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Foreign
investment in energy
sector to boost the economy
By
Aurangzeb Soharwardi
In todayís
contemporary world, there are certain threats that have become the most
significant issues for the world economy to deal with. These include an
ever increasing population, intensifying regional conflicts and the most
severe threat of all; the depleting energy reserves. In a report titled ëworld
energy, technology and climate policy outlookí WETO-2003, the EU
commission concludes that the worldís consumption of primary energy will
increase by around 70 per cent till the year 2020. Another report
published by the international energy agency (IEA) in Paris states that
the electricity production in particular is forecast to rise substantially
as will the CO2 emissions. Conventional oil reserves could reach alarming
low levels after 2030. WETO report also reveals the future will belong to
economical and high performance power plants along with all alternate
sources of energy, particularly the solar and nuclear energy.
Pakistan has been facing
an unprecedented energy crisis since the last few years. Its energy needs
are likely to be doubled in the next decade as energy consumption in
Pakistan is severely high with various sectors such as agriculture,
industrial, commercial etc. consuming high levels of energy. The power
sector is consuming 33.1 per cent of the total produced crude oil and 37.2
per cent of gas, coming from 173 gas fields operating in the country. Poor
law and order situation and energy deficiency led the
large-scale-manufacturing sector to a negative 8.2 per cent growth in
fiscal year 2009, down from the positive four per cent in FY08.
The energy import bill
of the country is expected to exceed $11 billion mark in the current
financial year surpassing $9 billion of the last year. There is a rapid
increase in demand for electricity with the peak electricity demand
touching a figure of 18,000 MW. Electricity is being generated mainly
through hydel and thermal, with sixteen IPPS (independent power producers)
functioning along with thirteen rental power plants which are also on the
way. Installed hydel generation is 6,500 MW with Tarbela, Ghazi Barotha,
Mangla, Warsak and Chashma dams. The largest ever project undertaken by
Pakistan is the 11.3 billion Bhasha dam, which is most likely to resume
soon.
Pakistan prepared an
energy security plan (2005-2030), which forecasted a seven fold increase
in total primary consumption and an over eight fold increase in the
requirement of power over the next twenty five years. All possible
alternate sources of energy are planned to be exploited. New global
investments in transport and energy sectors are underway that will
position Pakistan as a key trade and investment hub linking the Middle
East, South Asia and Central Asia with the Gwadar port, thereby creating a
new economic corridor.
Presently, one of the
most pragmatic approaches adopted by the government is to persuade foreign
governments and entrepreneurs to invest in energy sector of Pakistan.
Pakistan has requested $4 billion in international monetary fund aid as
part of an effort to strengthen its economy amid a war with militants. The
government is working to establish the energy development fund of $1-2
billion with the help of international financial institutions. As per the
outcome of negotiations between the World Bank, Asian Development Bank and
the government, the electricity consumers would be able to avail Rs 67
billion subsidy during the current fiscal year. ADB has recently extended
$780 million in loans to Pakistan through a multi-tranche financing
facility for priority energy efficiency projects that will secure the
country's growing energy needs and reduce its reliance on costly,
polluting fossil fuels. Regarding foreign investment, Chinese companies
have shown a great deal of interest to invest in Pakistanís energy
sector. Recently, Pakistan Electric Power Company (PEPCO) and Harbin Power
Engineering (HPE), China signed a significant project titled ì747 MW
Combined Cycle Projectî located at Guddu power company. The project will
replace the existing underrated units and increase the generation capacity
of power plants.
China has also formally
indicated to provide two nuclear power plants with a generation capacity
of 300 MW each, at Chashma along with two power plants of 320 MW each in
Karachi. Furthermore, China has included 969 MW NeelumñJhelum hydro
electric power projects with a cost of Rs 128.4 billion. It has also
allocated $700 million for the construction of small dams in all the four
provinces of Pakistan. Pakistan on its part would contribute $300 million
only. Chinese companies would transfer technology to Pakistan to generate
solar and wind energy, which would be provided to farmers for irrigation
purpose. KESC and Harbin power have also signed an agreement for a 560 MW
of dual fired combined cycle plant at Bin Qasim.
