Utilisation of FTM to enhance Pakistan's ability to diversify energy security

Asian Development Bank (ADB) experts hoped that the utilisation of recent Financial and Technical Modalities (FTM) (such as the clean development mechanism and clean energy) would enhance Pakistan's ability to diversify its energy security, and ensure that benefits from these initiatives would optimise energy utilisation and financing capabilities.
Commenting over the new "Power Sector Strategy & Road Map 2008-2017", team leader, R. Stroem, Principal Energy Specialist, Central and West Asia Department (CWRD) and Team members A. Aleem, Programs Officer, L. Blanchetti-Revelli, Social Development Specialist, B. Byambasaikhan, Energy Specialist, H. Hong, Financial Analysis Specialist, J. Liston, Principal Energy Specialist, L. Nazarbekova, Senior Counsel, said in their report that government's strategy for the power sector has three main intended outcomes said: (i) Sector reforms to create an enabling environment for private sector participation; (ii) More capacity development in all sector organisations, including financial management, efficiency improvement, use of the clean development mechanism, and project management; and (iii) Completion of large infrastructure development projects in generation, transmission, and distribution.
The Government's Medium Term Development Framework, 2005-2010 (MTDF) envisages an ambitious investment program for the power sector in order to achieve consistent 8 per cent annual growth in gross domestic product (GDP). The power sector will need to increase its capacity to support this growth target and to meet the demand for and consumption of electricity implied by such growth. In addition, about 34 per cent of Pakistan's population has no access to electricity from the national grid and the Government is implementing an ambitious plan to extend coverage significantly in rural areas.
The lack of generation capacity is being addressed through increased power generation projects that apply public-private partnership models. Constraints in the power transmission network that were expected to result in significant system capacity shortfalls and to restrict GDP growth by almost 0.8 per cent in FY2008, are being addressed under a targeted ADB MFF.
The MTDF contains a medium- and long-term integrated national energy security plan for the country. The objectives of the MTDF are to (i) increase power generation; (ii) enhance the exploitation and production of oil, gas, and coal resources and to increase the share of coal and alternative energy in the energy mix; (iii) optimise the use of indigenous sources and reduce dependence on imported sources; and (iv) encourage and facilitate private sector involvement.
The MTDF also sets out an investment strategy for the power transmission and distribution sectors. It recognises that the existing transmission and distribution infrastructure and grid stations are overloaded, that they need to be strengthened, and new generation projects be commissioned and connected to the national grid.
The MTDF also addresses the problems of the distribution network, including overloaded substations and high distribution losses, and recommends that the network be expanded and efficiency improved. The MTDF makes other recommendations, among them to (i) ensure independent regulation of the power sector, (ii) unbundle WAPDA and establish and fully operationalise the successor companies, and (iii) strengthen the privatisation program. The MTDF also specifies the need to further strengthen the regulatory role of the National Electric Power Regulatory Authority (NEPRA).
Although the energy sector parameters are spelled out in the MTDF, currently there is a lack of integrated energy planning to analyse/plan a consolidated action plan to address country's energy needs in the short, medium, and long terms.
To achieve the objectives of adequacy and security of energy supplies as well as ensuring long-term viability of the sector, the Government aims to adopt an approach based on implementation of integrated energy development plans taking into account cross-sectoral economic impacts of energy options and projects through the supply and demand chain. The Government would focus on the following areas:
(i) Policies and plans in place target further development of indigenous conventional energy resources (including oil and gas, hydro, and coal) by providing appropriate incentives and a level playing field to the private sector.
(ii) Plans for meeting the energy needs of rural areas give special emphasis to exploitation of renewable energy potential, taking into account the economic cost of delivering energy from alternative sources and benefits associated with decentralised resource development.
(iii) Long-term strategies focus on meeting the energy deficits by establishment of energy trade corridors to capitalise on the proximity of Pakistan to resource rich countries in the Middle East and Central Asia. An action framework comprising import of energy through implementation of gas pipeline projects, liquefied natural gas projects, and projects for import of electricity from Central Asia are being formulated on a fast-track basis.
(iv) Development of indigenous energy resources is being pursued through enhanced oil and gas production, detailed technical and economic assessment of coal mining and coal based-power generation, increased hydroelectric power generation, and mainstreaming renewable energy. Finally, energy efficiency measures are being implemented through optimising the energy mix, improving existing transmission and distribution infrastructure, and managing demand in industrial and domestic sectors.
(v) Utilisation of recent financial and technical modalities (such as the clean development mechanism and clean energy) would enhance Pakistan's ability to diversify its energy security, and ensure that benefits from these initiatives would optimise energy utilisation and financing capabilities.
(vi) The government is implementing an ambitious privatisation agenda and a number of energy sector entities are up for privatisation through initial public offering, outright sales, and management buyouts.
Commenting over the "Power Sector Road Map", official sources mentioned that the power sector is central to the current and future prosperity of Pakistan through the supply of low-cost electricity to domestic customers throughout the country and by virtue of its capacity to stimulate commercial and industrial development.
The key challenges of the power sector are (i) lack of generation capacity, (ii) increasing constraints in the transmission and distribution systems, (iii) weak financial management and sustainability of the sector entities, and (iv) inadequate corporate governance structures for the power companies.
The availability of power remains insufficient to meet peak system demand or to provide an adequate level of spinning reserve.3 The current installed generation capacity in Pakistan is 19,550 megawatts (MW), of which 17,395 MW is in the regions formerly covered by WAPDA. However, the available generation capacity in the WAPDA regions is only about 13,000 MW because (i) hydropower plants are dependent on reservoir capacity and hence are affected by rainfall, reservoir silting, and irrigation; (ii) the generation portfolio is aging and subject to rating limitations and increased maintenance requirements; and (iii) the plants are increasingly unreliable. Additional generating capacity is being planned through the thermal and hydro generation section of WAPDA, and the Private Power Investment Board by encouraging and granting licenses for private sector investment in IPPs.
According to the Government's power system estimates, around 8% annual growth in electricity demand in Pakistan is forecast during 2005-2015. Pakistan will require an additional 2,000 MW of power annually to meet this demand and this additional power will need to be evacuated through the transmission systems and delivered through the distribution systems of the eight distribution companies (DISCOs).