Posts Tagged ‘ Electricity Shortages ’

Priority in Pakistan: Turn On Lights

By Saeed Shah for The Wall Street Journal

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When Nawaz Sharif starts his new term as Pakistan’s prime minister on Wednesday, 14 years after he was ousted in a military coup, he will focus on turning on the lights in a nuclear-armed nation that has been increasingly starved of electricity.

Power outages of 12 to 20 hours a day have crippled industry and made life miserable for households, a problem that worsened under the previous government of the Pakistan Peoples Party. Electricity shortages cost Pakistan some $13.5 billion a year, equivalent to knocking 1.5 percentage points off the economic-growth rate, Lahore’s Beaconhouse National University said in a report this year.

After Mr. Sharif is sworn in, he will deliver a speech outlining his strategy for solving the electricity emergency through wide-ranging intervention, bond sales and privatizations, aides said. The financing of the electricity rescue plan would be laid out in the budget to be announced next week by incoming Finance Minister Ishaq Dar, they said.

The new administration plans to pay off what it says is $5 billion in debt that has paralyzed the industry, build new power plants and privatize the sector in a multibillion-dollar overhaul that could attract foreign investor interest, the aides said.

The challenges are great. The previous government poured billions into the sector without eliminating the debt or significantly increasing the supply of electricity. The industry is riddled with corruption and depends on expensive oil for power generation, instead of cheaper gas or coal.

The most pressing issue is the chain of so-called circular debt that runs through the sector: The government keeps the price of electricity to the consumer below the cost of production, but can’t afford to make up the shortfall. It means that oil importers are owed money by power plants, which are owed money by distribution companies, which in turn are owed money by consumers.

“First, we need to write a check,” said Miftah Ismail, an energy adviser to Mr. Sharif, who drew up the energy policy in the party’s election manifesto. “We will pay off the stock of circular debt. It is choking the system. No fresh investment will come into Pakistan unless you get rid of circular debt.”

Although the incoming government has given the level of this debt at $5 billion, a government think tank, the Planning Commission, issued a report in March this year placing it at $9 billion at the end of 2012.

The new administration would borrow the money from banks and also take on the debts owed to the banks by various energy companies and government-owned entities, Mr. Ismail said. Then the government would plan to tap domestic and international bond markets.

A domestic bond issue picked up by local banks would be the most likely scenario, said Ashraf Bava, chief executive of Nael Capital, a brokerage in Karachi. Pakistan would need to improve its credit rating and balance of payments before approaching international capital markets, he said.

“The local banks will have no choice. They’ll have to do it,” said Mr. Bava. “Obviously they’ll be offered a decent return.”

Pakistan, a country of 180 million people, is currently producing some 11,000 megawatts of power, though that dropped last month to less than 9,000 megawatts, compared with demand of at least 17,000 megawatts.

By comparison, installed generation capacity in Indonesia, a country of 240 million people, is 41,000 megawatts, according to a 2012 report from PricewaterhouseCoopers.

Pakistan’s supply shortfall results in power being switched off to households and industry for part of each day on a rotating basis across the country—outages known as “load shedding.”

After paying off the debt, the new government plans to pursue a three-pronged strategy, the aides say. The government would aim to cut line losses and electricity theft, shift power plants from oil to coal, and eliminate subsidies to consumers. Pakistan currently charges consumers around 9 cents per kilowatt-hour for electricity that costs 12 to 14 cents to produce.

Those who use minimal amounts of electricity would continue to get power cheaply, a cost that would be borne by the full fare paid by heavier users—including the middle classes, who form Mr. Sharif’s core constituency, as well as Pakistan’s elite. But if the plan works, Mr. Sharif’s aides said, the cost of power production and prices would come down again.

“There’s no reason why we should be subsidizing those who can afford to run air conditioners,” said Mr. Ismail.

Mr. Sharif’s plan envisages converting three or four of the biggest power plants, which currently burn oil, to coal. Experts estimate such a plan would cost about $2 billion but would pay for itself in savings in about a year.

