SOLUTIONS TO THE ENERGY CRISIS IN PAKISTAN

Submitted By GROUP 1 AHMAD ZEESHAN AHSAN IMTIAZ SIDDIQI SUMBLE MUNIR NADEEM TARIQ WAQAS SHAHID JADOON

INSTITUTE OF MANAGEMENT SCIENCES PESHAWAR

SESSION: 2007-09

APCEW

SOLUTIONS TO THE ENERGY CRISIS IN PAKISTAN

Submitted to Ms. Shabana Gul, Lecturer of Business Research Methods as per the course end report writing requirement of the subject of

BUSINESS RESEARCH METHODS

M.B.A BANKING AND FINANCE SESSION 2007-2009

TABLE OF CONTENTS

SESSION: 2007-09...............................................................................................2 M.B.A BANKING AND FINANCE.....................................................................3 SESSION 2007-2009............................................................................................3 TABLE OF CONTENTS......................................................................................ii Unit-I.............................................................................................................1 INTRODUCTION.................................................................................................1 Unit-II............................................................................................................3 Literature Review..................................................................................................3 Unit-III........................................................................................................10 CONCLUSION AND RECOMMENDATIONS................................................10
ABSTRACT

Electricity Crisis in Pakistan is one of the severe challenges the country is facing today. Electricity is essential part of our daily life and its outage has severely affected the economy and overall living of ours. Thousands have lost their jobs, businesses; our daily life has become miserable. Pakistan is currently facing upto 18 hours of electricity outage a day, is expected to face more if not dealt with in time.

The purpose of this study is to analyze the nature of this crisis and to propose some short-term as well as long-term solutions to this problem.

This study is exploratory in nature. We have done our best to conclude and sketch up some recommendations in the light of identified hurdles in the way of implementing the appropriate solution to our problem.

Our study finds some major wholes in our system if they are covered up we can not only overcome the deficiency of electricity in our systems but also we can be able to export it to our neighboring countries.

The basic flaws that our study identified are related to circular debt, and the inadequate capacity of our electricity production and distribution systems. Also we emphasized on some prospective alternatives to our electricity production that are cheaper and they provide more clean electric energy as compared to fossil fuel run energy plants.

Unit-I

INTRODUCTION
1.1 Background

of the study:

In the summer 2007, Pakistan faced a deficit in electricity production of 2,500 Mega Watts, and it hiked till 3,000 MWs by the end of January, this year. If we look at the overall picture, the current demand for electricity in our country stands at 18,000 MWs. And the government estimated that this demand would further increase till 20,000 MWs by the year 2010. On the other hand the private sector is still gesturing NO to any reliable and permanent solution to this crisis.

If we look at the policies drafted over the past 13 years in the energy sector we see that there have been quiet a shift rather we should say a shuffling trend towards power policies. In the year 1994, the Benazir Govt. formulated the power policy, and then the Nawaz govt. proposed its own policy and in the year 2002 Musharraf govt. implemented its own policy.

The major producer of electricity in the public sector here is PEPCO. In the private sector a total of 14 Independent Power Producers (IPPs) contribute to the economy. They invested around $3Bn. here and produce around 3,000 MWs of electric energy for us.

Investors confidence is one of the most sensitive issues when it comes to policy making. After when in March 2007, when the then Chief Justice of Pakistan was suspended of his services, the international community showed a very strange concern towards Pakistan. As for investors, rule of law is like an umbrella of trust. So soon after March 9th and mostly after November 3rd the investors started pulling out of our

economy. So the crisis which once posed to be a problem in policy changes now is an investment crisis.

1.2 Scope of the Study:

This research covers the background of what initiated the electricity crisis here in Pakistan. What production facilities are currently available with us and what are their production capacities? Further we have included that what are the hurdles implementing the possible solutions. We considered both short-term and Long-term solutions in our study.

