Internationalising the energy sector
Public policy comes to the front burner only when there is a real crisis on the supply side – when serious shortages have appeared in the power sector; when oil prices suddenly go up; when natural gas, once considered to be an abundant resource, also experiences supply shortages.
The consequence of this stop and go approach to policy making is that the energy sector has not developed to assure an optimum use of available resources for supplying energy; does not charge users according to the contribution they make to promote social and economic development; does not have an institutional underpinning that would ensure good cooperation between the public and private sectors in the energy area.
If there is an urgent need to think strategically for developing the energy sector, what does it really imply? Today I will discuss an issue that has seldom figured in the discussion about energy development. I believe that one approach the government should seriously consider is how relations with the countries in the neighbourhood could help in developing reliable sources of supply of energy to the country.
Looking at the prospect of “internationalising energy” would, of course involve working closely with India. This may be hard to contemplate when the Mumbai incident of late November has resulted in a sharp deterioration in relations between the two South Asian countries. One hopes that good relations will be restored soon and the two states will once again begin to work together to bring peace and prosperity to the region. .
Pakistan’s energy sector is dependent on imports for producing the energy the economy needs. Much of the oil and petroleum products required by the economy come from overseas; a significant part of total electricity generation is produced by imported fuel; even natural gas, once an abundant domestic resource, is now being brought in from the outside. But the internationalising of the energy sector means more than using imported raw materials; it means making Pakistan’s transmission and distribution systems for electricity, gas and petroleum products part of regional infrastructures.
Given Pakistan’s location, the first step in that direction could be taken by Islamabad. The country has an extensive power transmission grid now managed by a state owned enterprise. It connects the various centres of power generation with all points of consumption. But the system stops at the borders; a low voltage line with Iran is the only link the country has with any place outside its borders. There was a link with India at the time of partition. In fact, much of the electricity consumed in Lahore came from India but this link went into disuse following the 1949 trade war between the two countries.
Extending the system to its neighbours – to Iran, Afghanistan, Kashmir, China and India – will serve the country well in several different ways. It will provide access to the supplies from Iran, one country in the region that has a surplus of electric power. Imports from Iran would help to deal with the kind of shortages experienced by the country in 2007-08 – shortages that are likely to persist for at least two to three more years.
Linking the grid with Afghanistan would help in other ways as well. If peace comes to Afghanistan sometimes in the future, that country’s rate of economic growth will pick up significantly. This will need power which the country does not produce and which it could import from the resource-rich countries of Central Asia. Taking the Pakistani national grid to Afghanistan will help the country to link up with Central Asia and gain access to that region’s rich energy sources. That region, like Iran to the west, could also become a source of supply for the power-deficient Pakistan.
The southern provinces of Afghanistan – those that are contiguous to the Federally Administered Tribal Areas (the FATAs)—have the potential to generate hydroelectricity by tapping the numerous mountain streams that criss-cross the area. Afghanistan and Pakistan could work together to implement a development programme aimed at utilising this potential. Given the western interest in pacifying this troubled area, such a programme would be a good candidate for foreign financial assistance.
A similar approach could be developed to exploit the very large hydro-power potential of the two parts of Kashmir. India and Pakistan should work to extend the two grids in their countries to Kashmir and feed it with the power to be generated by the large systems that are already under construction or are being planned. A mechanism should be developed that would facilitate energy trade in Kashmir. A similar trading system could be set up to manage the flow to and from Kashmir and Pakistan.
Moving towards the east, the large grids in Pakistan and north-western India should be connected. This could be done relatively easily and at not much cost since the distance between the two is not very great. Once again the idea behind the link would be to bring some stability to both sides of the border. Both India and Pakistan are currently experiencing severe power shortages. Power can be exported or imported, again creating a trading system of the type suggested for Afghanistan and Pakistan and for the two parts of the state of Kashmir.
There will be one other advantage of linking the grid systems of India and Pakistan initially at two points – one near Lahore and the other in Southern Sindh and Northern Rajasthan. This will connect the Indian systems through Pakistan with Afghanistan and Iran and with the countries in Central Asia. This multi-country system of electric power grid would help the states involved to lay the ground for regional co-operation between South Asia and Central Asia.
While no known work or studies have been done on the grid links involving the power sector, there has been a great deal of activity in building gas pipelines connecting South Asia with gas surplus countries of the Persian Gulf, in particular with Iran and Qatar. But the effort to develop the most promising venture in this sector, the much studied, much discussed and much negotiated Iran-Pakistan-India gas pipeline, the IPI, has gotten mired in international political imperatives and national strategic interests.
The United States, during the presidency of George W. Bush, having identified Iran as a member of the “axis of evil”, imposed a number of severe sanctions on Tehran which prevented the participation of American companies in a venture such as the IPI. The American sanction regime also made it costly for companies from other western countries to provide finance or technology for such a project.
India too became more hesitant with time as it got closer to the US while negotiating a deal that was to eventually get it membership in the nuclear club of countries. It was also concerned with the security situation in Pakistan which deteriorated considerably in the early 2000s. While the project has not been abandoned, it has certainly been placed on the back burner.
The third area where internationalisation of the energy sector could bring considerable benefits to South Asia is in the transport and storage of oil and petroleum products. These are some of the commodities in which the area has sizeable deficits. Some years ago, Reliance Industries of India, the largest privately owned company in the country, proposed using the depleted salt mines at Kalarkahar, south of Islamabad, for storing oil and petroleum products.
According to the company these sites, because of their structure, offered good storage facilities that could be developed at a relatively low cost. The company was also interested in investing in refineries in Pakistan which could also supply petroleum products to the north eastern parts of India that were distant from the country’s western ports. That way, the supply line would have been considerably reduced.
The Reliance ideas were not further explored because of the uneasy relations between the two countries. That notwithstanding, integrating the oil and petroleum sectors in the north and north eastern parts of India with Pakistan offers substantial economic efficiencies to the two countries. This is especially the case with the development of the port of Gawadar on Pakistan’s Balochistan coast. The port is located at a short distance from the oil and gas rich countries of the Gulf coast and could become an important port for supplies to India.
Internationalisation of the energy sector and incorporating the advantages geography offers to Pakistan for developing a comprehensive energy strategy would require the exercise of considerable political will.
A democratically elected government may offer a better opportunity for bringing this about than a military-led administration which looked at economic development from the narrow angle of national security.