STUDENT NAME 1: AND STUDENT NAME 2: INSTRUCTOR NAME:

BUSINESS ECONOMICS FINAL PROJECT ELECTRICITY GENERATION THROUGH NATURAL GAS

ABSTRACT
We are dependent on oil as the prices of oil increases in Pakistan then it will affect the whole economy and prices will increases this is fact as I mentioned that we are dependent only on oil even though the prices of gold will increases when the oil prices increases. So, that regarding my topic about natural gas and thermal power project which is very valuable for everyone to understand that how we can grow the country in the modern era and how people will get benefit in the very expenses era when they pay the minimum amount of product and it is possible when there is cheap prices of electricity in Pakistan I must have to elaborate the reason when the electricity bill provided then people are shocked just because of corruption and more expenses prices and people are not able to pay their electricity bill therefore Government should take the step against the expenses price where common people cannot afford. If we talk about the natural resources in Pakistan so this is how that there are availability of many resources in Pakistan we proudly say that Pakistan is richest in natural resources one of them is natural gas where we can produce the electricity and people will get more benefits from this resources.

Major Reasons for Power Crisis Planning: Lack of long term sustainable roadmap of power generation Technical Losses: Waste of energy due to line losses (technical and theft). Up -gradation of distribution network. Alternate Energy: Lack of utilization of alternative energy sources like coal, solar, wind, Gas and nuclear Less emphasis and awareness regarding use of renewable sources of Energy (wind, solar, waste to energy, etc) Availability and supply for natural gas for power generation

ABOUT NATURAL GAS

INTRODUCTION:
Energy sector issues and developments continued to severely constrain Pakistans economy in 200910. Against a backdrop of a sharp increase in the international price of oil through calendar 2009, which put enormous upward pressure on the cost structure in the power generation (and transport) sector, in particular, large domestic supply shortages of electricity and gas occurred. Lower accumulation of water reserves in dams compounded the severity. The cumulative effect of the energy crisis on the economy is estimated at upward of 2 percent of GDP during 200910 alone. Developments outlined above engendered a negative feedback loop in the electricity sector, giving rise to the intercorporate circular debt issue in the entire energy supply chain. The lower availability of hydel resources for generation, and a higher than normal shortage of gas, skewed the fuel mix of the electricity generation sector towards fuel oil. Since this occurred at a time of a doubling of the international oil price, the effect on the cost structure of the utilities was amplified greatly. With no change allowed in the electricity tariff between 2003 and 2007, the compounded effect on the viability of the energy sector has been devastating. Some idea of the viability gap that had built up in the electricity generation sector can be had from the fact that, prior to the most recent tariff increase, the gap between average generation cost and recovery was close to 30 percent. Despite hefty increases in enduser electricity tariffs over the past two years, a significant gap still exists between generation cost and recovery, due in large part to the adverse developments outlined above. This imbalance between cost of generation and distribution, and the final tariff, is the root cause of the circular debt issue, with each downstream player in the energy chain being forced to delay payments to upstream entities (for fuel supplies). The net effect is a declining effective utilization of available generation capacity in the system. The cumulative effect has been that the growth rate of Pakistans primary energy supply, which began decelerating in 200708, has turned negative in 200809 and 200910 (JulyMarch). The fall in energy supply during current period can be attributed to inter co-operate circular debt problem.

NATURAL GAS
Natural gas is generally considered a nonrenewable fossil fuel. (There are some renewable sources of methane, the main ingredient in natural gas, also discussed in this factsheet.) Natural gas is considered a fossil fuel because most scientists believe that natural gas was formed from the remains of tiny sea animals and plants that died 300 to 400 million years ago. When these tiny sea animals and plants died, they sank to the bottom of the oceans where they were buried by layers of sediment that turned into rock. Over the years, the layers of sedimentary rock became thousands of feet thick, subjecting the energy-rich plant and animal remains to enormous pressure. Most scientists believe that the pressure, combined with the heat of the Earth, changed this organic mixture into petroleum and natural gas. Eventually, concentrations of natural gas became trapped in the rock layers like a wet sponge traps water. Raw natural gas is a mixture of different gases. The main ingredient is methane, a natural compound that is formed whenever plant and animal matter decays. By itself, methane is odorless, colorless, and tasteless. As a safety measure, natural gas companies add a chemical odorant called mercaptan (it smells like rotten eggs) so escaping gas can be detected. Natural gas should not be confused with gasoline, which is made from petroleum. According to OGJ, Pakistan had 28 trillion cubic feet (Tcf) of proven natural gas reserves in 2006. In light of the current onshore exploration activities and resource outlook, the Pakistani government expects minor increases in natural gas production in the short-term. However, natural gas production is expected to decline over the next 15-25 year period, while natural gas demand is expected to increase. The Pakistani government is currently developing plans to import additional natural gas (see "Proposed Pipelines") in order to satisfy increasing demand. According to

the Pakistan Energy Yearbook, natural gas is currently the countrys largest energy source, making up 50 percent of Pakistans energy mix in FY (fiscal year) 2004/2005.

Sector Organization
Pakistans state-owned PPL and OGDCL produce around 30 percent and 25 percent, respectively, of the countrys natural gas. The two companies are the countrys largest natural gas producers. OMV is the largest foreign natural gas producer (17 percent of total countrys production) in Pakistan. Pakistani government has enacted numerous policies to encourage private sector leadership of natural gas development, including privatization of state-run businesses, regulation that encourages competition and tax incentives geared towards increasing exploration and production.

Exploration and Production

Pakistans largest natural gas production occurs at the Sui field, which is located in the Southern Indus Basin. PPL operates Sui field. In the past few years, the country discovered seven new natural gas fields. The Pakistani government expects the development of these new fields to add an additional 1 Bcf/d to Pakistan's natural gas production.

Proposed Pipelines

Pakistans government is working on plans to build a pipeline that spans from Irans massive natural gas reserves to Indian markets across Pakistani territory. Iran has offered to cover 60 percent of the construction costs of the pipeline and Pakistani officials have stressed their ability to safeguard the pipeline. Pakistan could earn about $70 million annually in transit fees from the pipeline. A second natural gas import possibility that has been considered is an eventual link to the Dolphin Project in Qatar. This plan would supply natural gas from Qatar's North Dome field to Pakistan via a sub sea pipeline from Oman. Even though Pakistan has signed a preliminary agreement to eventually purchase natural gas from Qatar, it remains to be seen if further action on the project will be taken. A third natural gas pipeline option that has been discussed is a line from Turkmenistan to Pakistan via Afghanistan. Pakistan faces various hurdles with this option, which include the security situation in Afghanistan and the price.

Liquefied Natural Gas (LNG)

In addition to natural gas import pipelines, Pakistan is pursuing liquefied natural gas (LNG) import options to meet energy needs. In October 2006, United Arab Emirates signed a MoU to build an LNG import facility. The facility would be completed in 2010 and would be located at Port Qasim, near Karachi. USES OF NATURAL GAS

NATURAL GAS PRODUCTION

NATURAL GAS CONSUMPTION

The supply of gas has exhibited an increase of 1.6 percent during JulyMarch 200910. The increase in supply owes to higher production of 1.6 percent in natural gas during the period under review. Due to this increase in availability of natural gas, the overall consumption of gas remained higher during the period. Furthermore, the sector wise consumption of gas suggests that the household, commercial, fertilizer and transport sector witnessed positive growth in consumption of gas during 200809.

Literature Review:
As we know that the importance of natural gas and how it impacts the current situation for produce the Electricity. According to this article it elaborated theoretical and as well as practical base. This is very informative for everyone that once the thermal power project completed then people will be pay their electricity bills very cheap in price and the writer of this article said that when there was deficiency of gas in cars and buses then people pay the prizes of petrol very lofty therefore nowadays most of people uses gas in cars because people are not able to pay the lofty prizes so that if they will produce the electricity through natural gas then it will be advantage for everyone. Govt has started the Thermal power project. Recently the delegation of foreigners met with official person for promoting and they are ready to invest in thermal project. The delegation was also informed that flexible regime for foreign investment exists in the country and no procedural problem would impede them investing in power sector which would provide a win-win situation to the investors. on the other hand A Japanese company, Marubeni Corporation has shown keen interest in four thermal based projects including 450 MW Uch-II power project at Kashmore, 400 MW at Faisalabad and 350 MW at Chichokimalian being processed through International Competitive Bidding (ICB) by Private Power Infrastructure board (PPIB)and another 450 MW Thermal power plant at Chichokimalian by WAPDA. The Company is also interested to increase its exports of electrical equipment like generators, turbines and other machinery in Pakistan. The power sector in Pakistan as the growing demand of power has been registered as 10-12 percent in the country.

Natural gas production is at a relatively high level and remaining reserves are estimated to be about 885.3 billion cu m (1 January 2009 est.). Pakistan's gas fields are only expected to last for about another 20 years at the most due to heavy industrial usage. The Sui gas field is the biggest natural gas field in Pakistan. It is located near Sui in Baluchistan. The gas field was discovered in the late 1952 and the commercial exploitation of the field began in 1955. Sui gas field accounts for 26% of Pakistan's gas production. Remaining reserves are estimated to be at about 800 billion cubic feet (tcf) and the daily production is around 660 million cubic feet (19,000,000 m3) of natural. The operator of the field is Pakistan Petroleum Limited. A minor pip-line was bombed in southern Baluchistan, by a group related to the Baluchistan Liberation Front and/or Baluchistan Liberation Army in the year 2000, with no fatalities.

The natural resources are land which may be mountainous, hilly, including snow, glaciers, forests, mountainous animals and birds. Others are oil, gas, minerals, nuclear minerals, gemstones, coal, water of sea & river, fishery and offshore sea crude oil; sun light, rainfall, wind, atmospheric gases. There are at present there are 223 countries as surveyed by UNO. With exception of a few, many of these countries have land, water and sea. It means they have their own natural resources. It is not necessary that all the natural resources can be explored easily. It needs money and man power for exploration. In this perception, let us examine the natural resources of our country-Pakistan.
The majority of produced oil comes from proven reserves located in the southern half of the country. The country's two gas distribution companies in north by SNGPL and in south by SSGPL have been investing over 200 million US $ a year to increase the capacity of the existing distribution network of 80,000 kilometers. However, still only 20% of the population has access to natural gas. Natural gas is found whenever oil and gas occur together. Natural gas largely contains 80% methane gas along with small quantities of ethane, propane, butane, carbon dioxide, and occasionally helium. Gas is a prime source of energy in Pakistan as it provides 65% of the natural energy requirements. The share of gas in fuelling the economy is followed by oil which provides 29.4%. The other minor sources are hydro providing 12%, coal 5% and nuclear only 1.2%. Gas is the prime mover of Pakistan's economy. Natural gas is piped from gas wells for use as fuels in the homes, industries, institution, and into thermal electric power stations in the different parts of the country. The biggest consumer of gas is the power sector which uses it for generating electricity throughout the country. Nearly 50% of the gas fuels is used in the power sector. Industry uses another 20%. Fertilizer industry which uses 16% as feed stock for producing urea. The domestic consumption is only 18% followed by commercial use of 2% and CNG for cars amounts 10%. There are 173 gas fields in the country, of them 140 are located in Sindh, 22 in Punjab, 7 in Baluchistan and 4 in NWFP.

Natural gas is mainly methane with some small amount of ethane, propane and butane. Heavier components, carbon dioxide and hydrogen sulfide are removed before distribution to users.
Natural gas is a naturally occurring hydrocarbon gas mixture consisting primarily of methane, with up to 20 % of other hydrocarbons as well as impurities in varying amounts such as carbon dioxide

Internationally focused on thermal project:

Swicorp Joussour Company announces signature of SPA for exit from Uch Power Limited thermal power plant in Pakistan.