1.3 Objectives of the Study:

The basic purpose of this research is to understand the nature of the Electricity Crisis here in Pakistan and what are the possible solutions available with us to overcome this crisis. In the end we intend to formulate our own recommendations as guidelines to eliminate any future possibility for such crisis to occur.

1.4 Methodology of

the study:

Both primary and secondary resources were utilized to collect data such as Literature available over the internet. Reports/Statistics published by the Government and individual authors.

1.5 Limitations

of the study:

Less literature was available regarding this topic that made it difficult to understand as to why actually the past policies regarding power sector failed? The government figures at most were found as outdated. This is just an exploratory research so in-depth studies are not included in this study.

Unit-II

LITERATURE REVIEW
What could be more miserable than an up to 18 hours of electricity outage a day? Last summer and this year as well our country is passing through the worst power crisis than in over a past decade. According to a figure that is published by National Electric Power Regulatory Authority (N.E.P.R.A) the country may face a severe deficit in supply of electricity by the mid 2009 at 4000-5000 Mega Watts.1

This is no good sign for our country especially to our industrial hubs such as Karachi, Lahore and Faisalabad as they contribute to around 85% of our countrys export revenue. The Federation of Pakistan Chambers of Commerce and Industries (FPCCI) says that about 600 industrial units in Faisalabad, 440 in Lahore, 213 in Peshawar and 700 units in Multan, Gujranwala, Sialkot and Sheikhupura were closed by the end of January - all because of acute power shortages. Pakistan has an installed capacity of 19,505 megawatts while the generation usually fluctuates between 16,000 to 17,000 megawatts. 1

Pakistans Electricity Suppliers

65%

33% 2%

Hydro Electric Plants Nuclear Energy Plants

Thermal Energy Plants

The three basic sources through which Pakistan produces electricity is through HydroElectric plants that contribute 33% of the total electricity being produced, Thermal Energy that contributes 65% of the total power and also Nuclear energy plants contribute around 2% of the total electricity produced. 1 The main problem got worse when by the beginning of the year 2009, the circular debt in power sector rose to up to nearly Rs. 400Bn. or approximately $5Bn. Because of this scenario the Independent Power Producers (IPPs) minimized their production. After when the government paid out some dues to some of the IPPs and petroleum companies a 2000MW of electricity was generated into the system. 1

Moreover the Government of Pakistan has signed an agreement with the Government of Iran as a result of which Pakistan will acquire some 1,000MW of energy by the end of this year. Added to this the Government of U.A.E has gifted to the people of Pakistan a 340MW Gas-fired thermal power plant. Good news is ahead where Pakistan will be able to produce another 250MW by the year end with the help of a Turkish companys Wind-powered energy plant. Recent Developments in the wind-powered electricity generation includes a dedicated wind corridor of 6okms wide and 180 kms long established by the Government of Pakistans Alternative Energy Development Board in the area of Sindh. This way we are expected to produce around 43,000 MWs of energy easily. 1 Among other big projects that the government has planned WAPDA says it has planned to install a high-efficiency cycle power plant at Baloki which will produce around 450MWs of energy and this project will complete in the year 2010. Two other plants of 300MW each are expected to be built in during this year at Thar area with the help of China. And in addition to the already set-up two Nuclear power plants at Chashma the Government plans to establish a third Nuclear Energy Power facility at the said place with the help of China. 2

In order to overcome the electricity line losses faced by the WAPDA which last year stood at 22.1% 3, the government is planning to spend Rs.3.5Bn on augmentation of distribution lines and another Rs.5Bn on transmission lines.

Inadequate power generation capacity is just one of the factors affecting power supply. Others are lack of capacity for transmission and distribution, mismanagement and inefficiency of the systems and a host of institutional problems. 4

This is true as Gen.(r) Zahid Ali Akbar Khan says in his article published at the Economic Review 5 , Instead of taking long time measures to over come energy crisis we are grappling at quick fixes, which will only bring further deterioration in this sector. It is incomprehensible why KESC was hurriedly privatized without the government having negotiated capacity building programme on improvement of distribution system with the buyer. 5

One of the reasons we are facing this critical situation today is maybe because the Government slowly and gradually pulled out of the electricity production system to such an extent that now it is heavily dependent upon Independent Power Producers which are charging the customers at peak, hence effecting our exports.

