Applied Economics Project Group Members

Sara Raza Saher Nazir Cheema Zunaina Zulfiqar Ali Aatiqa Shakoor Muhammad Shafeeque 10208014 10208028 10208013 10208015 07108128

TOPIC: Commercial usage of electricity and barrier for growth in Pakistan

Reviews of articles

The importance of electricity cannot be denied. In todays life it is of extreme importance as it has wide range of applications in domestic as well as commercial sector. It has invaded our lives and is used in almost every aspect. Electricity is an extreme flexible form of energy and has been adapted to a huge and growing number of uses. The domestic uses are quite obvious as electricity is used in lightening, heating, cooling etc. its importance can easily be measured by asking a simple question just imagine your life without electricity? it will automatically tells you the extreme importance of electricity. Not only used in domestic it is also used in commercial sector. In the commercial sector, electricity is used under much the same heading as at home, the scale being much larger. Thus, a bulk of the electricity is used for cooling, heating and running of machinery. It goes without saying that the same principles can turn potential carbon big foots into green businesses if only there is the will to act responsibly. The usage of electricity is very important in the commercial zone like industries, textile mill, rice mill etc. and the growth of commercial zone is dependent on a very important factor that is electricity. In every country electricity is a compulsory part of commercial growth and economic development. The progress of commercial zone is dependent on the availability of electricity. in Commercial area electricity is used on large scale. Pakistan is energy deficient country because of its inadequate energy power supply mix, rising energy gap between supply & demand, lack of energy efficiency legislation and its implementation. The poor management of wapda department in our country, the commercial zone cannot work effectively and efficiently because of which GDP is and per capital income is going down day by day In our country Pakistan, we have a lot of resources like solar energy, nuclear energy, natural gas, coal, rain water etc. by managing these resources we can create effective ways of progress in commercial zone and can improve our country economy by improving the supply of electricity in commercial zone. By reading different articles we come to know that Pakistan is facing serve electricity crises in term of its short fall. This is due to both reduction of supply and increase in demand. To achieve high economic growth rate, multidimensional policies are required which should not ignore energy sector. In order to improve the availability of electricity in commercial sector and balance of payment position, alternative sources of electricity should be developed. Therefore the government should rise the supply of energy at a affordable price to the commercial zone because commercial zone play a vital role in the development of the country. The issues of causality between energy use and economic growth is mainly because of the rise in energy prices,

decrease in the existing energy resources. There is a relationship between energy consumption, energy price and the economic growth. Evidence for Pakistan reveals that electricity consumption affect the economic growth of the country and when country is not growing economically than every sector of the country is disturbing. The use of energy also effect the growth of commercial sector, in commercial sector the energy used on large scale, if electricity is available its available its means that commercial sector is expanding and this result in the economic growth of the country and if electricity is not available in the commercial it also effect the economic growth of the country, so its means there is a positive relation between economic growth and the availability of electricity. Energy is also an important source of government revenue that can improve the fiscal depict in country, and the growth rate of the commercial usage of electricity is similar to the other develop country like china etc in 1993-1996 Correlations between electricity consumption/capita and GDP/capita have been analyzed and compared with those between total primary energy supply/capita and GDP/capita. The general conclusions of this research are that wealthy countries have a stronger correlation between electricity use and wealth creation than do poor countries and that, for the global economy as a whole, there is a stronger correlation between electricity use and wealth creation than there is between total energy use and wealth There is a simple correlation coefficient between growth rates of the various sources of energy and output growth of Pakistan. The relationship between energy use and economic growth become critical after the energy shocks in 1970 According to basher, chairman of wapda in 2000. The capacity of electricity has increased beyond the demand growth but its not an irony that electricity power is not affordable for the majority of the population and has become an increasing non-economic input for the industry, its obvious that the when electricity in not available in the commercial zone, than commercial zone cannot run their work effectively and efficiently as a result the productivity decrees and the cost increase by using their own alternative sources for electricity. The energy demand and supply is not only important for the economic growth but it is also important for the prosperity of current and future generation of our nation. Energy is the critical factor for the economic development, and the shortage of electricity is effecting the economic growth badly. Therefore to achieve high level of economic growth and to remove the shortage of electricity from the commercial area, some things are required that are to make some investment to provide electricity to commercial area on regular basis, so it can help in increasing the economic growth of the country. The commercial zone is known as the back born of our economy and the growth of our industry play a vital role in grow thing the economy. According to a survey the consumption of electricity in commercial area is 7.4% in 2008 and it is increased by the passage of time.

