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Old Monday, March 19, 2012
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Pakistan energy crisis and Balochistan — I
March 12, 2012
Surat Khan Marri

If today someone comes across a claim that oil has been struck at a depth of 60 or 80-90 feet, it would surely be either mocked or thought to be wishful thinking. But the truth is that about 200 years ago, oil was found and extracted, and the production was of good quality even on commercial basis. This quality oil at a depth of 80, 90 and 120 feet was explored, extracted and thousands of barrels were transported on camelback to Harani, Balochistan, and sold to Western Railways for many years. These oil fields were in Marri area, Kohlu District at Kathan.

With the passage of time, the demand of oil for the railways was increasing and so was the problem of transportation. There were not a lot of camels in the area, donkey transportation didn’t work, and camel managers demanded extra transportation fares. Along with these inadequacies, the harshness of the summer heat was unbearable for camels. A number of loaded camels even ran away to unknown destinations to avoid the unbearable heat. Therefore, after a couple of years’ bad experience, oil exploration and production were abandoned. Pumping pipes were capped. Explorers and other officials left the area. Sibi District Gazetteer published in 1902 narrated the episode under ‘Khattan’ (a local word meaning asphalt), which is the name of a place in Kohlu, 43 miles by road east of Bebar Kach station. There, in a desolate valley, in bare Eocene strata, two or more springs of hot calcareous water saturated with sulphurated hydrogen issued out of a fault or crack in the rock and with the water came frequent globules of black tarry oil. The amount of oil so issuing is quite insignificant though the traces of asphalt or dried oil in the strata give evidence of a long continuance of the flow.

A few hundred feet away from the springs on a convenient flat ground, boring was commenced on September 17, 1884 at the expense of the government. The Canadian system of boring was employed and from commencement of operations to stoppage early in 1892, Mr R A Townsend, a Canadian, was in charge. Some six holes were put down at Khattan itself within short distances about 50 feet of each other; the deepest of these recorded was 534 feet in diameter, the hole eight inches on top and four and a half inches at the bottom. It was passed through broken nodular limestone (approximately 200 feet thick) and then into shales with thin limestone bands. Oil was obtained at 28 feet, at 62 feet, at 92 feet, at 115 feet, at 125 feet, at 133 feet and 374 feet, all but the last point being in the nodular limestone.

On the large sample of Khattan oil sent to London, Mr Boverton Redwood reported that it was like the Californian Maltha or black viscid petroleum, from which asphaltum (pitch) was extracted by sun-drying. Its density at 60 F is nearly that to water at higher temperatures, and being lighter than water, it floats. The sample had in it four per cent of floating solids (presumably sulphur and carbonate of lime) and six percent of water.

The yield from the boring varied greatly on February 23, 1888, as Mr Townsend stated; the output 2,500 barrels of oil per six days, which means 15,000 gallons or 60 tons per day. Early in 1890, Mr Oldman noted that four wells were being pumped, yielding a total of 30 barrels per day only; at the close of 1891 pumping ceased as little but water was obtained. The total output between 1886 and 1892 was 777,225 gallons. Afterwards for twelve months, from March 1893, Messrs MacBean and Company pumped the bore holes and produced 60,000 gallons of oil, which was sold to the railways at three annas per gallon. Mr MacBean appeared to entertain the idea that there was no doubt that more could have been obtained had he been able to employ more staff at Khattan. The rate of three gallons delivered at Baber Kach seemed to be about the least working expense at which oil could be put on the railway at Baber Kach (from one anna to one anna seven pies being the cost of camel carriage from Khattan).

The total expenditure of the government in Khattan amounted to Rs 646,259. Of this, Rs 150,000 was for 11 miles of the four-and-a-half inch pipes through which the oil was to be forced from Khattan to Kaura Duff. Through the Chakar gorge, there was also a three mile line of small pipes bringing drinking water for Khattan; for this also credit could be got as likewise for the portable boiler and engine deep well pumps, roofing material, etc. The net loss was probably about Rs 400,000.

(To be continued)

Pakistan energy crisis and Balochistan — II
March 19, 2012
Surat Khan Marri

Khattan oil would be more valuable to the railway now than it was formerly. As fuel it was worth not more than 1½ times in weight to Khost coal and so could not possibly compete, but it was mainly as a possible substitute for pitch, the agglomerate used in fuel briquette manufacture, that it is to be now considered. Borings were also commenced in 1891 at Pir Koh near Spintangi, but were abandoned after they had reached a depth of 560 feet as no signs of petroleum were discovered. Gypsum occurs in considerable quantities near Khattan and Tung near Spintangi.

Another detailed, modern, scientific seismic survey was conducted in the mid-1990s, which proved the presence of tremendous gas and oil deposits across Balochistan, including the Marri Bugti areas, near the Quetta Zargoon belt. There are proven big gas fields, very good quality and at a large scale, explored near Barkhan at Jandran in the 1970s, and only require to be linked to the Dera Ghazi Khan pipeline. Oil also has been found at Kingari District Loralai and it needs to be pumped out. In Dera Bugti near Sui three more gas fields with very big deposits; all three estimated to hold about ten trillion cubic meters, have been explored very recently. According to reports, all proven explored gas is estimated to be about 20 trillion cubic meters, whereas Pakistan requires 700 million cubic feet and is clamouring to get it from Tajikistan, Turkmenistan, Iran or Qatar.

It is also reported that the cost of imported gas either from Central Asia, Iran or Qatar would be double of local available gas in Balochistan. The important point worthy of attention in any case is that if a pipeline is built to import gas from Central Asia, Iran or Qatar, it has to cross Balochistan. Now the question is, why is the local Balochistan oil and gas not extracted to meet Pakistan’s life and death energy crisis?

Drilling at Jandran was completed in the mid-1970s, but could not be linked with the D G Khan pipeline. It is hardly a decade since the Zarkhoon gas field and Kingari oil field have been explored and drilling also completed. All gas fields in Dera Bugti area with an estimated reserve of 10 trillion cubic meters have been explored and some drilling under cover of the armed forces has been completed. Drilling in Marri Area could not be started. The main cause reportedly is said to be local Baloch resistance, maybe Pashtun in the Kingari oil field or Zarghoon gas. Previously, the government of Pakistan, in its propaganda, used to blame the tribes and tribalism for resisting development.

