The US administration is roundly opposing the Pak-Iran gas pipeline project; Americans have issues with our nuclear energy programme as well and the American-dominated World Bank has withdrawn its technical assistance from the Thar coal projects citing environmental issues. While in Pakistan, power riots are a matter of daily occurrence and gas shortages are preventing housewives from cooking meals for their families.
Where is the classical generous America? There are, at least currently, strategic interests of the U.S. in the region and in Pakistan. If the US is opposing some projects, what is it offering in return? The US can do a lot and she should give careful attention to Pakistan's energy needs. In this space, we would explore and elaborate what the US administration can do in this respect and earn the goodwill of Pakistanis at a time when it is increasingly being identified as a hostile than friendly power.
First of all, it is due to the dire circumstances that the Pakistan government has agreed to buy gas from Iran at quite unreasonable prices. India withdrew, so could Pakistan on the pricing issue. The Pakistan government has tried on many occasions to bring the Iranian government to more reasonable terms. Unfortunately, on this count, the Islamic government of Iran forgets all the Islamic principles and resorts to capitalist pricing mode. Nowhere has pipeline gas been priced at such atrocious terms approaching that of LNG. The highest rates are around 8 USD per MMBtu, while Iran has persistently stuck to price levels that are quoted variously varying between 13 and 17 USD. While one may request the US to drop its antagonism and resistance to the Iran pipeline project. One would also like to counsel the government of Iran to adopt policies that are reasonable and in consonance with its own ideology of anti-hoarding Islamic principles of fair pricing and not exploiting one's neighbours difficulties. After all, it is the successive governments in Pakistan that have not paid due attention to the development of the abundantly available local energy resources. It is in the interest of the government of Iran to sell or consume its gas, as it comes from a gas field that is common to both Qatar and Iran. Already, Qatar has withdrawn much more from it, than Iran has. And due to its political difficulties and unrealistic pricing policies, its gas sales are going to be throttled for a long time to come. Imagine the gas sales volume, had India not withdrawn and the further potential for increase. And now that solar energy is knocking at the doorstep, there may not be much rationale letting the gas remain buried in the fields. Maximising the net present value is the name of the game, as all energy producers of the world have followed the same principles. The prices are so unreasonable that any sensible Pakistan government would have dropped it, had it had any option.
Let us now explore what options the US can offer. First of all, the US administration should consider, if it is going to pursue the same antagonism against Iran, as it is doing at present indefinitely into the future. If such antagonism is transitional and may not be sustainable beyond a period of 5-7 years, why then to oppose a long term project that is so vital for Pakistan's energy needs. On the practical front, the US administration has been reportedly facilitating the competing TAPI project and some US companies have been made to take interest. Ironically, Russian Gazprom buys gas from the same Turkmenistan field at throwaway prices. With TAPI project, Gazprom supplies would suffer. This probably explains Russian's Gazprom's interest in the Pak-Iran gas pipeline project, dissuading the TAPI. And conversely in TAPI, the US kills two birds with one stone. Economically speaking, there is room for both projects and would create a competitive market. Already, better pricing has been committed by Turkmenistan, which would put a downward pressure on Iranian prices, within the scope of the contract with it and outside of it.
Coming back to what the US can be doing and could do to assist Pakistan in solving its energy problems.
The following are areas where the US assistance could prove to be useful and quite effective:
1. Shale gas exploration
2. Thermal efficiency improvement of generating facilities
3. Distribution loss reduction and performance improvement thereof
4. Thar coal
5. Renewable energy, in particular wind power
5. Nuclear energy
6. Energy finance initiatives.
Shale gas is a remarkable development, which has created a gas glut in the US and has raised hopes and expectations in many countries of the world to benefit from it and augment their gas resources. Significant potential has been identified in Pakistan as well while the GOP has introduced a favourable policy framework in this respect. The US government has launched an international shale gas initiative for promoting international cooperation and technology transfer. Pakistan has reportedly and belatedly has been included in this initiative. The US companies have a near monopoly in this area. The US administration could fast track this initiative and facilitate shale gas exploration.
Thermal power plants in Pakistan, especially the ones under the public sector, suffer from low thermal efficiency and in the process waste a lot of precious oil and gas which could otherwise be used in augmenting energy supplies. Cost-plus regime further facilitates this dereliction. The problem is, however, not unique to Pakistan and is common to many countries in the Asia Pacific. Consequently, a programme has been launched, under the auspices of the US government, with the name Asia Pacific Partnership to improve thermal performance in member countries. India is a member of this cooperation framework. Pakistan could be inducted into this network. There is USAID funding available to be utilized for such an initiative.
