Gas and Electricity Shortages Hurting Pakistan

[Riaz Haq]

Hagler Bailly, a global management consulting firm with an office in Islamabad, warned in a 2006 study that Pakistan is going to witness gas shortage starting in 2007, and the imbalance will grow every year to cripple the economy by 2025, when shortage will be 11,092 MMCFD (Million standard cubic feet per day) against total 13,259 MMCFD production. The Hagler Bailly report added that Pakistan's gas shortage would get much worse in the next two decades if it did not manage any alternative sources. It appears that we are seeing the beginning of the crisis that HB predicted back in 2006.

Demand for natural gas in Pakistan increased by almost 10 percent annually from 2000-01 to 2007-08, reaching around 3,200m cubic feet per day (MMCFD) last year, against the total production of 3,774 MMCFD, according to Pakistani official sources. But, during 2008-2009, the demand for natural gas exceeded the available supply, with production of 4528 MMCFD gas against demand for 4731 MMCFD, indicating a shortfall of 203 MMCFD. This winter, Sui Northern Gas sources have reportedly told the media that the company is dealing with a shortfall of 700 MMCFD of gas due to increasing use of heaters and geysers.



The potentially devastating effect of the gas shortage on the nation can be gauged by the fact that Pakistanis heavily depend on gas for their energy needs, much more so than neighboring Indians. With a gas pipeline network stretching around 56,400 km, pipeline density of 1044 km/mmscmd (million metric standard cubic meter per day) and a 31,000 km distribution network to serve its domestic and commercial consumers and nearly 3000 CNG stations, the gas consumption in Pakistan is much higher than its bigger South Asian neighbor.

According to International Association of Natural Gas Vehicles, as of December 2008, Pakistan has the world’s highest number of vehicles running on compressed Natural Gas (CNG). The number is 2 million. Pakistan also has the World’s largest number of CNG refueling stations, 2941 as of July 29, 2009.

Just as the worst electricity crisis of its history is currently gripping the nation, it appears that the gas crisis has begun to rear it ugly head, with recurring reports of low gas pressure, CNG station closures and rationing, and gas "load shedding" for businesses and consumers. The blame game has already started and there appears to be little relief in sight on either the electricity or the gas fronts. One of the reported effects of the gas shortage is delay in the availability of power from the rental power plants which are expected to operate on gas. It appears that the attempt to solve the electricity crisis has made life even more difficult for the people by spawning a gas crisis at the same time.

Citizens and industries in Lahore have been particularly badly hit, resulting in angry protests widely reported in the media. The All Pakistan Textile Mills Association (APTMA), the textile industry group, has claimed that it suffered losses of about Rs 1 billion in December due to lack of smooth gas supply to the industry. Pakistan's CNG industry is also feeling the pinch after rapid growth in the last few years.

A story in Pakistani newspaper the News is alleging that "these expensive rental power plants, which were being installed with tall claims to address the energy crises in the country, were said to have now become one of the major reasons behind a new sorts of energy crises in Pakistan, as their gas requirements are bound to hit other sectors of economy running on gas supplies".

In response to the alarming gas situation, there are reports that Pakistan is finally going ahead with the multi-billion dollar Iran-Pakistan Gas Pipe Line Project and has initiated the process of arranging financing of US $1.245 needed for laying 800 Km long pipe line from Pakistan-Iran border to Nawab Shah. Pakistan will also import 1.05 billion cubic feet of gas per day from Iran at 78 percent of crude oil parity price. Pakistan and Iran have already signed Gas Sales Agreement (GSPA) for importing 750 million cubic feet gas per day which will be used to generate 4500 MW of electricity and would be a cheaper alternative to the presently expensive imported furnace oil used in the existing thermal power houses. Another 250 million cubic feet of Gas per day is also envisaged to the purchased for development projects at Gawadar in Balochistan. Considering the magnitude and strategic nature of the Gas Line Project, the government has adopted a private-public partnership approach for financing the project with debt equity ratio of 70:30 under which the Pakistan government will provide 51 per cent equity. This equity financing would be provided upfront through selected Public Sector Entities like OGDCL, Pakistan Petroleum Limited , Government Holding Private Limited, Employees Old Age Benefits Institution and State Life Insurance Corporation. The debt will be sourced from the market backed by the government guarantees for transportation tariff. Any gap in raising the required debt from the market, the funds will be available by PDSP allocations.