List Of Coal Gas companies in pak

National Gases Ltd. Ciana Engineering Zetco(Zahid Engineering &Trading Co.)

Natural gas - proved reserves (cubic meters)

Country

2002

2003

2004

2005

2008

2010

Pakistan 695,600,000,000 695,600,000,000 695,600,000,000 759,700,000,000 792,800,000,000 840,200,000,000

This entry is the stock of proved reserves of natural gas in cubic meters (cu m). Proved reserves are those quantities of natural gas, which, by analysis of geological and engineering data, can be estimated with a high degree of confidence to be commercially recoverable from a given date forward, from known reservoirs and under current economic conditions.

LITERATURE REVIEW SOURCE: ARTICLES FROM CURRENT AFFAIRS NEWSPAPERS

[SOURCE: BUSINESS RECORDER]

Debt repayment to banks: nine IPPs default (APRIL 09, 2012)
Deeply concerned over the deteriorating power sector's financial affairs, nine IPPs that had invoked GoP guarantees, have defaulted on debt repayment to banks due on March 31, 2012, well-informed sources in the Ministry of Water and Power told Business Recorder. The nine IPPs are: Atlas Power, Liberty Power Tech, Nishat Chunian, Nishat Power, Orient Power, Sapphire Electric Company, Halmore Power, Saif Power and Rousche Power.The sources said that total payable amount to lenders from nine IPPs on March 31, 2012 is an estimated Rs 7.5 billion."IPPs have not received money from the Power Purchaser ie NTDC and they do not have adequate balances in their accounts to make such payments," the sources added. "There is no doubt that non-payment to the IPPs is now hurting the banking industry as banks maintain that their exposure to the power sector has already reached 30 per cent of total investment and are refusing further exposure," the sources maintained.Recently, the GoP had been served fresh notices of default by the nine IPPs for not paying outstanding liabilities of Rs 42 billion."The IPPs have invoked guarantees because they have not received any payment and secondly all IPPs had informed GoP in advance that they will miss March 31 deadline," the source continued.These IPPs claim that their operational capacity has massively been hit by non-availability of credit to purchase fuel to run plants. The government has injected Rs 1 trillion in the power sector during last three years on account of subsidy and line losses which the power sector analysts portray as incompetence of policymakers and executers as well.

SSGC cuts gas supply to KESC, others on shortage (APRIL 09, 2012)
The Sui Southern Gas Company (SSGC) has cut the supply of gas to industrial, fertiliser and power generation sectors, including KESC, citing a shortage of gas. The KESC, which was being supplied 200mmcfd by SSGC, will now get 155mmcfd.

Golen Gol Hydropower project bidding: Wapda to save Rs 84 million (APRIL 09,
2012) Pakistan Water and Power Development Authority (Wapda) will save about Rs 84 million in procurement of electro-mechanical equipment for the 106MW Golen Gol Hydropower project by awarding the contract to the lowest technical responsive bidder. It is pertinent to mention that Golen Gol Hydropower Project is being constructed on the River Golen Gol, a major tributary of the River Mastuj in Chitral district of Khyber Pakhtunkhwa province about 380 kilometres from Islamabad. On its completion, Golen Gol Hydropower Project will generate about 436 million units of electricity (Gwh) to earn revenue of about Rs 3.7 billion annually.Responding to a question, Wapda Chairman said that Wapda was implementing 18 projects under its least-cost energy generation plan to increase the ratio of hydel electricity in the National Grid, and help stabilise electricity tariff in the country. Under the plan, the 969 MW-Neelum Jhelum, 4500 MW-Diamer Basha Dam, 1410 MW-Tarbela 4th Extension, 740-MW Multipurpose Munda Dam and 84MW-Kurram Tangi Dam are under implementation to name a few, he added.

Consensus reached only on electricity: there will be equitable loadshedding across country (APRIL 10, 2012)

Prime Minister Yousuf Raza Gilani on Monday announced equitable loadshedding of electricity, not gas, across the country. Further, he said, street lights would be lightened up on alternative basis to save 250MW electricity; closure of commercial plazas by eight in the evening would save another 250MW, followed by five days a week office work in public sector would save 700MW. He said subsidy to the solar energy tube-wells through easy loans would be arranged by the finance ministry. Prime Minister said the conference has also decided to stop power supply to billboards and neon signs during the summer season. Campaign for replacement of energy saver bulbs would continue to save electricity, he added. He said that the energy crisis was affecting every sector of the country and vowed to overcome it with the co-operation of all stakeholders. "We will have to make collective and individual efforts to boost electricity generation through various means to get rid of load shedding," he added.Prime Minister Gilani said that as a result of measures taken by the PPP-led government a total of 3400MW electricity has been inducted in the national grid. He felt people would have to play their part by consuming less power as energy requirements in the country are increasing by seven percent every year. Gilani added that the power tariff had been increased due to increase in petroleum products' prices in the international markets.

Gilani for due provincial role to overcome energy crisis (APRIL 10, 2012)
Prime Minister Syed Yousuf Raza Gilani has emphasised upon the provinces to also play their due role in efforts towards generating power to help overcome energy crisis. The Prime Minister said the federal government was committed to energy security for the people of Pakistan and "our strategy is to ensure sustainable power supply at competitive prices to all sectors."He elaborated that the government strategy was geared towards further exploitation of hydropower to reduce cost of inputs; developing coal reserves for power generation and to convert the plants from oil to coal in the interim, as the Thar Coal alone has 175 billion tonnes and is suitable for power generation of around 100,000 MW annually; developing and encouraging use of renewable energy resources (Solar, wind and biomass); increasing emphasis on nuclear energy resources; accelerating exploration and production of oil and gas reserves including off-shore drilling; targeted subsidies for the lowest slab users; encouraging use of LPG (Liquefied Petroleum Gas) and import of LNG (Liquefied Natural Gas) to meet gas requirement; recognizing the role of provinces in power generation, and energy efficiency and conservation. "We remain a victim to shifts in the oil market until we evolve a national consensus on long-term policy for secure, affordable energy future and then execute it. Gilani said that through effective steps, the present government had managed to add 34000MW to power system over the last four years, besides changing the energy mix and shifting towards hydel and coal."For this, we have accelerated the work on Neelum-Jhelum power project; finalised financing for more turbines in Tarbela with the assistance of World Bank; starting work on Diamer-Bhasha Dam; design is under way for Dasu Dam; rehabilitation of Jabban hydropower Malakand; Jaggran-II with the assistance of France; Gomal Zam and Satpara Dam with the US assistance and Patrind Hydropower (AJK) in the private sector by a Korean Company," he maintained.The Prime Minister said the government was also building Chashma-III and IV, and 747MW Guddu combined cycle with the assistance of China; improvement of transmission and distribution system as well as building new grid stations with major assistance of the Asian Development BankPrime Minister Syed Yousuf Raza Gilani said on the institutional reform side, the Discos (Distribution companies) and Gencos (Generation Companies) Board of Directors have been reconstituted by bringing more private sector professionals, besides providing over Rs one trillion from the budget to resolve the circular debt issue and swapped Rs 150 billion debt to provide liquidity to power sector. The government has also approved Petroleum Exploration Policy, LNG Policy, Low BTU Policy to attract investment in the gas sector, he said adding, the government was also pursuing a multipronged strategy that included: 300mmcft through new exploration, securing 800mmcft through imported LNG and obtaining 300mmcft through LPG Air Mix Projects. Experts estimate that energy efficiency measures can generate 25 percent energy savings and can reduce approximately 50 percent oil imports. It needs to be recognised that inefficiencies of Discos in the collection of bills and non-payment of bills by consumers, including government departments in time, clogs the system. It leads to non-payment to IPPs and oil companies resulting in less

generation, and hence the power crisis. The Discos and the provinces need to play a vital role in improving the system. The role of regulator is crucial in this entire spectrum. They need to look beyond tariff determination.They must ensure regular mandatory energy audits of plants and equipment, review cost efficiency, return on equity, return on assets and develop a fair system balancing the interests of both the consumers and investors. We firmly believe that the private sector is the engine of future growth in power generation and gas exploration in Pakistan.For this, we will continue to push forward all alternates for investment in the sector: public, private and public-private partnership. We need to forge a national consensus on pricing of petroleum products, electricity and gas in a manner that should put least pressure on the budget and not harm macroeconomic stability. It will reinforce partnership between Pakistan, the domestic and international investors, other stakeholder and the consumers.

KESC, ABAD sign MoU (APRIL 10, 2012)

Karachi Electric Supply Company (KESC) has, in line with its vision to use maximum daylight and avoid undue lights, on Monday signed a Memorandum of Understanding (MoU) with the Association of Builders and Developers (ABAD) over taking joint steps towards energy conservation.Under the agreement, KESC would provide the builders with technical expertise and guidelines for developing energy efficient architecture in their future projects. The idea is to increase the number of green buildings which would require less energy on sustainable basis which is the need of the hour under current circumstances of decreasing energy resources and increasing demands. The Energy Conservation Team of KESC earlier had held interactive session with office bearers and members of the association and gave them briefing on Energy Conservation cause and how it could be addressed through the forum of builders and developers to yield greater magnitude of results. KESC has been making long term efforts on this front since the utility is generally held responsible for nearly all electricity supply issues, even though most of times the responsibility of energy conservation rested with architects, builders, developers, users and consumers. The point at which the demand-management and supply-management responsibilities of KESC converge call for the need of Energy Conservation and Efficiency by KESC, its Consumers and other stake holders. Given the energy crisis in Pakistan, KESC gives immense importance to Energy Conservation and Efficiency as it aids in the reduction of energy consumption and energy demand per capita, offsetting the growth in energy supply needed to keep up with rising population growth in its licensed territory. KESC promotes Energy Conservation and Efficiency because it reduces the rise in energy costs, and reduces the need for new power plants, and energy imports.

Byco Oil Pakistan Limited (Clarification)

APRIL 10, 2012 New refinery having a capacity of 120,000 barrel per day is owned by Byco Oil Pakistan Limited. Byco Petroleum Pakistan owns old refinery of 36,000 barrel capacity.

Hascol launches first LPG Autogas Station in city (APRIL 11, 2012)
Hascol Petroleum Limited launched Pakistan's first LPG Autogas Station at Shahrah-e-Faisal, Karachi. This is one of the key steps taken by Hascol to make sure that LPG becomes the fuel of choice in the coming years. Dr Asim Hussain, Federal Minister for Petroleum and Natural Resources was the chief guest. He said that with the LPG Policy 2012 to be released shortly, new policy changes suggested by Chairman Hascol will be incorporated. Since the LPG Policy will be designed with careful inputs from all stakeholders, Dr Asim promised that the mistakes of

the previous government will not be repeated as regards to the CNG policy and subsidies on duty and taxes is also underway on the import of LPG kits and equipment.

Power shortfall jumps to 4,800 megawatts (APRIL 12, 2012)

The power crisis in the country has further deepened as on Wednesday shortfall again jumped to 4,800 MW during the last 24 hours. According to the daily load management report, the total generation was recorded as 10,326 MW against the demand of 15,126 MW during the said period. The hydel generation stood at 2792 MW, WAPDA thermal 1691 MW and IPPs 5,843. As much as 670 MW electricity was supplied to Karachi Electric Supply Company (KESC), the report further said.

20,000 megawatts hydropower projects under way: WAPDA chairman (APRIL 12,
2012) The Pakistan Water and Power Development Authority (WAPDA) is working on hydropower projects with cumulative generation capacity of about 20,000 MW.