New coal-burning power stations would also be commissioned, which the incoming government says would take around three years to come onstream. Government-owned generation plants and the grid companies would be put under new management and privatized.

“We will nibble at this problem from many angles as we go along,” said Sartaj Aziz, an adviser to Mr. Sharif on finance and a former finance minister.

Foreign companies rushed into Pakistan’s electricity sector in the 1990s, when new private generation plants were allowed, on lucrative terms. Oil prices were low at the time, so oil-burning plants were built.

However, frequent changes in governments and policies that followed, together with the circular debt issue, chased away most of the foreign interest. The last major American investor, AES Corp.,sold out in 2009.

GDF Suez of France and Malaysia’s Tenaga Nasional Berhad are the remaining foreign firms active in Pakistan’s energy sector.

Naveed Ismail, an independent energy-sector expert who previously worked with the government, said that 48% of Pakistan’s thermal generation came from burning furnace oil, the highest such proportion among any major countries, while contribution from much cheaper coal, the main source of generation in India or China, was close to zero.

“Pakistan just has to learn from the rest of the world. It doesn’t have to reinvent the wheel,” he said. “The issue is producing affordable electricity. No new capacity should be added unless it brings down the average cost of power.”

Helping Pakistan with its electricity crisis has been a major focus of American aid in recent years. Since October 2009, the U.S. has spent $225 million on energy projects in Pakistan, according to the U.S. Embassy in Islamabad, adding more than 900 megawatts to the country’s generation, with schemes for upgrading power plants and dams.

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Pakistan Power Shortages Keep Growth Prospects Dim

By Alex Rodriguez The Los Angeles Times

The machine operators lean back lazily on rolls of cotton fabric, shooing flies from their sweat-soaked tunics as their boss, Abdul Latif, paces between rows of silent electric looms covered in lint.

The textile plant owner knows it’s just one of several rolling blackouts that will darken his plant today, as they have every day for four years. Along his street, other textile plants have either closed or begun selling their looms for scrap. Latif scrapes by, but the outages have cut his plant’s output in half.

“The situation is very bad,” Latif says. “We’re losing contracts because of these outages. We can’t deliver on time. If it continues like this, we may have to shut down.”

One of Pakistan’s biggest scourges has nothing to do with suicide bombers or militants wielding Kalashnikov assault rifles. Because the country cannot produce the electricity needed to support a population of 177 million, the government intentionally shuts down power in staggered intervals, often for hours at a time.

The rolling blackouts are most frequent during the summer, when the whir of air conditioners in 100-plus-degree heat boosts demand for power. Apart from districts with top government and military offices, virtually every neighborhood and village suffers.

The stopgap policy prevents the country’s moribund economy from getting off the ground. And as long as the economy sputters, millions of Pakistanis remain mired in poverty and joblessness, leaving the country’s disaffected youth vulnerable to recruitment by Islamist militant groups.

President Asif Ali Zardari’s government has given Pakistanis little reason to hope for a solution anytime soon. This summer, government officials said that it would take at least seven years to build up the electricity generation capacity needed to eliminate the blackouts.

Various factors explain Pakistan’s power woes. During Gen. Pervez Musharraf’s rule from 1999 to 2008, strong economic growth fueled an upsurge in consumer spending that had Pakistanis flocking to stores to buy air conditioners, refrigerators and other appliances. But Musharraf failed to pump money into boosting generation capacity to keep up with demand and the country’s booming population.

Zardari inherited the massive gap between supply and demand, but his cash-strapped administration hasn’t moved fast enough on hydroelectric dam projects and has yet to shore up the country’s aging distribution network.

Other factors make the situation even worse. About 15% of the electricity generated is lost to theft, says Ejaz Qureshi, a spokesman for the state-owned Pakistan Electric Power Co. In addition, the government often fails to pay its bills to private power producers, which means those companies can’t buy sufficient fuel for their plants. At times, they cut off electricity to the offices of government agencies that owe them money.

The havoc wrought by the shortfall is particularly acute in the country’s textile industry, a pillar of Pakistan’s fragile economy.