As the nation's attention turns to the gravity of the worsening gas energy crisis, the growing supply-demand gap for electricity is still unaddressed. The government's attempts to fill the gap with rental power have raised many questions and drawn serious corruption charges from the opposition parties and the media. Analysts at Center for Research and Security Studies are asking why have some private power producers completely shut down? And why are other private power producers operating well below their full capacity? It is being alleged that the reasons for buying rental power to fill the electricity gap rather than pay the outstanding dues of the independent power producers (IPPs) to fully utilize exiting installed capacity have to do with the kickbacks offered by the rental power operators. According to Reuters, Finance Minister Shaukat Tarin almost resigned after failing to persuade the cabinet against renting, an option he considered expensive and inefficient.

There have been widespread complaints in Islamabad, including by Mr. Tarin, that the government had solutions to improve the power output but was refusing to implement them in order to benefit a handful of power plant operators, such as those supplying rental power, while the IPPs are not being paid for supplying power from currently underutilized installed capacity. Requests for information by Transparency International Pakistan regarding rental power contracts have been ignored by the Ministry of Water and Power. There are widespread corruption allegations against President Asif Ali Zardari personally who has allegedly influenced the award of the 783 MW rental power contracts to a former governor of Oklahoma and his Pakistani partner.

The failures of the last and the current governments in tackling the growing energy crisis in Pakistan are shameful. Inaction at this point would be criminal. The Iran-Pakistan gas pipeline project has to be accelerated to avoid significant further harm to the country. At the same time, the shortages of electricity and gas need to be managed actively and fairly to minimize the impact on the consumers and the businesses to help the economy recover from the current slump. The issue of unpaid electricity bills and the rampant power theft should be confronted head-on to restore investor confidence in long-term energy projects in the country. Since the federal government is the biggest dead beat, followed by the four provincial governments, FATA, the KESC and the KW&SB, it is an opportunity for the current leadership in Islamabad to lead by example by paying off their outstanding utility bills.

Related Links:

Pakistan's Electricity Crisis

Pakistan's Gas Pipeline and Distribution Network

Pakistan's Energy Statistics

China Signs Power Plant Deals in Pakistan

Pakistan Pursues Hydroelectric Projects

Water Scarcity in Pakistan

Energy from Thorium

Comparing US and Pakistani Tax Evasion

Zardari Corruption Probe

Pakistan's Oil and Gas Report 2010

Circular Electricity Debt Problem

International CNG Vehicles Association

[Riaz Haq]

Country’s (Pakistan's) installed electricity capacity increases by 30pc to 29,573MW

https://www.thenews.com.pk/print/309535-country-s-installed-electri...

Economic Survey 2017-18 unfolds that Pakistan’s installed capacity to generate electricity has surged up to 29,573MW by February 2018 which stood at 22,812MW in June 2013, showing the growth of 30 percent.

As far as the transmission and distribution losses are concerned, the Economic Survey says average losses were at 18.9 percent in 2013 which have now reduced to 17.9 percent in 2018 showing the government has succeeded to reduce the losses by 1 percent.

The recovery of the billed amount of electricity sold to the consumers stood at 89.6 percent. During the period from 2013 to 2018, as many as 39 projects with cumulative capacity of 12,230MW have been added. Due to significant improvement in the energy mix, the country’s reliance on expensive oil has been reduced.