But recently, on Feburary 12, 2012 for the first time, security sources in a briefing as reported by the media have openly accepted that resistance in Balochistan is not tribal or regional but across the Baloch land. The revolt is led by the educated middle class.

Baloch history in Pakistan is variegated and dappled with use of force, violence and blood stains. The story of annexation is the beginning. According to the archives record, in a meeting on March 23,1948 chaired by the prime minister, attended by the defence and foreign ministers and secretaries, all the three chiefs of the armed forces briefed the meeting on the success of their forces across Balochistan, including Quetta and Kalat. On March 27, 1948, the Khan of Kalat surrendered and signed annexation papers. The April 1948 Agha Abdul Karim revolt was not limited to a single tribe. Even religious ulema and communists together were in the forefront.

The policy of use of force, violence and blood stains even today in the 21st century did not change. The army and forces deployed to force the Khan of Kalat to sign the merger papers continues. Recently the IG FC in a media briefing accepts that there are more than a thousand FC posts across Balochistan and 40 more to be set up. The army has been deployed in Marri Bugti Area and Gwadar. At Chamalang, Marri Area, a point of focus for the forces, a full brigade cantonment has been set up. Recently, the Brigadier in charge announced that his forces have cleared and set up the post of Bahlola Basti near Chamalang. So-called 20 terrorists were killed and 15 wounded captured. This does not include 300 or more bullet-riddled dead bodies of missing persons thrown in deserted places. Very interestingly, the army chief inaugurated Musa Khail Coal Mining and Loralai Marble. He publicly claimed that in civil matters the army did not have a hand. Moreover, he recently claimed that the army was not operating in Balochistan. The security sources briefing on Feb 11, 2012 indirectly contradicted the army chief’s claims and in clear words accepts the failure of establishment policies in Balochistan.

The reports observe that this security assessment about shifting trends in the insurgency comes with the warning that the “unthinkable situation” may worsen, which could further aggravate if the political leadership does not wake up to the situation. One high security official in the briefing realises, “Balochistan is no longer a local issue. It has acquired the international limelight.” Now the main question is, whose is the policy failure in Balochistan, politicians or the use of force? If at all the political leadership wakes up to the situation today, what options are left to them? Recently, moderate pro-federation, former chief minister Sardar Ataullah Mengal said that the Baloch are pushed to a position of no return. In this background, the basic question under discussion is how to cope with the energy crisis. In any case, exploration of local Balochistan resources or the pipeline have to be laid across thousand of miles of the Baloch land.

(Concluded)

The writer is a freelance columnist
-Daily Times
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On protesting peacefully
April 1, 2012
By:Saad Rasool

With electricity loadshedding spiralling out of control, this week several cities of Punjab saw angry protestors take to the streets to vent and register their grievance publicly. Result? Vandalised LESCO and WAPDA offices, vehicles ablaze, blocked roads, burnt tyres, and skirmishes between the protestors and the police. And this was a peaceful week, by all Pakistani standards!

But the situation brings to the fore an issue that strikes at the core of our democratic freedoms and civic responsibilities: what, if any, limitations define the contours of our fundamental right to protest in a democratic set-up?

Let’s get the obvious out of the way first: there can be no denying that the government, after four years in power, has failed in its responsibility to enact policy measures that ensure a reduction (let alone stoppage) in the power shortages across Pakistan. And as a result, demonstrations to register protest, with the aim of creating pressure and bringing about change, are not just people’s right but also their responsibility!

The right to assemble and protest (peacefully) is one of the ‘core freedoms’ of democracy, according to International Law. In other words, the right to protest (along with right to life/dignity, freedom of speech and freedom of conscience) is even more ‘fundamental’ than some of the other fundamental rights.

In Pakistan, this right emanates from a reading together of four different articles the Constitution – Article 15 (Freedom of Movement), 16 (Freedom of Assembly), 17 (Freedom of Association), and 19 (Freedom of Speech). And the Constitution meticulously mandates that this right shall be unfettered so long as the demonstration is conducted “peacefully and without arms, subject to any reasonable restrictions imposed by law in the interest of public order”. These parameters delineate the thin line that separates a protest from anarchy. The right to protest is a fundamental freedom. To do so peacefully is the character of a civil and tolerant society.

Still, however, protests in Pakistan are hardly ever peaceful. Whether it is outrage against the power-cuts or gas-shortage, or some anti-American/Israeli rally, or a procession in favour of some religious fanatic, or simply some college students demanding that their exams be rechecked, there is hardly a jaloos or ‘strike’ in Pakistan that retains its moral high-ground by staying peaceful. It is as though we are a nation that only recognises a cause or a grievance that announces itself through the smell of burning rubber and the clamour of a vandalising mob. And we have become so accustomed to this routine that no legal action is even contemplated against those who damage public or private property during a protest or, worse yet, cause physical injury to fellow citizens.

Perhaps we have forgotten that throughout history, peaceful and nonviolent protests have yielded much better and longer-lasting results than violent ones. Buddha, St. Francis of Assisi, Mohandas Gandhi, Rosa Parks, Martin Luther King and Nelson Mandela, all encouraged various forms of nonviolent demonstrations to achieve their goals of peace and justice. Intellectuals like Leo Tolstoy have passionately argued for social change via peaceful protests. The Solidarity movement in Poland used strikes and other peaceful methods to take control of the government from the communists. And fall of the Berlin Wall in Germany inspired peaceful activists in Hungary, Bulgaria, Czechoslovakia, and other Eastern European states to achieve independence from Soviet-dominated governments.

The right to demonstration, in order to be healthy, must in fact be peaceful and non-violent. Any transgression of that – no matter how minor – breaks the tender fabric of the democratic social contract. Churchill encapsulated this when he famously said that one man’s freedom ends where the other’s nose begins. But that lesson seems lost on the demonstrators in Pakistan.

