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The deepening crisis

By Farhan Mahmood

Despite the fact that Pakistan is facing acute gas and electricity shortages, the country’s energy production (mainly gas and electricity) has remained unsatisfactory over the last five years.

The demand has exceeded supply, leaving acute energy shortages in the country. On top of that, latest energy statistics show that the country’s production growth of both gas and electricity has remained the lowest in the region. This is primarily due to lack of coordination in planning, no proper long-term policies, worsening law and order and growing circular debt situation in the country.

Interestingly, gas production grew only by eight percent to 4.3 billion cubic feet per day in the last five years, despite the fact that the country meets 45 percent of its energy needs through gas. This translates into average annual production growth of less than two percent, which has remained far lower than the average annual demand growth of more than six to eight percent during the last five years. This has led to severe shortages in the country, even though gas is cheaper than all energy resources after hydel.

If we look at the production numbers of regional countries, Pakistan’s performance in the energy sector has been dismal in the last five years. Gas production increased by an average 10 percent per annum in India, which is also facing energy shortages. Similarly, gas production in China, Bangladesh and Iran grew by an average 12 percent, six percent and nine percent, respectively.

In addition, owing to lower cost against other energy alternatives, such as oil, coal, LNG, the world’s gas production also grew by 2.5 percent on average during the last five years.

Where worsening law and order situation, growing liquidity constraints amid circular debt have remained the major reasons behind the dismal performance of local gas exploration companies, delay in a few large gas projects, including Uch, Kunnar Pasakhi and Tando Allah Yar, have led to severe gas shortages in the country.

Furthermore, the power sector’s performance in the last five years shows a gloomy picture as compared to gas. Interestingly, where electricity demand is increasing, its production declined by one percent annually over the last five years. Pakistan used to generate 98,213 Gwh (gigawatt hours) five years back, but is now producing even less than that, i.e. around 95,000 Gwh.

The major reason for lower electricity production is liquidity constraints in both private as well as public sector power generation units. The liquidity problem stems from higher cost of generation against the selling rate, inefficient recovery of electricity bills and lost units that are not being recovered.

The situation looks worrisome when we compare Pakistan’s performance with neighbouring countries. During the aforesaid period, electricity generation in India grew by six percent annually. Similarly, electricity generation in Bangladesh and China rose by a robust seven percent and 10 percent, receptively, while global electricity generation grew by six percent.

Thus,for sustained economic growth and regional competitiveness, Pakistan needs to excel in the energy sector. Otherwise, the crisis will have dire consequences on the country’s industrial production, which will eventually affect economic growth and exports.

In the last five years (FY08-FY12), the average Large Scale Manufacturing (LSM) index – a barometer for measuring indigenous production – increased only by 0.6 percent as compared to average 12 percent in the previous five years (FY03-FY07). And one of the major reasons behind this meagre growth was the rising energy shortages.

The writer is head of Research & Business Development at Sherman Securities.

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