The better energy supply has helped large scale manufacturing (LSM) and in turn manufacturing to both grew above 6 percent in FY 2017-18, which is an 11-year high. In power sector, per capita electricity consumption is considered one of the most important economic welfare indicator regarding availability of affordable energy. Pakistan is bestowed with enormous hydro and coal potential which, if carefully exploited, can ensure our future energy security on long-term basis. Further, the expansion in generation capacity requires supporting expansion in the transmission infrastructure for evacuation of the power.

China-Pakistan Economic Corridor (CPEC) is another major breakthrough in the development of the country’s energy sector, under which financial outlay of around $35 billion has been made for energy sector projects including power generation and transmission projects to be implemented in IPP mode. In case of natural gas, the gap between demand and supply was widening due to increase in gas demand and depletion of existing sources.

The government has made efforts to exploit indigenous resources as well as import gas though transnational pipelines and LNG to mitigate the shortfall. Indigenous crude oil meets only 15 percent of the country’s total requirements, while 85 percent requirements are met through imports of crude oil and refined petroleum products. The indigenous and imported crude is refined by six major and two small refineries. The present government not only made concerted efforts for upgradation of existing refineries, but also made addition of six depots with inland freight equalisation margin. Further, to promote fuel efficiency, the government has introduced marketing of 92 RON premier motor gasoline replacing the existing 87 RON PMG under the regulated environment.

Pakistan has large indigenous coal reserves estimated at over 186 billion tons which are sufficient to meet the energy requirements of the country on long-term basis. There has been significant increase in import of coal due to commissioning of new coal based power plants at Sahiwal and Port Qasim.

[Riaz Haq]

India’s Power Mess Is Enron Times 20
Banks are on the hook for $26 billion in loans to stressed electricity projects.


https://www.bloomberg.com/view/articles/2018-05-14/india-s-latest-p...



Enron Corp. is long gone, but the scandal it left behind in India has beguiled the country’s lenders for almost two decades.

However, if the bankers who financed the U.S. energy company’s unviable power plant in Maharashtra state aren’t ruing that 2,000-megawatt debacle any more, it’s only because they’re now staring at a mess 20 times bigger.

India’s total electricity-generation ability is 344,000 megawatts, a 72 percent increase over six years. The country, notorious for its outages, still doesn’t have a power surplus. But coal-fired plants in the private sector that ran at 84 percent capacity utilization at the start of the decade are struggling to stay alive with load factors of 55 percent. As much as 40,000 megawatts of capacity — equal to 20 Enron plants — has become stressed assets for the banking system.

Struggling to Stay Open
Capacity utilization of India's coal-based power plants in the private sector has collapsed

Lenders, on the hook for $26 billion, are yet to classify these exposures as nonperforming, let alone provide for losses out of (their increasingly nonexistent) profits. However, now that the central bank is forcing them to clean up their act, they’re trying to think of creative solutions. According to BloombergQuint, the banks will convert debt that’s unsustainable into equity and sell those shares to a jointly owned asset management company. The AMC will hawk its controlling stakes in power producers after a turnaround.

A better idea may to be to fix the underlying profitability of the power business. 

Forget long-term power purchase agreements. State utilities are shy to sign such contracts anyway and prone to ditch them at the first hint of cheaper electricity in the wholesale market. Let most of the demand and supply move to exchanges with open access for all bulk buyers and sellers, says Hemant Kanoria, chairman of India Power Corp., a 99-year-old company involved in both electricity generation and distribution.

The share of power trading in the country’s overall demand-supply equation has been stagnant for years at about 10 percent. This needs to change. 

The other big issue, as Kanoria rightly notes, is coal. India has no shortage of the fuel, but its dominant miner, which met 95 percent of its 600 million ton production target last year, needs to crack the whip on underperforming subsidiaries.

Power plants’ coal inventories are falling, and linking domestic availability to whether a producer has a long-term electricity purchase agreement with a state utility isn’t helping. Rather than continue with a less-than-satisfactory auction system, let Coal India Ltd. fix a price at which it would assure supply to whoever is willing to pay and take away the feedstock.