Oracle coal fields of UK to initiate ground work for coal (THURSDAY, 12 APRIL 2012
,21:27) Chief Minister Sindh, Syed Qaim Ali Shah, held a meeting with CEO of Oracle Coalfields of UK, Shahrukh Khan, at the CM House here on Thursday and said the government is fully committed for development of Thar Coal which has the potential of turning the country's economy around. The CEO Oracle Coalfield of UK announced that the Mining Lease for the Development and exploitation of the 66 sq.km Block VI of the Thar Coalfield has been awarded while Oracle plans to invest up to US$ 610 million for development of open cast coal mine with the annual production of 5 million tons per year. He added that Oracle has entered in to an MOU with KESC to develop initially a 300 MW mine mouth power plant by 2015 to be scaled up to 1100 MW. The Pre-development ground work for coal mine will commence from May 2012. Shahrukh Khan further informed that after above motioned works the Open-pit coal mine development is expected to start in early 2013 with initial production of coal in 2014 with full scale 5 million tons per annum coal production in 2015. The work on Community and Social Responsibility (CSR) is also planned to commence form May 2012 which will be part of a long-term sustainable development for local communities and includes job creation and training for local workforce, establishing a medical center, provision clean water and electricity to local communities, veterinary services for the health of livestock for the community and sanitation. In the discussion with the Chief Minister, Chief Executive of Orcale Coalfield, Shahrukh Khan, outlined the Company's strategic plans and timeline for the early development and operation of the Block VI Coal Mine. Shahrukh Khan emphasized that following the issuance of the Mining Lease the Company will implement a programme of site construction works including a mine site office complex, access roads, water and power generation units a healthcare facility as well as creating job opportunities for the local communities.

Energy moot decisions being executed (APRIL 12, 2012)

The government has started implementation on the decisions taken by the Energy Conference on April 9, 2012. As per decision, an equitable load management has been started in all the provinces from today without any discrimination and the instructions have already been issued to Discos and other concerned departments. Uninterrupted power supply is being provided from today to the industrial sector only in those areas where they have independent industrial feeders. Load Management Advisory Committees have been set up at Discos level with the representation of the respective provinces in order to take decision on load management keeping in view the availability of electricity for all sectors.

Decisions at Energy Conference repetition of past mistakes: PEW

(APRIL 12, 2012) Pakistan Economy Watch (PEW) on Wednesday said the Energy Conference was a step initiated by the government to stop long march planned by frustrated masses and dismayed business community of Punjab. The decisions taken to conserve electricity were nothing but a repetition of the past mistakes which will never help anyone gain anything, it said. It is amazing that conference focused on energy conservation while power production took secondary position, said PEW President Dr Murtaza Mughal.

One RPP files review petition

(APRIL 12, 2012) Pakistan Power Resources (PPR) LLC on Wednesday filed a petition seeking review of Supreme Court judgement in Rental Power Plant (RPP) case that declared all the power plants illegal and non-transparent last month. A two-member bench led by Chief Justice Iftikhar Muhammad Chaudhry had declared in its judgement that Pakistan Power Resources (PPR) (Piranghaib, Multan) did not generate electricity at all although a down payment of US $14.58 million was made to it, "which has not been returned".

Bill clearanc: power sector now owes Rs 192 billion to PSO

(APRIL 13, 2012) Pakistan State Oil's (PSO) receivables have surged to Rs192 billion after its outstanding dues against the power sector increased by Rs6 billion in just one week. According to official data available with Business Recorder, PSO's total liabilities were Rs185.94 billion a week ago. PSO is learnt to have requested the government for the release of Rs50 billion on an emergent basis so that it could clear its outstanding liabilities, which currently stand at about Rs170 billion. Of the total, over Rs83.7 billion is payable to local refineries and around Rs86.3 billion to Kuwait Petroleum Company (KPC) and other international fuel supplying companies. Sources said that local oil refineries were still unable to operate at full capacity because of distribution and generation companies' failure to clear bills, adding that if dues were not cleared, local refineries would default. Total PSO receivables are estimated at Rs192.007 billion, which include: Rs 53.059 billion from Wapda, Rs93.4 billion from the Hub Power Company (Hubco), Rs18.601 billion from Kot Addu Power Company (Kapco), Rs3.57 billion from Pakistan International Airline (PIA), Rs289 million from Oil and Gas Development Company Limited (OGDCL), Rs5.18 billion from Karachi Electric Supply Company (KESC), Rs488 million from National Logistic Cell (NLC) and Rs1.36 billion from Pakistan Railways. PSO is owed Rs1.4 billion on account of audited price differential claim of High Speed

Diesel (HSD), Rs3.4 billion on account of price differential on Low Sulphur Fuel Oil & High Sulphur Fuel Oil (LSFO/HSFO), Rs1.35 billion on account of price differential on imported PMG and Rs8.61 billion price differential under GLMP. PSO total payables to local refineries stands at Rs83.7 billion at present, including Rs28.629 billion to Pak-Arab Refinery Limited (PARCO), Rs15 billion to Pakistan Refinery Limited (PRL), Rs9.26 billion to National Refinery Limited (NRL), Rs27.25 billion to Attock Oil Refinery Limited (ARL), Rs2.64 billion to Bosicor and Rs952 millions to others. Overdue payments of local oil refineries against PSO are also said to have soared to Rs79.2 billion. If LC payment of Rs86.3 billion, which PSO has to pay to Kuwait Petroleum Company (KPC) and other international fuel supplying companies, is included, total liabilities of the company swell to Rs362 billion, out of which Rs79.22 billion is overdue.

OLP mulling over financing of solar power panels, gas generators (APRIL 13, 2012)
Orix Leasing Pakistan (OLP) Chief Executive Officer Teizoon Kisat has informed business community that the company is examining possibilities of financing of solar power panels and gas generators. Speaking at a meeting of Korangi Association of Trade and Industry (Kati) on Thursday, he said the country facing acute power shortage and financing of solar panels and gas generators might be a ray of hope for general public to overcome power crises to some extent. He said OLP focused Small and Medium Enterprise (SME) sector for financing and added that it was one of the best pay back sector. About the company, he said OLP was established in July 1986. "It is a member of the Orix Corporation, the largest non banking financial company of Japan." He said that OLP was now largest leasing company of Pakistan with total assets of Rs 21.8 billion having 66 percent of total market share. Kisat said that his company apart from corporate financing auto loans microfinance business was offering Islamic financing as well. Replying a question, he said that though leasing companies' mark up was little higher than banks but the more important factor was the availability of credit in leasing sector as compared to the banking sector. He praised the services of Orix for the SME sector in Pakistan.

Lifeline consumers'' quota raised by 10 0percent: power rate cut notified

APRIL 13, 2012 The government has extended the lifeline electricity consumers' quota from 50 units per month to 100 units per month, effective May 2012. According to a notification issued by the Ministry of Water and Power on Thursday, the government has reduced the electricity rates for lifeline consumers by Rs 2.67 per unit. According to officials, nearly 4.7 million power consumers are using up to 100 units of electricity per month and about 7 million are consuming 50 units per month. After the decision, power consumers falling in the lifeline category will be 11.7 million. Officials told Business Recorder that the government will have to pay an additional subsidy of about Rs 65 million on the provision of cheap electricity to consumers. Sources in the Ministry of Water and Power said in fact the government has changed the definition of lifeline power consumers and after the new definition; the lifeline consumers would be given a relief of Rs 2.67 per unit. Before this decision, Rs 1.87 per unit was being charged from the consumers using 50 units and Rs 4.75 from consumers using 100 units. The decision has been taken in accordance with the decisions at the energy conference held in Lahore. Sources added that the reduction will only facilitate the domestic consumers and the new tariff will be implemented from the next month's electricity bills. "In order to provide maximum relief to domestic consumers and following the directions of the Prime Minister of Pakistan, the lowest slab for lifeline consumers has been increased from 50 to 100 units. The new slabs will be introduced in next month electricity bills to be issued by Discos," said a press release issued by the Ministry of Water and Power. It added only the lifeline consumers using 1 to 50 units were exempted from tariff increase and

imposition of General Sales Tax. Now, the domestic consumers using up to 100 units will be treated as lifeline consumers and will enjoy the benefit of exemption from tax and tariff increase. The tariff rate of consumers under the new slab will automatically reduce and they will get good benefit.

Power shortfall hovers around 5,000MW

(APRIL 13, 2012) The country is facing a 5,000-megawatt shortfall in power generation after hydel generation declined as the Tarbela Resrvoir hit dead level, Pepco officials said on Thursday. Hydel gebneration units are currently producing just 2,767MW, followed by 1,618MW by thermal units and 5,573MW through IPPs. Meanwhile, KESC was supplied 760MW during the past 24 hours. Both domestic and commercial consumers faced power outages lasting between six and eight hours in urban and 12 to 14 hours in rural areas.

Turkmenistan gas pipeline: Tapi nations to ink GSPA deal

(APRIL 14, 2012) The Economic Co-ordination Committee (ECC) of the Cabinet has been informed that the participating countries in the Turkmenistan-Afghanistan-Pakistan-India (Tapi) gas pipeline project would sign the general sale purchase agreement (GSPA) on Monday, it was learnt on Friday. There is yet no agreement on the transit fee between Afghanistan, Pakistan and India. Sources said that the gas price formula approved by the ECC was based on base price, agreed risk sharing formula and gas price review mechanism. The sub-committee later approved the basis of the transit fee and negotiation of Tapi transit fee alongwith a suitable indexation mechanism

Khyber Pakhtunkhwa cabinet to take decision on two-day weekly off: Rahim Dad
(APRIL 14, 2012) "The government realises the losses faced by trader communities of Khyber Pakhtunkhwa due to energy crisis, terrorism and militancy," he remarked. The provincial government respects the opinion of traders' community about two weekly holidays and would take only those decisions which are in favour of the masses. Earlier, Secretary Department of Energy Zafar Iqbal informed the participants of the meeting that 700Mw of electricity could be saved if the working hours are reduced to five days in a week, adding that if the commercial markets are closed by 8pm at night it would help save 250MW additional. Speaking on the occasion, Chief Engineer PESCO Latif Khan noted that unnecessary use of electricity is contributing to more power loadshedding. He said the company is observing 8 hours loadshedding in Peshawar, 10 hours in other cities of the province and 14 to 18 hours in rural areas. PESCO is struggling to meet 928MW shortfall by observing 8 to 18 hours of loadshedding, he said and added that sometime RCC Islamabad shuts down the power to reduce the load. He said the loadshedding could be reduced if the consumers use the electricity responsibly. The representatives of trader community and Chamber of Commerce and Industry said that their businesses are declining day by day due to inordinate loadshedding. He said keeping in view the suffering and losses of the trader community due to terrorism, the provincial government provided 18 million to compensate the traders.Copyright Business Recorder, 2012

Business
Independent power producers in hot waters
our correspondent Sunday, April 15, 2012

KARACHI: The government has miserably failed to address the concerns of the independent power producers (IPPs) as one of them called the sovereign guarantee, which the government could not honour, sources said. All the IPPs were accorded sovereign guarantees by the government of Pakistan to ensure returns and protection to their investment. Industry sources said that the circular debt had reached Rs400 billion and the country is suffering a daily loss of Rs1 billion due to the inefficiencies and corruption in the entire power generation, distribution and collection system.

