Introduction: Electric Energy: The ability of electricity to do work.

We use electricity in our day to day activities such as lighting, heating, lifting, etc... Joule: (J, SI unit of energy) Work done by a force of 1 Newton, to move anything a distance of 1 meter along the direction of the force. Calorie: (cal, SI unit of heat) The amount of heat (energy) needed to raise the temperature of 1 gram (g) of water by 1 degree Celsius. Kilocalorie (kcal): The amount of heat (energy) needed to raise the temperature of 1 kilogram (kg) of water by 1 degree Celsius. 1 kcal = 1,000 cal = 4.184 kJ Fuel: Material that can be burned to release energy PAKISTAN ELECTRICITY CRISIS A REAL PERSPECTIVE 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, 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 supersize 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 are not being implemented. Shops use excessive lights, which can be conveniently reduced. A suggestion that cities be 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 set-up. 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 are 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 be 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 byproduct. 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 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 production as well as development of coal mining and new gas fields should be the top priority. PROSPECTS Recognizing that electricity is one of the key drivers for rapid economic growth and poverty alleviation, the industry has set itself the target of providing access to all households over the next few years. As per government reports, about 36% of the households did not have access to electricity. Hence, meeting the target of providing universal access is a daunting task requiring significant addition to generation capacity and expansion of the transmission and distribution network. Coal costs from both domestic linkages and imported sources are expected to be on the rise. Shortfall of coal in India is expected to go up to 100 MMT (m metric tonnes) by FY14. Availability of coal from domestic linkages would suffice only 55 to 60% of the PLF equivalent. Hence purchase of coal by way of Coal India's e-auction would only become more expensive. Restoration of the financial health of SEBs and improvement in their operating performance continue to remain a critical issue in the power sector. On an overall basis, power distribution has been loss-making business in India. But with the privatization coming in, the investment in transmission and distribution networking is expected to improve. Trading in electricity has brought a sea change in the structure of the industry because some parts of country are power surplus and some are deficient. A power trading company buys power from surplus area and sells it in a power deficit area through transmission lines. While the potential for power trading is huge, the regulator has to play a key role in removing all discrepancies that occur in terms of electricity pricing across trading regions. With the coming of Electricity Act 2003, the power sector, which was highly regulated with lot of licensing requirements, was supposed to be in the throes of a long awaited change. But things are still happening very slowly on ground. The sector is facing serious delays in terms of capacity expansion. The Eleventh Five-Year Plan (2007-12) target of setting up 78,000 MW of new generation capacity has already been lowered by around 25%. And even the revised target seems unattainable given the current progress. The key problems hindering the growth of the power sector are land, fuel, environment, and forest clearances. Even the government is finding it very difficult to get the required land for allotting to power projects. One of the key problems in getting land is Naxalism in the eastern and central states, where a large number of projects are being planned owing to abundance of fuel resources. Central institutions like NTPC and the State Electricity Boards (SEBs) continue to dominate the power sector in India. India has adopted a blend of thermal, hydel and nuclear sources with a view to increasing the availability of electricity. Thermal plants at present account for 65% (115,650

MW) of the total power generation capacity in India. This is followed by hydro-electricity (22% share; 37,367 MW). The rest comes from nuclear and wind energy. Average transmission and distribution losses (T&D) exceed 25% of total power generation compared to less than 15% for developing economies. The T&D losses are due to a variety of reasons, viz., substantial energy sold at low voltage, sparsely distributed loads over large rural areas, inadequate investment in distribution system, improper billing and high pilferage. FINANCIAL YEAR '11 Total power generation stood at 811 bn units (BU) in FY11, as compared to 771 BU in FY10. This represented a growth of just around 5%, when the requirement is anywhere around 10-12% per annum. FY11 also witnessed peak shortage in availability of critical fuel coal which hampered capacity addition in the power sector. The average PLF in the Central Public Sector Undertakings and private sector companies was much higher than that achieved by the SEBs as a whole in FY11. Wide inter-state variations were noticed in the average PLF of thermal power plants with southern and northern zones having better performances. As far as T&D segments of the sector are concerned, there was little that actually happened in FY11. The country continues to reel under the pressure of higher T&D losses and with the government going very slow with the reforms process in these segments, the long-term sustainable growth of the sector seems doubtful.