Running Low
Despite massive growth in India's power capacity, coal inventory at electricity plants is below this decade's average

Finally, financing costs, which have ballooned to half of the total expense of putting up a power plant, need a tweak. Restructuring unserviceable loans into other instruments — such as preference shares — would give producers some breathing room, Kanoria says. 

It’s silly of lenders to expect that debt with annual interest rates of 16-percent-plus won’t eventually turn bad. Dragging borrowers to the bankruptcy tribunal won’t solve anything. Most assets would sell for scrap value; jobs would be lost. Sweeping the problem under the carpet of an asset management company may preserve employment, but the immediate financial hit to banks could upset their already weak capital position. Besides, if existing owners are booted out, who will run the plants?

It was relatively easy to leave Enron’s Indian unit in the care of a couple of state-run companies, as the government did in 2005. That can’t be a template for a problem 20 times larger. 

[Riaz Haq]

Record power generation of 18,900MW achieved
Khaleeq Kiani Updated June 03, 2017 

https://www.dawn.com/news/1337054

Following protracted power breakdowns in the country, with Sindh and Khyber Pakhtunkhwa being the hardest hit, the government finally took a sigh of relief on Friday as the total generation on the national grid reached 18,904MW for the first time amid a lower demand owing to a slight let-up in the intensity of the heatwave.

The Guddu Thermal Power Station achieved a maximum production of 1,300MW after it received 28 per cent enhanced gas supply from the Kandhkot Gas Field (KGF), and the Nandipur power plant reached its full capacity of operations at 415MW.

A power ministry official said even though the demand for power had not exceeded 23,000MW this year, sustained generation at this level would be sufficient for load management of about 3,500MW with an average of four to five hours of loadshedding, while parking most of the shortfall in high-theft-low-recovery areas.

A spokesperson for the Pakistan Petroleum Limited (PPL) said the company had increased gas supply from the KGF — from 180 million cubic feet per day (MMCFD) to 230MMCFD — and was ready to ramp it up to a further 250 MMCFD if required.


Two other 200MW units at the Guddu power plant are currently being refurbished and would become available in a month to help increase its capacity to about 1,700MW, with utilisation of full gas supplies from KGF, making it the country’s largest power station.

[Riaz Haq]

PPL Finds Largest #Gas Reserves in #Pakistan Since Sui. Drill Stem Test (DST) reveal these gas reserves might potentially exceed 1 trillion cubic feet. For comparison, #Sui has estimated reserves of 2 trillion cubic feet.

https://propakistani.pk/2020/02/07/ppl-finds-largest-gas-reserves-i...

Pakistan Petroleum Limited (PPL) has found huge gas reserves in Margand block at Kalat, Balochistan.

According to details, PPL owns 100% of the drilling rights of the block and had been drilling at Margand X-1 block since 30 June 2019.

Last year, PPL carried out a Modular Dynamics Testing (MDT) at a depth of 4,500 meters at the block. MDT proved the presence of large gas reserves.

PPL further conducted a Drill Stem Test (DST) which revealed that these gas reserves might potentially exceed 1 trillion cubic feet.

For comparison, Sui has estimated reserves of 2 trillion cubic feet with a daily output capacity of about 604 million cubic feet.

DST of only Margand X-1 suggests that the entire block has the potential to supply 10.7 million cubic feet of gas per day (mmcfd) at a choke size of 64/64 inches and flowing wellhead pressure of 516 pounds per square inch (psi).

This is the first significant discovery of gas reserves in Balochistan since 2000. Companies such as British Petroleum, Petronas, and Niko Resources had tried to tap unexplored reserves since then. However, all companies failed to discover reserves this large and pulled out of the country.

Furthermore, little to no attention was given during the tenures of previous successive governments to exploit the domestic wealth of minerals and fulfill the energy needs of the country.

Instead, questionable contracts like rental power plants and LNG power plants were signed, which the NAB has been investigating.

Pakistan can save more than $900 million on the import bill if Margand gas reserves replace LNG, which costs domestic consumers 100% more than Sui gas, according to an ex-PPL board director.