In Pakistan, the days of doing business by candlelight are far from over. Power cuts in many areas of the country last as long as 16 hours every day, and consumers will be paying about 45 per cent more for electricity by the end of this month compared with last year as government subsidies are withdrawn. Ending the power subsidy might help the country get US$6 billion (Dh22.03bn) of loans from the IMF, but it will deeply hurt the people of Pakistan.
The country's demand for electricity doubles about every 10 years, which implies that ensuring enough supply is essential for the economy to stay afloat, at least in theory. With a population of more than 170 million, this South Asian nuclear-armed nation is the world's sixth-largest consumer market by population and a place of interest for many international investors. With its government offering incentives such as 100 per cent ownership of businesses by foreigners, tax holidays, low-cost land, specialised industrial zones and repatriation of funds, one would think there would be investor interest. But watching the potential gold mine that is Pakistan from a distance makes more sense than committing funds to its industrial or agricultural sectors: factories need power to function, and foreign investors are reluctant to compete with the rising population of this country for a resource as precious as electricity.
Pakistan's economy has threatened to go under a number of times in the past decade or so - not entirely on account of power shortage - but if an economic collapse were to occur, power shortages would be a major contributor. The country's shortfall between power generation and demand is widening with every passing year. It is a peculiar truth for a country with major coal reserves. The estimated coal deposits at Thar in the southern province of Sindh are massive: as much as 175 billion tonnes. However, since the discovery almost 18 years ago, Pakistan has managed to fully explore only six blocks, spanning 488 out of a total 9,100 square kilometres of the Thar reserve. The drill-proven reserves, according to Pakistani government data, are 3.7 billion tonnes.
The data show that Pakistan has so far managed to explore with the help of international partners only enough to generate 63,390 megawatts of electricity for the next 30 years. With two more blocks under exploration, experts say proven reserves are enough for Pakistan's power generation needs for the next 100 years. The highly bureaucratic structure of governance and practically empty coffers of the state, all wrapped up in red tape, are the reasons that exploration in Thar has moved at a snail's pace. The reluctance of foreign investors to come to the government's rescue in the current dire security situation is also understandable.
"It's true we can safely generate 40,000 megawatts for over 100 years with proven coal reserves. But for that to happen, a lot in Pakistan needs to change, including political interference," says Rashid Mehr, the country head in Pakistan for Moody International, one of the largest global project risk advisory companies in the oil and gas and natural resources exploration sector. Textile and agriculture, Pakistan's main sources of foreign exchange, are hamstrung due to power shortages, and industry generally is slowly being wiped by power cuts.
"For an economy to operate at 100 per cent, you require 120 per cent of required power. You need 100 per cent to support the economy and an additional 20 per cent to fuel the growth," Mr Mehr says. According to government data, the demand for power has risen 29 per cent from 18,883mw in 2007 to 24,474mw this year, and it is expected to rise almost 50 per cent to 36,217mw by 2015. The peak demand projection would require Pakistan to generate 113,659mw to satisfy both commercial and domestic requirements by 2030.
The installed capacity, on the other hand, has risen from almost 9,000mw in 1991 - just a year before Pakistan discovered the Thar coal reserves - to 19,552mw at the end of 2004, according to data on Pakistan's Board of Investment website. Progress since then has been painfully slow. Pakistan's federal secretary of water and power, Shahid Rafi, in a presentation last year to the Friends of Democratic Pakistan (FoDP) at a conference in Abu Dhabi, said Pakistan's power generation capacity stood at 20,231mw, which implied that the country had added only about 700mw of capacity since the end of 2004.
Already, there is a supply shortfall of about 4,500mw, various government figures show. But Mr Mehr argues that the situation is even worse than the government data indicates. His work with some of the international companies involved in natural resources exploration in Pakistan paints an even graver picture. "I have my reservations about the shortages and demand projection figures. They [the government] are targeting to produce about 30,000mw by 2015, which is practically impossible," he says. "I don't suppose foreign investors are going to come to Pakistan in the given circumstances and help government achieve this target. Also, the major hydro projects are not going to come on stream before 2016."
The reluctance of foreign investors to enter the energy sector, or for that matter any sector of the economy, is evident from the fact that Pakistan has not closed even a single privatisation deal in the past 18 months. Up for grabs are about 30 small hydro power projects and one large project that could require billions of dollars of investments. Not one of these projects has persuaded investors to put down any money. Failing to generate interest from a wider market, Pakistan has lately been wooing friendly nations to come to its rescue. The FoDP is one forum in which Pakistan has been voicing appeals for aid and investments in its economy, which has taken a battering because of the country's front-line position in the war on terrorism.
Mr Rafi's presentation to representatives of the FoDP indicated that the country would require an investment of about $7.2bn in Thar mine-mouth power plant projects to generate 1,000mw by 2015 from four available mining blocks. So far, the provincial government has managed to sign only one agreement with a local firm to set up a small power plant in the Thar area. The 16,000mw additional capacity that Pakistan intends to generate through hydro projects would need $26bn of investments, while $30bn of investments is needed to rehabilitate and reinforce the power transmission and distribution systems.
The other options for Pakistan are to invest in nuclear power production or to start importing power from neighbouring countries. The country is studying the feasibility of importing 1,000mw of power each from Tajikistan and Iran. Mr Mehr says the Pakistani government owes about $1bn to independent power producers who mainly use oil to generate electricity. The producers have reduced power generation as they want their long-standing receivables cleared.
"One reason for withdrawing government subsidies for power is that the government wants to pay the power producers and ask them to increase power generation," Mr Mehr says. The fact remains that Pakistan cannot afford to continue producing power by burning oil. "International oil prices are high and it's expensive for a country like Pakistan. They will have to invest in cheaper power production if the economy is to survive and grow," he says.
Currently, 80 per cent of Pakistan's electricity is generated from oil and natural gas, while hydro projects account for 11 per cent. Only 7 per cent of power is obtained from coal, while 1 per cent is contributed by the country's one small nuclear power plant. @Email:firstname.lastname@example.org