According to Daily Iran the gap between demand and supply end of electricity here in Pakistan could reach up to 8,000 MWs by the year 2010. 6

This could be tackled to some extent by taking some serious measures by the industrialists first who are consuming some 32% of the energy of Pakistan. They can either apply energy conservation and management measures, they can start producing their own energy without depending on the unreliable or inadequate grid, and lastly

Industrialists, Investors and Businessmen need to take onboard the energy sector as potential business area.

One good solution to our electricity energy crisis could be to use our Gas reserves as efficiently as possible. The government is already determined to shift this precious resource from inefficient plants to efficient ones. 7 According to the Solar Energy Research Centre (SERC), Solar Energy for the production of Electricity is the best alternative to fossil fuels. 7

As fossil fuel is scarce and solar energy is abundant and free, this makes it very attractive to a developing country such as Pakistan. Here we have already adopted some solar energy driven products such as Solar Geysers and Cookers. But to introduce an innovative product such as production of electricity through sunlight is a bit tricky.

Through an initial investment of $2,500 the SERC was able to manufacture enough solar geysers and cookers as test instruments and the test was successful. If we look at the geographic position of Pakistan we would be glad to know that According to SERC, Pakistan receives high levels of solar radiation throughout the year. Every day, for example, the country receives an average of about 19 mega joules per square meter of solar energy. So with this potential Pakistan can not only support its need of energy for the rural areas but it can also reduce load on the conventional means of production of electricity. 8 Based on our literature review and overall study of the electricity crisis here in Pakistan we have developed a Theoretical Framework that clearly explains the cause and effect relationship between the dependent and independent variables. We have taken two basic independent variable that are Short Term Solutions and Long-term solutions that affect the dependent variable i-e The Crisis itself. We have identified all the Short Term

and Long Term solutions separately and one can choose from among any of them. All have the same effect. The basic difference lies if we want a short-term solution or have a consistent long-term solution to our problem; all depends on what is feasible under circumstances mentioned hereafter where we identified the hurdles implementing the solutions.

The two main independent variables are further divided into sub parts that form nine independent variables all together. They are further explained below.

2.1 Short

Term Solutions:

2.1.1.

Uninterrupted Power Supply:

This is considered to be one of the best and clean alternatives to cope with the electricity deficiency situation. Mainly used at home or offices. The main function is similar to that of a battery or capacitor that stores electric energy but the disliked thing about it is that is consumes eight times more electricity units while charging and hence results in higher electricity bills. But the good thing about it is that it can sustain to provide flawless and constant flow of electricity for upto eight hours. This depends on the size and capacity of the UPS make. The normal home usage UPS devices can enable us to run ceiling fans and tube-lights of a normal 3 bed home. The more

advanced and expensive UPS devices can support Air Conditioners as well. In offices it normal to prefer UPS than generators or anything like that for their noise and placement problems.

2.1.2.

Electricity Generators:

They are of two types mainly, either the ones running on liquid fuel or the ones running on natural gas. Both perform similar functions. They are widely seen in shops, market areas and in some offices. Nowadays people also place them at home but they are disliked for their sharp noises. The good thing about it is that nowadays some of them run on Gas as well, that is relatively a cheaper fuel to afford. The petrol fueled electricity generators however are good to support a bit higher appliances and machinery or Air-conditioners and high voltage stuff like that.

2.1.3.

