On November 28, 2014, Minister of State for Petroleum and Natural Resources Jam Kamal Khan claimed that there will be a 50 per cent increase in primary energy demand between 2014 and 2030. Forewarned should ideally mean one should then be forearmed, but when it comes to fulfilling this demand, progress is being made at a snail’s pace. What has changed in recent times, however, is the diversification of energy sources. From relying mainly on hydro and oil power, Pakistan has now progressed to harnessing alternative energy to meet the energy shortfall. Behind various energy sectors are dynamics of their own: is the resource public or private? What are the politics surrounding it? Is it viable in the long-run or is it a temporary fix?

Only a mix of energy sources can power Pakistan, but each source presents its particular set of both practical and political problems

Hydro

The gush of waters from the Himalayan glaciers to the low gradient Arabian Sea provide this part of the region with the unique opportunity to exploit a mammoth source of potential energy. In its early history, Pakistan managed to harness hydro potential and then depended heavily on that in the decades to come.

Completed in 1967 as a consequence of the Sindh Water Treaty, Mangla Dam was the first big step towards converting this opportunity into strength. The multipurpose reservoir had been built on River Jhelum, within the jurisdiction of Azad Jammu and Kashmir (AJ&K) with an installed power producing capacity of 1,000 MW.

Subsequently, Tarbela Dam had been constructed on the waters of the mighty Indus in Haripur District at the periphery of Khyber Pakhtunkhwa. The project started functioning in 1976; four tunnels had been carved out and fitted with generators with an installed capacity of 3,478 MW.

Mangla Dam is the ninth largest, while Tarbela is the largest earth-filled dam and the second largest overall in the world. It was a huge accomplishment; arguably the most significant infrastructure development to-date in our post-colonial heritage. This duo of dams has been a saviour for Pakistan’s energy needs, without whom the present day crisis would have been infinitely worse..

Afterwards, the only major contribution came in the shape of Ghazi-Barotha Hydropower Project, a run-of-the-river hydropower facility developed in 2002, again on the River Indus, but this time within the precincts of Punjab, near the town of Attock. The installed capacity of Ghazi Barotha is 1,450 MW.

With these three, our history of developing mega hydro projects ends and the sorry tale of political controversies, administrative ineptness and lack of politico-economic vision starts.

Although hydropower plants are considered to produce the cheapest electricity units, they are also the most capital intensive. For a country like Pakistan, it is not possible to undertake such big projects without the financial support of international development agencies — a fact which brings in its own share of peculiarities and challenges.

The envisioning and abandoning of Kalabagh Dam, with the proposed installed capacity of 3,600 MW, exposed the underlying dissonances within our power-sharing structure and provided small provinces the chance to express their grievances about the allocation of resources.

On the upstream, the polity around KPK, regardless of their affiliations, had been anxious about the submerging of their cities as a consequence of building the dam. The huge outstanding amount due on the federal exchequer on account of Tarbela royalties also added to their scepticism.

In the downstream, the people of Sindh felt their consent was not being taken in the matter nor were apprehensions of the potential desertification of their lands being allayed. The bitterness reached such levels that some pro-Kalabagh dam elements did not shy from dubbing the challengers as traitors. In Sindh, meanwhile, the nationalists went so far as to advise masses that their water may become infertile because its ‘power’ would have already been drawn during the process of electricity generation! The result was that Kalabagh remains a non-starter.

Despite the noise, there has been consensus among stakeholders that hydro power is the most important tool for Pakistan to achieve a sustainable energy future. Since no fuel is needed as such, the variable cost of production remains significantly on the lower side when compared to other sources, and therefore acts as a shock absorber to keep burgeoning consumer bills in control.

This is probably also one of the reasons why Pakistan enjoys the highest electricity penetration in the region: 93.6pc as compared to 88.7pc in Sri Lanka, 78.7pc in India, 76.3pc in Nepal, and 59.6pc in Bangladesh.

All of Pakistan’s hydropower projects, with an installed capacity of 6,720 MW, are understandably located in upcountry: 3,849 in Khyber Pakhtunkhwa, 1,699 in Punjab, 1,039 in AJ&K, and 133 in Gilgit-Baltistan. The hydel electricity pie in Pakistan’s total power generation capacity is around 30pc, which is pretty impressive and almost double the world’s average. If the untapped potential could be harnessed, this share can be improved further, or at least, should be maintained for decades to come.

