ENERGY CRISIS OF PAKISTAN

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BUSSINESS ECONOMICS.
SUB. TO: Dr. NAVEED AWAN.
SUB. BY: 1. SHAHZAIB IFTEKHAR
FA18-MBAG-0004

2. UMER HAQIQ
FA18-MBAG-0068
3. BHUNESH KUMAR
FA18-MBAG-0053

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Scenario Of Energy Crisis In Pakistan

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Abstract
An energy crisis is any significant bottleneck in the supply of energy resources to an economy. Study
investigates the impact of Energy crisis on the financial performance of Pakistan. In the study
Performance has been measured by Return on Assets ratio. Performance of all the For Descriptive
and paired sample mean comparison, sample has divided into two, pre and post energy crisis. Results
of the study suggested that performance of the companies have decreased significantly because of
energy crisis in Pakistan.

To build a more prosperous economy, Pakistan needs to address its energy problems. Without a
reliable source of electricity or natural gas, how can Pakistani businesses compete on the global
market. Large parts of the country today face blackouts lasting an average of 10 hours each day
because of the electricity shortage. The current gap between electricity generation and demand is
roughly 2500 MW, a shortage large enough to keep a population of 20 million or the city of Karachi
in the dark. These power shortages are only expected to become worse in the coming summer
months. This is because demand for electricity peaks in the sizzling heat, while hydroelectric
generation decreases as the water flow in the rivers drops due to seasonal fluctuation. This article will
focus on the causes of the country’s energy problems involving the electricity sector and explore
possible directions Pakistan can take to improve its energy situation, building its economy in the
process.

INTRODUCTION

Pakistan is an energy-deficient country. Recent rise in energy prices, shrinking existing resources,
and the search for alternative sources of energy and energy conservation technologies have brought
into focus the issue of causality between energy use and economic growth. Energy expansion is

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expected to lead to higher growth and its shortage may retard the growth process. Similarly economic
growth may affect the demand for energy significantly. Increased use of better energy sources saves
time, helps people in improving the quality of life and environment. It improves the social services
delivery, like effective utilisation of modern health related equipment and better facilities in
educational institutions and others. The availability of modern and better fuels improves the lives of
the females and children who spend time on collection of traditional fuel like wood. Therefore, it can
be claimed that energy sector and the energy services have important implications for poverty
reduction. For example, in the small scale industry, mostly concentrated in rural areas, electricity
provision can increase the length of working day and increase the productivity of the resources.
Furthermore, energy sector itself is an important source of employment generation. Thus, use of
energy as an input is expected to have direct positive impact on output and indirect positive impact
on poverty and quality of life through the employment generation. Currently, the energy sector in
Pakistan is faced with the following issues:

 Privatization /efficiency
 Demand for energy
 Energy and economic growth
 Rural electrification/ independent power producers
 Need for an energy policy
 Alternative and renewable energy.

How Does Pakistan Generate its Electricity?

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Above figure shows breaks down Pakistan’s electricity generation by source. Thermal power, which
includes natural gas, oil, and coal generated electricity, accounts for 70 percent of Pakistan’s total
electricity generation, while hydroelectric generation is roughly responsible for the remaining 30
percent.
Electricity generated from furnace oil accounts for slightly over a third of Pakistan electricity. In the
early 1990s, the country faced a power shortage of about 2000 MW when there was a peak load on
the electricity grid.8 To resolve the growing crisis, the Pakistani government implemented a new
policy in 1994, which was designed to attract foreign investment in the power sector9 and as a result
there was construction of oil based power plants. These power plants were cheaper and faster to
construct compared to other electricity generation plants such as hydroelectric dams. At the same
time, the relatively low prices (below $17 a barrel) of crude oil meant that these plants generated
electricity fairly cheaply.10 Fast forward to present times, the price of crude oil has risen to hover
roughly around $100 a barrel.11 Unlike nearby Saudi Arabia, Pakistan is naturally not well endowed
in crude oil reserves.

This means that Pakistan must ship increasing amount of valuable currency abroad to secure the oil it
needs to keeps these power plants running.

