2013-02-01 01:53:37 - New Energy research report from Business Monitor International is now available from Fast Market Research
BMI View: Pakistan will continue to face chronic power shortages for the next year or more, despite aggressive pledges and plans announced by government officials and aid promised by various foreign organisations and diplomats. System inefficiencies prevent plans of the international organisations from being effectively implemented, while the poor fiscal position aggravates the situation as private producers are discouraged from increasing investment given the lack of promptness in payment. Hydro power and renewable energy sources remain as alternatives that states struggle to tap on due to the high capital outlays required.
Permanent resolutions and solutions to the power shortage remain out of sight for Pakistan as load shedding across the country remains on the rise. The shortfall has escalated further as
faulty generators, lack of fuel (oil and gas) and low levels of rain compounded the situation. However, with the general elections in Pakistan due in 2013, the government has raised PKR82bn from debt issuance in September 2012 to pay its delayed dues (estimated around PKR400bn or US$4.2bn) to private electricity producers to encourage electricity production. Poor performance from existing generating assets, the lack investment in generating capacity, power thefts and an inefficient grid remain obstacles to the government's aim.
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The key trends and recent developments in the Pakistani electricity market include:
* Iran has begun negotiations with Pakistan in November 2012 on an agreement that would see Iran export 1,000 MW of electricity. Mjid Namjou, Iranian Minister of Energy has further expressed keenness to build another power plant on Iran's border that his country could boost the total amount of energy available for export by another 2,000 MW. Pakistan's neighbour has further pledge to complete the gas pipeline by 2014, a move which could alleviate the fuel shortages faced by certain states.
* The constructions of the various dams have met with increasing environmental concerns and financing issues, which threaten to stall works. For example, the World Bank and other international aid agencies have withdrawn their support for the Diamer-Basha dam project due to environmental concerns raised by India. While it remains to be seen if financing will indeed come through, recent improvements in Pakistan-Iran relations have made other countries such as the US wary, and has spurred a wave of diplomatic meetings with the Pakistani government which could prompt the provision of funds for these infrastructure projects. In particular, the US has agreed to discuss the financing issue of the Diamer-Basha dam in the US-Pakistan Economic Working Group meeting held in December.
* The Central Power Purchase Agency has requested the National Electric Power Regulatory Authority to approval a power tariff hike of PKR39 in January 2013 as the cost of generating continued to rise in October due to the shortage of gas. This comes after a recent tariff increase granted in October, and this trend is likely to continue as fuel prices continue to raise the cost of electricity production.
* Progress of talks between India and Pakistan regarding the sale of electricity and petrol remains slow, with Indian officials citing their Pakistani counterparts keeping a cautious stance. While several suggestions have been raised during the talks, including building of a pipeline directly to Lahore, the Pakistan government remains wary of issues such as security and dependability of oil imports from India. However, worsening energy shortage in Pakistan may push Pakistani authorities to push ahead with negotiations, although imports from India are unlikely to exceed supplies from Kuwait.
* During 2013-2021, Pakistan's overall power generation is expected to increase by an annual average of 3.86%, reaching 135.5 terawatt hours (TWh). Driving this growth is an annual 6.39% rise in hydroelectric generation and a 4.14% increase in gas-fired generation. Growth in coalfired generation is likely forecasted to remain at a more subdued pace of an average of 2.17% while oil-fired generation is estimated to suffer an average annual contraction of 0.13%.
* A government planning commission has warned in its 2005 energy security plan that unless power production capacity is increased by 143 gigawatts (GW) in a phased manner by 2030, it will not be possible for the country to sustain higher growth rates in the long run. Pakistan is looking for US$8bn of private power project investment to meet its medium-term target.
* The government has allotted approximately 39,000 acres of land and increased the rate of return for investors in wind power projects to 17%, which implies a tariff rate of 14.6 cents per kilowatt-hour. Approximately half of these projects are projected to be completed by June 2013, and could potentially add 1.8GW of power in the summer, when electricity demand is at its highest. Although these incentives and guarantees could help bolster the success rate of these projects compared to previous attempts, there remains a possibility that global economic woes could delay financing from foreign companies and push back the completion dates.
* Following estimated real GDP growth of 3.7% in 2012, BMI forecasts the economy to grow at a speed of approximately 4.1% between 2013 and 2021. The population is expected to rise steadily from the current size of 180.0mn to 208.5mn during 2013-2021, and net power consumption looks set to increase from 77.09TWh to 110.26TWh. This brings puts our projections for the annual growth rate for electricity demand to an average of 3.8% over the forecast period.
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