Energy Sector of Pakistan free essay sample

Pakistan realising the importance, is making concerted efforts to speedup the development of energy resources so as it may effectively contribute to the nations economic growth and well-being. The four major components of government’s strategy for energy sector development include:- a. Increasing energy supplies to meet the growing demand. . Expanding and upgrading transmission and distribution infrastructure. c. Increasing end use energy efficiency. d. Maximum indigenization. 2. Energy Needs of Pakistan a. Present Energy Needs Vis-a-vis its Supply in Pakistan. Pakistans economy is undergoing significant changes since 1998-99; the improvements made in the macroeconomic indicators are, in particular, noteworthy. The real GDP increased from 5. 1 per cent in 2002-03 to 6. 4 per cent in 2003-04 and was 8. 5 per cent for the fiscal year 2004-05. The projected growth rate for the next five years is estimated to be 7-8 per cent . One can assume that without significant expansion in the economic activity in the country, this growth rate will be difficult to sustain for the next five years. We will write a custom essay sample on Energy Sector of Pakistan or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page With expansion in economy the demand in energy will also increase. Government of Pakistans Medium Term Development Framework (MTDF) projects the growth in the demand of electricity, petroleum products, natural gas, and coal at an average annual rate of 8. 4%, 4. 3%, 7. 6%, 18. 9% respectively . Although, both the demand and supply of energy has been increasing for the last decade and a half, the per capita consumption of energy in Pakistan remains low. As compared to their counterparts in Malaysia and China – where per capita consumption of energy stands at 92 MBTU and 34MBTU, respectively – the per capita consumption in Pakistan is 14 MBTU. Figures 1 and 2 show an upward trend in the supply and per capita availability of energy in tonnes equivalent of energy (TOE) in Pakistan since 1990. Figure 1:Energy supply (million TOE) Source Economic Server 2004-05 Figure 2:Per Capita Availability in TOE 3. Energy Resources. At present, the energy sector in Pakistan consists of the following:- a. Power. b. Gas. c. Oil. d. Coal. 4. Pakistans total primary energy supply in tonnes equivalent of oil (TOE) in the fiscal year 2003-04 stood at 50. 8 million TOE. The primary energy supply has seen a constant increase since 2001. It increased by 4. 4 per cent from 2001-02 to 2002-03 and by another 8 per cent from 2002-03 to 2003-04. Figure 3 shows the share of different energy resources in the primary energy mix supplies. The patterns of energy consumption have also registered an upward trend. 5. Structure of Power Sector in Pakistan. Only about half of 140. 5 million people in Pakistan have access to electricity. The growing pace of urbanization and industrialization also increases the demand for electricity. To meet power requirements of Pakistan, reform of the power sector through restructuring and deregulation is high on the agenda of the Government of Pakistan, which is committed to pursuing a far-reaching reform program for the power sector and to help meet the countrys future power needs. Implementation of the envisaged program will bring about a gradual transition of the power system from integrated, state-owned utilities to a decentralized system with separate generation, transmission and distribution entities, having substantial private ownership and management, reflecting and encouraging a commercial and competitive operating environment. 6. Pakistan has two vertically integrated public sector power utilities i. e Pakistan Water and Power Development Authority (WAPDA) and Karachi Electric Supply Corporation (KESC). WAPDA supplies power to all of Pakistan, except the metropolitan city of Karachi, which is supplied by KESC. The systems of WAPDA and KESC are interconnected through 220 kV double circuit transmission line. Out of a total generation capacity of about 17,664 MW in the country, 9,949 MW is owned by WAPDA, 1,756 MW by KESC, 437 MW by the Pakistan Atomic Energy Commission and 5,522 MW by independent power producers (IPPs). a. Pakistan Water and Power Development Authority (WAPDA). WAPDA was established in 1958 and entrusted with a massive agenda, which included generation, transmission and distribution of power along with irrigation, water supply, drainage, flood control, etc. It owns about 54 percent of the countrys total power generation capacity, serves 88 percent of all electricity customers in Pakistan and has been, until of late, the principal power generation, transmission and supply organization in the country. It has a customer base of over 10 million. The