Martin Luther King once cautioned, “The limitation of riots, moral questions aside, is that they cannot win and their participants know it. Hence, rioting is not revolutionary but reactionary because it invites defeat. It involves an emotional catharsis, but it must be follow be a sense of futility.” We must pay heed and understand these words. A declaration of the will of the people, for it to be heard, does not have to be accompanied by gunshots. It does not have to be shouted from rooftops or from the corpse of a charred building. The will of the people can be heard – unequivocally – even when it is expressed as a lowly whisper, as a quiet banner, as a well-delivered speech, or even as a moment of silence. And only through such (peaceful) ways, is it worth expressing.

The writer is a lawyer based in Lahore. He has a Masters in Constitutional Law from Harvard Law School. He can be reached at: saad@post.harvard.edu
-Pakistan Today
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The riot of power
By Khurram Husain
Published: April 4, 2012

There is no power crisis in Pakistan, but there is a crisis of power. There is an important difference here and until that difference is understood, we will sink deeper into this abyss. Let me explain.
What we typically call the ‘power crisis’ in Pakistan is not a shortage of electricity. The so-called ‘power crisis’ is, in fact, a state of affairs that grows out of three different areas where the government has failed.

First and foremost, there is a fiscal failure. The inability of the government to raise revenues for its growing expenditure requirements means it is unable to pay for the expensive and imported furnace oil to run its power plants. As a result, much of our power generation capacity sits idle throughout the year. The circular debt that we hear so much about is basically an inability to pay the bills for furnace oil that pile up and are eventually converted into loans for the Pakistan State Oil, racking up more and more debt and interest charges through it all.

The second major failure is the issue regarding the scarcity of fuel. Pakistan’s indigenous reserves of gas are dwindling and no new major findings are on the horizon. As existing reserves continue to decline, the growing shortages of this vital fuel are creating bitter wrangling and feuding among all the stakeholders whose businesses depends on gas. So fertiliser manufacturers are at odds with Punjab’s textile magnates who use natural gas as a fuel for their captive power plants to run their industries and meet their export orders. Both of these players perform a vital role in our economy as fertiliser is a key input for the agriculture sector that sustains our food supply and cotton output and textiles are our largest foreign exchange earner, which makes it very difficult to choose winners and losers between them.

The biggest loser in this wrangling over dwindling gas reserves is our power sector, which relies on gas as a primary fuel. More than two-thirds of our electricity is generated from burning fossil fuels — what industry insiders call ‘thermal power generation’ — and when natural gas is not available, they are forced to rely on imported furnace oil instead.

The third major failure is of governance. Managing shortages is a delicate business, and requires some skill in its execution. If you want to understand how power shortages are being managed by our government, look at how water allocations are handled in the agriculture sector and you will get an almost perfect answer. Canal water is usually taken first by the local landlord, and after all his needs are satisfied, whatever is left is allowed to flow downstream where the smaller farmers are left to fight over it. The further away one’s farm is from the canal headworks, the lesser the likelihood that any water will be left by the time it reaches you.

Something similar happens with the scarce electricity in our distribution system, with one important difference. Unlike water, electricity does not flow according to gravity. Its movement through the transmission and distribution system can be channeled and controlled very precisely. This means that there is little difference between upstream and downstream players because electricity can be sent to its point of consumption much more easily than water can be.

So privileged consumers — those for whom electricity is made abundantly available and often for free — are scattered all over the country and they include government offices, ministerial residences and military installations, offices and housing. One of the saddest statistics I have ever come across was the one that showed the government’s outstanding electricity bills standing around Rs350 billion, which is the exact size of the outstanding payables in the circular debt. Not only does the consumption of this privileged class of consumers result in shortages for everybody else, but the cost of providing them free electricity has to be borne by those who regularly pay their bills i.e., you and me.

Given these three failures — fiscal, fuel and governance — no amount of additional power generation capacity will help in alleviating the power crisis. More than anything else, what Pakistan needs right now is the proper exercise of political power to raise revenue, arrange alternative fuel supplies and bring transparency to the way electricity is allocated within the system. Until then, our streets will continue to burn.

-The Express Tribune
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PPP's epitaph: RPPs?
The PPP government is caught with its pants down on the way it handled the RPPs; but anyone coming in its wake will have to take the tough decisions

Analysis By Khaled Ahmed

The judgement reserved by the Supreme Court on the Independent Power Producers case on 14 December 2011 was announced on 31 March 2012, saying that all the rental power projects (RPPs) should be dissolved. Chief Justice Iftikhar Muhammad Chaudhry declared all the contracts of the rental power projects as 'illegal' and ordered that legal proceedings be instituted against all those involved in the corruption.

He said public sector Power Generation Companies (Gencos), Pakistan Electric Power Company (Pepco), Water and Power Development Authority (Wapda), National Electric Power Regulatory Authority (Nepra) and the federal government were responsible for the corruption of billions of rupees.

He observed that the policy of the rental power projects was not defined on the basis of transparency; rather than overcoming the circular debt, now standing at Rs 400 billion, the authorities endorsed more contracts. He directed that cases should be registered against former federal minister for water and power Raja Pervez Ashraf and the then secretary finance for water and power.

The money paid to the RPPs is now to be retrieved with the markup included. The petitioners who brought up the case last year were the sitting Minister for Housing and Works Faisal Saleh Hayat and MNA Khwaja Muhammad Asif of the PMLN.

Once again the RPPs are under attack because of the way they were brought into the field and 'enabled' by the PPP government whose prime minister is in the dock for contempt of the Supreme Court and haunted by cases of corruption by people close to him and by his family members. Of course the entire imbroglio is highly politicised with commentators divided among themselves on whether democracy should be sacrificed to accountability while the levers of real power are in the hands of the Army.