Although hydropower plants are considered to produce the cheapest electricity units, they are also the most capital intensive. For a country like Pakistan, it is not possible to undertake such big projects without the financial support of international development agencies — a fact which brings in its own share of peculiarities and challenges. The other major challenge in the successful implementation of hydro projects is the (lack of) cohesion within various official entities involved — federal and provincial ministries, Nepra, Wapda, PPIB, etc. — which often find themselves trying to achieve conflicting goals.

The Neelum-Jhelum Hydropower Plant — 969 MW; Tarbela Extension IV — 1,410 MW; Tarbela Extension V — 1,320 MW; and Karot Hydropower Project — 720 MW are some of the mega projects which are already into the implementation phase and should be completed within the next two to three years. If not, the PML-N will find itself in the deepest of waters in the next general elections scheduled in 2018. In addition, Diamer-Bhasha Dam — 4,500 MW; Dasu Dam — 4,320 MW; and Kohala Hydropower Project — 1,100 MW are in the early completion phase and need policy continuation to be completed within the stipulated timeframe.

Oil

Unlike hydropower and indigenous natural gas, oil is our major handicap as it is mostly imported both in the shape of crude oil and finished petroleum products. In 2014-15, Pakistan imported $11.7 billion worth of petroleum which accounted for around a quarter of country’s total trade bill.

Among key petroleum products, which are produced by refining the crude oil, diesel is mainly used for mass transportation and to run tube-wells, petrol is primarily used as auto fuel, and furnace oil is chiefly consumed in power plants. In the past, High Speed Diesel (HSD) — or simply diesel — enjoyed budgetary subsidies which were taken off gradually to make way for an open market regime. With the arrival of CNG, petrol — which is called Motor Gasoline in the industry jargon — witnessed subdued demand growth for a brief period before bouncing back as a result of robust growth in the automobile sales and CNG shortages.

It is furnace oil — or fuel oil (FO) — which needs special mention in the context of Pakistan’s energy landscape. The use of furnace oil substantially increased in our later history due to the propping up of thermal power plants at the turn of the century.

Installing an FO-based power plant is arguably the most tested, cheapest, and quickest methods of producing electricity in mass quantities. Also, furnace oil is considered cheaper as it usually sells at a ‘discount’, rather than at a ‘premium’ as in the case of diesel and petrol, over its input, i.e. crude.

In addition to the setting-up of thermal power projects under the traditional WAPDA establishment, the concept of Independent Power Plants (IPPs) also arrived in Pakistan in the ’90s with all its accomplishments and controversies. On the one hand, the successful implementation of the public-private venture of that magnitude — with salient features like two-part tariff, non-recourse project financing, sovereign guarantee, etc — was touted as a success story by the international developmental agencies.

Lately, local production of condensate — a lighter mixture of hydrocarbons which can be refined to produce petroleum products — gained momentum and together with the crude oil surpassed the level of 100,000 barrels per day (bpd) as compared to around 67,000 in 2012.

On the flip side, dealings with IPPs took centre stage in the power show between PPP and PML-N during that era. Shouts of kickbacks also resonated till the mess was finally settled with the help of international arbitrage. Amidst that ruckus, the fact that the country had been exposed to a tremendous and an unprecedented financial risk, and needed an adequate cover, was downplayed by the policy makers and implementers.

After an extended period of sluggishness, international oil prices rose unabatedly during 2002 to 2008, witnessing around a fivefold increase. Consequently, price of furnace oil (FO) in Pakistan also showed an increasing trend which disturbed our energy equation.

The impact was so strong that even the military backed and financially shrewd administration of Shaukat Aziz could not pass the increase in power generation cost to consumers. Budgetary subsidies to cater for the difference in the cost and the consumer tariff were not enough either and got busted shortly. The FO experience was so bitter that even the word became an unwanted mention around the ‘power’ corridors and thus the subsequent new ventures were put on the backburner.

Lately, local production of condensate — a lighter mixture of hydrocarbons which can be refined to produce petroleum products — gained momentum and together with the crude oil surpassed the level of 100,000 barrels per day (bpd) as compared to around 67,000 in 2012.