KEY POINTS Supply: Many projects have been planned but due to slow regulatory processes and inadequate equipments and fuel, the supply is far lesser than demand. Currently, India needs to double its generation capacity over the next decade or so to meet the potential demand. Demand:

The long-term average demand growth rate is 7-8% per annum and is expected to grow at faster rate in the future. Barriers to entry: Barriers to entry are high, especially in the transmission and distribution segments, which are largely state monopolies. Also, entering the power generation business requires heavy investment initially. The other barriers are fuel linkages, payment guarantees from state governments that buy power and retail distribution license. Bargaining power of suppliers: Not very high as government controls tariff structure. However, this may change in the future. Bargaining power of customers: Bargaining power of retail customers is low, as power is in short supply. However government is a big buyer and payments from it can be erratic, as has been seen in the past. Competition: Getting intense, but there is enough room for many players. The Electricity Act 2003 aims to encourage investments, thereby increasing competition. ENERGY, POWER SECTOR FY11 RECURRING PROFITS UP 29% Higher global crude oil prices, slight improved hydrocarbon production and restricted exploration expense reflected positively on energy and power sectors profitability in FY11. During the period under-review, sectors profitability increased by 18 percent to Rs 105.8 billion as compared to Rs 90.0 billion last year. However, earning growth could have been even higher at 29 percent if analyst excluded one-time retro respective adjustment of Kunnar crude oil prices. For the period under-review, sectors top-line rose by a noteworthy 17 percent to Rs 258.5 billion on account of favorable price as well as volumetric variance. International crude oil prices (Arab Light) rose by a 35 percent to average $93 per barrel in FY11 while sectors oil and gas production rose by 2.8 percent and 2.2 percent respectively. However, the growth was partially diluted by one-time retro-respective adjustment of Rs 15.2 billion of Kunnar field crude oil prices. Adjusting for the impact, sectors topline grew by 24 percent. In addition, 9.3 percent decline in exploration cost to Rs 12.2 billion and 31 percent increase in other income to Rs 9.7 billion also led their hand to the phenomenal growth in the profitability.

Increase in other income mainly contributed by POL and PPL, which are least affected by circular debt as they earned higher return on their bank placements. Pakistan Oilfields (POL) was the star-performer with a growth of 45 percent on account of high sensitivity to oil prices and chief beneficary of enhanced production from Tal block production. This was followed by 35 percent growth in PPLs bottomline as its benefit from its working interest in Tal and Naspha block and higher net realised gas prices. Pakistan largest explorer, Oil and Gas Development (OGDC) earnings growth remained muted to a mere 7 percent, as adverse impact of Kunnar crude oil prices issue diluted the impact of favourable pricing scenario. Adjusting for the one time impact, companys earnings grew by 22 percent in FY11. Based on augmented production flows from Tal, Iklas and Naspha blocks and commissioning of new development projects like Sinjhoro and KPD-TAY (Kunnar Pasahki Deep-Yando Allah Yar), analyst expects earning growth to continue in FY12. With based case oil prices assumption of $98 per barrel (Arab Light) and muted exploration program, analyst eyes sectors earnings to grow by 25 percent. PPL is expected to lead the way with 32 percent while POL earnings are expected to grow by 17 percent. Thus POL and PPL remain preferred play in E&P sector. POWER GENERATION Thermal Generation PEPCO's Thermal Power Generation is mainly based on generation of power from its Steam TurboGenerators, Gas Turbines (simple as well as Combined Cycle Units) installed at different Power Stations located in Sindh, Punjab and Balochistan provinces. Indigenous Gas & Coal is the main fuel whereas Furnace oil and HSD are also used as alternative fuel. .

As per Government of Pakistan policy all thermal power generation has been restructured and four corporatized companies namely Jamshoro Power Generation Company Limited (GENCO-1) head quarter at Jamshoro district Dadu near Hyderabad Sindh, Central Power Generation Company Limited (GENCO-2) head quarter at Guddu district Jacobabad Sindh and Northern Power Generation Company Limited (GENCO-3) head quarters at Muzaffargarh and Lakhra Power

Generation Company Limited (GENCO-IV) at Khanote (Sindh) have been formed and registered. Functioning of GENCOs has commenced.

