Daily Times

While external balances stay in trouble on a long-term basis, more bad news has now hit the economic horizon. The oil bill is projected to rise from $ 11 billion in FY 2010 to $ 14 billion in FY 2011, to $ 38 billion in 2015 and to a backbreaking $ 50 billion in FY 2026.

The roller-coaster effects of imported oil, experts project, will continue to escalate, whose demand will reach a 25 million metric ton level by 2016. In the next ten years, still bigger demand, still bigger import bill.

‘Pakistan Energy Outlook’, unveiled at the Pakistan Energy Conference-2011, Islamabad, projects that if the government continued with its slow-moving and largely ineffective energy policies, the country will, indeed, face a rather bleak future, and its external balance may crumble beyond redemption.

Ring the alarm bells; the situation is dismal. The report doubts Pakistan will be able to significantly develop its domestic energy resources, despite a vast potential of hydel and coal power generation It translate into still more energy import which may grow from the present 30 percent to 75 percent by FY 2026. Energy bill in: FY 2026 $ 50 billion a year. Who has got that kind of cash?

The worsening energy crunch is already slashing the potential GDP growth by two percentage points a year, ministry of finance says. It can grow further in the event of the crunch cutting into the economy deeper still. Energy consumption rose from 34 million tons oil equivalent (MTOE) in FY 1995 to 61 MTOE in FY 2010 – up 80 percent and helped an average GDP growth of 4.5 percent – in the last 15 years.

We face several causes of the growing demand-supply deficit. These include the fact that no significant increase was made in the hydel generation capacity in the last several years, exploration and development of oil and gas potential has been slow, the old electricity grid and distribution system leads to big energy losses and, above all, there is an outright theft of power which is estimated at around 30 percent of all power generated.

The country has an installed power generation capacity of 20,000 megawatts (MW) but the real output is only 13,000 MW. Generation must be doubled over the next 15 years, Pakistan Energy Outlook recommends. The government-operated thermal power units have an installed capacity to generate additional 5,000 MW, but these units have low output and their maintenance is expensive especially due to rising cost of fuel. The energy conference recommends privatisation of these units, as it claims the private sector can turn them into more efficient and cost-effective.

Now the private sector has asked the government to deregulate the pricing of utilities for the consumers, but it means the tariff will go up. Can the government take such a highly unpopular decision at a time when prices of all utilities and consumer items are already posing a threat even to the existence of the present government led by Prime Minister Yusuf Raza Gilani?

The chief source of energy in Pakistan now is natural gas. It provided 27.7 MTOE energy, which is 45 percent, in FY 2010. Oil, primarily imported, provides contributes 21.3 MTOE or 34.9 percent, followed by hydel power with 7.5 MTOE or 12.3 percent, imported coal 3.7 MTOE or 6.0 percent, and nuclear-based power 0.8 MTOE or 1.3 percent of the energy mix.

Energy experts are of the view that even after the latest addition to oil refining – Byco Refinery project – the demand for petroleum, oil and lubricants (POL) will generate a deficit of more than 14 mmt (million metric tons). The POL demand is projected to increase from 21.3 mmt during the current FY 2011 to 23.1 mmt in FY 2012. It will rise to 25 mmt by 2016.

The energy sector, which has been slow to expand, has to start planning now, investing and installing more capacity to upgrade itself. With a rising demand for POL, “There will be an imbalance in points-of-input and points-of-consumption. 70:30 is the furnace oil demand in southern and central Pakistan,” Dr S N Zaidi, general manager, Pakistan State Oil points out. Because railway is a more efficient and cost-effective mode of transport, the crumbling railway infrastructure needs to be reinforced through local and foreign equity. But who will provide it?

Pakistan Railways initially used to move more than 2.5 million tons of petroleum products across Pakistan. It is down to 9.5 million tons this year. Transportation of POL is increasingly diverting to road transport and tankers for which 10,000 tank lorries have been deployed, Dr Zaidi says.

But, is it cost effective? Does transportation by road itself not consume a good deal of oil products in doing so? What are the environmental, infrastructural, road and highways network degrading and several other effects in such a large operation?

Experts and planners are also of the view that there is an urgent need of strategic storage development to build up the country’s reserves of crude oil and finished products. What should be the role of Pakistan’s western-most Gwadar port, strategically located just across the Straits of Hormuz and Gulf Cooperation Council region? This newly built multi-billion port virtually stays unused. “The potential of Gwadar as a bunkering hub is huge due to its proximity to the Straits of Hormuz; the oil industry needs to develop oil depots at the point of consumption to cater for the demand,” Dr Zaidi adds.

The writer is an Islamabad-based journalist and former Director General of APP