We are on thin ice when the judiciary gets into areas where the market is supreme. Pakistan is still not terribly conscious of the mistakes made by the judges when passing verdicts on a government grappling with market forces. The misfortune of the government is that even the Asian Development Bank (ADP) was not on its side when the RPPs failed to deliver. The charge that the government didn't do much to remove the circular debt is of a piece with public reaction anywhere in the world when the incumbent can't cope with the situation he has inherited.

Last year, plaintiff Makhdoom Faisal Saleh Hayat and the impugned minister Raja Parvez Ashraf had confronted each other on the matter of the RPPs on the TV and it was difficult to say that Mr Hayat had made a convincing case. As far as the media is concerned, Mr Hayat himself was not free of accusations of grave malfeasance when he was a minister in the Musharraf government.

Despite the judgement, investigation is needed to find out if the PPP mishandled the RPPs. It is not enough to say that the Government didn't clear circular debt and didn't control pilferage of electricity from the system. But what bites is the charge that more RPPs were installed. If the ADB pointed out 'major inconsistencies and weaknesses in the contracts' and found that RPPs would not be cost-efficient, does this mean that RPPs were essentially wrong? And if there were any rip-offs by the concerned ministers they must be investigated.

The Court has found that 'the contracts of all RPPs were entered into in contravention of the law and rules, thus violating the principle of transparency and fair and open competition, and making the RPPs themselves illegal and set up with mala fide intention'. It has found the government's defence inadequate about the RPPs 'that came on line and produced electricity much less than their generation capacity and far below the maximum capacity agreed between the parties as per the terms'.

Much of the other criticism in the media is useless: 'failure of the government to take real measures to fix the power crisis, including reducing dependency on expensive imported fuel and exploiting domestic power supplies more vigorously'.

Musharraf brought in IPPs in 2001 after it was accepted on all hands that the PPP's policy of bringing them into the economy in the 1990s was wrongly opposed. Then in 2006 Musharraf announced the policy of bringing in RPPs, which policy was adopted by the PPP government after coming to power and it brought in nine additional RPPs to Musharraf's two.

Musharraf didn't let Nepra pass on the cost of producing electricity to the consumers from 2003 to 2007. He did not want a negative public opinion to rise against him in the buildup to the elections and thought he could straighten things out later after being reappointed president. Non-payments started the process of debt accumulation that is today the bane of Pakistani life.

There is a shortfall of 6,500MW. Pushed on the backfoot, Islamabad has paid Rs 1 trillion in power subsidies over the last three years without making electricity. The government has a cashflow crisis while its moral and ethical health is greatly impaired by threat to its existence from at least six centres of power: 1) the Army, 2) the Judiciary, 3) the Opposition, 4) the Madrassa Network and Defence of Pakistan Council, 5) the Haqqani Network, and 6) Al Qaeda, the Taliban and Punjabi Taliban.

The PPP government is caught with its pants down on the way it handled the RPPs. But anyone coming in its wake will have to take the tough decisions - like privatising state-owned corporations - which it will not take. As one analyst wrote this year, 'as consumers, we need to stop imagining Pakistan as some socialist commune and prepare ourselves to soon start paying the real cost of power'. Populism is something that all institutions including the Supreme Court should congregate at the mausoleum of Quaid-e-Azam to solemnly abjure. The politicians are opportunists shooting down the RGST when they should have realised that the ghost of revenue shortfall is going to visit them next.

Shahid Javed Burki warned in 2009 (Dawn 17 August 2009) that deals done in a tight spot are never fair to the consumers and the highly prices RPPs were never a long-term solution: 'It should be understood though that depending on rented power is essentially a relief measure, not a long-term, not even a medium-term solution to the problem the country faces. As the Americans say, crisis provides an opportunity that must not be wasted; it should be used to put in place a well-thought out strategy'.

Friday Times
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Imbalance of power


As summers approach and consumption increases, Karachi is bracing for another year of power shortage and load shedding

Report By Ali K Chishti

PricewaterhouseCoopers study released in 2009 surveyed the 2008 GDP of the top cities in the world. It said Karachi's GDP (PPP) was $78 billion, and projected at $193 billion in 2025 with a growth rate of 5.5%.

Although the recent political violence in the metropolitan has severely hurt its economy, the real problem that has destroyed its industry is the energy crisis, says Zia Ahmed, vice president of the Karachi Chamber of Commerce and Industry.

"I don't think there has been an electricity shortage issue in Sindh and particularly Karachi," a legislator from the ruling PPP says. "We have been relatively better off than Punjab because firstly, Sindh produces more gas, and secondly, because Punjab is not a PPP constituency." But while some problems may be attributed to politics, most of them are a result of incompetence.

Karachi suffers from what has been described by its controversial electric company KESC as "scheduled load shedding" in different areas. "We won't allow putting the burden of KESC's line losses and overtariffs on 2.2 million consumers," says Khawaja Izharul Hasan, a provincial legislator from the MQM. The MQM was initially supportive of KESC's controversial privatization, but is now ready to work as "a pressure group" against its mismanagement.


"The KESC not only over charges but blackmails," says Mohsin Zaki, a consumer. "We are being made to pay TV license fees and fuel surcharges," complains Yaseen Bibi from the Paposh locality of Karachi. "We end up paying much more than we consume, which is a violation in itself."

According to Uzair Ahmed, an energy expert based in Karachi and associated with Karachi University, the real problem was that KESC's privatization was dodgy. "Now this corporation is controlled by greed and is not interested in people's welfare," he said. "They don't own this city. They take billions of rupees in subsidy from the government, and then they sell the oil in the black market producing electricity with gas."

The KESC was first privatized on 29 November 2005, when a Saudi consortium Al-Jomaih Group and Kuwait's National Industries Group (NIG) were transferred 71% of shares. Abraaj Capital took over from the Saudis in 2008 at a ticket price of $361 million.

According to the initial plan, the government was supposed to sell 25% shares initially and then increase it to not more than 51%. Valuation of assets was also downplayed and that reduced the share price. The government wrote off Rs 57 billion and converted Rs 83 billion to equity, only to please the buyer, critics say. One of the primary reasons given for the privatization was to abolish subsidies because they were a burden on the taxpayer. But the government continued to award a huge subsidy to the buyer.