KESCs 560MW combined cycle power plant starts production

M. Waqar Bhatti Tuesday, April 17, 2012
KARACHI: The newly-built, state-of-the-art combined cycle power plant of Karachi Electric Supply Company (KESC), having the maximum power generation capacity of 560 megawatts started power generation on Monday and was expected to optimum generation capacity within the next 24 hours, officials said. The Bin Qasim Power Station II (BQPS-II) was completed at a cost of $450 million in record three-year period and with its completion and start of power production, the indigenous power generation capacity of the utility stands at over 2,000MW. The power plant has three gas-powered turbines, each having the power generation capacity of producing 125MW electricity, while a steam turbine that would be powered from the heat generated from gas turbine, would add around 185MW to the power generation capacity of the plant, the KESC officials told newsmen during a visit to the power plant. The power-stricken residents of Karachi, however, were unlikely to get any respite from the daily loadshedding of eight-nine hours after KESC claimed that they had diverted gas from other inefficient power plants to the newly-built one, which means that KESCs overall power generation almost remains the same. Currently, we are getting 200mmcfd gas and for the newly-built combined cycle power plant, we need an additional 130mmcfd gas so that we could produce electricity up to our maximum capacity, Arshad Zahidi, power utilitys director generation and transmission, told a news briefing at the site of the newly-built power plant. Zahidi termed the completion and start of power production by the BQPS-II a milestone in the power generation in the country and said they were proud of the facility that was completed within a record period of time. The KESC official, however, claimed that the power utility is not getting adequate gas volume to run the newly-built power plant as promised by the government at the time of signing an implementation agreement with the KESCs management. We have diverted the gas supplied to our other power plants, Bin Qasim-I and other gas turbines to run this plant as it was more efficient than the old ones, he added. This means that commissioning of the newlyconstructed combined cycle power plant made no affect on the overall power generation capacity of the KESC and citizens would have to continue enduring eight-nine hours of daily outages. The KESC official claimed that the Abraaj Capital, after taking over KESC in 2008, increased the power generation capacity of the utility from 1,376MW to 2,052MW in 2012 by investing millions of dollars. In addition, the new KESC management improved the existing fleets efficiency, added eight new grid stations, increased 32 kilometre-long transmission network, while it was also working to establish two more grid stations, he added. Zahidi also claimed that the KESCs management also brought down the line losses of the power utility that were 4.19 percent in 2008 and now stood at 1.45 percent. Responding to a question, he said, the KESCs management is aware of the issues associated with the gas availability in the country and keeping that in view, it had almost completed the feasibility of converting two of

its 210MW plants on coal and hopefully in the years to come, 420MW would be produced with coal.The KESC official appealed the government to provide adequate gas to the power sector instead of providing it to individual industries for power generation and the fertiliser sector so that domestic and industrial demands of the electricity could be effectively met.

Improved water flows: hydropower generation begins improving

[APRIL 17, 2012,RECORDER REPORT]

Hydropower generation in the country has started improving which on Monday reached around 2,800 megawatts against its capacity of about 6,500MW because of improved water flows in the main rivers.

At present total power generation of the country from all sources is around 10,000MW against total demand of 14,900MW
In big cities like Lahore, Faisalabad, Gujranwala, Multan, Rawalpindi supply of electricity has forced management to suspend power for 8-10 hours a day and in the rural areas power remains suspended up-to 16 hours.

installed power generation capacity is about 23,000 megawatts of which 19,000 megawatts is available against country's peak demand of 17,000 megawatts.
According to officials Pakistan has the capacity to immediately resolve energy crisis, as its

Islamabad to seek $10bn energy infrastructure fund

Khalid Mustafa Wednesday, April 18, 2012
ISLAMABAD: In the upcoming crucial meeting of the Pak-China Joint Energy Working Group (JEWG), authorities in Islamabad intend to ask Beijing to establish a $10 billion energy infrastructure fund. The moot is scheduled for May 2-4 and will be a follow up to the JEWG meeting held in Beijing in August last year. At that meeting, China had conditioned its investment in the water and power sector on the suspension of Public Procurement Regulatory Authority (PPRA) rules. The Chinese interlocutors had then insisted that Beijing would fund entirely only those projects that were handed over to its companies without International Competitive Bidding (ICB). China had also sought guarantees against exchange rate variation from Pakistan. Beijing insisted that since the dollar is on a downward slide vis-a-vis the yuan, the loan should be renminbi-denominated. However, officials privy to behind-the-scenes developments in Islamabad say, both demands have been shot down. At the upcoming meeting, the government is to tell the Chinese delegation headed by its energy minister that Pakistan cannot suspend PPRA rules for fear of scaring off Chinese investment. Instead, the Pakistan authorities hope to persuade Beijing to take part in the bidding process in key water and power sector projects. The bid-

winning Chinese company should use the $10 billion energy infrastructure fund instead of arranging finances itself, said the official. This will ensure speedy commissioning and construction of the projects. Further, said the official, the finance division has also refused to authorize renminbi-denominated deals. As such, he said, the upcoming dialogue is bound to fail unless President Asif Zardari or Prime Minister Yusuf Raza Gilani step in to sanction both Chinese demands. During the three-day moot, Pakistan is hoping to pitch key projects that require Chinese assistance such as Sindh Engro Mining and Power Project, Sonda Jherruk Coal Project, AES Imported Coal Project, Diamer Basha Hydropower Project, Neelum Jhelum Hydropower Project, Kohala Hydropower Project, Bunji Hydropower Project, Suki Kinari Hydropower Project, Kotli Hydropower Project, Madian Hydropower Project, Nandipur Combined Cycle Thermal Power Project, Chichoki Mallian Combined Cycle Thermal Power Project, 500 KV Transmission Line for evacuation of power from 747 MW Guddu Power Project, 220 KV Transmission line to transmit power from 404 MW UCH- II Thermal Power Project, 500 KV Transmission Line Project for dispersal of power from Sindh Engro Thar Coal Power Project, 500 KV Transmission Line Project for Neelum Jhelum Hydropower Project, 500 KV Transmission Line Project for evacuation of power from Tarbela Hydropower Fourth Extension Project, mapping of renewable energy resources (such as wind, solar, biomass, waste, geothermal, small and micro hydel projects) in new geographical areas of Pakistan, technology transfer for wind and other renewable energy projects, support, technology transfer, standardization, of off-grid and decentralized renewable energy applications and geothermal mapping of Pakistan, and the Geological Survey of Pakistans project to geologically map Pak-China border areas at a 1:50,000 scale.

IPPs plan to stop production on non-payment of dues

Javed Mirza Wednesday, April 18, 2012 KARACHI: The ongoing power crisis is likely to get even more severe as some of the independent power producers are on the verge of shutdown due to non-payment of their dues amounting to Rs34 billion, industry sources said. They said IPPs have extended the final deadline till April 28, 2012 for payment of outstanding dues following they will shut down their production facilities which might result in additional shortfall of 1800 megawatt.The IPPs were of the view that they were facing severe liquidity crunch and were not able to purchase fuel for their plants, besides in case of non-payment of dues they would not be able to retire banks installments that would further deteriorate the situation, sources said.

Discos to be handed over to provinces soon: power secretary tells National Assembly body
APRIL 18, 2012 NAVEED BUTT

While briefing the Committee about projections of demand and supply position, Thair Bashrat Cheema said that there was 14,660MW generation and 18,383MW demand in May, 15,451MW generation and 19,564MW demand in June, 15,200MW generation and 19,300MW demand in July, 15,210MW generation and 19,322MW demand in August, 15,181MW generation and 19,300MW demand in September. He said that the generation last year never exceeded 14,800MW. Copyright Business Recorder, 2012

Standby mode: KESC's right to disconnect supply to industrial units upheld

APRIL 18, 2012

In a judgement on several injunction applications, Justice Munib Akhtar of the Sindh High Court upheld KESC's intrinsic right to disconnect industrial consumers who changed their purposes and shifted KESC connections to standby mode.

Gas price to be renegotiated with Iran

[APRIL 20, 2012,MUSHTAQ GHUMMAN]

Pakistan will renegotiate gas price with Iran under the (IP) gas pipeline project as the price of TurkmenistanAfghanistan-Pakistan-India (Tapi) gas is cheaper, sources close to Petroleum Secretary told Business Recorder.This was disclosed at a meeting of Economic Co-ordination Committee (ECC) of the Cabinet held on April 12, 2012 under the chairmanship of Finance Minister Dr Abdul Hafeez Shaikh. The IP gas price was $11 per mmcfd while Tapi was estimated at $13 per mmcfd. However, a week ago in a meeting in the Ministry of Petroleum and Natural Resources it was revealed that Turkmenistan has agreed to reduce the price from 55 percent price parity with international crude price to 45 percent. In addition, Pakistan would also earn a transit fee from Tapi while India is not party to IP anymore. Official documents available with Business Recorder reveal that the ECC was informed that matter for signing of Gas Sales Purchase Agreement (GSPA) with regard to TAPI gas pipeline project, during the visit of the Turkmen President on 14th November 2011, was placed before the ECC in its meeting held on 11th November 2011. However, the ECC decided that, instead of signing GSPA at this stage, a single-page document containing the intention of both the governments of Pakistan and Turkmenistan, may be signed during the visit of the Turkmen President and the draft GSPA be annexed to that one-page document, for subject approval of the government. The ECC also constituted a committee for drafting the proposed one-page document. The committee prepared the requisite one-page document (Joint Declaration), which was accordingly signed by both sides on 14th November 2011. Subsequently, the matter of TAPI GSPA including gas price formula, agreed base price, risk sharing mechanism with regard to transportation cost, transit fee and gas price review mechanism was considered by the ECC in its meeting held on 20th January, 2012. The ECC constituted a committee headed by the Minister for Water and Power to examine the details concerning price and pricing formula for gas to be imported from Turkmenistan and submit its recommendation to the ECC. Qamar-led committee in its meeting held on 6th April, 2012 examined the gas price formula, agreed based price, risk sharing mechanism with regard to transportation cost, transit fee and gas price review mechanism and recommended it for approval of the ECC. Based upon the foregoing, the ECC was requested to approve the draft GSPA for execution by Inter State Gas Systems (Pvt) Ltd with

Turkmenistan (Turkmengaz) including gas price formula, agreed to, risk sharing mechanism and gas price review mechanism. During the ensuing discussion, it was explained that gas to be imported from Turkmenistan will be cheaper than the gas to be imported from Iran. Resultantly, Pakistan will be able to re-negotiate the gas price with Iran. On a query, the ECC was informed that penalty clauses in TAPI GSPA are similar to those contained in IranPakistan GSPA, where-under Pakistan will be liable for payment towards cost of gas even if no gas is imported. These conditions will be effective after construction of pipeline. The ECC was further informed about different stages of approval of TAPI project, which included approval of the Board of Directors, steering committee set-up by the ECC, the ECC itself and finally by the Cabinet. The project will not go through the CDWP and Ecnec. A concern was expressed that Minister for Finance is included as a member of the steering committee, but he is not aware of any meeting of the committee. It was explained that the meetings were previously attended by the then Minister of State for Finance. However, the last meeting held in October 2011 was attended by the Finance Secretary due to other commitments of the Minister for Finance. It was opined that TAPI being an important project, meetings of the steering committee should be held more frequently to discuss the details. Another point was made that different aspects of the TAPI project have been brought before the ECC and as such it would be appropriate to make a comprehensive presentation to the ECC on the whole project. Besides it was inquired if there was a cost sharing formula with India as India is also a stakeholder in this project. Copyright Business Recorder, 2012

Energy crisis, inflation discouraging investors'

[APRIL 20, 2012,RECORDER REPORT]