Transmission and Distribution (T&D) losses cost 25-30% of the electrical supplies in Pakistan. About 40% of these are technical losses that could be reduced through the BMR of the existing distribution network. Even the theft component could also be reduced through distribution network modernisation. Reportedly, there is a low-level involvement of USAID in improving the distribution network in Pakistan. Much more can be done in this respect, which would result in electricity cost reduction and would augment supplies.
Thar coal is one of the major potential energy resources in Pakistan including Hydro and Wind resources. There is 1,440,000MW of electrical power capacity running on coal in the world meeting 41% of the global requirements. In the US itself, there is coal-based electricity of 337,000MW. In China coal power provides 70% of its electricity needs. Soon China would reach a level of 500,000 MW of coal capacity. Even in Europe, there is considerable coal power production. The World Bank is currently assisting a coal/lignite-fired project in Kosovo. As mentioned earlier, the World Bank which largely follows the US has withdrawn from a vital technical assistance project citing environmental reasons, although our relevant bureaucracy in Sindh has also played some role in it (reportedly). It has sent the wrong signals to other players. What could a few thousand of MW of Thar coal power have done to further deteriorate the environmental conditions of the world? A more realistic and sensitive attitude and policy is expected from the US and the international financial institutions. Conversion of existing fertiliser production to coal and of oil fired power plants could be assisted under the US-led initiatives, besides the development of Thar coal-based power at the mine mouth.
In renewable energy, there is a very efficient wind power industry consisting of hundreds of small and large companies producing Wind Turbine and associated equipments. Wind power projects as have been financed recently in Pakistan suffer from excessive investment costs, almost double that of the prices prevailing in the US. Wind power costs in the US today are one of the lowest in the world and have started competing with gas and coal. There is a large wind resource in Pakistan waiting to be exploited. There are several companies in Pakistan that could be involved in the progressive manufacture of wind turbines that could be mutually beneficial to the US and Pakistani companies. Smaller companies from the US could play a very useful role. In this the US government-led initiative could be very useful.
A nuclear summit is taking place, while these lines are being written. Prime Minister Gilani and President Obama have met and have discussed the issues of nuclear energy and safety. Pakistan has a sizeable nuclear establishment, manpower and know-how. There are local uranium resources that could be developed. There is a programme of installing 8800MW of nuclear capacity by 2030. Admittedly, there are complicating issues of nuclear weapons; and added fears of nuclear smuggling and nuclear weapons falling into the wrong hands. There are similar issues in India as well. A lenient view has been taken of the situation in India paving the way for Indo-US nuclear deal. Realistically speaking, all wishful thinking with respect to denuclearizing Pakistan should be replaced by a more sober and practical policy framework. Assisting Pakistan in the nuclear field would give the US some leverage with Pakistan's nuclear activities than without it, an argument that has been used in putting through the Indo-US nuclear deal, although there are many stumbling blocks in its implementation. In the US itself, no nuclear power plant has been built over the last three decade in the wake of the Three Mile Island. Chernobyl and now Fukushima in Japan would further discourage the development in the area of nuclear energy in these countries. In the Pakistani market, there is a virtual Chinese monopoly permitting them to benefit from extractive pricing. Some competition would help Pakistan including the benefit of fourth generation nuclear reactors having robust and passive safety features.
There is significant influence these days of political and psychological factors on risk assessments, which influence interest rates and availability of credit, finance and investments. Energy projects are capital-intensive and involve long term financing. Institutional financing, guarantee funds etc send vitally needed positive signals for attracting investment and finance. With the IMF and the World Bank at its feet, the US administration can do a lot to assist Pakistan.
Concluding, there is a lot the US can do to assist Pakistan in the energy sector. The aforementioned are just to identify areas for assisting in project identification, as often this is cited as a reason for inaction among international organisations. The frameworks already exist which should be utilised. It is not an issue of pouring billions of US dollars. In any way Pakistan is too big now to be able to survive on financial aid. It has to rely on its own resources and foreign direct investment. It is the institutional support and seed funding that can help in a major way. I was taken aback by the statement of Victor Noland, the US spokesman, who said that no request has been made by Pakistan. Bureaucracies act the same way everywhere, it appears or it was a convenient response. Simply opposing Pakistani energy projects without collateral and alternatives and proactive policies would be rather cruel and would affront public opinion in Pakistan. Some people would say, America has become selfish, other radicals would say, it always was. Even interest-based politics would dictate a policy reversal in favor of active help and support than benign neglect. Please help Pakistan.