Along with furnace oil power plants, natural gas is used to generate about another third of electricity;
it is provided by domestic reserves, thereby helping Pakistan’s economy and energy security.
According to the U.S. Energy Information Administration, Pakistan has proven natural gas reserves
of 24 trillion cubic feet (Tcf) in 2012. These reserves will last Pakistan an estimated 17 years based

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on the country’s annual consumption rate of 1.382 Tcf in 2012.12 at the same time, consumption
rates are estimated to increase four fold to nearly 8 Tcf per year by the year 2020, further reducing
the size of the domestic reserves.13

The Pakistani government in 2005 under President Pervez Musharraf promoted the conversion of
cars to run on compressed natural gas (CNG) instead of gasoline.14 The rationale was that this
conversion would reduce the amount of money spent on purchasing and importing oil abroad. At the
same time, CNG is cleaner for the environment than burning gasoline. As a result of this policy,
more than 80 percent of Pakistan’s cars today run on CNG.15 But because of this surging demand for
its limited natural gas, there is a critical shortage of it which has adversely impacted the country’s
ability to use this fuel source to generate electricity. Essentially Pakistanis are forced to decide
whether to use natural gas to fuel their cars, cook their food, or generate electricity.
Power Theft and the Circular Debt Issue
The reliance on oil and natural gas to generate electricity is incredibly inefficient, but these
inefficiencies alone are not responsible for the crippling power shortages. The other source of tension
involves the accumulation of circular debt in the electricity sector over the past few years. Circular
debt is a situation where consumers, electricity producers and the government all owe each other
money and are unable to pay. By June 2013 when the new government led by Prime Minister Nawaz
Sharif took control, this circular debt had ballooned to $5 billion16.
There are several reasons for the accumulation of this debt; the largest problem stems from power
theft.17 Many Pakistani elites and even parts of the government do not pay their electricity bills. The
law and order situation also prevent power companies from collecting bills in certain parts of the
country. As a result, Pakistani electricity companies currently recover only 76 percent of the money
that electricity consumers owe them.
All these losses accumulate to form the circular debt and it places power producers in a position
where they are unable to purchase enough fuel from abroad to operate power plants at full capacity.
With an installed generation capacity of 22500 MW, Pakistan currently has more than enough
installed capacity to meet peak demand levels today. The power producers are in reality only able to
generate between 12000MW and 15000MW because of both inefficient energy infrastructure and
circular debt. This actual amount of electricity generated is far less than the 17000 MW of demand
nationwide during peak hours of electricity usage.
The circular debt also makes it more difficult for power producers to invest in upgrading existing
electricity infrastructure. If power producers don’t have the money to operate oil based power plants

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at full capacity, they certainly do not have enough capital to build newer, more efficient power
plants. Even when the lights are on, the inefficient electricity system takes an additional toll on the
country’s economy. Pakistanis today pay more than double their Indian neighbors for electricity
(16.95 Pakistani Rupees vs. 7.36 Pakistani Rupees per KWh respectively), putting Pakistani firms at
a further disadvantage compared to regional competitors.

Fixing Pakistan’s Electricity Problems

One of Prime Minister Nawaz Sharif’s first actions after taking office was to pay off the $5 billion in
circular debt that had accumulated by July 2013.24 Unfortunately, this step alone will not solve the
power woes as it does not fix the underlying causes of the country’s power crisis. In fact, the circular
debt has accumulate again, and stood at $1.8 billion by January 2014.25 To sustainably address the
power crisis, Pakistanis need to change their attitude towards power theft by forcing the government
and those delinquent to clear outstanding bills. At the same time, Pakistan must improve the
efficiency of its electricity sector as well as expand and diversify its electricity generating capacity in
order to ensure that the country can handle the expected growth in demand over the coming years.

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Hydroelectric Generation
Pakistan has tremendous potential to expand its electricity generating capacity by developing its
renewable energy resources. At nearly 30 percent, hydroelectricity is already a major source of
electricity generation, but according to the Pakistani government, this reflects only 13 percent of the
total hydroelectric potential of the country.26 There are several drawbacks of major hydroelectric
projects including that they are capital intensive and require extensive time to build. Furthermore,
hydroelectric dams are harmful to the local ecosystem and can displace large populations. The U.S.
government is actively investing in helping Pakistan develop its hydroelectric resources; in 2011,
USAID funded the renovation of the Tarbela Dam.27 In the process, this added generation capacity
of 128 MW, which is enough electricity for 2 million Pkr.