Non-availability of electricity and gas, absence of long-term policies and fluctuation in prices has discouraged the foreign investors and they are exploring new avenues for making investment, said President of Multan Chamber of Commerce & Industry (MCCI), Mian Anis A Sheikh while talking to journalists on Thursday. Expressing deep concern over 65 percent decline in Foreign Direct Investment (FDI) and Portfolio Investment during July-March 2011-12 as revealed by an official report and urged the government to tackle it on war-footing basis through a comprehensive policy approach by involving all chambers of commerce in the country. MCCI President said Pakistan's investment rate was only 13.4 percent at the end of last fiscal year, which was the lowest since FY74. The low saving rate, coupled with wary foreign investors led to record low investment rate in the country. He said that worst-ever energy shortfall, unclear economic policies, a serious law and order situation and institutional fragility were the major factors keeping the foreign investors away. He suggested if the country was losing charm for foreign investors then the government would have to take extraordinary measures to avoid its effects on local investors and country's economic growth. He said the slow government response to deal with aggravating energy crisis was also spoiling not only the local investment scenario but also sending a very negative signal to potential foreign investors. Sheikh said a special committee comprising private sector members should be formed to identify the solutions to attract foreign investment that was a prerequisite for economic growth. He said that the proposed committee should also be asked to look into the existing policy framework and if there was a need to redesign new policies and the committee should immediately initiate work on them. Sheikh said that all the developed countries accord special importance to economic issues and the challenges. But in Pakistan the situation is the other way round and the economy is on the bottom of government to-do list. He said that the key issues including power shortage, poor infrastructure, law and order situation and other vital factors, should be addressed on priority basis to put the country

on track of economic growth and development. "At the same time, the government should ensure that all institutions remain immune to any sort of undue interference as this will help improve quality of governance without which foreign investment cannot be attracted. "A number of sectors in Pakistan including infrastructure development, coal, energy, agriculture, livestock, textiles and pharmaceutical offer and lucrative investment opportunities to foreign investors but unfortunately due to absence of a proper marketing strategy these opportunities are unattended even today. Copyright Business Recorder, 2012

Power generation: SNGPL suggests suspension of gas supply to fertiliser plants

[APRIL 20, 2012,RECORDER REPORT]

The Sui-Northern Gas Pipelines Limited (SNGPL) has recommended the government to suspend gas supply to four fertiliser plants operating on SNGPL's system so that the gas could be diverted to power plants for generating an estimated 8,00 megawatts of electricity. Sources in the Petroleum Ministry told Business Recorder here on Wednesday that all the four fertiliser plants on the SNGPL network, Pakarab, Dawood Hercules, Engro's new plant and Agritech had already been the biggest victims of chaotic gas situation. They added that the suspension of gas supply to fertiliser plants would save over 200 million cubic feet per day (MMCFD) gas, which could be used to generate 8,00 MW of electricity. The government preferred to import over one million tons of urea by spending a hefty amount of $783 millions from precious foreign exchange. In addition to this, the government also paid huge subsidy of Rs 54 billion on the imported urea to keep its price equal with the locally produced urea. Agriculture contributes around 24 percent of the GDP and it also provides raw materials to all the major industries of Pakistan including, textiles and sugar. If the government accept the recommendations of SNGPL it would cause problems for Kharif Crops, as due to non-availability of fertiliser production of rice, cotton, sugarcane, maze, tobacco and other major crops would be affected. During last season, SNGPL-based fertiliser plants were badly hit and hardly managed to achieve 31 percent of fertiliser production against their installed capacity, due to unavailability of gas. In the past winter all the four fertiliser plants on SNGPL network faced a complete shutdown, which resulted in a huge production and financial loss to these fertiliser plants. Dawood Hercules plant produced only 39 percent of urea, which stood at 199,000 tons against a production capacity of 513,000 tons. Pakarab Fertiliser plant only produced 27 percent of urea, which stood at 29,000 tons against a production capacity of 106,000 tons. Agritech plant produced 34 percent of urea, which stood at 146,000 tons against a production capacity of 428,000 tons and Engro's new plant produced 27 percent of urea, which stood at 347,000 tons against a production capacity of 1.26 million tons. Copyright Business Recorder, 2012

TAPI gas pipeline project: India, Afghanistan agree on transit fee

[APRIL 21, 2012,ABDUL RASHEED AZAD]

Petroleum Minister Dr Asim Hussain announced that Afghanistan and India have agreed on a transit fee of 49.49 US cents per MMBTU for Turkmenistan- Afghanistan-Pakistan-India (TAPI) gas pipeline project, and the final

agreement in this regard will be signed on May 24. Addressing a news conference here on Friday, the minister said that the price agreement between India and Afghanistan was made possible due to Pakistan's efforts, adding, "We played a major role in convincing both the countries." The minister said that Pakistan will be charging the same transit fee from India as agreed with Afghanistan. He said that all the downstream issues of the TAPI pipeline were settled and the upstream issues will be settled at the steering committee of the project on May 24 when final agreement will be signed by the four participating nations. When asked about the price of imported gas, he said that it could not be shared with the media and said that it was less that the price for Iran Pakistan (IP) gas pipeline. He said Pakistan will be negotiating a revision in gas price with Iran as there is a price renewal clause in the agreement, adding that it will result in saving $1 billion. The minister said the engineering, procurement and construction (EPC) contract for IP will be awarded next week. He said that Pakistan's stance is very clear on the IP gas pipeline. He said orders have been issued to the Pakistan State Oil for setting up 100 LPG auto stations across the country at its outlets within next three months, adding that the dealers will be bearing all the construction cost. PSO will ensure LPG supply to the dealers and its price will be totally deregulated, the minister added. He said that the motorists will enjoy LPG, as it contains more hi-octane than CNG, adding that there will be no significant difference in LPG and CNG prices as estimated LPG mileage is Rs 6 per km, while that of CNG is Rs 5 per km as compared to petrol's Rs 9.50 per km. About ending of the energy crisis, the minister admitted that it would require at least three to five years in overcoming the crisis. However, he said that the government has taken decision to put the energy sector on the track again. About LNG, he said that the suppliers want long-term agreements of up to 10 to 15 years instead of 3 to 5 years duration. The cost of short-term supplies will be double than the long-term supplies. He said that he has already visited Algeria and talks were held on LNG supply, which they assured could be provided if an agreement on government to government basis was signed. He said that a summary was being moved to ECC for final decision. Replying to a query pertaining to the violation of rules in appointment of Chairman Oil and Gas Regulatory Authority (OGRA), the minister said that the question should be asked to the Cabinet Division that made the appointment. Prime Minister has approved appointment of a retired bureaucrat Saeed Ahmad Khan as Chairman OGRA even though the post required 20 years experience in oil and gas sector. About the high unaccounted for gas (UFG) losses, he said the Sui companies have reduced it from 15 percent to less than 10 percent, but these should be further brought down to below 5 percent. Copyright Business Recorder, 2012

HYPOTHESIS:
1. If we reduce dependence on oil and gas from 90% to at least 40% that is the generation mix be altered towards cheaper sources (like hydro, wave tidal, coal and renewable energy), there would be cheaper and sustainable levels of energy generation. 2. If energy transmission is improved reducing line losses and improving bill recovery rates, than energy sector would be self-sustaining. 3. Within thermal energy mix, if we move our dependence from expensive oil to cheaper and indigenous coal and biomass, cost of production of electricity generation would decrease. 4. No money to finance maintenance and repair of generation power companies, management is unable to improve efficiency of power plants. [no money due to inadequate tariff, expensive fuel ( Residual furnace oil), RFO damages power plants, Govt. subsidizing tariff( inflation increases, increase in the financial burden to the state subsidy bill)] 5. Resolution of circular debt can unlock capital for new generation projects.

INTERVIEW: THAR COAL IS ESSENTIAL FOR ENERGY SECURITY KHALID MANSOOR-CEO, ENGRO FERTILIZER SOURCE: BUSINESS RECORDER RESEARCH ENERGY CHALLENGES

Q1) BRR: Engro has been a classical example of being at the receiving end of the ongoing energy crises in Pakistan. What is your take on that? Answer: Khalid Mansoor Natural gas is a precious resource and we should use it judicially. You have to maintain your supply and demand in the country. If you want to distribute it judicially, than you must have an eye on the supply side as well. You have choked the supply side for a variety of reasons. First, people occupied the areas where the gas fields were located. Secondly, the petroleum policy needs review- if you dont incentivize the companies then how will you maintain the supply side? Thirdly investment fell due to the law and order situation. Fourthly, when political governments came, you generously said that we will provide gas to every one for every day use- how can you do that at the cost of depriving the industries of this energy source they depend on? More than half a billion of the current gas produced is unaccounted for. Gas is being used in transport-in cars (where people can afford petrol) and not in motorcycles (that is owned by the less affording class). Then, at homes, we are running geysers on 20 percent efficiency. Our gas policy still states that the number one priority users are domestic. The users are domestic, then textile, than general industry and then the fertilizer. It makes sense for the equitable distribution. Q2) BRR: How would the situation improve? Answer: Khalid Mansoor For Pakistans energy revival, we need thermal power plants for base load and renewable for peaking. Peaking is whenever you have a renewable energy resource and you can have cheaper electricity produced, for example hydel, which is available whenever there is water. Hydel capacity is 6500 MW. If there is low water, it may fall down to less than 1000 MW. Then you may need thermal plants for base load. Thermal works with three things- the fuel mix will revolve around gas, furnace oil or coal. You dont have gas and if you import it, it will cost $ 16/mmbtu. You have to look the price in

Europe and the US. Gas price in the US after the discovery of the shale gas has fallen to $ 3.5/mmbtu. The other option is to run it on the RFO. If I tell you the figures of 2009-2010 and 2010-2011, it will show that our dependence on furnace oil is 25%. That means you have to import more oil. Thermal power plants are a must if we want to bridge the gap between supply and demand. One solution that seems feasible and is not vulnerable to the changing crude oil price is the coal. For just power generation, $ 4 billion worth of oil is imported in Pakistan. And if it goes on like that, it will cross $ 8 billion by 2020. If you transfer those inefficient furnace oil plants to coal, imported coal to begin with, then your tariff is reduced by half. This is the only visible solution to bring energy security in the country. Q3) BRR: Engro has long been working on Thar coal power project. What is the current status? Answer: Khalid Mansoor We are trying to develop the Thar coal project since 2009. We hired international consultants, did all the planning work, and for the first time we have demonstrated that the Thar proposition is technically, socially, economically and financially viable. We have even purchased the construction bids from China. We have to know embark on the financial activity. There are two issues. On the one hand we are saying that if we have to solve the countrys energy crises, Thar is the only solution. Next is that if you want to execute the project, you need a financing of $ b3 billion. Now if we go to the lenders, they will tell us what happened to their previous investments. Than if you take out coal and generate power, to whom will you sell? It will be sold to the national grid. With circular debt issue- who will come forward and want to invest? We made a forum in Pakistan Business Council. We gave a comprehensive plan to deal with circular debt. Q4) BRR: What needs to be done in the short term as the Thar coal is definitely a long term solution? Answer: Khalid Mansoor At any point in time, 3000 MW is sitting idle; you need to transfer it on coal. In the short term you have to go for multiple strategies. There are hardly any wind projects in the country. Although it is a drop in the ocean but we can say that there is a potential of 50.000 MW.