privatization of WAPDA is underway. WAPDAs distribution network has been divided into eight electric supply companies, which are successors of former Area Electricity Boards (AEBs). The AEBs were departments within WAPDA to administer the supply and distribution, construction, expansion, maintenance and operation of the distribution system. The newly incorporated electric supply companies have been structured in line with modern management practices. WAPDAs thermal power generation facilities have been restructured and incorporated to form three-generation companies (GENCOs). In addition, a National Transmission and Dispatch Company (NTDC) have been incorporated to perform transmission and dispatch functions. b. Karachi Electric Supply Corporation (KESC). KESC was incorporated in 1913 and is responsible for the generation, transmission and distribution of electricity in Karachi and its adjoining areas. It has a customer base of 1. 5 million predominantly urban consumers. Privatization of KESC is underway, and KESC is planned to be divested as a vertically integrated utility through sale of its equity interest to a strategic buyer who will also be given control over its management. 7. Energy Consumption Patterns. According to the latest economic survey, in the past 14 years – from 1990-99 to 2003-04 – the consumption of petroleum products, natural gas, electricity and coal increased by an annual average rate of 2. 5%, 4. 9%, 5. 1% and 5. 2%, respectively. However, one major change in consumption patter has been registered in the consumption of oil. The use of oil has reduced since 2001, particularly in the cement industry and power generation, because the cement industry has shifted to natural gas and the power generation sector is also increasingly using gas. Similarly, the consumption of various petroleum products in household and agriculture registered marked decline of 16. 2 and 16. 8 per cent, respectively. This is primarily because of the availability of cheaper fuels like LPG and natural gas. However, the consumption of petroleum products has increased in transportation, industrial and other government sectors. In the last 14 years, the transport sector saw the largest use of petroleum products with a share of 48. 7 per cent. The share of power sector, industry, households, other government sectors and agriculture stood at 31%, 12. 1%, 3. 8%, 2. 5% and 1. 5%, respectively. The sector wise consumption is given in Table 1. Table 1: Sector wise natural gas consumption from 1990-2004 SectorNatural Gas Consumption Power sector35. 4% Fertilizer23. 4% Industrial18. 9% Household17. % Commercial2. 8% Cement1. 5% 8. The consumption of natural gas in the cement sector in the first nine months of fiscal year 2004-05 registered a 100 per cent increase. Similarly, for the same time period the consumption for industrial, power, commercial and household sectors jumped up by 15. 5%, 12. 3%, 10. 5%, 3. 8%, respectively. In electricity consumption, the household sector has always been the largest consumer with a share of 41. 4 per cent. The share for industrial, agricultural, other government sectors and commercial consumers for the same time period (1990-04) has been 31. %, 14. 1%, 7% and 6%, respectively. Figure 4 shows the sector wise shares of electricity consumption for the period 2004-05. 9. Future Energy Forecasts. According to the 2004-05 Economic Survey of Pakistan, the double digit growth in the large scale manufacturing sector has resulted in an increase in demand of electric power in some industrial sectors. The survey also projects that demand in electricity will grow at an average yearly ra te of 7. 9 per cent from 2005 to 2010. The table below summarises the sector wise power demand till the year 2010. Table 2: Sector Wise Power Demand (2005-10) YearDomesticCommercialAgricultureIndustrialOtherTotal 2005-06 2006-07 2007-08 2008-09 2009-107,199 7,585 8,127 8,783 9,5311,216 1,251 1,312 1,354 1,4081,763 1,820 1,893 1,979 2,0795,891 6,481 7,252 8,181 9,2671,035 1,086 1,159 1,243 1,341 15,500 16,600 17,900 19,600 21,500 10. The recently approved 25 year ‘Energy Security Action Plan (ESAP)’ aims to increase Pakistans reliance on indigenous fuels. Before that the Poverty Reduction Strategy Paper (PRSP) outlined similar measures. The paper aims to significantly improve Pakistans energy mix. It envisages a hydel-thermal ratio of 39:61 from an existing ratio of around 28:72. The ESAP also envisages significantly reducing reliance on oil while increasing reliance on coal. Table 3 shows the energy mix plan for the next 25 years as proposed in ESAP. Table 3: Energy Mix Plan (MTOE) Energy Mix Plan Projections CurrentShort TermMedium TermLong Term 200420102015202020252030 Total (MTOE)50. 579. 39120. 18177. 35255. 37361. 