Karachi Electric Supply Corporation was established in 1913 as a joint stock company to provide electric power to Karachi and its adjoining areas. In 1951, the government acquired 51% of the shares. Subsequently, the government's share was increased to 93% of KESC's total equity and management control was handed over to Pakistan Electric Agencies (PEA) Limited whose nominee was posted as chairman and managing director. But government intervention was minimal and it was allowed to run KESC quite independently. Until the 1970s, KESC demonstrated efficiency and professionalism. In 1977 it was announced that the company would be handed over to the province. But the martial law regime of General Ziaul Haq acted swiftly to take it back.

In April 1984, the martial law authorities handed over its control to the Ministry of Water and Power. The WAPDA chairman was also made the chairman of KESC Board, the WAPDA member finance became chairman PEA Board and a chief engineer of WAPDA was appointed as managing director of KESC. This was a phase marked with penetration of bureaucracy, inefficiency, increased line losses, increased arrears, delays in completion of power generation units 4 and 5 at Bin Qasim and suspension of reinforcement/augmentation of transmission and distribution networks. Adequate funding was never provided to improve the system as demand increased. WAPDA's control of KESC was later loosened, and the federal government kept deputing bureaucrats and technocrats to the company through the Ministry of Water and Power.

The process of bureaucratization reached its peak after the military takeover of the country in 1999, when KESC was given in the army's control. Pakistan Army has been the biggest defaulter of WAPDA for decades. The era was marked by inefficiency, corruption, misperceived priorities, adhocism, non-transparency, and delays in implementing new projects. A number of technical staff left KESC during that period.

By now, line losses had increased from 17 percent in 1985/1986 to more than 40% in 2001/2002. Until 1995, KESC had been making a profit. By 2002, it was suffering a loss of about Rs 18 billion. "We agree that the financial condition of KESC has reached an unsustainable level," NEPRA said in a report that was published in Dawn on July 9, 2003. "Experiments with public sector management through non-traditional methods including the induction of army personnel in uniform as top managers has not shown any significant improvement in reduction of technical losses and pilferage."

The increasing federal control and bureaucratization of the KESC over 30 years resulted in inefficiency, corruption and mismanagement, experts say. When it was a public limited company, the KESC had demonstrated excellent performance.

Despite the recent political turmoil, the KESC has done well, with "a better distribution mechanism, better customer services and excellent power generation initiatives", according to Aftab Rauf Khan, an energy consultant. "What we need to understand is that it is almost impossible for a corporation to work in such a political economy, where perks for politicians and bureaucrats are required to move files fast."

KCCI President Mian Abrar Ahmad and former presidents Siraj Kassam Teli and Muhammad Zubair Motiwala believe exploring new gas fields could help resolve the energy crisis.

Karachi's nuclear power plant has been in operation since the early 1970s, but it has a shady safety record. The 80-megawatt KANUPP declared a temporary emergency earlier last year after a pipe carrying heavy water to the reactor leaked leading to fears that radiation had spread. Amid calls for transparency, KANUPP plans to add more reactors to upgrade its production capacity, because of Prime Minister Gilani's focus on nuclear energy.

As summers approach and consumption increases, Karachi is bracing for another year of power shortage and load shedding.

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Improving 'the best energy policy in the world'

Pakistan's power shortage is not a simple supply and demand problem

Comment By Ali Gibran

For all those who seek light in these dark times, it is time for a little introspection. The source of modern light - electricity - is becoming an increasingly rare commodity. A myriad of explanations for this shortage, ranging from circular debt to policy issues and from terrorism to political conspiracy theories, are doing rounds. Ordinary mortals are indulging in them according to their taste, inclination or imagination. Nonetheless, the once-controversial Independent Power Producers (IPPs) remain pivotal to present energy supplies of the country.

The Hub power project initiated in 1988 set the ground work for establishing the viability of private finance for medium and large power generation projects in Pakistan and other developing countries. This led to formulation of Pakistan Private Power Policy of 1994 which initiated development of several IPP projects. The favorable response at that time by international developers and financiers led the US Secretary of Energy to describe this policy as "the best energy policy in the whole world."

During the initial years, there was a general perception of excessive corruption and unfair tariffs, and the IPPs came under intense scrutiny by the government that followed. Some contracts were terminated and others were renegotiated. These actions damaged the government's credibility in the eyes of international private sector investors.

But eventually, the policy was embraced. As many as 27 IPPs were commissioned with net dependable capacity of approximately 6,000 megawatts, and another 26 will be commissioned in the next seven years with the net dependable capacity of around 7,000 megawatts. All the presently functioning IPPs utilize hydrocarbons for thermal processes to generate electricity. But by 2019, about 13 of the upcoming 26 IPP projects - with the total capacity of a little over 4,000 megawatts - will utilize hydropower for electricity generation.

The development of IPPs resulted in some fundamental changes in our energy sector. As a direct consequence for accommodating IPPs, the Water and Power Development Authority, which had a monopoly of electricity generation and distribution, was unbundled. It resulted in the creation of Pakistan Electric Power Company, National Distribution and Supply Company, three generation companies and eight distribution companies. The ultimate aim of this exercise remains privatization of these companies and liberalization of the market to institute a system of competition.

A discussion paper published in 2005 through The World Bank Group talks about the rise of IPPs in Pakistan and more importantly the lessons learnt from the experiences of Pakistan's private power policy. Although the policy has seen subsequent revisions, some of the issues mentioned in the paper still appear to be relevant.

The report states that the "expected efficiency improvements, including restoring health of WAPDA's successor companies failed to materialize even today," and that "investment in upgrading the transmission and distribution system" was not always appropriate. It points toward the lack of effective sector reforms and maintains that that is the chief impediment in attracting fresh private capital in the power sector.

It also asserts that there was a lack of transparency in the initial selection of the projects. The approval of too many projects simultaneously on the basis of bulk tariff ceiling rather than competitive bidding was also detrimental to the overall development of the power sector.

