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Economic cost of energy crisis estimated at Rs380bn

The prevailing energy crisis in Pakistan is taking away 2 percent (or Rs380 billion) of the economy, despite the government has spent Rs1.1 trillion as subsidies on the sector in the last four-year which accounts for 2.5 percent of the total volume of economy.

This was the ‘dominant constraint’ to the economic growth in last few years, according to Pakistan Economic Survey 2011-12 launched here by Finance Minister Dr Abdul Hafeez Sheikh on Thursday.

The liquidity crunch in the power sector has resulted in under utilisation of installed capacity of up to 4000 megawatt. It has also affected investment in power sector.

It is interesting to note that the energy intensive industries (petroleum, iron and steel, engineering industries and electrical) have shaved off 0.2 percentage points from real GDP growth in 2010-11 and in 2011-12. Also, the estimated cost of power crises to the economy is approximately Rs.380 billion per year, around 2 percent of GDP, while the cost of subsidies given to the power sector to the exchequer in the last four years (2008-2012) is almost 2.5 percent of the GDP or Rs1100 billion.

By 2011-12, electricity and gas shortages are considered to be the primary cause of constrained production activities in a number of industries, according to the survey.

Flood was one of the factors which caused electricity and gas shortage as it damaged the distribution network (or 90 percent of distribution transformers to the petroleum and gas fields). The total damage to the energy sector was of Rs1.2 billion ($14.2 million) according to Asian Development Bank Report, 2011.

Lower accumulation of water reserves in dams along with high international prices of oil has compounded the pressure on electricity as there is still significant share of oil (furnace) in electricity generation (about 35.1percent) which is vulnerable to the international prices. Further the oil refineries have also been running below capacity, thus constraining the supply of oil and other fuels. Likewise, in the gas sector, Pakistan faced severe shortages that exceeded approximately 2 billion cubic feet per day as local production was unable to keep pace with the requirements of the country.

The survey stated that it was due mainly to the depletion of existing resources, unfavorable law and order situation and lukewarm interest of exploration and production companies. However, the geographical location of the country makes it a favourable potential market for the import of natural gas from its neighboring countries like Iran, India and Turkmenistan. The government has taken the initiative to import gas from these countries. —Israr Khan

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