Energy Savers:

They are the alternatives developed from ordinary bulbs concept. The difference is that they consume upto 70% to 90% less electricity than an ordinary bulb. The good thing is that an Energy Saver of say 14Watts gives around the same amount of light as that of a 75Watts ordinary electric bulb would give, but this energy saver conserves 70% energy. The bad thing about Energy Savers is that the initial cost of purchasing such bulbs are 100% to 300% higher than cost of ordinary electric bulbs. In China alone which once used to consume 40% of Worlds Electricity, now they have reduced it, and consume 10% of Worlds electricity, this is all because they replaced Tube-Lights and Ordinary Bulbs with Energy Savers.(Source: Geomentary)

2.1.4 Daylight-Savings:

This concept was originally developed for the Scandinavian Countries but here in Pakistan we also see its implications. The Government most recently applied this concept to conserve electricity. This could be used as one good short-term solution to

our problem but only if well utilized. The basic theme is to conserve electricity by one hour per day less usage and utilize the day light instead.

2.2 Long-Term Solutions

The Long-term Solutions to our problem has further two parts. The following three variables are Conventional sources of Energy and the later two are Alternative energy sources. We will describe them one by one.

Available Conventional Energy Solutions

2.2.1 Thermal

Energy Plants (65%)

Some of them run on Gas while other run on Coal. Most recently we see a decrease in their production levels due to hike in Petroleum prices and our dependence to use inefficient gas plants.

2.2.2 Hydro-Electric

Plants (33%)

They are installed on Dams. The production depends on Water levels in the water reserve area. We recorded less rainfall since the past two years that resulted in lower water levels and hence decrease in lower production of electricity. The turbines run on certain pressure levels that can only be achieved if the water levels are good. So this year and in the past years some of the turbines did not perform at their best levels.

2.2.3 Nuclear

Energy Plants (2%)

These plants require natural resource named as Uranium to run turbines. A relatively cleaner energy it provides but the main problem here is that the main two facilities that

are used to produce electricity through Nuclear energy, at Chashma, N.W.F.P have now been shut-down for the past some years for maintenance purposes.

Available Alternative Energy Solutions

2.2.4 Wind

Energy Power Plants

They run on wind Wings. This technology is latest to our knowledge and is not yet been tested here in Pakistan i-e Not Operative. To be able to produce energy through this mode of production the Govt. has dedicated a 180Kms of corridor along the coastal highway in Sindh to install Wind Energy plants there. It is expected that such plant will produce around 43,000 MWs of electricity.

2.2.5 Solar

Energy Power Plants

They require Solar Panels to convert the natural energy in the form of Sunlight into consumable electric energy. This is declared as the best alternative to fossil fuel by the S.E.R.C (Solar Energy Research Centre). It is being tested in Pakistan on through Solar Geysers and Solar Cookers. According to S.E.R.C Pakistan receives 19 Mega Joules of Solar Energy per square meter from the sun and this alternative can be one of the best solutions to our problem.

Unit-III

CONCLUSION AND RECOMMENDATIONS

3.1 Conclusion

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After all the literature that we reviewed we can sketch up some rough hurdles that are there that wont let implement our identified solutions. These hurdles are explained in short below;

3.1.1 Hurdles Implementing the Solutions

to this Crisis:

3.1.1. a Circular

Debt:

We identified that the Government is not serious in paying the IPPs circular Debt. Once this debt is paid off, the IPPs can pay off their petroleum import expenses and start producing at optimum levels. As long as the debt is left un-paid, we may continue to have such crisis forever.

3.1.1.b Line

Losses:

We identified that WAPDA is facing huge line losses due to electricity theft or illegal usage of electricity. The burden is beard by the Government so in order to cover up such losses and to ensure adequate and clean facility of electricity; we must ensure that no body breaks into the transmission system.

3.1.1.c Inadequate

Power Generation Capacity:

We identified that most of the systems here run on either Gas or Coal i-e they are thermal systems. Both Gas and Coal are considered as scarce and expensive commodities for electricity producers. We must not rely mostly on such production systems. We must ensure usage of efficient Thermal plants instead of in-efficient ones to conserve the scarce resources.