The discussion highlights the importance of an efficient fuel supply policy and the links the competitiveness of an IPP to its ability to procure fuel from domestic and foreign markets. The paper also warns about the risks of excessive foreign investment especially in relation to contingent liabilities and recommends a central mechanism to be created, possibly at the Central Bank to have a proper monitoring system.

Although the report was published seven years ago, some of its findings still remain unaddressed. Our failure to properly institute the sector reforms, our inability to improve the efficiency of distribution companies, and a lack of a robust fuel supply policy have all contributed to the current electricity crisis.

Although there are a number of new IPPs in the pipeline, the combined output of all these projects may not be enough to cater for the projected demand. The problem is not only of supply and demand, but goes much deeper. If we enable a competitive market for private investment in the power sector, the results may reflect the successes of the telecom sector for the consumers and the corporations alike.

The author is an innovator based in Lahore. He studied Engineering Management with a specialization in Technological Entrepreneurship from North Eastern University, and can be reached at gibran@alumni.neu.edu

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Power corrupts?

Report By Shahzad Raza

The story began after the Pakistan People's Party-led coalition formed a government and gave lucrative ministries to party stalwarts and comrades. Raja Pervaiz Ashraf was made the minister of Water and Power.

In a bid to end load shedding, he pursued the previous regime's policy to buy electricity from Rental Power Plants (RPPs). Despite criticism right from the inception of the project, he was resolute and determined.

Now, the National Accountability Bureau (NAB) will determine whether he and other officials acted in line with the proverb "honesty is the best policy", or got swayed by "all that glitters".

A recent Supreme Court judgment invalidated the RPP project identifying black spots in the process. In its 90-page verdict, the apex court directed the NAB to undertake an investigation. Assets of the suspects were frozen and they were put on the Exist Control List.

The two former water and power ministers Liaquat Jatoi and Raja Pervaiz Ashraf made categorical denials of any wrongdoings, pleading they were innocent. Given the financial magnitude of the RPP project, both may face tough questions.

Minutes after the Supreme Court verdict, Ashraf offered himself for independent investigation. He made cautious criticism on the verdict saying it might repel the investors in an already fragile energy sector.

Some lawyers share the same apprehension. "It is expected from the RPPs to invoke the arbitration clause of their contracts. In that case, international arbitrators will examine and decide the matter," says corporate lawyer Nadir Altaf, who is associated with Rizvi, Isa, Afridi & Angell.

But talking about arbitration is putting the horse before the cart. It is likely but hypothetical. NAB is investigating whether there is evidence of an anomaly or corruption in the project.

Altaf says the apex court has struck at the core of the RPP project, pointing out inherent flaws in the policy rather than just corruption at operational or executional levels.

He defends the Supreme Court's intervention in the matter, saying billions of dollars of public money were at stake. He also criticizes the government for not stopping the entire program after two initial projects had failed. NAB would go into minute details to unearth the wrongdoings, if there were any. However, after the apex court's hard-hitting verdict, the investigating authorities are likely to look at the people involved in the RPP project with suspicion, and would feel a certain pressure to prove their guilt.

The court ruled that principles of transparency - under Article 9 and 24 of the constitution - were violated. If a violation is proved, Raja Pervaiz Ashraf is politically doomed.

Proponents of the project had argued that the RPPs were the only option to quickly add the much-needed electricity to the national grid. The move was necessary to temporarily revive the industry suffering because of power shortage until long-term arrangements could be made.

Dr Ashfaq Hassan, a leading economist, disagrees.

"First of all, we must reject this notion that there is a power shortage in Pakistan," he says. "Government documents show that we have the capacity of producing 21,000 megawatts of electricity."

Producing at 70 percent of the total capacity is satisfactory according to international standards. "By that standard we can produce 16,000 megawatts of electricity. And if we are not reaching this mark, the fault lies with us. It is a classic case of mismanagement, wrong policies and wrongdoings."

He says most power plants in Pakistan are fuel guzzlers and working at around 17 percent of their capacity. They need to be producing at at least 35 percent of their capacity to be efficient and feasible. Such plants should be identified and improved, he says.

Accusing the government of incompetence, he says Wapda's finance department is "in a mess" and contributes to the problem of circular debt.

The person who took the matter to Supreme Court was Faisal Saleh Hayat, federal minister for housing and works. When he started grilling the government over RPPs, his party - the PML-Q - was sitting on the opposition benches. Now it is part of the ruling coalition. Despite accepting a cabinet portfolio, Hayat preferred not to withdraw from his stance against Raja Pervaiz Ashraf.

Although insiders say the coalition partners believe President Asif Zardari would ensure Raja Pervaiz Ashraf would stay away from financial or administrative wrongdoings, stories of corruption and nepotism have already tarnished the image of some top PPP leaders.

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Energy from Azad Kashmir
April 7, 2012
Zulfiqar Abbasi

Pakistanis have welcomed the recent decision of the Supreme Court of Pakistan to scrap the Rental Power Projects set up through non-transparent and questionable deals, providing electricity at the extremely high rates of Rs35-40/unit. These power purchase agreements were signed and executed overnight and advance payments worth billion of rupees were promptly made. The sweetheart deals were concluded on incredibly generous terms. This happened while private-sector hydel developers of Pakistan and Azad Kashmir had been standing queued up for 16 years offering hydroelectric power at less than Rs2/unit after their loan repayment period, and yet they were not given the power purchase agreement facility by the government and its subsidiary entities which enjoyed absolute monopolies.

The government of Pakistan announced it hydroelectricity policy in 1995 for private-sector developers offering a tariff per unit of 4.7 US cents, which today amounts to just Rs4.27/unit. Around 30 companies from all over the world turned up to set hydel Projects in the private sector comprising 3,000 MW. Since Wapda cash strapped, this policy was the best option for the country as all the hydel projects were to be transferred back to the government free of cost after being in the private sector for 25 years. But the policy was scornfully dumped by the then chairman of Wapda, Gen (r) Zulfiqar Ali Khan and finance minister Ishaq Dar, who found the tariff of 4.7 US cents very high.