Structural formation of all four GENCOs is as under: JPCL (GENCO-1) TPS Jamshoro GTPS Kotri CPGCL (GENCO-2) TPS Guddu TPS Quetta NPGCL (GENCO-3) TPS Muzaffargarh NGPS Multan GTPS Faisalabad SPS Faisalabad GTPS Shahdara CGTM W/Shop F/Abad Jamshoro Power Generation Company Limited-I (GENCO-1) Central Power Generation Company Limited (GENCO-II) Northern Power Generation Company Limited (GENCO-III) Central Power Generation Company Limited (GENCO-II) TPS Guddu a. Location Thermal Power Station Guddu is situated on the right bank of River Indus near Guddu barrage, 10 Km from Kashmore in district Jacobabad (Sindh). It is about 60 Km away from Sadiqabad and about 160 Km from Sukkur. It is a confluence of three provinces, i.e. Sindh, Punjab and Balochistan. b. Fuel (Gas & F. Oil) Supplies The existing daily gas allocation is 285 MMCFD, ( from Kandhkot = 115 MMCFD, Sui = 40 MMCFD Mari=90 MMCFD & Tullow= 40 MMCFD). Daily requirement of gas is about 310 MMCFD and in this way there is short fall of about 25 MMCFD. Furnace Oil is also used to meet-with short fall of Gas quota. Furnace oil is received through Railway Wagons and Tank Lorries from Karachi. TPS Quetta LPGCL (GENCO-4) FBC Lakhra

a. Location This Power Station is situated at Quetta. b. Fuel (Gas) Supplies Natural gas is the main fuel being used for combustion as and when available basis. Company under the new management (PEPCO) is trying to make an agreement with the gas company regarding firm gas supply. Northern Power Generation Company Limited (GENCO-III) TPS Muzaffargarh a. Location TPS Muzaffargarh is located in the middle of the country between the River Indus and River Chenab, 2.5 Km to North-West of Muzaffargarh Town in District Muzaffargarh. The nearest Air port facility is at Multan at a distance of 45 Km North-East of Muzaffargarh. b. Fuel Dual fuel combustion provision (Gas & Furnace Oil) has been made for all the machines. Furnace oil is transported through Railway Wagons and tank lorries. NGPS Multan a. Location Power Station is located at Piranghaib about one Km towards North from Piranghaib Railway station and at a distance of 10 Km from Multan city towards East. b. Fuel Dual fuel combustion provision (Gas & Furnace Oil) has been made for all the machines. 15 MMCFD gas is allocated and the short fall is met with by furnace oil firing. SPS Faisalabad a. Location This Power Station is situated at about 10 Km from Faisalabad city on Faisalabad-Sheikhupura road. Nishatabad railway station is 04 Km in the West and Rakh branch canal flows close to the power station in the East. b. Fuel

Dual fuel combustion provision (Gas & Furnace Oil) has been made for all the machines. Requirement of Gas on 70% load factor is about 22 MMCFD. Furnace oil is used to meet with short fall of Ga quota. GTPS Faisalabad a. Location This Power Station is situated (adjoining SPS) at about 10 Km from Faisalabad city on FaisalabadSheikhpura road. Nishatabad railway station is 04 Km in the West and Rakh branch canal flows close to the power station in the East. b. Fuel Dual fuel combustion provision (Gas & HSD Oil) has been made for all the machines. GTPS Shahdara a. Location This Power Station is situated at Shahdara on right bank of river Ravi Lahore. b. Fuel (Gas) Supplies Natural gas is the main fuel being used for combustion as and when available basis. Company under the new management (PEPCO) is trying to make an agreement with the gas company regarding firm gas supply. FBC Lakhra a. Location The Lakhra Power Station is located near Manzoor-abad/Khanote in the District of Dadu (Sindh) on the right bank of mighty Indus River. Hyderabad city is about 46 Km in North-East and Karachi is about 200 Km South-West of the Power Plant. The Power Station can be readily approached from North and South by the connecting highways. b. Fuel All the three units are based on Coal, which is being recovered by primitive underground mining method from Lakhra coal mines, 25 Km from Lakhra Power Station. The detail of three GENCOs showing Power stations, number of units installed, capacity, make, year of commissioning and fuel used is given below in table-1,2,3&4. IPPS