Q5) BRR: What is the gas potential, do we have more gas? What are the major issues? Answer: Khalid Mansoor The petroleum policy needs to be re- addressed. On the bright side, Pakistan is considered one of the very few countries where the E & P (energy and exploration) success rate is outstanding. There are two views there- we have already plucked the low hanging gas fruits and now there is only distant fruit which is tight and shale gas, that has some potential but it is an expensive proposition. Q6) BRR: What is the rationale behind that? Answer: Khalid Mansoor It is the lack of political will. We gave a documented plan of how to get out this mess. And we didnt just talk about energy, we also stressed on education as the intellectual capacity is also lacking. But there is no political will. A country that doesnt have energy security has nothing. And if we want to achieve that security in this country, then Thar is the only solution. Q7) BRR: Tell us more about Thar coal and its potential? Answer: Khalid Mansoor 185 billion tons are the total coal reserves in Pakistan, of which 175 billion is in Thar. This is more than 50 billion tons of oil equivalent, which is more than Iran and Saudi Oil put together. It is equivalent to more than 2000 trillion cubic feet of gas. This is more than 68 times, all the reserves discovered in Pakistan. Our joint venture with the government is in block2, which we got through an International Competitive Bidding. We were told that the block has 1.6 billion tons of coal. When we did additional geological survey and additional drilling, we confirmed 200 billion tons from just that block, which is more than what was earlier estimated. That is just 1 percent of the total reserves and it can generate 5000 MW power. Not only it will meet the current demand, it is 25 percent of our current installed capacity. All this requires an investment of around $3 billion, 100,000 MW electricity for 200 years can be generated if we use the full Thar.

Q8) BRR: By when should we expect Thar coal power generation to be optional? Answer: Khalid Mansoor The project needs time to develop. Its tariff is going to be competitive with imported coal and LNG. We are just getting ready to start exploring and financing of the project. We have three limitations. One, as part of the joint venture agreement, government has to bring the infrastructure at the same readiness level on which we have worked. In that, four infrastructures components are critical; water supply, taxation line, disposal system and road network. Of these, the government has been very co-operative with us in the three. A very attractive fiscal package has been approved by the government. 20 percent dollar IRR has been approved in mining and exploration. The government has to bring the infrastructure at the readiness level, solve Engros gas problem and resolve the circular debt issue because otherwise the financial close is not possible. The good news is that we will get some financing from China. Chinese PM signed a MoU with the PM Gilani when he came here on 2010. In that, they made a joint energy working group. In that group, Thar is the flagship project. So before the financing activity starts, you have to resolve these issues to avoid any hurdles in the process.

MAIN REPORT TOPICS COVERED ELECTRICITY GENERATION THROUGH NATURAL GAS

INTRODUCTION
Key Players in the Energy Sector of Pakistan: To better understand the phenomena of circular debt, it is important to briefly review the profile of the key players in the energy sector:

Suppliers of primary energy:

a. b. c. d. Oil/gas exploration Companies (e.g., OGDCL and PPL) Oil refineries (e.g., ARL, Parco) Gas Distribution companies in gas (e.g., SNGPL, SSGC) Oil and Petroleum Marketing companies (e.g., PSO, Shell)

All companies in this segment are involved in the supply of primary energy to power generation companies.

Power generation and distribution companies:

e. f. g. h. i. Power distribution companies i.e. DISCOs like Karachi Electric Supply Corporation(KESC) Independent Power Producers (IPPs) (e.g. EPQL, Hub Power Company and Kot Addu Power Company) Captive power producers Rental power producers Pakistan Electric Power Company (PEPCO)

Power Consumers:
j. k. l. Industries Individuals Government Sectors [SOURCE: ENGRO POWERGEN REPORT ON CIRCULAR DEBT ISSUE IN PAKISTANS POWER SECTOR]

[SOURCE: ENGRO POWERGEN REPORT ON CIRCULAR DEBT ISSUE IN PAKISTANS POWER SECTOR]

THEORETICAL FRAMEWORK + MODEL USED

1) POWER GENERATION
The importance of natural gas to the country has been increasing rapidly. As on January 1st 2010, the balance recoverable natural gas reserves have been estimated at 28.33 trillion cubic feet. The average production of natural gas during JulyMarch 200910 was 4,048.76 million cubic feet per day (mmcfd) as against 3,986.53 (mmcfd) during the corresponding period of last year, showing an increase of 1.56 percent. Natural gas is used in general industry to prepare consumer items, to produce cement and to generate electricity. In the form of CNG, it is used in transport sector and most importantly to manufacture fertilizer to boost the agricultural sector. Currently 28 private and public sector companies are engaged in oil and gas exploration & production activities. Company wise total natural gas production is presented in Table 13.8.

(i)

Liquefied Petroleum Gas (LPG):

Liquefied Petroleum Gas (LPG) contributes about 0.7 percent of the countrys total energy supply mix. The main objective to enhance the use of LPG is to stop deforestation in the areas where the supply of natural gas is technically not viable. As a result of governments investor friendly policies, LPG supplies have gradually increased. The corner stone of LPG Policy is to ensure enhanced availability of LPG at a competitive price to the end consumer. LPG marketing companies have imported around 62,920.3 MT of LPG during JulyMarch, 200910.

(ii) Compressed Natural Gas (CNG):

In an effort to reduce dependency on other fuels as well as to improve the environment, the use of CNG

in vehicles is being encouraged. Due to existing price differential between CNG & Petrol, vehicles are being converted to CNG and approximately 2.0 million vehicles are using CNG in the country. The number of CNG Stations is ever increasing with an increase in the vehicle conversion rate resultantly there are about 3,116 established CNG Stations operational in the country. With an investment of over Rs.70 Billion, Pakistan at present is the largest CNG user country in the world. In addition, the Government has recently approved the project of PrivatePublic Partnership Based Environment Friendly Public Transport System for Major Urban Centers of Pakistan which is being actively pursued with the provincial governments leading to gradual phase out of diesel operated intracity urban transport to achieve import substitution.

(ii)

Liquefied Natural Gas(LNG):

The Government is encouraging LNG import by the private sector. Accordingly, Pakistan Mashal LNG Project (PMLP) was conceived to cater for the energy need of the country as envisioned in the 25 year National Energy Security Plan and identified in the Energy Gap Coverage Strategy. PMLP is to be setup on an integrated basis whereby a private sector project developer will manage the entire supply chain including procurement and shipping of 3.5 million tonnes per annum LNG, construction and operation of an onshore LNG receiving terminal, and delivery of 500 MMCFD regasified LNG to the SSGCs system in Karachi. Mashal (PhaseI) will be based on Floating Storage and Regasification Unit (FSRU). [SOURCE:ENERGY REPORT 2010]

2) MODELS

[ SOURCE: WORLD BANK PAKISTAN ENERGY TEAM REPORT]

[ SOURCE: WORLD BANK PAKISTAN ENERGY TEAM REPORT]

[ SOURCE: WORLD BANK PAKISTAN ENERGY TEAM REPORT]

3) INVESTMENT IN PARTICULAR SECTOR

Drilling Activities
During JulyMarch 200910, altogether 50 wells have been drilled, including 16 wells in the public sector and 34 in the private sector as against 60 in the same period last year registering a decrease of 16.67 percent. Total investment of $ 888.80 million has so far been made in the current financial year in the upstream petroleum sector. Table 13.9 provide the details of drilling activities of the public and private sector companies, engaged in the exploration and development of wells, with achievement during July March 200910 and corresponding period last year.

4) RESOURCES IN PAKISTAN FOR NATURAL GAS

[SOURCE: PAKISTAN ENERGY YEAR BOOK 2011]

5) FOREIGN INVESTMENT IN THE PARTICUALR SECTOR Despite conditions in Pakistan, world lenders like International Finance Commission and Asian Development Bank, also a local banks consortium had trusted the performance and credibility of KESC and had released their long held up loan facilities for the project. KESC has achieved Gross Dependable Generation Capacity of 2050 MW with the completion of 560 MW Bin Qasim Power Station -2 that generates electricity through gas. [Source: Business Recorder news] Funds are also taken from Islamic Development Bank, Saudi Development Bank, Abu Dhabi Fund, Kuwait fund for the required funding in the energy sector. [Source: Business Recorder] The Pak-China Joint Energy Working Group (JEWG), authorities intend to ask Beijing to establish a $ 10 billion energy infrastructure fund. [Source: Business Recorder] 6) DEVELOPMENT

[SOURCE:ENGRO POWERGEN PRESENTATION ON INDIGENOUS FUEL IS THE KEY TO ENERGY SECURITY OF PAKISTAN] 7) CRISES IN ENERGY SECTOR
The main crises faced by the energy sector are: I. II. III. IV. V. VI. VII. VIII. IX. Circular debt problem Rising fuel cost Subsidy that Govt. offers to relief consumers ( imparts negative impact on economy and power sector) + low consumer, commercial and industrial tariff Greater contribution of expensive fuel (oil, gas) in the generation (thermal) mix. Financial gap of subsidy that Govt. had to pay also increased Line losses, Transmission and dispatch losses. Non- recovery of bills Crippled cash flows and increased amount of Account receivable and bad debt (bad debt written off). Gas shortage ( more reliance in Residual furnace oil that is expensive)[ALMAS UNERSTANDING]

DEFINITION OF CIRCULAR DEBT

Circular debt occurs when one entity facing problems in its cash inflows holds back payments to its creditors and suppliers. This payment hold up creates cash inflow problems for these suppliers and creditors who in turn delay / default on their payments to other parties hereby creating cash inflow problems for the particular entities. Thus circular debt is the phenomena in which one entitys liquidity problems are cascaded down to other entities who, directly or indirectly conduct business with that particular entity.

REASONS FOR CIRCULAR DEBT

The five main reasons for Circular debt are as follows:

1.) Discrepancy between cost of power generation and consumer tariff

End-consumer tariffs were insufficient to recover the rising costs of power generation, and the government, due to fiscal constraints, was not fully compensating PEPCO against the resulting losses: While all power tariffs are determined by the National Electric and Power Regulatory Authority (NEPRA), there is difference in the way that tariff decisions are implemented for power generation companies and for end-consumers. Specifically, tariffs for power generation companies are governed by power purchase agreements, which define the base tariff for power generation as well as the process for subsequent adjustments (e.g., against rising fuel costs, inflation, exchange rate changes, etc.). Thus, tariff revisions are automatically reflected in power purchase prices. NEPRA only validates the cost claims of power suppliers. In the case of end-consumers, although NEPRA determines their tariffs, the government has a key role as these tariffs become legally binding only after being notified by the government. This severely limits NEPRAs operational independence. As a result of this weakness, we observed the following: i. During November 2003 to February 2007, end-consumer tariffs remained unchanged. This was because NEPRA did not allow any revision in tariffs despite requests from DISCOs ii. After February 2007, NEPRA allowed some upward revision in tariffs in response to the increase in the power purchase price. But the government-notified tariffs

iii.

remained lower than those determined by NEPRA (see Figure 1). This reflects the governments reluctance to completely pass on the tariff increase to end-consumers. The difference between the tariff determined by NEPRA and finally notified by the government is the tariff differential subsidy paid to consumers.

iv.

Tariffs for power suppliers (IPPs and GENCOs) continued to rise mainly due to rising fuel prices (see graph below) and the depreciating value of the rupee against the US dollar (rupee depreciated by more than 45% against the US dollar from 2005 to 2011).c

: 1990-2010 Oil Prices: 1990-2010

As mentioned earlier, any adjustment in the power suppliers tariff does not require government approval to be effective. This means that end-consumer tariffs were insufficient to recover the rising costs of power generation. Figure 2 shows that the wedge between consumer tariffs and power purchase prices has been rising consistently. Since the government was not fully compensating PEPCO against these losses, this wedge essentially shows the extent of loss that PEPCO incurred on each unit of power it supplied. Furthermore, electricity generation kept on increasing during this period, which magnified the cash flow problem for PEPCO.