Holding back hydel development in the private sector under this lame excuse, space for oil-based thermal projects and RPPs was created by Wapda. which argued that in the absence of political consensus on water-storage projects Wapda can’t generate hydel electricity. As an interim solution a number of thermal and rental projects were inducted into the system, and this is affecting our national economy now. As a matter of fact, 70 percent of hydel projects need no storage dams to generate cheap, affordable and renewable hydel energy at an average cost of Rs2/KW after their debt servicing.

Unfortunately, political disagreement over construction of water reservoirs in Pakistan has provided room for highly influential oil trading lobbies to push for thermal projects, landing the national power sector into crisis with no solution in sight in the foreseeable future. The shooting oil prices are swelling our circular debt, increasing electricity tariffs and closing our options for thermal generation.

In this gloomy national scenario Azad Kashmir is emerging as a saviour for Pakistan’s power sector, developing small hydel projects and mega-projects such as raising of Mangla Dam to 1,300 MW and Neelum-Jhelum to 969 MW in Public sector, Patrind 148 MW, Kohala 1,100 MW, Karot 700 MW and Azad Pattan 640 MW in the private sector. These are already under process.

The competitive advantage of Azad Kashmir over Khyber-Pakhtunkhwa and Gilgit and Baltistan (carrying the same hydel potential) is its nearby location, as rivers Jehlum, Neelum and Poonch, together with their tributaries, are located at a proximity of 50 to 150 kilometers from the national grid with the huge hydel potential of 18,000 MW.

In addition to the ongoing projects, there are many other projects including Mahl 550 MW, Dudhnyal 550 MW, Chakothi 500 MW, Ashkot 250 MW, Sehra 350 MW, Kotli and Gulpur 250 MW and Rajdhani 126 MW, with a number of smaller projects at different stages of implementation which can be developed and inducted into the system shortly.

Development of 8,000-MW hydel projects in Azad Kashmir can turn around Pakistan’s power sector and revive Pakistan’s industry and economy. The government needs to facilitate private-sector developers and set in place Transmission Ways from the valleys of Jehlum, Neelum and Poonch up to the national grid to pick the generated power into the national grid. Development of hydel industry in Azad Kashmir may also bring the much-needed investment of $20-25 billion in the country through the private sector, which may inject new blood to our sinking economy. Azad Kashmir, with a domestic demand of only 350 MW, can send the rest of the energy to the national grid in Pakistan reviving the struggling industry and sharply increasing exports as a result.

The dozens of small hydel projects below 50 MW with a cumulative capacity of 2,000 MW could have been developed and inducted in the national grid in the shorter term of two to three years but have been stalled due to smaller issues awaiting resolutions by the government of Pakistan. The issues include tariff determination, issuance of sovereign guarantee for project financing and signing of power purchase agreement which can be resolved within days and weeks but are pending since 1995 as the ministry of water and power is not showing adequate interest despite being apprised many a time.

Under the prevalent law, the government enjoys monopoly over transmission and distribution of electricity and no private project can be set up or operated unless given access to the national grid by the federal entities such as Wapda, NTDC, CPPA, DISCOS and PEPCO. The irony of the situation is that these monopolistic organisations which went running all the way to sign agreements with the RPPs to purchase electricity at Rs35 to 40/unit seem uninterested in purchasing hydel energy at Rs2/unit after their debt servicing from small hydel projects.

The time has come to undertake serious and decisive steps by the ministry of water and power to promote private-sector hydro power industry, so as to ward off serious crises by following an integrated plan in the country with focus on Azad Kashmir. The pending issues of tariff determination, sovereign guarantees for financing and PPA signing must be resolved forthwith, and all those responsible for inordinate delays on these counts must be taken to task.

The government and State Bank must ensure that local banks and DFIs make special allocations for hydel projects and advance money for this purpose, making no viable hydel project suffer for financing. Industrial units based on captive hydro projects must be given special incentives to set up sustainable industry.

The writer is the president of the Hydroelectric Power Association (HEPA).

Email: kohsarhydro@gmail.com
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‘Energy conferences’ and ‘sacred cows’
April 12, 2012
By Khurram Husain

In the fourth year of its rule, the government has held its third ‘energy conference’ that has yielded nothing that the other three did not. At this stage, continuing to hold long and ‘high profile’ discussions about the energy crisis does nothing more than demonstrate the government’s lack of seriousness about the issue.

October 2011 is not that long ago, and that is the month in which our lethargic Minister of Water and Power, Mr Naveed Qamar — the makhdoom from Hyderabad — held his midnight press conference at the end of a long deliberation by the cabinet on the state of the energy crisis in the country. The deficit between supply of and demand for electricity had touched 7500 MW, the largest it has ever been, and riots had engulfed cities and towns across Punjab.

Who even remembers the promises that were made back then? Here’s a refresher: we were told the government has a handle on the power situation, that there is a new plan, that the situation would be “brought under control” within “48 hours” (at another point in the same press conference, he said it will take “36 hours” to bring the situation under control), that he was “sorry” that the public had to suffer through such prolonged power outages.

And then came the kicker. This time, we were told, the government was serious. This time it was “no more Mr Nice Guy”. This time a series of “reforms” would be initiated that would bring professional management to the country’s power sector, taking matters out of the hands of the power bureaucracy. “There will be no more sacred cows in the matter of bill recoveries,” he famously declared, creating the following day’s headlines. I’ll bet ‘sacred cows’ everywhere chuckled. “There’ll be no more ministers very soon either buddy, if you’re not careful,” they probably said to each other. “What were sacred cows doing in the picture to start off with, Mr Minister?” I asked in “Pakistan’s power woes” (October 5, 2011, The Express Tribune), a piece I wrote right after watching that press conference. How painful it is to retrace those steps now!