In Pakistan, electricity is facing crises few last few decades. The load shedding of electricity is affecting every sector of our country and it is the main barrier for the economic growth. Despite of the strong economic growth during the past decades and the consequent rising demand for energy, no worthwhile steps have been generated to install more and new energy by using the energy resources. Demand of electricity exceeds the supply of electricity and now load shedding is a common phenomenon. According to a survey in 2010 Pakistan need about 14000-15000 MV electricity per day, the demand is likely to rise approximately 20000MV per day. Presently its can produce 11500MV per day, and shortfall of about 3000-4000MV per day. This shortage is badly affecting the commercial usage of electricity, to avoid the shortage or shortfall of energy the government should adopt all the possible measure to avoid. The wapda department should conserve energy; they should use all possible available sources to increase the production of energy. If country wishes to continue its economic development and wish to improve the quality of life of the public, than the government as well as wapda department should make serious efforts to make the supply of the electricity regular to the commercial zone, because electricity in used on large scale and the working of the commercial area is not possible without electricity. There are three major problems which faced by the Electricity providers regarding production of electricity. y Dependent on water. Basically we need to develop a proper planning regarding production of electricity. In Pakistan there a good system of wind energy, Pakistan has worlds 7th biggest coal storage. But we have lack of strategy.(for example in December the flow of all the Dams were stop due to the annual cleaning of the canal system ) y The Thermal power plants do not working as much as they capable. Because they have lack of proper fund (Money shortage). Some Government agencies do not work well because they have personal interests as not the National. y Lack of proper Hydel systems. the most of the systems are under-construction . The demand of the electrical energy in a country is proportional to the growth in population and if the demand of electricity is not met its supply its means that demand is greater than the supply of electricity, so it will produce the energy crises and the energy crises will produce barrier for the economy to grow. The main technical causes of the shortfall of energy crises are as follow y y y Insufficient installed generating capacity Transmission system unable to transmit the load imposed Substantial distribution system of power supply

There are many electricity barriers for growth because our economy cannot growth, its simple when wapda do no supply electricity nothing can work effectively. The barriers to development of renewable energy can be broadly classified as policy and regulatory barriers, institutional barriers, fiscal and financial barriers, market-related barriers, technological barriers and information and social barriers. Because of these electricity barrier our country economy can growth and its going down. Barriers y Technological Barriers In Pakistan the biggest barrier regarding the production of the electricity production is the technological barriers. The Government of Pakistan always takes help from the other countries (like china, America) for searching and getting the natural resources. y Information Barriers In Pakistan we have lack of information regarding the use of the resources and energy consumption. y Policy Barriers Due to miss-management in wapda department they cannot make policies and also can not follow the rules and regulation which is made by the wapda department .for example in case of Basha Dam Government of Pakistan not properly care of this and focused on the Kala Bagh Daam. y Public Pressure:Some time there are people who do not want to change their current status like Akbar Bughti Due to these types of people Kala-Bagh Daam is still pending A global survey of electricity demand elasticitys by Caiol. A dhal tells us that demand of electricity is the most heavily studied energy product. As electricity is of extreme importance it is becoming a large share of energy consumption as countries get richer but it requires huge investment to main and improve its infrastructure. Though it is a largest source of anthropomorphic CO2 contributing its 40% of current emission but still it is todays most important need. This article provide us with an over view and bibliography of electricity demand. Residential demand of electricity in Pakistan: The importance of electricity in Pakistan cannot be denied. There are many sources of energy but electricity is one of the most important sources of energy in Pakistan. It is a necessity of todays world and has a wide range of uses in residential as well as commercial sector. Unfortunately from last few years Pakistan is facing severe energy crises and on the other hand rapid increase in oil prices is severely affecting common people. Some of the reasons that have been put forward for the shortage of electricity is the high demand and less supply. It is considered that the demand of electricity can be reduced by increasing the unit price of electricity and increasing population also considered an important factor for increasing electricity demand.