Although the quantity is not enough to suggest that we can get rid of the imports, however, it can still narrow down some of our energy gap in addition to saving the foreign currency.

The present lack of local refining capacity to cater for the locally produced hydrocarbons is a challenge which needs to be overcome to capitalise fully on this development.

The recent decline in oil prices caused a substantial decrease in the cost of furnace oil which in turn brought down the average per unit cost of electricity. In the short run, consumers will benefit from lower bills, power sector will benefit from improved capacity utilisation, and the government will get a respite from the monstrous circular debt. To find a long-term and a sustainable solution, lessons learned from the last episode must be taken into account.

Almost all of our oil imports come from the single source, i.e. Middle East, which was further narrowed down after we stopped buying the commodity from the neighbouring Iran post sanctions.

Here, it would be interesting to note that Indo-Persian oil trade continued, on deferred payments, during the same period while we don’t even look prepared to cash in from the possible reopening of the Iranian market. Without denying that we enjoyed favourable terms from friendly suppliers in the past, diversification of the supply base shall be considered for a sustainable future.

The low oil price scenario presents an opportunity to find a sustainable energy solution. This has to be done with a sense of urgency because with the present energy mix the country is still exposed to the upside risks of the international oil prices.

Nuclear

Commissioned in 1972, the Karachi Nuclear Power Plant (KANUPP) was the country’s first breakthrough in this sophisticated yet potentially hazardous technology. Aimed to provide electricity to the megacity of Karachi, the 137MW project was setup at Karachi’s coastline with the help of Canada, a country which is more popular here for immigration opportunities than strategic partnerships. It is believed that Dr Abdul Salam, the Noble Laureate, was the pivot behind that leap forward.

Since its inception, KANUPP went through many ups and downs, revamps, and technical glitches but managed to continue its operation and also provided country’s nuclear researchers with an essential guinea pig.

In 2000, the 300MW Chashma Nuclear Power Complex CHASNUPP-I was commissioned in Punjab, which was the first of a string of projects being constructed with the help of China at the same site. The second project, 300 MW CHASNUPP-II, already came online in 2011 while 340 MW each CHASNUPP-III and CHASNUP-IV are expected to be completed in 2016 and 2017 respectively. After their completion, the contribution of nuclear electricity in Pakistan’s power generation mix will surpass the 5per cent mark.

Planned to be alongside the old KANUPP in Karachi, 1,100 MW each KANUPP-II and KANUPP-III are the multibillion dollars projects expected to be completed early next decade with the help of China. Setting-up a nuclear power plant is extremely capital intensive but the operating cost is almost negligible, when compared to other options, which makes it viable in the longer run. However, an atomic power plant rings alarm bells, at times due to environmental reasons, especially if the site is located close to a heavily populated city like Karachi.

Coal

Coal is an obvious missing link in Pakistan’s energy mix. Compared to the world’s average of 41pc, and 56pc, 66pc, and 42pc in India, China, and USA respectively — despite the environmental concerns — contribution of coal in Pakistan’s power generation has been negligible, almost zilch.

The first notable coal discovery was made in the 1980s in Sindh, at Lakhra and Sonda-Jherruck, neither of which could make an impact on the county’s energy landscape. The convenience of the earlier installed hydropower and the abundance of gas were perhaps the reasons why we had been complacent towards the ‘poor-man’s fuel’.

That the Thar coalfield, discovered in 1991, possesses among the largest coal deposits in the world, simply added insult to injury. It has been now two-and-a-half decades, with a mixture of civilian and military governments, but the nation is yet to see a single unit of electricity from these mammoth lignite reserves flowing into the national grid.

The closest it reached to materialisation was during the last military regime, when a 600MW turnkey project was stalled due to the tariff rift between the Chinese sponsors and Wapda — the earlier demanded 5.6 US cents per unit while the later insisted on 5.3 US cents per unit.

Compared to the world’s average of 41pc, and 56pc, 66pc, and 42pc in India, China, and USA respectively — despite the environmental concerns — contribution of coal in Pakistan’s power generation has been negligible, almost zilch.

