Economics and politics of energy imports Dr Shaukat Hameed Khan Pakistan is in the middle of a major socio-economic crisis because of the non-availability of electricity on a sustained and affordable basis. The crisis is basically caused by major gaps on the supply side, in spite of suppression of demand. Inefficiency in generation, transmission and distribution system is exacerbated by thefts, leading to higher prices for those who pay their bills. Tariff differential subsidies, and mismanagement and confusion caused by the ‘unbundling’ of the earlier monolith, WAPDA, have all contributed to the present crisis. The clear example of this state of affairs is reflected in the so-called ‘circular debt’ of over Rs872 billion in 2012, which increased by Rs230 billion during 2012. The energy and electricity scenario in Pakistan is likely to remain fragile for the next several years. Electricity demand in Pakistan has increased four-fold in the last 25 years, and is now growing at over 9 percent per annum, given the backlog from several years. Nearly 160,000 MW will be required by 2030 (Energy Security Plan 2005, and Vision 2030), including a ‘standby’ 12,000-15,000 MW to cater for maintenance, and breakdowns. Incidentally, global warming and climate change has not been factored into previous or current energy plans. The government has rightly made energy autarky its basic plank for economic growth and development, and apart from rapid enhancement of local generation, four major sources of gas and electricity imports are being evaluated. These are gas imports via pipelines from Iran (IP) and Turkmenistan (TAPI), LNG imports from Qatar directly or via India, and electricity imports from Central Asia and India. The current gas shortfall exceeds 2.7 bcfd (billion cubic feet per day) or 38 percent, rising to 5.1 bcfd or 64 percent of the projected demand of 7.99 bcfd in 2017. (ref: Inter State Gas System, isgs.pk). When completed, the IP (Iran –Pakistan) gas pipeline, will deliver only 0.75 bcfd by 2017 (initially 0.25 bcfd by 2015), with a second proposed natural gas pipeline adding another 0.75 bcfd after 2020. The TAPI gas pipeline from the Yoloten/Osman and adjacent Daulatabad gas fields in Turkmenistan promises to bring in 1.3 bcfd at similar cost, and would take another 4-5 years to build, with the added constraint of ‘maintenance shutdown’ during winter when our demand is highest. Despite US support, TAPI faces inherent logistical and geopolitical drawbacks, with instability in Afghanistan compounded by the ‘responsibility’ of the Indian partner (GAIL) to ensure safety of supply inside Afghanistan. Can supply be assured with an Indian entity operating at this level inside an unstable Afghanistan? The cost of gas from both TAPI and IP is high, as it would inject gas into the large Pakistani gas infrastructure at around USD 13/MMBtu (million Btu). This would be cheaper than the LNG imports from Qatar (USD 20/MMBtu), but would still be three times the locally produced gas, leading to a major price shock for the consumers. Furthermore, IP faces US and Western sanctions, All these factors make their timely execution doubtful. The pricing of LNG imports from Qatar goes against international trends, with the USA exporting LNG to India at US$ 10.5/MMbtu, compared with the US$ 17-18 negotiated by Pakistan. Despite claims to the contrary, Qatar LNG is not a government-to government deal. The US oil giant Conoco Philips will be the intermediary for LNG, with Engro offering its terminal for offloading LNG. This will raise the landed cost to over USD 20. Besides, the Engro terminal just cannot handle the scale involved. Interesting, India has offered to sell Qatari LNG via pipeline to Pakistan, which has price and security implications. A transnational pipeline is most successful, when it is a bilateral arrangement between two nations, with the next best option involving transit through a country which is either powerful and friendly, or small enough to be friendly (Example: the BTC oil pipeline from Baku to Ceyhan in Turkey through Tiblisi). It may be noted that sanctions and political factors have stymied the Nabucco gas pipeline project from Iran to Europe through Turkey or Armenia. Indian offers to export 500MW to 1000 MW of electricity is surprising as India has no spare electricity. With far less electricity access to its people, India still had a shortfall of around 27 percent in 2012. Its SEBs (State Electricity Boards) are in dire financial straits, with accumulated losses exceeding USD 100 billion through inefficient generation, and extremely high T&D losses and thefts. Eight SEBs have ‘losses’ between 40-50 percent, while seven range between 30-40 percent. In contrast, Pakistani T&D losses are really heavy only in Hyderabad, Peshawar and Quetta (34-38 percent), with a national average ‘loss’ of about 23 percent. Controlling these ‘losses’ can add over 1500 MW into the system. Importing electricity from India has another negative fallout, namely, the Indian programme for dams upstream on our rivers. We are likely to lose out in not just water, but also in buying expensive electricity at over Rs10 per unit while hydel generation in India costs under Rs2 as in Pakistan. Nepal has a bitter experience with the sale of hydro-electricity to India. Similarly the ADB backed CASAREM project of importing 1000 MW from C. Asia, across the earthquake-prone, violence racked, and hostile Afghanistan, has been plagued with severe problems, and is not sustainable. Serious issues have surfaced between Kyrghistan and Tajikistan about the yet-to be-built Rogun dam, and water rights on the Amu Darya. There seems to be a concerted effort to make India the regional energy player as far as Pakistan is concerned. This has serious implications for our energy security. India has been a ‘spoiler’ whenever Pakistan negotiates transnational pipeline projects. We could have had Iranian gas for under three USD back in 2002, until India suddenly showed interest in joining. Incidentally, India does not have even a fraction of the gas transmission and distribution system available in Pakistan. Regional energy imports and grids are certainly attractive, but they always follow the availability of a peaceful and conflict-free region as exist between Pakistan and China, and cannot precede it as is the case with India. Further, such options can be effectively leveraged only if adequate preparation is made by ensuring that the cost of supply is carefully negotiated. Plans for electricity imports have wrongly assumed that spare capacity is economically available and assured from India or Central Asia. The situation becomes even more difficult as USA and Nato troops withdraw from Afghanistan. Pakistan must make a major effort for oil and gas exploration within the country as well as offshore in the Arabian Sea. We must invest in the energy infrastructure to absorb the projected increases. We drilled a total of 72 wells last year (exploration plus production) as against 20,000 each in Canada and the USA. LNG and coal terminals need to be established on a fast track, while railways need to rebuild their freight system to carry imported coal to upcountry demand centres. Rehabilitating/converting existing thermal power plants to coal can be done at a third of the cost of a new plant. Finally, recent advertisements for energy sector positions seem to be ‘one cut – fit all’, with MBAs as a favourite buzzword. Energy and power generation in the 21st century is about technology, and technology management, not MBAs or marketing people or accountants. The writer has served as member Planning Commission, rector GIKI and chief scientist PAEC. Email: [email protected]
Posted on: Wed, 21 Aug 2013 19:16:40 +0000
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