This survey helps us in calculating income, price and household size, elasticity of electricity demand in Pakistan. Power sector situation in Pakistan: Pakistan has two integrated public sector power utilities the water and power development authority (WAPDA) and the Karachi electric supply corporation (kesc). WAPDA supplies power to whole of Pakistan except the metropolitan city of Karachi, which is solved by KESC. These two systems are interconnected through 220KV double circuit transmission lines. An empirical analysis of electricity in Pakistan: The use of emery has rapidly increase from last few decades this is because of the rise in the population and increase in the demand of electricity ask for the demand management of the policies and further investment in generating electricity to cope with the increasing demand of energy. In this article the data is used from the 1970-2010. Current energy crises have influenced the whole economy; its mainly affecting the industries, commercial area, exports and the employment. According to a research due to the energy due to the crises of energy the industrial loss have reached 157 billon rupees, losses of unemployment is about 400,000. On average the industrial and exports has demised to 2.4 and 1.2 % in the last few years due to the energy crises, which pulled back the economic growth so economic growth decreased to 2% in last few years, according to research currently economy is facing loss of the 210 billion rupees because of the current energy crises. Results and analysis of this study suggest valuable policy implications that electricity demand management should focus on the effective income and price policies for each sector to control thisincreasing demand. In aggregate and commercial sectors income elasticity affirms electricity as a necessity and in aggregate and industrial sectors price elasticity has inelastic response so keeping in view this inelastic reaction of electricity in stated sectors, increasing price policy is the best demand management policy to curb the increasing demand.. Results of this study explains that response of electricity demand in each sector is different thus unique demand management policy is not effective so based upon the response of each sector, different demand management and group pricing policies should formulated in each sector. In addition to that peak-load pricing policy shouldbe practiced in Pakistan, where high prices should be charged at peak-load hours of electricity consumption in order to sustain the boasting electricity demand. Over the last few years such steps have been taken which rapidly raised the supply of electric appliances at a cheaper rate and consequently electricity consumption has drastically increased. Keeping in view that electric appliances have significant influence on electricity consumption, such policies should be reviewed. In addition to these policy measures government also needs to improve and install new energy generating plants and the

infrastructure. Private sector should be encouraged in the electricity sector to break the existing natural monopoly and to increase competition. New clean and cheaper substitutes of electricity should be introduced. Finally energy and electricity conservation strategies should be applied in all sectors for effective and productive uses.

Data collection and statistical implication

Our project is on commercial usage of electricity and barrier for growth, in this phase of the project we are required to collect data and apply statistical tools on data Energy sector issues and developments continued to severely constrain Pakistans economy in 2009-10. Against a backdrop of a sharp increase in the international price of oil through calendar 2009, this 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

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. Some idea of the viability gap that had built up in the electricity generation sector can be had from the fact that, prior to the most recent tariff increase, the gap between average generation cost and recovery was close to 30 percent.

Despite hefty increases in end-user 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. This imbalance between cost of generation and distribution, and the final tariff, is the root cause of the circular debt issue, with each downstream player in the energy chain being forced to delay payments to upstream entities. The net effect is a declining effective utilization of available generation capacity in the system. The cumulative effect has been that the growth rate of Pakistans primary energy supply, which began decelerating in 2007-08, has turned negative in 2008-09 and 2009-10 (July-March). Final energy consumption is estimated to have declined by 5.3 percent during calendar 2009.

Economic survey Primary energy supply and availability

Years

Energy supply Million toe Change % 2.82 1.50 4.41 8.06 9.26 4.18 4.33 44.40 45.07 47.06 50.85 55.58 58.06 60.62 0.32 0.32 0.32 0.34 0.36 0.37 0.38

Per capital availability Change % 0.63 -1.25 2.86 5.25 6.45 2.48 2.61

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

2007-2008 2008-2009 2009-2010

62.92 62.55 46.8

3.78 -0.58 -0.64

0.39 0.38 0.28

2.86 -2.27 -3.09

Energy consumption:
During 2008-09 final energy consumption of about 37.3 million tons of oil equivalent are met by mix of gas, oil, electricity, coal, LPG sources with the different level of share.