31 Oil15. 230. 0%20. 6926. 0%32. 5127. 0%45. 4725. 7%57. 922. 7%66. 8418. % Natural Gas4550. 0%38. 9949. 0%52. 9844. 0%77. 8544. 0%11545. 0%162. 645. 0% Coal3. 36. 5%7. 169. 0%14. 4512. 0%24. 7714. 0%38. 315. 0%68. 6519. 0% Hydro6. 4312. 7%11. 0313. 9%16. 413. 6%21. 4412. 1%30. 512. 0%38. 9310. 8% Renewable00. 0%0. 841. 1%1. 61. 3%37%5. 582. 2%9. 22. 5% Nuclear0. 420. 8%0. 690. 9%2. 231. 9%4. 812. 7%8. 243. 2%15. 114. 2% 11. In order to achieve these targets, the Government is actively pursuing the e xtraction and commercialisation of vast Thar coal reserves. The Thar coal reserves are estimated to be at 185 billion short tonnes. It is estimated that with these reserves Pakistan can generate 100000 MW of electricity for the next 30 years . In order to achieve the new targets, the Government of Sindh has signed MOU for a 600 MW Thar coal power project with a Chinese company. Another MOU has been signed with an Australian firm for a 1200 MW project at Thar that will utilise the new technology of ‘Underground Coal Gasification’ . 12. Government’s Power Generation Policy 2002. To meet the increasing energy needs, Government of Pakistan has adopted the ‘Power Policy 2002’ to achieve the following objectives:- a. To provide sufficient capacity for power generation at the least cost, and to avoid capacity shortfalls. b. To encourage and ensure exploitation of indigenous resources, which include renewable energy resources, human resources, participation of local engineering and manufacturing capabilities. c. To ensure that all stakeholders are looked after in the process, i. e. a win-win situation for all. d. To be attuned to safeguarding the environment. For the first time in Pakistan, Government of Pakistan has significantly reflected the renewable power generation options in the 2002 power policy. 3. Important Features of Policy. The main features of the current power policy are discussed below:- a. The basis for selection of the successful bidder in each case will be the minimum levelized tariff, either through International Competitive Bidding (ICB) for solicited proposals or through negotiations/ICB for proposals on raw sites, i. e. locations whereof no feasibility study has been initiate d. Variable tariffs over the life of the project will be permitted under the terms specified in the Request for Proposals (RFP). The process of selection will involve pre-qualification, issuance of the RFP and bidding and evaluation in accordance with the bid criteria clearly laid down in the RFP. b. It is recognized that without a proper feasibility study for a particular site-specific hydel or indigenous fuel-based/renewable resource-based project, it will not be possible to invite competitive bids and receive firm offers. Thus detailed feasibility studies for such projects will be carried out by the public/private sector before bids are invited and the Letter of Support (LOS) issued. The feasibility study may be conducted by the private sector only on raw sites, provided the proposal for the project on raw site has been reviewed/accepted and a Letter of Interest (LOI) issued after submission of the required bank guarantee. c. Hydel projects in the private sector will be implemented on Build-Own-Operate-Transfer (BOOT) basis. Thermal projects in the private sector, however, will be established either on BOOT or Build-Own-Operate (BOO) basis. Decision in the matter would be made on a case-to-case basis. The projects based on BOOT shall be transferred at the end of concession period to Government of Pakistan. . Competitive tariffs will comprise an Energy Purchase Price (EPP) and a Capacity Purchase Price (CPP) with adequate provision for escalation. The CPP in case of hydel projects will be approximately 60% to 66% of the levelized tariff, because of the relatively low EPP. e. The Government of Pakistan will guarantee that the terms and conditions of executed agreements, i. e. , the Implementation Agreement (IA), Power Purchase Agreement (PPA), Fuel Supply Agreement (FSA)/Gas Supply Agreement (GSA), and Water Use License (WUL), including payment terms, are maintained during the term of the agreements. Power companies will be allowed to import plant and equipment not manufactured locally (for hydel and thermal projects including projects based upon renewable resources) at concessionary rates. Companies will also be completely exempted from the payment of income tax, including turnover tax, and withholding tax on imports. However, there will be no exemption from payment of these taxes on oil-fired power projects. g. To promote indigenization, the local engineering industry will be encouraged to form joint ventures with foreign companies in order to develop power projects with a cumulative capacity of at least 2000 MW by the year 2015.