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3.1.1.d Lack

of Capacity of Transmission of Electricity:

We identified that most electricity transmission lines here in Pakistan are incapable of transmitting electric voltages of more than two phases. This makes them in-compatible to carry higher voltages, so even if we produce 3 phase electricity, it would be of no use in this case. We need to upgrade our transmission lines.

3.1.1.e Lack

of Capacity of Distribution of Electricity:

We identified that we lack high quality lower end grids that are used to carry electricity from power houses to the ultimate consumers via grid stations. The infrastructure is old and deteriorated. The system is unable to sustain extreme weather conditions hence most of the grids shut down at extreme temperature or either completely stops working.

3.1.1.f Privatization

of K.E.S.C:

After the privatization of K.E.S.C is enhanced its production capacity but the Government for a certain reasons did not provide it with adequate distribution network. As production alone is not sufficient, the Government must provide a clean transmission system for IPPs especially to K.E.S.C as it is responsible to provide electricity to two of our provinces Sindh and Balouchistan.

3.1.1.g Governments

dependence on IPPs:

The IPPs at current are responsible to provide electricity to half of our country. As the Govt. did not pay their debt so now they are charging or demanding higher per unit prices from the consumers. This hike in electricity prices is affecting not only our local industries and homes but is also affecting our exports of manufacturing goods. The govt. must intervene and pay out the circular debt. Or provide subsidy on electricity.

3.2 Recommendations

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Govt. must pay circular debt. Govt. must invest to cover up line losses. Industries that consume 32% of our electricity, must apply Energy Conservation Systems and Management measures. They can start producing their own energy with their own investment without depending upon the grid. Industrialists and new investors must consider the Energy Sector as good an investment as any other. Needs image building. Govt. must convert from inefficient gas plants to efficient ones in order to conserve electric energy. Govt. must consider investing in Solar Energy plants to produce Electricity as they provide free energy, and are less mechanical than Wind Energy Plants.

References:
1-Farrukh Saleem. (February 15, 2009). Pakistans Energy Crisis and Possible Silverlining for Foreign Investment. In Welcome to CRSS. Retrieved March 11, 2009, from http://www.crss.pk/weekly_roundup/2009/we15feb09.pdf.

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2-Humayun. (Jun/Jul, 2007). Energy Crisis and Pakistan. Economic Review (05318955), Vol. 38 Issue 6/7, p16-18, 3p; (AN 29345720) 3-Economic Review (05318955), (Jun/Jul2007), ENERGY SURVEY STATISTICS, Vol. 38 Issue 6/7, p48-60, 11p; (AN 29345732) 4-Siddiqui, Hussain Ahmad. (Sep/Oct, 2008). Challenge of power crisis. Economic Review (05318955), Vol. 39 Issue 9/10, p19-20, 2p; (AN 36372611) 5-Khan, Zahid Ali Akbar. (Nov, 2006), Managing the Worsening Power Crises. Economic Review (05318955), Vol. 37 Issue 11, p28-30, 3p; (AN 24014416) 6-Iran Daily. (Nov 03, 2007). Electricity Crisis In Pakistan. In Iran Daily - . Retrieved March 11, 2009, from www.iran-daily.com/1386/2981/pdf/i8.pdf. 7-Ghumman, Mushtaq. (May/June, 2006), Optimal Use of Gas for Power Projects Being Ensured. Economic Review (05318955), Vol. 37 Issue 5/6, p19-19, 2/3p; (AN 22335559) 8-Solar Energy Research Centre (SERC). (July 26, 2003). Introducing solar power: Pakistan. In http://tcdc.undp.org/sie/experiences/vol8/pakistan.pdf. Retrieved March 11, 2009, from http://tcdc.undp.org/sie/experiences/vol8/pakistan.pdf. 9-Farrukh Saleem. (February 10, 2008). Pakistans Electricity Crisis. In Welcome to CRSS. Retrieved March 11, 2009, from http://www.crss.pk/weekly_roundup/we10feb08.pdf.

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