10.5 9.5 8.5 Rs/Kw 7.5 6.5 5.5 4.5 3.5

Figure-2: Consumer Tariff vis-a-vis Cost of Power Generation

Consumer Cost of Power Generation

2003

2004

2005

2006

2007

2008

2009

2010

2011

120 110 100 1000'GWh 90 80 70 60 50 2003 2004 2005

Figure-3: Generation Of Electricity

2006

2007

2008

2009

2010

2011

Below is a comparison of Residential and Commercial Power tariff of Pakistan compared with other Asian Oil Importing countries (based on the year 2010):

2.) Recovery problems faced by PEPCO

PEPCO has also been facing problems in recovering dues from its consumers: Over time, PEPCO has developed significant dues from its consumers; i. Recovery of dues from FATA is very low. Similarly, a number of private individuals do not pay their monthly electricity bills ii. A number of departments in the federal and provincial governments have been delaying their payment of dues iii. There is a payment dispute between the KESC and PEPCO Figure 4 explains how these receivables built up over time. These receivables increased sharply from 2006 onward. A major part of this rise is explained by private consumers where PEPCO can be most effective in terms of recovery of dues. This is an enforcement issue as some DISCOs are unable to improve recovery of their electricity bills from private consumers. In sum, PEPCOs cash flows have thus been strained, since (a) end-consumer tariffs were insufficient to recover the rising costs of power generation, and (b) the recovery of power tariffs was inadequate. In June 2006, PEPCO started borrowing from banks against government guarantees, mainly to compensate against the non-receipt of tariff subsidies from governmentthis is the point at which the circular debt issue emerged.

Figure-4: PEPCO Recievables Trend

450 400 Amount in PKR Billions 350 300 250 200 150 100 50 0 Mar-09 Jan-10 Mar-10 Jun-10 Aug-11 Dec-11 Jan-11 Feb-11 230 196 156 266 284 327 347 400

This was also when PEPCO started delaying payments to its suppliers. For example, in August 2006, PEPCO deferred its payments to IPPs initially for a few days, later extended to longer periods. There is reason to believe that PEPCO prioritizes payments to Oil and Gas supply companies over IPPs so that PEPCOs generation itself remains unaffected. As a result, IPPs began facing stress on their cash flows, which eventually forced them to borrow from the banking system in June 2007. In this way, problems in PEPCOs cash flows cascaded down to other segments of the energy supply chain.

It may be noted that OMCs (e.g., PSO, Shell) were already facing a liquidity crunch in June 2007 as the government was delaying the settlement of price differential claims relating to fuel prices. Thus the cash flow problem that started from PEPCO has impacted all players in the energy sector. Although the government has taken a number of remedial measures, according to our estimates, the size of circular debt by midJanuary 2010 was around Rs. 150 billion. The following table shows the magnitude of circular debt resulting from the mismatch of payables and receivables position of PEPCO:

3.)

Transmission and Dispatch Loses of Discos

The distribution sector has failed to improve its overall performance over the period under review and in some cases the performance has further deteriorated. The comparison of high loss Companies are given in the following table:

In order to maintain uniform distribution tariff across the country the tariff of the most efficient distribution companies are applied by the federal government. This was done in order to force discos to become more efficient in order to earn profits but only added to the financial distress of the discos as the actual cost of service was greater than the cost recovered from customers. Furthermore poor bill recovery added to the financial distress of the discos. It is estimated that 18% of the total units sent out are lost during transmission. The status of billing and collection in respect of all discos during the last two years is as below:

4.)

Fuel Mix in the Power Sector:

The fuel mix in the thermal energy generation gas gradually shifted from major reliance on natural gas to more dependence on Furnace Oil. Over the last five years the share of natural gas in thermal generation has dropped by almost ten percent whereas over the same period furnace oils share in thermal generation has increased by the same percentage. From 2006 to 2010 the use of natural gas has gradually decreased and it has been replaced by the more expensive furnace oil. The table below shows the share of oil, natural gas, diesel and coal in the thermal generation mix:

Thermal power generation and fuel consumption in the year 2011 has been summarized below: Oil: During the year 2010-11, the share of electricity generated using oil in the total generation mix of the country was 55.07% while this share during 2009-10 was 52.09% Gas: During 2010-11, the share of electricity generated using gas was 44.73% while the same during 2009-10 was 47.71% Coal: During 2010-11, electricity generated using coal was 0.2% of total generation mix which is the same as that of period during 2009-2011 It is evident from the above statistics that cheaper sources of thermal energy like gas are being gradually replaced by expensive furnace oil. The bar chart below shows the overall electrical generation from June 2006 to June 2011:

Therefore not only the share of thermal energy generation in the energy sector is increasing but also with in the thermal energy mix, the share of furnace oil with respect to gas is also increasing. So even within the thermal energy mix we are becoming more depended on expensive sources of thermal energy (oil) rather than gas.

5.) INEFFICIENT OPERATIONS OF THE GENERATING COMPANIES (GENCOS)

GENCOs are basically power plants run by public sector state owned companies. Over the years these companies have been unable to attract investment in their power projects resulting in poor maintenance and inefficient operations. A study of the GENCOs financed by USAID suggests that the main problems faced by the GENCOs are related to tariffs and fuel. NEPRA, the tariff regulatory body, allows the GENCOs to charge a tariff that leaves almost no room for maintenance and repair costs. With no money to finance maintenance and repair costs, the management is unable to improve the efficiency. A study of the Jamshoro GENCO recommended that 500 MW of lost capacity could be regained through the replacement of parts and tweaking of plant procedures. The second major problem is fuel: with the country facing an acute gas shortage, the GENCOs are relying on expensive and inefficient furnace oil. The furnace oil used a high sulphur content which damages the boilers in the power plants and is one of the biggest single impediments to the smooth and efficient operations of the power plants. This coupled with the little room left for maintenance expenses by inadequate tariffs results in huge efficiency losses during plant operations.

Thirdly, furnace oil is more expensive than gas and it derives the electricity tariffs up. At a time when the government is already subsidizing tariffs, this only acts as to increase the financial burden of the state subsidy bill and is one of the main reasons why the actual subsidy that needs to be paid exceeds the budgeted amount. Operational efficiency in energy generation can be determined by ratios such as The Load Factor and The Plant Factor. The Load Factor is the ratio of gross electricity actually generated and the total maximum generation possible during the same time duration. For normally efficient plants this load factor usually hovers above 90% whereas in the case of these GENCOs this factor is between 55-65% which shows huge inefficiency in operations. The Plant Factor is a equal of total gross generation divided by the plant generation if it was on the full load for the entire duration. Logically this ratio is interpreted the same as the load factor. The efficiency analysis of these GENCOs shows that they require much needed up-gradation in order to stop them from adding to the already strained financial conditions of the sector.

INTER CORPORATE CIRCULAR DEBT POSITION

Tackling the Circular Debt issue:

The circular debt issue can be resolved by either one or a combination of the four strategies stated below: 1. ) Raising the consumer tariff: so that the cost of generation charged by the IPPs is similar to the cost charged to the consumers. In order to prevent circular debt from re-emerging, the government needs to align power tariffs with power costs so that the energy sector becomes self sufficient and is able to financially sustain itself without the need for government subsidy or other external intervention. As long as there is a gap between the cost of power generation and tariff charged to the consumers, there will always be cash flow constraint which increases the likelihood of circular debt re-emergence. Therefore in short the tariffs should be matched with the costs of generation in order to permanently eliminate circular debt from the sector. 2. ) By issuing government subsidies, the government can make payments on behalf of the customers thereby filling in the gap between the electricity cost and the tariff charged. It is important to understand that this kind of arrangement would be temporary in nature as the government would have to make regular payments to the power sector in order to keep the size of circular debt manageable. Furthermore this would be a big financial burden on the government going forward as the total electricity generation increases the nominal amount of subsidy would also increase. 3. ) By commercial banking loans: a consortium of banks may issue a debt instrument to the government so that it can provide liquidity relief to the energy sector. Furthermore banks may extend their lines of credit to individual companies in the energy sector so as to ensure that they remain operational until a more permanent solution is brought forward. 4. ) By sector entities: companies in the energy sector may take on more debt or issue IPOs in order to raise the required capital on their own. This looks highly unlikely as these companies are already overleveraged so raising more debt would not be possible. Also considering the macro economic outlook of the country and the present condition of the domestic energy sector, the foreign or domestic investor would be less likely to take up an equity stake in the power region.

Steps taken in the past to Resolve Circular Debt

The government in the past has taken many steps in order to alleviate circular debt. The government has till now issued two Term Finance Certificates (TFCs) for the resolution of the circular debt issue. The Details of the arrangements are as follows: First TFC issue: The first TFC issued by the govt. to settle part of circular debt of the energy sector was worth PKR 80 billion issued on Mar 31, 2009. The tenure of the paper was five-year at an interest rate of KIBOR plus 175 bps against securitization of all expected receivables of Pakistan Electric Power Company (PEPCO). This particular govt. paper was brought to the market by a consortium of 10 commercials banks. Second TFC issue: The second last time government issued TFC to resolve the circular debt was on September 18, 2009. The TFCs amount was taken on by the Power Holding Company. The Banks portion of TFC comprised of PKR 44 billion of debts swap and PKR 38 billion of fresh cash injection into the affected institutions. The paper was

issued at a rate of KIBOR plus 200 bps for five years maturity and could also be traded through Bond Automated Trading System (BAT) of Karachi Stock Exchange. NBP, UBL, ABL and HBL were part of the consortium in the issue of TFCs. As the circular debt figure crossed the PKR 400 billion mark in January 2012, the government of Pakistan is planning to issue a Term Finance Certificate (TFC) worth Rs 150 billion, mostly against existing loans of the energy sector. Analysts believe that 80 percent of the issue would be against existing loans of the energy sector, while the remaining 20 percent comprises of fresh injection. As such, fresh liquidity injection into the sector shall be around Rs 30 billion, bulk of which will likely to be received by Pakistan State Oil (PSO). The TFC issue would result in reduction of receivables and simultaneous reduction in short-term borrowing of all IPPs under coverage, as well as PSO. According to media reports, the commercial banks have agreed to subscribe to TFCs to adjust the circular debt. Though, the final modalities of the deal have not been finalized, it has been quoted that TFC of Rs 145 billion to Rs 150 billion at KIBOR plus 1.5 to 2 percent mark-up for a period of five years will be issued by power holding company that would shift energy companies loans to the government-backed institution through banks. The transaction would clean to improve the balance sheet of the energy sector companies by reducing short term borrowing. For the banks it would reduce the pressure on the non-performing loans (NPLs) and may lead to one time positive impact on earnings. Lastly, the transaction is only a short-term remedy for the circular debt with full and final solution of the circular debt lies in the complete revamp of the energy sector that includes removal of power subsidies.

6.)

Banking Sector Exposure to Energy Sector:

The banking sector has a major role to play in the circular debt crisis. The government is expected to release a new round of term finance certificates and the banks have been encouraged to take up these issues. Currently the banking sector is wary of the circular debt issue and it trying to minimize its exposure in the energy sector and therefore it is hesitant to advance any more credit to IPPs and other energy companies. This reluctance is a result of the gloomy outlook regarding the circular debt crisis and also due to the fact that the ratio of non-performing loans in the Energy sector have increase by almost 89% in one year from 2008 to 2009.

[SOURCE: ENGRO POWERGEN REPORT ON CIRCULAR DEBT ISSUE IN PAKISTANS POWER SECTOR]

7.) SUPPLY AND DEMAND GAP

This table shows consumption of energy by sectors, or the demand of energy increment sector wise.