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Solar Energy

According to the USAID map of solar potential in Pakistan, the country has tremendous potential in
harnessing the sun to generate electricity. Pakistan has an average daily insolation rate of 5.3
kWH/m2,30 which is similar to the average daily insolation rate in Phoenix (5.38 kWH/m2) or Las
Vegas (5.3 kWH/m2), which are some of the best locations in the United States for solar generated
electricity.31 So far, Pakistan has begun construction on a photovoltaic power plant in Punjab that
will begin to produce 100 MW by the end of 2014.32 According to the World Bank some 40,000
villages in Pakistan are not electrified.33 Tapping into these solar resources could easily electrify
many of these off the grid villages, while avoiding an increase in demand on the national electricity
grid.

Nuclear Energy

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Pakistan has three currently active nuclear power plants: two located in Punjab and one in the
southern port city of Karachi. The two Chinese built nuclear power plants in Punjab each have a net
generation capacity of 300 MW.34 35 The Karachi power plant, which was built with a reactor
supplied by Canada in 1972, has a net generation capacity of 125 MW, enough to provide power to 2
million Pakistanis. 36 China has been a key supplier and investor in Pakistani nuclear energy, but
there are some concerns regarding the transfer of nuclear technology to Pakistan, where A.Q. Khan’s
nuclear network was headquartered. Specifically, China argues that its alliance with Pakistan
predates its joining of the Nuclear Suppliers Group (NSG), which has restricted nuclear sales to
Pakistan, so this justifies its desire to supply Pakistan with the technology.37 The Chinese are
helping construct four more nuclear power plants, the first of which is expected to be online starting
in 2019.38 While these plants will add 2,200 MW of generation capacity, these nuclear power
projects are expensive;39 the current nuclear power plants under construction are said to cost about
$5 billion per plant, an investment that China is helping finance.40

Coal Power
There is a large amount of coal located in the Thar Desert in the southeastern part of the country.41
While the quality of the coal isn’t the best, Pakistan has a lot of it, nearly 175 billion tons,42 which is
enough to meet current electricity demands for more than 300 years.43 However, Pakistan currently
only has one operational coal power plant.

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Pakistan is taking steps to develop this resource. In January 2014, Prime Minister Nawaz Sharif and
former President Zardari broke ground on a $1.6 billion coal power project in the Thar Desert.44
This particular project is expected to be operational by 2017.45
Pakistan has taken some clear steps such as developing its renewable resources and tapping its coal
reserves, which can help expand and diversify where and how it generates its electricity.

Tackling the energy problem is the first step to strengthening the economy; over time, a growing
economy will attract greater investment in the energy sector. Pakistan’s sensitive geographic location
could become a strategic asset as it would serve as a bridge linking the economies of Afghanistan and
Central Asia with the broader Indian subcontinent. Not only does the population provide Pakistan
with a large domestic market, but it also empowers the country with a young, entrepreneurial
workforce. This gives Pakistan tremendous potential, but can only be unleashed if the country figures
out a way to keep the lights on and the factories humming.

Liquefied Petroleum Gas (LPG):

Liquefied Petroleum Gas (LPG) is a colorless and environmental friendly mixture of inflammable
hydrocarbons. It contributes to about 0.5% of country’s total primary energy supply mix. Use of LPG
as a domestic fuel is being encouraged. It halts deforestation in the areas where supply of natural gas
is technically not viable. The government has approved the PLG (Petroleum & Distribution) Policy
Guidelines, 2013, which aims to enhance availability of LPG through LPG imports and
Indigenous production.

Liquefied Natural Gas (LNG):

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In order to encourage LNG import to bridge widening gap between gas demand and supply, the
government has notified LNG Policy, 2011. In line with said objectives, ECC of the Cabinet on
October 3, 2012 have approved following LNG import projects;
Two Long Term Integrated Projects
SSGCL will seek proposal for delivery of 400 MMCFD Re-gasified Liquefied Natural Gas (RLNG)
under two separate projects through open competitive bidding under PPRA Rules.
The selected party will perform all activities i.e. securing LNG supply, marine transportation and
establishment of LNG terminal and injection of RLNG into SSGCL’s network. The bids will be
evaluated based on the gas price at SSGC delivery point. The contract will be for 15 years with 5
years price review clause.

Fast Track LNG Import Project

M/s SSGCL’s subsidiary company (M/s SSGCL LPG Company) will act as Special Purpose Vehicle
(SPVs) to secure LNG supply. To receive the LNG, the LNG terminal will be set up at the existing
LPG Terminal site(s) to reduce commission time.
M/s SSGC sought open competitive bids for supply of 400 MMCFD RLNG on long term basis under
1st phase. The bids have been received and evaluated by SSGC and their LNG consultant (M/s
QED). After receipt of project award recommendations of SSGC’s Board of Directors, the matter
would be submitted to ECC for final approval of project award.
M/s SSGCL have also sought bids for 2nd phase of import of 400 MMCFD RLNG. The last dates for
submission of bids have been extended to 31st May, 2013. However, the fast track project has been
put on hold to avoid confusion in the procurement of long term LNG.