Faisalabad, Pakistan’s third-largest city and home to its textile sector, has seen 200 of its 4,000 textile plants close in the last three years because of the blackouts, says Wahid Raamay, chairman of the city’s Council of Loom Owners and a plant owner.

During that period, 100,000 workers have been laid off, about 10% of the city’s textile work force, Raamay says.

Plant owners forced out of business face a grim future. In a country where many people distrust banks, many plant owners sell their personal property — gold, jewelry, cars — to buy the machinery needed to start the business. If their plants close, they may find themselves at rock bottom.

“They all used to have good cars, good homes, and now everything has disappeared,” Raamay says. “Now they ride motorcycles to get around.”

Five months ago, Malik Mohammed Kashif was forced to shut down his plant, lay off 80 workers and sell his 66 looms to scrap dealers.

On a sun-baked afternoon, Kashif strolls through his darkened, empty building and winces as he speaks of the future.

“As for me, I’m finished,” says Kashif, a 30-year-old father of four. “With the shutdown, we lost $350,000, nearly everything we had. We’re at the bottom now because of this.”

This summer, public anger over ceaseless power outages boiled over. In Mianwali, in Punjab province, throngs of demonstrators calling for a stop to the outages clashed with baton-wielding police in early July. Two people were killed and 22 were injured. In Karachi, four people were killed during protests and work stoppages in early June that brought sections of Pakistan’s largest city to a standstill.

In Faisalabad, the extent of blackout-induced layoffs in the textile industry has reached the point that plant owners often work the looms alongside their laborers.

At Latif’s plant, workers paid by the hour say the outages cut their already meager wages in half. Machine operator Mehmood Hussain makes $4.65 a day when the blackouts don’t occur and $2.32 when they do. For a family of seven reliant on his income, the difference is huge.

“It’s a critical situation now,” Hussain says. “We can’t buy decent food or buy clothes for ourselves. And there’s no way out. Looms are all we know.”

One group, however, prospers from the textile industry’s misery: the scrap dealers. Their stalls on the edge of the city are filled with grease-covered gears and flywheels stacked next to piles of wooden rollers and spool holders.

Dealer Mohammed Sharif says he sometimes buys up to 100 looms a day, paying just $290 for machines that cost plant owners $1,500.

“When the textile plants suffer, our business booms,” Sharif says. At the same time, he knows the scavenging can’t last indefinitely.

“If looms continue to shut down at this rate, a day will come when we won’t have any business at all. What will we do then?”

Noting that three in four terror suspects are acquitted in Pakistan, the United States has doubts its key ally would make any headway in prosecuting key plotters of 2008 Mumbai terror attacks.

“The accused in numerous high-profile terrorism incidents involving US victims had all been acquitted by the Pakistani legal system,” US State Department noted in its 2010 Country Reports on Terrorism, published last week.

“The Federal Bureau of Investigation has assisted with the respective prosecutions,” the report said. FBI had assisted India in the investigation of the Mumbai terrorist attack as six Americans were among the 166 victims.

The report found that while Pakistan maintained it was committed to prosecuting those accused of terrorism, a study of its Anti-Terrorism Court’s rulings last year disclosed “that Pakistan remained plagued by an acquittal rate of approximately 75 per cent”, and a legal system “almost incapable of prosecuting suspected terrorists”.

It complained that a new anti-terror bill, which would allow its security agencies to hold suspects for 90 days before bringing them to court and give them a freer hand to use electronic surveillance had not progressed in the country’s National Assembly.

Although Islamabad had increased pressure on money-launders and unofficial ‘hawala’ money transfer agents, “deficiencies remained,” the report found.

“Notably, the criminalisation of the financing of terrorist acts committed against foreign governments and international organisations was ambiguous, as was the criminalisation of financing groups that have not been explicitly banned by the government or designated by the UN,” it stated.

Pakistan’s “weak implementation” of a UN Security Council resolution which lists banned terrorist organisations remained a concern.

The report also criticises Islamabad’s failure to outlaw militant Islamic terror groups which escape bans by changing their names.

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