[SOURCE: ENGRO POWERGEN PRESENTATION ON INDIGENOUS FUEL IS THE KEY TO ENERGY SECURITY OF PAKISTAN]

[SOURCE: WORLD BANK PAKISTAN ENERGY TEAM]

[SOURCE:WORLD BANK PAKISTAN ENERGY TEAM]

8.) YEARS OF LOAD SHEDDING

[SOURCE: ENGRO POWERGEN PRESENTATION ON INDIGENOUS FUEL IS THE KEY TO ENERGY SECURITY OF PAKISTAN] Power shortfall jumps to 4,800 megawatts (APRIL 12, 2012)
The power crisis in the country has further deepened as on Wednesday shortfall again jumped to 4,800 MW during the last 24 hours. According to the daily load management report, the total generation was recorded as 10,326 MW against the demand of 15,126 MW during the said period. The hydel generation stood at 2792 MW, WAPDA thermal 1691 MW and IPPs 5,843. As much as 670 MW electricity was supplied to Karachi Electric Supply Company (KESC), the report further said.

Power shortfall hovers around 5,000MW

(APRIL 13, 2012) The country is facing a 5,000-megawatt shortfall in power generation after hydel generation declined as the Tarbela Resrvoir hit dead level, Pepco officials said on Thursday. Hydel gebneration units are currently producing just 2,767MW, followed by 1,618MW by thermal units and 5,573MW through IPPs. Meanwhile, KESC was supplied 760MW during the past 24 hours. Both domestic and commercial consumers faced power outages lasting between six and eight hours in urban and 12 to 14 hours in rural areas.

Nuclear 3%

2009-10

Hydel 30% Coal 0% HSD 1%

Gas 29%

RFO 37%

Nuclear 2%

2008-09

Hydel 30% Coal 0% HSD 1%

Gas 42%

RFO 25%

[SOURCE: ENGRO POWERGEN PRESENTATION ON INDIGENOUS FUEL IS THE KEY TO ENERGY SECURITY OF PAKISTAN]

[SOURCE: ENGRO POWERGEN PRESENTATION ON INDIGENOUS FUEL IS THE KEY TO ENERGY SECURITY OF PAKISTAN]

9.) ENERGY, HURDLE IN ECONOMIC GROWTH Energy deficit is one of the biggest impediments for promising demographics to reap economic dividend. Poor management, bad governance and political compulsions are hampering our manufacturing competitiveness and worsening socio-economic fundamentals. Wrong fuel choice has taken the economy to a critical junction. This has not made the power expensive for the user but also has increased the balance of payments vulnerability. The reliance on expensive fuel and poor governance is plaguing the economy through constant creation of the circular debt. The gap between electricity consumed and payments is widening. Someone has to pay for the wastage and there is none other than the Tax payers. Moreover, every now and then the Government with the help of banks plugs holes for system to function at bare minimum. If a turbine is functioning at low efficiency the amount of fuel being wasted in the air not only causing pollution but more importantly could have been used in efficient power generation, industry, transportation or at home. Than those not paying bill of electricity they consume rest of nation is paying in terms of load-shedding, high unemployment and weaken currency. Natural gas comprises two-fifth of Pakistans total energy consumption at present. Accelerated usage of resources (fuel) is quickly depleting national reserves and the increasing dependency of the various sectors on the resource has pushed its demand significantly beyond its supply. Given this deficit, revisiting the allocation of fuel and basically gas supply between power, fertilizer, textile and other industries, domestic consumers and transport sectors has become imperative. 10.) COST-BENEFIT ANLYSIS

ISLAMABAD: Pakistan Electric Power Company (Pepco) is reportedly purchasing 43 percent electricity from furnace oil fired plants at Rs 16 per unit which is 6856 percent more expensive than hydel power whose per unit cost is 23 paisa and its share is about 16 percent in total generation of plants supplying electricity to National Transmission and Dispatch Company (NTDC). The actual price of hydel electricity is about 18 paisa per unit and after inclusion of inefficiencies, transmission and dispatch losses its cost is about 22.5 paisa per unit. The share of electricity being generated at High Speed Diesel (HSD) is about two percent but its price is Rs 19.5 per unit. President Asif Ali Zardari, in his address to Parliament claimed that the present government has added another 3300 MW in the system, but he did not mention that most of these projects were initiated during Musharraf regime. Incumbent government has added only a couple of hundred megawatts to the system. President Asif Ali Zardari informed the nation that the government had ensured that tariff for eight million power consumers is not enhanced during the last fours years. Analysts maintain that the President was misguided by the Ministry of Water and Power that tariff of lifeline consumers (defined as those who consume up to 50 units per month) had not experienced any increase in tariff whereas in actuality tariff for life line consumers increased by one rupee (from Rs 2 to Rs 3 per unit) during the four year period of PPP rule. The President did not refer to Rental Power Plants (RPPs) regarded as one of the mega scams with one incumbent Federal Minister, Faisal Saleh Hayat presenting evidence of considerable irregularities before the Supreme Court. Sources in Ministry of Water and Power told Business Recorder that no hydel project is expected to be completed in the near future. Official documents suggest that hydel- 991.37 GWHshare 15.87 per cent, total cost Rs 223 million - per unit cost Rs 0.2246. HSD- 119.99 GWH- share in total generation- 1.92 per cent, total cost Rs 2.312 billion with Rs 19.26 per unit. Residual Fuel Oil (RFO)- 2,652.07 GWH , share in total generation 42.45 percent indicating a cost of Rs 16 per unit . Gas- generation 1,954.96 GWH-

share in total generation 31.29 per cent- total cost Rs 8.541 billion, depicting Rs 4.3691 per unit. Nuclear generation - 435.8 GWH- share in total generation 6.98 per cent- total cost- Rs 529 million- per unit cost-Rs 1.2145 . Import Iran- 20.77 GWH- share in electricity supplied to CPPA- 0.33 percent-total cost Rs 187 million- cost Rs 9.0200 per unit. Mixed generation -71.74 GWH-share in generation-1.15 percent-total cost Rs 968 million- cost Rs 13.5 per unit and wind generation- 0.46 GWH- share in total generation-0.01 per cent-cost Rs 4 million showing Rs 9.1213 per unit. Hence, total generation has been reported at 6,247.17 GWH in January, total cost of which was Rs 55.208 billion, indicating Rs 8.8373 per unit. The President noted in his speech that the prime minister laid the foundation stone of Diamar Bhasha dam which has the capacity to generate more electricity than the combined production of Tarbela and Mangla dams. It is pertinent to mention here that former President General Pervez Musharraf had also laid foundation stone of Diamar Bhasha dam. Other hydel projects under construction will yield another 1740 MW. Chinese companies have made BoT offer to generate 5000 MW. [SOURCE: BUSINESS RECORDER, DATED: 18 MARCH 2012]

COST OF PRODUCTION OF GENERATION MIX

SECTORS
TOTAL IMPORT HYDEL HSD RFO GAS NUCLEAR

GWH
6247.17 20.77 991.37 119.99 2652.07 1954.96 435.8

%
100% 0.33% 15.87% 1.92% 42.45% 31.29% 6.98%

RS/KWH
8.8373 9 0.2246 19.26 16 4.3691 1.2145

[source: Expert Assistance] NEW PRICES OF FUEL FUEL TYPE

PETROL LDO KEROSENE OIL HOBC HSD

NEW PRICES RS./ LITRE

105.68 98.74 101.96 135.81 108.16

OLD PRICES RS./LITRE

97.66 93.29 96.4 126.87 103.46

[SOURCE: OGRA WEBSITE AND BUSINESS RECORDER] 11.) TYPES OF GAS RESOURCES

TYPES OF NATURAL GAS Shale Gas

Shale gas is natural gas that is trapped in shale formations. Shale is essentially a common form of sedimentary rock. It is formed by the compaction of silt and clay-size mineral particles. Shale formations are found all over the world.

The Annual Energy Outlook projects that by 2035, production of shale gas will make up 45 percent of the U.S. natural gas supply.

Methane Hydrates

Buried in the sediments of the ocean floor is a reserve of methane so vast it could possibly fuel the entire world. In sediments on the ocean floor, tiny bacteria continuously break down the remains of sea animals and plants, producing methane gas. Under the enormous pressures and cold temperatures at the bottom of the sea, this methane gas dissolves and becomes locked in water molecules to form crystals. These crystals cement together the ocean sediments into solid layerscalled methane hydratesthat can extend down into the sea floor. Scientists also suspect that huge deposits of free methane gas are trapped beneath the hydrate layer. Researchers estimate there is more carbon trapped in hydrates than in all the fossil fuels; however, they arent sure how to capture this methane. When a hydrate breaks down, it loses its solidity and turns to mush, causing major landslides and other disturbances to the ocean floor, as well as an increase in methane escaping into the atmosphere.

Biomass

Scientists are also researching new ways to obtain natural (methane) gas from biomassa fuel source derived from plant and animal wastes. Methane gas is naturally produced whenever organic matter decays. Today, we can drill shallow wells into landfills to recover the methane gas. Landfills are already required to collect methane gas as a safety measure. Typically, landfills collect the gas and burn it to get rid of it; but the gas can be put to work. In 2009, landfill gas generated 15.8 billion kilowatt-hours of electricity. There are other ways to convert biomass into natural gas. One method converts aquatic plants, such as sea kelp, into methane gas. In the future, huge kelp farms could also produce renewable gas energy.

Liquefied Natural Gas

Another successful development has been the conversion of natural gas into a liquid. As a liquid, natural gas is called LNG, or liquefied natural gas. LNG is made by cooling natural gas to a temperature of -259F. At that temperature, natural gas becomes a liquid and its volume is reduced 600 times. Liquefied natural gas is easier to store than the gaseous form since it takes up much less space. LNG is also easier to transport. People can put LNG in special tanks and transport it on trucks or ships. Today, more than 113 LNG storage facilities are operating in the United States.

Tight gas reservior

The effective permeability is less than 1 md and generally the unstimulated gas flow rates is less than 1.0 mmscfd. In the TGRs, there are lots of uncertainty regarding: 1. Irreducible water saturation and the connate gas saturation, 2. Overburden correction factor that has a big impact on the low permeability range value 3. Net pay of the formation 4. Presence or absence of natural fractures

12.)

INTERNATIONAL FOCUSED TECHNOLOGY

[ SOURCE: GOOGLE IMAGES] USAs energy mix grid.

INDIAS ENERGY MIX PIE-CHART.

CHINAS ENERGY MIX BY TYPE.

JAPANS ENERGY MIX

WORLD ENERGY MIX

MID-WEST CONSUMPTION OF NATURAL GAS.

13.)

OWN CONTRIBUTION

My recommendations ( Almas Shahid) In addition I recommend that Pakistan focus on building its energy in the future by: Hydro-electricity

This is because the cost of production of hydro electricity is cheapest course of energy. Further more in conditions of drought and floods building of dams help agricultural sector of Pakistan withstand extreme conditions. Indigenous coal

This is because it will save us a great deal of foreign exchange by utilizing our countries own resources and not importing. Our generation mix will be less affected by rising fuel prices in the international oil market. Renewable Resources

As it provides alternative source of energy and will help lower the cost of production of energy generation so that all sectors of Pakistan enjoy the benefits of energy and our economy prosper. Gas

As it is cleaner and efficient to use and will not harm the plants and the environment as compared to the residual furnace oil. It is also cheaper than RFO Encouraging Foreign Investment

By bringing in private and foreign investment in our energy sector, it will become selfsustainable and comes out of energy crises, It will also help build in confidence of the local investors. RFO

To increase the range of the generation mix, not relying on any one of the factor of production ,to sustain and bear any shocks in the energy generation. Nuclear

As it is most dangerous to handle so in last option it must be used, however should be used so that generation mix has a many ways of generation electricity.

METHODOLOGY Second resource data was used for this economics project. CONCLUSION Power generation is the sector that impacts other sectors of an economy and it needs improvements in Pakistan.