being the principal factors. But the lead for such an endeavour must come in part from Pakistani leaders.

LEGAL ANALYSIS: The National Electric Power Regulatory Authority is exclusively responsible for regulating the provision of electric power services. During the period July March 200910, NEPRA has processed ten applications for the grant of generation licenses, including thermal and hydel power plants with a cumulative capacity of 311.4 MW. In addition to these thermal and hydel power projects, cases/applications of five wind energy projects with a cumulative capacity of 200 MW for grant of generation licenses were also processed. To encourage the hydel and coal based power projects in the country, the authority has allowed 17 percent IRR to hydel and indigenous coal and 16 percent to imported coal power projects as against the 15 percent IRR for oil and gas based thermal power projects. Furthermore, during the period JulyMarch 200910, NEPRA issued twenty seven tariff determinations and 169 tariff adjustments in respect of generation and distribution companies. During the period under review, NEPRA has processed the tariff petition in respect of 80 MW Cogeneration power project based on bagasse & imported coal.

TECHNICAL ANALYSIS: The energy sector is the one which is lagging behind the most in the field of latest technology and infrastructure due to the inefficient utilization of resources and lacking of effective managerial resources. These reasons have become the root cause for the extreme transmission and distribution losses in the country. Transmission and distribution (T&D) losses as percent of net system energy has remained more or less stagnant between 21 percent to 25 percent from 200001 to 200809. Furthermore, during JulyMarch 200910, T&D losses have witnessed an increase of 1.0 percent over the corresponding period last year Table 13.15. Keeping in view of these losses, the NTDC and DISCOs have invoked various technical and administrative measures to improve operational and managerial efficiency to reduce power losses. Other measures such as renovation, rehabilitation, capacitor installation and strengthening the distribution system network are a continuous process for controlling wastage of power.

Pakistan Atomic Energy has been assigned the task of installing 8,800 MW nuclear power capacity by the year 2030 with increasing share of indigenization. In this respect, technical facilities have already been established and human resource development institutes are being upgraded and expanded. ECOLOGICAL ANALYSIS: During 2010 Pakistan floods and 2005 Kashmir earthquake power stations, power distribution and transmission and other energy infrastructures were damaged.

During the floods the recently constructed Jinnah hydroelectric power plant was flooded in addition to severe damages to transmission and distribution network and installations while several power plants and refineries were threatened by rising waters and had to be shut down. Natural gas field output had to be reduced as the flood waters approached the wells. There has also been some concern by Pakistani nuclear activists over the effect of natural disasters on nuclear plants specially over the Chashma Nuclear Power Complex, since the plant lies over a geological fault. Due to over reliance of Pakistan on dams for electricity generation, some environmental impacts of dams such as submergence of usable/ecological land and their negative impact on Pakistan's mangrove forests due to loss of river silt load, as well as increased risk of severe floods have become evident. CONCLUSION: There are many solutions available for Pakistan to take care of this situation, but none of them are easy, and each of them requires conviction, commitment and perseverance.