On November 21 last year, minister Naveed Qamar presented a list of some of these ‘sacred cows’ to the National Assembly in a written reply to a question. The list gave a breakdown of which government department owed how much on outstanding electricity bills, and included Rs3.5 million owed by the Supreme Court, Rs422 million owed by the Pakistan Railways, Rs120 million by the Rangers, Rs49 million by the Senate, Rs8.2 million by the ISI and so on, rising to a grand total of Rs70 billion. A brief light was cast upon the ‘sacred cows’, putting names and numbers together in a rare moment.

But by February of this year the ‘sacred cows’ had their way. PEPCO’s receivables rose by 21 per cent in six months to cross a record Rs347 billion. Further ‘meetings’ were held to determine who owed how much, and the government of Punjab found itself having to rebut public claims from the ruling party’s people that it owed the largest amount, being forced to remind the public through a handout that the provincial governments owed more than Rs76 billion, of which Punjab’s share was around three billion, if one deducted the amount owed to Punjab in the form of electricity duty collected on its behalf by PEPCO.

By December 2011, however, a category known in official circles as ‘influential defaulters’ had an outstanding amount of Rs98 billion, an amount that had stood at Rs80 billion about three months earlier, according to a report published in this paper. How did this amount rise by so much at a time when the government was supposedly launching a ‘recovery drive’ of sorts to end the era of ‘sacred cows’?

One answer is provided when we look at what happened when the government tried to move against the ‘sacred cows’ from November onwards. First, the matter got sucked into the political whirlpool that consumes all efforts to reform our government structure and policymaking. Loud and cantankerous efforts were made to collect a bill from Punjab with no corresponding effort to collect a much larger amount from the provincial government of Sindh, for instance, thus ensuring that the entire exercise will become another casualty in the political firing line.

Second, the effort to collect outstanding power bills ran into counterclaims from the ‘sacred cows’, which argued that amounts owed to them under other heads should be adjusted against the recoverables. So if KESC owes to PEPCO for power purchases, the finance ministry owed to KESC for tariff differential claims. KESC therefore holds payment until the finance minister delivers, and if pressed, offers to adjust its receivables against its payables. Resolving ‘anomalies’ such as these conflicting claims can take years, which leaves the power sector equally illiquid, and the exercise loses its purpose.

Throughout the so-called ‘energy conference’ hosted by the prime minister, the ‘sacred cows’ smiled. Coming at the end of a months-long effort to collect outstanding bills, this conference made no mention of where the amount of recoverables stands today, no effort to tally the successes and failures of the so-called recovery drive from November onwards. No follow-up list of the ‘sacred cows’ that continue enjoying their access to free and abundant electricity. No effort to seek a way out of the impasse created when recovery efforts run into counterclaims and ‘anomalies’ in the billing process.

In fact, the ‘energy conference’ was little more than a waste of the government’s energy spent in talking about futile efforts to ‘equitably’ share the burden of loadshedding (what formula will be used to determine which province should get how much electricity?). Meanwhile the great wheel of misfortune continues to turn, and the ‘sacred cows’ will continue to chew their cud as our streets burn and our children carry on their education by candlelight.

The Express Tribune
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A thought on energy
By Dr Pervez Tahir
April 13, 2012

Money was not a problem. Beg, borrow or steal, no questions were asked. This was the policy that helped Pakistan achieve the nuclear threshold. Something similar is, perhaps necessary to achieve energy security.

No short-term solution to the energy shortage is in sight. Our systems are too weak to manage transmission and distribution losses. Electricity theft is an issue too politically hazardous to confront. We don’t understand electricity conservation and oil is too costly to pay for, which has left the capacity of private power plants underutilised. Long-term solutions that are already in place, or are in the works, do not inspire any confidence that they will meet the projected demand — and the latter itself a grey area. The Bhasha dam has been made possible because of a politically voiceless Gilgit-Baltistan. No other mega hydel project could have had such a smooth ride. Small dams will continue to be topics for small talk. Controversies related to coal will never end. The capacity to import gas has been eroded by the slowdown of economic growth. At any rate, dependence on imports does not ensure energy security.

Countries always take a long term view of their energy security needs. There is currently a worldwide scramble to ensure energy security. The established, as well as the emerging powers, are investing to ensure that ready supplies are available to them in the future. China and Brazil are entering the solar field in a big way. Germany, not exactly a country where there is a lot of sun, is the largest producer of solar energy. Spain is about to overtake the US in thermal solar power generation.

We, in Pakistan, do not seem to have any plan to ensure our energy security unless a collection of contentious projects is thought to be the way to go about solving our problems. What is needed is a safe, secure and continuous source of energy located within the country. The only inexhaustible source we have is the sun. No upstream or downstream issues are involved here. There is no market in Pakistan for solar solutions right now, but the opportunities will know no bounds because this has the potential to become the cheapest alternative that can solve our energy problems.

Routine directives like the one recently issued by the minister for water and power to the stillborn Alternative Energy Development Board to add a thousand megawatts of clean and cheaper electricity to the national grid within a year, will not do. Nor is the hasty announcement of a policy for investment in solar power generation with an upfront tariff, the way to go about it. Subsidy on solar powered tube wells announced at the second energy summit is again a half measure.

The economy needs a radical breakthrough to join the high-growth league of countries, which can be provided by cheap energy and a niche in the export market. Solar power can help us achieve this aim. Currently, it is a negligible contributor to the global energy supply, though its contribution is projected to rise by 20 to 40 times by 2020. Its engineering, economics and policy still need innovation, research and development and we need to employ the same zeal and consensus that was demonstrated when we were trying to achieve the nuclear threshold.

A Solar 2020 Project should be established to: 1) achieve cost-effective solutions to meet our energy demand and 2) make Pakistan world’s largest exporter of solar energy solutions and equipment. A congregation of Pakistani experts, including expatriates, should brainstorm and draw up technical details, followed by a meeting of political and other stakeholders for an agreement to keep their mismanagement on hold until 2020. Parliament should then pass a law to give effect to the agreement. The law should cover an upfront allocation of a substantial sum of money for this project, as well as providing it with complete autonomy.

Let the sun shine on the economy of Pakistan.

The Express Tribune
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