The country had been experiencing severe power shortage during eighties and early nineties. As a result, load shedding had to be resorted to all over the country. This adversely affected the national economy. It was not possible for the Govt. to establish Power Plants in public sector due to shortage of funds. In order to eliminate power shortage/load shedding in the minimum possible time, the Government constituted an Energy Task Force in 1993 to devise a consolidated and comprehensive policy for revamping and rejuvenating the energy sector. On the recommendations of the Energy Task Force, the Government announced a Policy Framework and Package of Incentives for Private Sector Power Generation Projects in March 1994 for a large scale induction of the private sector in power development. The said Policy offered a fix lovelies tariff of US 5.57 / kWh to the prospective investors (US 6.1 / kWh average for 1-10 years) and a number of other incentives to attract foreign investment in the power sector. 1292 MW (Net 1200 MW) HUB Power Project the biggest power plant in the private sector contracted in 1992 started commercial operations in March 1997. Shortly after commissioning disputes arose between GOP / WAPDA and HUBCO on tariff and other issues. After protracted negotiations, these were resolved through Settlement Agreement of December 2000 signed by the GOP, WAPDA and HUBCO. This resulted in a lower tariff entailing a saving of about 3 billion dollars over 30 years term of the Power Purchase Agreement. WAPDA also privatized its 1638 MW (Net 1342 MW) Gas Turbine Power Station, Kot Addu in June 1996 by incorporating it under the name of KAPCO and selling its 36%

shares to International Power of UK.After extensive correspondence/negotiations with the International Power, the Power Purchase Agreement and other relevant documents have been amended, providing inter-alia, reduction in tariff from Cents 5.60 / kWh to Cents 5.04 / kWh, resulting in a saving of about 1.3 billion dollars to WAPDA over 25 years term of the Agreement.

DEPENDABLE SR.# NAME OF IPP FUEL COD CAPACITY

ENERGY RECEIVED (JUL,10 JUN,11)

(MW) 1 2 3 4 5 6 7 8 9 Kot Addu Power Hub Power Kohinoor energy Lalpir Power (Pvt) Ltd, AES Pakgen Southern Electric Power Habibullah Coastal Power FAUJI KABIRWALA ROUSCH POWER FO/Gas/HSD FO FO FO FO FO Gas Gas Gas FO FO Gas Gas Gas Nuclear Nuclear 27-Jun-96 31-Mar-97 20-Jun-97 06-Nov-97 01-Feb-98 10-Mar-99 11-Sep-99 21-0ct-99 11-Dec-99 31-Dec-99 14-Mar-00 18-0ct-00 06-Jun-01 10-Sep-01 09-Jun-01 18-May-11 1,342 1,200 124 348 349 119 129 151 395 126 121 551 26 213 325 340 39

(MKWH) 1025 1478 143 342 419 61 79 214 558 31 67 747 39 261 230 370 46

10 SABA POWER 11 JAPAN POWER

12 UCH POWER 13 ALTERN ENERGY 14 LIBERTY POWER 15 CHASNUPP 16 Chashma Nuclear Power II 17 TAVANIR, IRAN

Rental 18 Attock Power 19 MALAKAND III 20 Atlas Honda 21 Nishat Power Ltd (NPL) 22 Foundation Power Company (FPL) RFO Hydel RFO RFO RFO RFO GAS GAS GAS GAS 17-03-2009 11-01-2008 156.181 81.48 213 205.443 55.303 286.468 250.256 245.939 232.144 154.308 215.232 202.644 292.976 148.705 274.529 241.002 83.197 34.964 78.407 88.290

23 Nishat Chunian Power Ltd (FPL) 24 Orient Power 25 SAPHIRE Electric 26 Saif Power 27 Engro Energy 28 Halmore Generation 29 Liberty Power Tech 30 HUBCO Power Co. Ltd 31 Gulf Power 32 Sammundari Road (Rental) 33 WALTER Power (Rental) 34 RTPS Naudero (Rental) 35 Reshma Power Generation 36 Small Power Producers (SPPs) 37 Karkey (Rental)