Risk & Insurance Management Energy Crisis & Its Impact on our Economy

Energy Crisis and Its Impact on our Economy

What is Crisis?
Crises have four defining characteristics that are "specific, unexpected, and non-routine events or series of events that [create] high levels of uncertainty and threat or perceived threat to an organization's high priority goals." Thus the first three characteristics are that the event is 1. Unexpected (i.e., a surprise) 2. Creates uncertainty 3. Is seen as a threat to important goals

What is Energy Crisis?

An energy crisis is any great shortfall (or price rise) in the supply of energy resources to an economy. It usually refers to the shortage of oil and additionally to electricity or other natural resources. The crisis often has effects on the rest of the economy, with many recessions being caused by an energy crisis in some form. In particular, the production costs of electricity rise, which raises manufacturing costs. For the consumer, the price of gasoline (petrol) and diesel for cars and other vehicles rises, leading to reduced consumer confidence and spending, higher transportation costs and general price rising. Electricity sector in Pakistan: Electricity in Pakistan is generated, transmitted, distributed and retail supplied by two vertically integrated public sector utilities: Water and Power Development Authority (WAPDA) for all of Pakistan (except Karachi), and the Karachi Electric Supply Corporation (KESC) for the City of Karachi and its surrounding areas. There are around 16 independent power producers that contribute significantly in electricity generation in Pakistan. For years, the matter of balancing Pakistan's supply against the demand for electricity has remained a largely unresolved matter. Pakistan faces a significant challenge in revamping its network responsible for the supply of electricity.
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Risk & Insurance Management Energy Crisis & Its Impact on our Economy

While the government claims credit for overseeing a turnaround in the economy through a comprehensive recovery, it has just failed to oversee a similar improvement in the quality of the network for electricity supply. The following is the list of Electric Supply companies in Pakistan.

Faisalabad Electric Supply Company Gujranwala Electric Power Company Hyderabad Electric Supply Company Islamabad Electric Supply Company Karachi Electric Supply Corporation Lahore Electric Supply Company Multan Electric Power Company Peshawar Electric Power Company Water and Power Development Authority

World Wide Electricity production and Ranking:

Rank 1 2 3 4 5 6 7 8 9 10 32 33 Country United States China Japan Russia India Canada Germany France Korea, South Brazil Pakistan Belgium Electricity - production (billion kWh) 4,167 3,256 1,195 1,016 665.3 612.6 594.7 570 440 437.3 93.26 82.94

Energy Crisis in Pakistan: Energy resources have depleted! Whatever resources are available are simply too expensive to buy or already acquired by countries which had planned and acted long time ago. Delayed
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Risk & Insurance Management Energy Crisis & Its Impact on our Economy

efforts in the exploration sector have not been able to find sufficient amounts of energy resources. Nations of the world which have their own reserves are not supplying energy resources anymore; only the old contracts made decades ago are active. Airplanes, trains, cars, motorbikes, buses and trucks, all modes of transportation are coming to a standstill. Many industries have closed due to insufficient power supply. Price of oil has gone above the ceiling. At domestic level, alternate methods like solar, biogas and other methods are being tried for mere survival. The above is a likely scenario of Pakistan and around the globe after 25 years. A negative view, but realistic enough to think about and plan for the future. But are we doing anything about it? Lets have a look at the current energy situation of Pakistan and the world. Pakistans economy is performing at a very high note with GDP growing at an exceptional rate, touching 8.35% in 2004-05.In its history of 58 years, there has been only a few golden years where the economy grew above 7%. This year official expectations are that GDP growth rate will be around 6.5 7.0%. For the coming years, the government is targeting GDP growth rate above 6%. With economy growing at such a pace, the energy requirements are likely to increase with a similar rate. For 2004-05, Pakistans energy consumption touched 55.5 MTOE (Million Tons of Oil Equivalent). On the other hand, international oil prices have not only broken all records but are touching new highs, with every news directly or indirectly affecting the black gold industry. Moreover, speculators all around the world expect oil prices to touch $100 per barrel in medium term. With concerns over Irans nuclear program, terrorist issues in Nigeria and high economic growth in China & India and their ever rising energy requirements, oil prices dont see any another way but to shoot upwards. Pakistan's Economic Downturn - Causes and Effects:
1)