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Wind power is a form of renewable energy in Pakistan which makes up more than 6% of the total
electricity production in the country. As of 2018, wind power capacity in Pakistan was 1,237 MW.[1]
[2]
The government is looking to increase the share of renewable energy and plans to add around 3.5
GW of wind energy capacity by 2018

Jhimpir Wind Power Plant

The Jhimpir Wind Power Plant was developed in Jhimpir, Sindh by Zorlu Energy Pakistan. The total
cost of project is $136 million.[6]Completed in 2002, it has a total capacity of 50 MW. This wind
Corridor has a 50000 megawatt potential with average wind speeds over 7 meter per second. The
government has announced upfront tariff and ROI of 17 percent which is highest in the world. There
are 14 projects in the pipeline out of which 50 MW FFCEL project will achieve COD by mid
December 2012.

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Transmission and Distributions:
Pakistan’s electricity network is based on 500 kV, 220 kV, 132kV and 66kv

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transmission and distribution lines. Primary Transmission lines with 500 kV connects north to south,
and transmission lines with 220 kV, 132 kV and 66 kV branched from 500 kV are connected to main
market called secondary transmission lines.
NTDC as a transmission company of PEPCO is managing to take over all the properties, rights and
assets obligations and liabilities of 220 KV and 500KV Grid Stations and Transmission
Lines/Network owned by (WAPDA). NTDC operates and maintains twelve 500 KV and twenty nine
220 KV Grid Stations, 5187 km of 500 KV transmission line and 9687 km of 220 KV transmission
line in Pakistan except KESC. KESC produce and supply the electricity to the Karachi city and
nearest villages of Karachi, inter connected with NTDC through 220 and 132 kV transmission lines.
NINE distributions companies (DISCOs) are affiliated with PEPCO. With the transmission lines 500
and 220 kV, power is handed over to DISCOs to distribute it to the consumers. This distribution is
achieved with 132 kV & 66 kV transmission lines. Finally electricity is transformed to low voltage
for usage.

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Crises and shortfall
Pakistan is facing serious energy deficit from last 10 year. Bad governance, inability,

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lack of transparency, distribution and transmission losses (most probably due to theft), have made
Pakistan one of the worse country as far as energy production is concerned. There is a big gap
between demand and supply resulting in load shedding of electricity. Pakistan is continuously
suffering from power crises as nearly one third of demand for electricity, during last year could not
be met because of supply constraints. Pakistan has had too much potential to get electricity, but very
few power producing plant were installed due to lack of any integrated and proactive planning to
fulfil future needs. As a result, supply shortages noticed on average was 5000MW, which further
increased to 7000MW last July. Such a big gap has led to load-shedding of 12-16 hours across the
country.
As we can see above in table 12 Pakistan has installed capacity of about 24958 MW, but instead
demand is 17000 MW. Pakistan generating 95730 GWh electricity but 5000-7000 MW shortfall was
faced in 2015. This is because Pakistan’s power sector is facing number of very serious issues. The
key to success in the power sector lies in the resolution of these issues. The main issues are discussed
below:

Maintenance of power plants:

Poor management plays a big role in electricity crises. Pakistan has installed capacity which is more
than its demand, but at same time only 60 % of this installed capacity is used because of some
thermal power plants are off-grid and some of them are not operating efficiently due to the lake of
maintenance. Due to instability in political government, management totally ignored necessary

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repairing program for these power plants and as a result of which they remained off-grid. Also some
hydro power project are worth mentioning here as they are not working to their full potential due to
lack of government timely attention to their maintenance.
Circular Debt:
Circular debt is seriously affected Power sector as well as created financial problems. Power
generation companies when failed to clear their dues to fuel suppliers, caused this debt. The fuel
suppliers in turn default on their payment assurance towards refineries, oil and gas suppliers. This
happened when Distribution companies (DISCOs) cannot collect revenues efficiently because of
electricity theft, transmission/distribution losses and below cost power tariff. As a result, most of the
thermal power plants were forced to operate at a very low capacity factor and hence low generation
of electricity Couse increase in shortfall. Pakistan produce 64 % electricity from thermal power, Due
to non-availability of oil and gas supply as well as lack of funds, the country lost between 2000 MW
to 3000 MW potential of thermal power generation by some power plants as they remained off-grid.
The above mentioned inefficiencies, theft, transmission/distribution losses and fluctuation of oil
prices are resulting in debilitating levels of subsidies and circular debt. Currently, estimated circular
debt (as in 2015) ranges from 5 to 6 billion U.S dollars according to government of Pakistan.