Many organisations in US
are striving to collaborate with Pakistan to overcome the energy shortage
hampering its economic growth. For this, the US government has consented
to extend $300 to $500 million financial facility to Pakistan in order to
construct private power projects. In a recently concluded PAK-US dialogue
Pakistanís energy needs were assessed and a policy framework was formed
for future projects.
The proposed projects
include replacing or repairing 11,000 agricultural irrigation tube-well
pumps, a major component of electricity transmission used by a majority of
farmers. Rehabilitating and upgrading components of the Jamshoro,
Muzaffargarh and Guddu thermal power stations to recapture significant
amounts of their lost capacity. Improvements at these power stations will
result in production of additional electricity for the national grid.
Installing higher performance insulation windings and supplying spare
parts at the Tarbela dam hydroelectric power station will increase the
station's capacity to 80 MW - 192 million kilowatt hours - of power.
Moreover, the funding will provide additional training to the staff.
The prime minister of
Pakistan proposed to US delegates to invest in upgradation of the existing
power generation units and he also urged the US government to render
support in the ongoing energy conservation campaign. The AES corporation
in USA has come forward to explore the Thar coal potential in Pakistan,
with a huge investment of $1 billion. USAID South Asia Regional initiative
for energy will soon be starting wind and solar energy projects, along
with energy efficiency and capacity building programmes in Pakistan. In
the short-term, the US officials are sending in more rental units and
focusing on energy efficiency. The schemes include the feasibility study
of coal bed methane recovery system to offset CO2 emissions from Thar
coal, establishment of a training institute in the field of coal mining at
Thar, establishment of rail link from Mirpur Khas to Islam Kot, master
plan of Thar coal field development and use of hybrid power system in
coastal areas of Sindh. The $7.5 billion US package of non-military aid
for Pakistan, signed into law by President Barack Obama, includes funding
for electricity projects. Like-wise, Germany is also looking forward to
explore the solar energy potential in Pakistan.
Establishment of trade
and energy corridors with Central Asia is also on the cards, as stated by
the president of Pakistan, in the background of early implementation of
the 1,000 km long power transmission line from Tajikistan to Pakistan,
known as Central Asia-South Asia 1000. Iran has indicated its willingness
to finance three projects related to development of energy infrastructure
in Pakistan by utilising $330 million total pledges made at the Tokyo
Donor Conference. This commitment consists of $10 million as grant, $120
million as project finance and $200 million as trade finance. Iran may
assist Pakistan in supplying 100 MW electricity to Gwadar port in order to
ease the growing power crises. It has also expressed an interest to
finance construction of Sehra hydro power project in AJ&K by an
Iranian company costing $350 million, with a power generation capacity of
65 MW. Other than this, Al-Jumaih group of Saudi Arabia, Malakoff of
Malaysia and Shenhua of China have been very keen to participate in the
joint venture of Thar coal project. The Punjab government is negotiating
with companies in China, Hong Kong and Germany to undertake construction
of the proposed integrated coal-mining-cum- power generation projects in
various parts of the province.
Pakistan and Turkey have
formed a joint group to examine priority areas of cooperation,
particularly the energy sector, as witnessed at the Pakistani-Turkish CEOs
forum held in Islamabad. These efforts to attract foreign investment in
energy sector of Pakistan, may lead to a better economic situation and
fiscal stability. With the start of new projects, employment can be
generated, raw materials can be mobilised and financial transactions can
stabilise the money supply mechanism. It can also have a direct impact on
the industrial, agricultural and commercial sectors to strengthen the
economy of the country. The foreign investment initiatives taken would not
only generate economic activities but will also strengthen the economic
fiber of Pakistan on a strategic level.
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