Nuclear physicist Dr Samar Mubarakmand proposed the idea of Underground Coal Gasification — an alternative to conventional coalmining techniques. Despite criticism by his contemporaries, and his complaints of lack of seriousness by the government, his team announced generating the first megawatt earlier this year, albeit off-grid. No matter which technology is used, the primary stumbling block has been the logistics or evacuation of power, because of the lack of transmission network to the far flung Thar Desert. Unfortunately, there still seems no concerted plan to sort that out without which pinning hopes in the much touted potential of Thar coal will be unrealistic.

In the international market, commodity prices experienced extended battering after the financial crisis of 2008 with coal being the chief victim. Lower price levels prompted the local business community to pitch imported coal as a quick fix, especially after seeing the cement sector exploiting the opportunity.

Gadani Power Park also came into the limelight before moving to the backburner due to the lack of a well thought-out strategy. Conversion of existing fuel oil fired power plants first to imported coal and then to the indigenous variant had also been deliberated and in some cases the idea is under implementation also.

These developments may help in diversifying our energy palette provided they are executed in time and taken as more than mere stopgap arrangements.

Natural Gas

The first major discovery of natural gas in Pakistan was made in 1952 at a remote and then less-known location in Balochistan called Sui. The small town turned into a household term soon after, so much so that the term Sui Gas is still used as a synonym for natural gas. It was a significant commercial discovery, even by international standards, and came as a perfect gift for the newborn country. For decades to come, the nation did not need to even think about the energy woes. And it didn’t.

The find propelled the laying down of a country wide high-pressure transmission and low-pressure distribution network of gas pipelines.

The Sui Gas Transmission Company Limited was formed in 1954 to take care of the southern parts of the country. In 1989, it was transformed into the present day, scandal-hit Sui Southern Gas Company (SSGC). Sui Northern Gas Pipelines (SNGP) was incorporated in 1963 to take over and extend the network to the upcountry. It was made sure that the commodity was delivered at the doorstep to each and every urban as well as industrial centre.

It is argued that Pakistan still possesses one of the world’s most extensive inland natural gas supply infrastructure with a mind boggling total length of around 140,000 km — enough to circle the whole world at-least three times.

The failure to implement a reliable LNG import mechanism, which is a proven short-term solution of filling the demand-supply shortfall internationally, is only a symptom of bigger issues in our governance structure.

Major discoveries soon followed in Mari and Kandhkot, but these had to be kept idle in the initial years because of lack of demand. The latest string of big finds came in the last decade of the 20th century at Qadirpur, Zamzama, Sawan, etc.

Interestingly, although the share of Sui in the overall national gas production reduced significantly over the years, it still enjoys an uncontested popularity especially among households, most probably because of the nomenclature of the utility companies. Almost all of the major post-Sui gas discoveries were made in the lower Indus sedimentary basins tilting the balance of gas power from Baluchistan to Sindh.

Over the period, scope of gas utilisation was also inevitably expanded from the domestic to fertiliser, industrial and commercial sectors to fully reap the benefit of it without caring much about the efficiency and the conservation.

On the flipside, the people of Baluchistan remained deprived of this resource, while elite industrialists and the urban middleclass across the country counted their blessings.

As for Sindh, while parts of the province managed to attract infrastructure investment most of the province, including areas surrounding the gas fields, remains a frustratingly pessimistic picture of poverty, neglect, and misery. Whatever the reasons were — colonial mindset of the federal establishment or sheer incompetence of provincial representatives or both — the bottom line was the deficit of trust between the people and the system simply increased. Whether the 18th amendment will be able to bridge that and trigger a turnaround is still up for debate.

On the gas demand supply front, It was all hunky-dory until the advent of the 21st century, when, in the pursuit of high economic growth, the regime of General Musharraf, with his financial whiz Shaukat Aziz, decided to set up a series of dual-fuel power plants in addition to switching the transportation sector, partly, to Compressed Natural Gas (CNG).

The low cost, efficient, environment friendly nature of natural gas, relative to other fossil fuels, along with the guaranteed foreign currency returns on power generation plants also helped in the bankability of such projects and attracted investment.