Consumption of electricity by the commercial sector:

As overall electricity consumption in the country has witnessed a negative growth of 1.7.Percent during July-March 2009-10 over the same period last year

Commercial sector years 07-08 0-09 GHW (000) 5.6 5.3 July march Change % 3.7 -6.2

08-09 09-10

3.8 4.1

---7.9

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 2007-08 even though generation cost kept increasing gave rise to substantial cost-tariff differential. 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, in-turn 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.

Circular Debt Resolution On 01-06-2009 Rs 214 billion On 30-06-2009 Rs 216 billion On 18-05-2010 Rs 120 billion

Electricity Consumption by Economic Group

The consumption of electricity by economic group identifies domestic sector as largest user of electricity in Pakistan. More recently, the consumption share of industrial and domestic groups witnessed a decline of 5.1 percent and 0.1 percent during July-March 2009-10 over the same period last year. While, the significant increase in the consumption shares has been witnessed in the groups of public Lighting, Supply to KESC and Agriculture during the period under review.

Electricity Consumption by economic group (% share) year 06-07 07-08 08-09 domestic 43.00 43.21 42.56 July- march commercial 6.36 6.55 6.44 industrial 26.09 26.00 24.56

08-09 09-10

42.20 42.15

6.40 6.45

25.20 23.92

Growth in Consumers
The number of consumers has been increasing due to expansion of electric network to villages and otherareas. The growth in number of consumers increased by 4.5 percent during July-March 2009-10 againstthe 4.2 percent rise in same period last year. Moreover, the longer term analysis of group wise consumers exhibits that the share of domestic consumer remained the highest with more than 80.0 percent of total number of consumers in the respective years

Consumer of economic group Year 2006-07 07-08 08-09 Domestic 14354 15226 15482 July-march 08-09 09-10 15687 16416 2272 2342 250 260 Commercial 2152 2229 2257 industrial 233 242 250

Barrier for growth:

There are many barriers for economic growth in our country. But we are considering electricity as a main barrier for the growth in our country which is producing too much difficulty for the economy to do its work effectively and efficiently. Electricity barrier, our country is very poor in its performance and unable to carry out its operations effectively. This is affecting every sector, and they are unable to to do their work for the growth of economy. Sustainable energy availability will be one of the most important issues for Pakistans economic development over the next decade. Pakistan's energy requirement is increasing rapidly every year. The primary energy consumption in Pakistan grew by almost 80% in the past 15 years from 34 million tons oil equivalent (TOE) in 1994-95 to 61 million TOE in 2009-10. The countrys energy supply currently comes primarily from

indigenous natural gas which is 45% of the energy mix and oil imports at 35% of the energy mix, with the balance from hydel at 12%, coal at 6% and nuclear at 2% of the mix respectively. Supply of indigenous natural gas has provided major support for Pakistans economic growth over the past several decades and has enabled the construction of an extensive gas transmission and distribution grid in the country. Conventional gas reserves in the country are however expected to decline over the next few years and Pakistan needs to develop enhanced capability for exploration and production of offshore and unconventional gas reserves (tight gas, shale gas) and to arrange for significant gas imports via pipelines and as liquefied natural gas (LNG). Additionally Pakistan must move forward with development of its large-scale coal reserves in the The coal-fields to ensure security of long-term energy supply. Steady growth in renewable energy sources such as hydel, nuclear, solar and wind must also remain part of the energy mix in the country. Meanwhile urgent reforms in the power sector are required to grow power generation capacity and enhance transformation efficiency. The current circular debt is also a major issue for the energy sector and has become a significant barrier for energy development in Pakistan International financial resources and technical expertise will be required for development of the diverse energy segments in Pakistan and this will provide attractive opportunities for investments by global energy and finance organizations.

Conclusion:The conclusion of the whole debate is that in Pakistan energy is the backbone of the economy of the Pakistan. Almost all the industrial sector of Pakistan depends upon the energy. But in recent time Pakistan face the worst disaster in energy sector. So we can say that the energy crisis plagued and damage all the sectors of Pakistan like the high inflation, poverty and unemployment , bad effects on agriculture to social life, badly crashed the national progress . But still the Government of Pakistan can cope up this issue by using the long term and effective policies. And the Government should use the proactive solutions and policies for the future demand. The other thing is that it is our (people) responsibility that we should utilize the energy in sensible manner. And try to understand the complexity of Government about this issue. We people of Pakistan should give time to Government about the solution without any negative criticism.