Electricity and Gas Shortage: Electricity and Gas shortage in the country is also

creating havoc for industries in Pakistan. Long hours of load shedding of electricity and gas throughout the country restricting the industries to work smoothly and completely and to produce the goods for catering local needs as well as foreign orders also creates

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Risk & Insurance Management Energy Crisis & Its Impact on our Economy

other problems such as industry losing its customers and orders and ends up at last in closing of industry.
2) Political instability also played its role always in decline trend of the economy

because political stability is important for any economy and its activities to flourish smoothly but unfortunately Pakistan lacks this and faces most of the time political uncertainty.
3) Tax Culture: The tax culture in Pakistan is poorly administered and developed. The

most of big and large sectors do not pay taxes to the government or pay less while most of the taxes are being paid by the salaried and middle class. They pay taxes regularly along with some business sectors but big part is still not in the tax umbrella. Also no agricultural tax is here due to no commitment in the policy makers to do this.
4) Uncontrolled Growth : In Pakistan, almost every government didn't paid its needed

attention to production related matters and enhancing it for local market and its consumption which resulted in the need of more and more goods imports from abroad and higher dependency on other countries
5) Terrorism in the country especially in the big cities created fear among the peoples and

common man that what will happen now, what will be their future? Contributed to already ailing Pakistan economy to more extent which also triggered most capital outflow. Investment from foreign sources in few years back was more than $700, 63 million dollars but afterwards it remained only $329 million according to last quarter of 2008 estimate. Pakistan: Power crisis feared by 2007: The country may plunge into energy crisis by the year 2007 due to rising electricity demand which enters into double digit figure following increasing sale of electrical and electronic appliances on lease finance, it is reliably learnt through.

The country may face energy crisis by the year 2007 following healthy growth of 13 per cent in electricity demand during the last quarter, which will erode surplus production in absence of
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Risk & Insurance Management Energy Crisis & Its Impact on our Economy

commissioning of any new power generation project during this financial year, informed sources told the Nation.
As per Pakistan Economic Survey 2003-04, electricity consumption has increased by 8.6 per cent during first three-quarter of last fiscal year. However, a top level WAPDA official maintained that electricity demand surged up to 13 per cent during last quarter. The survey said household sector has been the largest consumer of electricity accounting for 44.2 per cent of total electricity consumption followed by industries 31.1 per cent, agriculture 14.3 per cent, other government sector 7.4 per cent, commercial 5.5 per cent and street light 0.7 per cent. The country needs a quantum jump in electricity generation in medium-term scenario to revert the possibilities of load shedding in future due to shrinking gap between demand and supply of electricity at peak hours. According to an official report, the gap between firm supply and peak hours demand has already been shrunk to three digit (440 MW) during this fiscal and will slip into negative columns next year (-441 MW) and further intensify to (-1,457 MW) during the financial year 2006-07.

Electricity Demands and Production in Pakistan:

Installed capacity

Electricity - total installed capacity: 19,505 MW (2007) Electricity - Sources (2007)

fossil fuel - 12,580 MW - 65% of total hydro - 6,463 MW - 33% of total nuclear - 462 MW - 2% of total

Electricity production

Electricity - production: 88.42 TWh (2005) Electricity - production by source (2003)

fossil fuel: 63.7% of total

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Risk & Insurance Management Energy Crisis & Its Impact on our Economy

hydro: 33.9% of total nuclear: 2.4% of total

Growing demand Supply and Demand of Electricity in Pakistan Supply and Demand Position: 2008-2020 (MW) 200 200 201 201 201 201 201 201 201 8 9 0 1 2 3 4 5 6 Existing 15, 15, 15, 15, 15, 15, 15, 15, 15, Generation 903 903 903 903 903 903 903 903 903 Proposal / 530 4,2 7,2 10, 10, 13, 13, 14, 16, Committed 35 26 115 556 307 520 607 134 Generation Total 16, 20, 23, 26, 26, 29, 29, 30, 32, Existing/Co 484 138 129 018 459 210 423 510 037 mmitted Generation Expected 13, 16, 18, 20, 21, 23, 23, 24, 25, Available 146 110 503 814 167 368 538 408 630 Generation Demand 16, 17, 19, 20, 22, 24, 25, 28, 30, (Summer 484 868 352 874 460 126 919 029 223 Peak) Surplus/Def -60 icit 3,3 1,7 849 1,2 758 2,3 3,6 4,5 Generation 38 58 93 81 21 93 Source: Private Power and Infrastructure Board - Govt. of Pakistan Electricity Shortage: Pakistan is facing about 5000~7000 MW shortage in supply of electricity, which causes long hour load-shedding in all over Pakistan now-a-days.