Imbalance energy mix:

As we can see in chart 8 total current installed generating capacity is from the contribution of 34% of
hydro and 61% is from thermal. These are the main sources of electricity generation in the country.
Whereas, nuclear power shares is only 5%, wind and solar power also has very small contributions.
From last 20 years Pakistan did not take interest in hydro power generation, instead they installed
thermal power plants which caused the share of hydro power to go down in the national electricity
generation. Therefore hydro contribution in total electricity generation has reduced from 45 percent
in 1990 to less than 30 percent in 2015. The remaining 61 percent has been filled by thermal power.
This has increased the overall cost of power generation in Pakistan because of relying more on non-
renewable resources. Renewable energy from hydroelectric power stations is the economical and
most environment friendly. Pakistan is capable to produce more than 60,000MW of electricity from
hydro power but unfortunately the installed capacity of hydro power is only 7115MW, which is

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about 12% of total potential. Also this 7115MW of capacity can only be available if the hydro power
stations work to their full potential. Sometimes, only one third of electricity is generated because of
the shortages of water in Dams.
Pakistan have potential to produce electricity from Coal sources which is the cheapest source of fuel
in the thermal production. We have 185 billion tons amount of coal reserves. But Pakistan have only
1 thermal power plant that is working on coal which have a capacity of 200 MW.
Pakistan also have potential to produce electricity from solar and wind power but unfortunately
government of Pakistan in 2013 showed more interest to produce electricity from these renewable
resources which will be discussed later in next section about renewable resources.

Solar energy potential:

Solar energy means affordable and cheap energy with no pollution. Pakistan has a potential to
generate over 2.324 million MW electricity per annum through solar thermal and photovoltaic
systems. The solar system can be used all across Pakistan because the country is located in the Sun
Belt. High levels of solar radiation are received throughout the year as sun shines for 250-300 days
per year and in Pakistan. Average Sunshine is 8-10 hours per but there are a few cloudy days in the
wettest regions. Annual solar radiation intensity greater than 200 W/m2 was observed in almost
every part of the country except some of the coastal and northern regions.

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Conclusion:
After a lot of research and detailed study of Pakistan Electric power sector, it can be easily said that
there are many problems in the Electric power sector. The causes of these problems are already
explained above. Actually the whole power infrastructure is poorly managed which should be
changed and remodeled in a way where Pakistan can manage to produce enough electricity for the
residents, to run industries and factories.
A proper planning is needed where Pakistan should rely more on Renewable resources instead of
non- renewable resources. Actually Pakistan is producing highest percentage (61%) of electricity
from thermal resources, which require oil and gas and are mostly imported from other countries. If
Pakistan utilizes its hydro power potential and other renewable energy resources like wind and solar,
Pakistan can easily get rid of all oil imports and the problem of electricity crises can be resolved.

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Therefore, focus should be on using renewable resources as much as possible for sustainable
development and prosperity of the country.

References and sources

http://www.ntdc.com.pk/WapdaPowerHistory.php (15/02/2016)
https://www.sdpi.org/publications/files/KESC-final-june25.pdf (15/02/2016)
http://world-nuclear.org/information-library/country-profiles/countries-os/
pakistan.aspx (15/02/2016)
http://www.nepra.org.pk/ (16/02/2016)
http://www.pakistaneconomist.com/database2/cover/c2001-31.php (16/02/2016)
http://hydroelectricp.blogspot.se/ (17/02/2016)
http://www.qasolar.com/ (17/02/2016)
http://www.nexteraenergyresources.com/what/solar_works.shtml (17/02/2016)
http://www.aedb.org/ (17/02/2016)
http://www.ucsusa.org/clean_energy/our-energy-choices/energy-and-water-use/waterenergy-
electricity-nuclear.html#.VtMH3pwrLIU (17/02/2016)
http://pide.org.pk/pdf/publications/Monograph/Monograph-4-Afia%20Malik.pdf(15/02/2016)
Dawn, July 29, 2006.Ibid.
Ibid.

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Dawn, September 5, 2006.

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