Power generation cost from the indigenous gas is not only the lowest, after hydro, but it is also considered to be the most economically optimum utilisation of the resource. On these lines, Furnace Oil (FO) based power plants were also switched to natural gas during the last military regime, to help keep both the import bill and electricity bills, macroeconomic and microeconomic factors respectively, under control.

Gas suddenly became such a favourite input for power production that even permeate gas, which is also called low-BTU gas because of its low heating value and which is otherwise not sellable through the conventional network, was also made full use of.

Resultantly, natural gas consumption accelerated — from 1,742MMCFD in 1998-99 to 3,181MMCFD in 2004-05 — and so did the rate of depletion of national gas reserves. Currently, the average gas production is estimated to be around 4,000MMCFD while the supply-demand gap is thought to have reached 1,000-1,500MMCFD and is expected to widen-up to 4,000MMCFD by the year 2020 unless significant new production comes online.

In order to bridge the future gap, the case for a transnational pipeline to import the commodity from gas rich countries in the region had already been established even before the crisis.

In 1996, Inter State Gas Systems (Private) Limited was established with the initial mandate to import natural gas through Iran-Pakistan-India (IPI) Pipeline project which was then expanded to include Turkmenistan-Afghanistan-Pakistan-Iran Pipeline project.

Regardless of the potential of bringing change in the lives of around a couple of billion people or more, both these projects soon became pipedreams due to a combination of internal capacity constraints and external geopolitical sensitivities.

Amid all the brouhaha about the energy shortages, and with no solution in sight, arrived the magical solution-turned-scandal proposition of Liquefied Natural Gas (LNG). As the term suggests, LNG is essentially a natural gas which is liquefied for the purpose of transporting overseas through specially customised vessels before re-gasifying it at the destination port.

The re-gasified LNG, or R-LNG, may then be injected into the already developed gas infrastructure of the importing country.

The failure to implement a reliable LNG import mechanism, which is a proven short-term solution of filling the demand-supply shortfall internationally, is only a symptom of bigger issues in our governance structure which has weakened due to years of carpetbaggery, incompetency and nepotism.

There had been question marks on the commercial feasibility of the imported fuel also which may need to be reviewed with the falling commodity prices worldwide.

Despite all the negativity, natural gas is one of our major internal strengths with the capacity to support the economy and to bring down poverty levels. Aggressive exploration activity needs to be encouraged to relinquish the extractable reserve pool. Rather than putting the blame on low gas prices, which is also debatable, people at the helm should also realise that our existing gas infrastructure was laid down to capitalise on the internal resource and may not withstand the import influx which requires adequate planning and capacity building.

Wind and Solar

Pakistan has made notable inroads in recent years in harnessing wind potential by setting up private power plants around Gharo and Jhimpir wind corridors in Sindh. Around 200MW has been added to the national transmission system, with much more in the pipeline, helping the share of alternative sources in the national energy mix breaking the goose egg.

Planting a wind farm is immensely capital intensive and even if there is no fuel cost as such, per unit cost of electricity generated from wind turbines is no way consumer-friendly.

Lower oil prices further pose a threat to its viability in the middle term. Although there are no doubts on the value it adds for a sustainable energy landscape, technical complexities limit the role of wind energy to a secondary source, rather than being an independent substitute, worldwide.

In Punjab, there has been a newfound activism for solar power park being proposed at the brink of the Cholistan Desert.

Similar to wind, solar power also needs huge upfront investment which is supposed to be offset by the absence of fuel cost. However, it is even more technically complicated as it tends to destabilise the central transmission system.

This is true that this form of renewable energy has been popular in recent times, but without an adequate need analysis and understanding of the inherent risks the venture could degenerate into another Nandipur.

Similar to wind, solar power also needs huge upfront investment which is supposed to be offset by the absence of fuel cost.

However, it is even more technically complicated as it tends to destabilise the central transmission system, or in technical terms is difficult to synchronise.

In some developed countries, solar is being used to de-stress transmission systems, through encouraging countryside consumers installing it domestically using the net metering mechanism.

Elsewhere, solar has also been used in far-flung off-grid locations to bring down the poverty index.

The bottom line is that while Pakistan’s energy problems must be resolved, this must be done so while maintaining a careful balance between political compulsions and practical considerations.

Published in Dawn, Sunday Magazine, October 4th, 2015

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