201 7 15, 903 18, 448 34, 351

201 8 15, 903 18, 448 34, 351

201 9 15, 903 18, 448 34, 351

202 0 15, 903 18, 448 34, 351

27, 481 35, 504 8,0 23

27, 481 34, 918 7,4 37

27, 481 37, 907 10, 426

27, 481 41, 132 13, 651

Solutions for Energy Crisis of Pakistan

Load shedding in Pakistan and Government Policies Pakistan is facing very serious energy crisis of electricity. Load shedding has become a nightmare for all Pakistanis. Government has not taken sufficient steps to solve this problem. Government is practicing on the policy of "Wait and See". Price of Electricity in Pakistan is
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Risk & Insurance Management Energy Crisis & Its Impact on our Economy

almost Rs. 11 per unit. And it is doubled when all taxes included in the monthly bill. Moreover it is also said that electricity charges will increase after every two months due to accepting IMF, American and World Bank Policies. Some people are ready to buy electricity at any cost but ironically it is not available to those also. Electricity is available to only those in Pakistan who are enjoying this "Luxury of Electricity" free of cost on government expenses and who don't pay for it.
1) Load shedding and Iran Offer

Iran has offered to Government of Pakistan to supply the electricity urgently on very cheap rates of about one third of Regulated Price Plan (RPP). Iran has its offer of providing 1100MW since 2008 and now Iranian Embassador Marsha Allah Shakeri said that Iran is ready to double its offer to 2200MW to Pakistan. Iran has built infrastructure to the borders of Pakistan, now Pakistan have to only built infrastructure on its side to use the electricity. Pakistan may ask to Islamic Development Bank for the financial assistance and Iran too can help in this regard to Pakistan. Iran is already exporting electricity to Turkey, Afghanistan and Armenia. Although Iran is itself in problems now a days but its offer to Pakistan is very great.
2) Load shedding and China Offer

China has offered to supply the electricity at the cost of Rs. 300/month for unlimited usage. China is our neighboring country which helps Pakistan in every need of hour. We must take its offer seriously.
3) American Behavior in Energy Crisis

Pakistan is in severe energy crisis but America is not doing any sort of help to solve this problem. However it is enforcing to the government of Pakistan to impose new taxes on electricity and fuel prices and ultimately increase the rates of electricity and oil. Government of Pakistan should act in accordance with the interest of people of Pakistan to reduce their sufferings by providing uninterrupted electricity at reasonable rates. Government of Pakistan should stop taking the dictation from USA and IMF and immediately accepts the offer of cheap electricity of Iran and China.

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Risk & Insurance Management Energy Crisis & Its Impact on our Economy

Recommendations:
To overcome present energy crisis, Pakistan needs to take the followings steps in the form of; Short term plan o Increase the number of IPPs (Independent Power Producers). o Reactivate the closed power generating units. o Overhaul the existing poor distribution system. o Import electricity to fulfill the current need for industries on ad hoc basis. Medium term plan o Transformation of existing system to renewable energy resources. o Developing and installing biogas, solar, wind and micro hydro based project in villages. Long term plan o Developing and installing coal based powerhouses. o Initiate agreements for mega projects with the energy extensive countries for suitable energy resources. o Explorations of more oil, gas and coal reserves. o Provides incentives for up-gradation and training to the engineer for new technology.

References:
1. http://en.wikipedia.org/wiki/Crisis help/73652.htm#ixzz1OIkNE465 2. http://www.friendsmania.net/forum/all-subjects-notes-guess-papers-exams-

3. http://pak-tech.blogspot.com/2010/05/solutions-for-energy-crisis-of-pakistan.html
4. http://pak-tech.blogspot.com/2010/02/electricity-demands-and-production-in.html

5. http://expertscolumn.com/content/pakistans-economic-downturn-causes-and-effects 6. http://www.indexmundi.com/g/r.aspx?t=10&v=79&l=en 7. http://en.wikipedia.org/wiki/Electricity_sector_in_Pakistan 8. http://en.wikipedia.org/wiki/List_of_electric_supply_companies_in_Pakistan 9. https://www.cia.gov/library/publications/the-world-factbook/geos/pk.html

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