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Yawning demand-supply gap in electricity makes Pakistan promising destination for foreign investment

English.news.cn   2011-10-31 21:22:29 FeedbackPrintRSS

by Misbah Saba Malik

ISLAMABAD, Oct. 31 (Xinhua) -- Unabated crisis of electricity with present shortfall of 17 percent is bound to further intensify the plight of Pakistan's dwindling economy, however the prevailing situation, at the same time, unleashes a lucrative opportunity to foreign investors for parking their capital in the energy sector of the power-starved country.

The total power production of the country is about 19,500 MW and the total consumer demand is around 23,500 MW, which means that Pakistan is facing a shortfall of 4000 MW. At present electricity is generated by thermal, hydel and nuclear modes. Thermal mode generates 65 percent of the total electricity, hydel contributes 33 percent while nuclear mode supplies only 2 percent of the total electricity.

According to official statistics, household sector of Pakistan consumes 44.2 percent of electricity, Industrial sector consumes 31.1 percent, and agriculture sector uses 14.3 percent of the total electricity. About 7.4 percent electricity is consumed by government sector, commercial sector uses 5.5 percent of electricity whereas 0.7 percent of the electricity is spent on street lights.

Electricity in the country is generated, transmitted, distributed and retail supplied by two public sector entities: Water and Power Development Authority and Karachi Electric Supply Company for the consumers of largest Pakistani city of Karachi and its surrounding areas.

There are around 16 independent power producers that contribute significantly in electricity generation in Pakistan.

But the current generation of electricity is far less than the demand of people resulting in long hours of power outages in all rural, urban and industrial areas. The government, which is already in deep financial straits, cannot increase its investment level in electricity sector without further fueling inflation and adding to public debt burden.

The current situation poses a big challenge to the government as it is losing its fame and favor among people because of persistent hours of load-shedding. At the same time the present shortfall of electricity and high public demand provides an opportunity to local and foreign investors to invest in this sector.

Pakistan is endowed with abundant natural resources, including hydel, natural gas, and renewable energy which provides a vast opportunity of investment in both conventional and non- conventional sources of energy.

Pakistan's hydro-power generation potential is around 60,000 MW, a vast portion of which is economically exploitable. Against it, the existing generation installed capacity is less than 20 percent of the total potential. Pakistan's coal reserves at Thar in Southern Sindh province alone are estimated at 185 billion tonnes.

Even if half of these reserves are exploited, coal can generate an additional 100,000 MW over the next 30 years. Pakistan also has a big potential in the field of solar- and wind-based renewable energy resources.

The price to build an Energy Plant is low and the labor is at a lower cost than some other countries, and land acquisition is also much easier. Pakistan's economy may not be that much bigger at this time but with load-shedding issues and the population growth rate, it is an investment hub.

Dr. Ashfaq Ahmad, a business professor with National University of Science and Technology, said that high demand of electricity in the country makes energy sector profitable.

"Pakistan has a high Electricity Demand in an overall battered economy which indicates that people have the purchasing power to pay for their electricity consumption, so the rate of return is not an issue for the investor," Ahmad told Xinhua

According to the data of Private Power and Infrastructure Board of Pakistan, 14 foreign sponsors and 17 foreign lenders are already working in power sector of Pakistan, these investors are mainly from U.K, U.S, Japan and Malaysia. They are working on various hydel and thermal projects in the country.

Talking to Xinhua, Sameer Rafi Siddiqui, Director at Private Power and Infrastructure Board, said that foreign investors from various countries have shown their interest to invest in electricity sector due to huge market demand of electricity in the country.

"Various public and private sector foreign investors, especially Chinese entrepreneurs evinced interest in the tenders issued by Government of Pakistan for hydro and thermal power," Siddiqui told Xinhua.

In spite of all the positive opportunities, foreign investors face certain hardships due to delayed payments by the government and corruption by public sector officials who demand high commission for their cooperation with the investors.

Dr. Ashfaq Ahmad said that government officials demand high commissions from the investors which raise the production cost besides resulting in trust deficit between investors and government officials.

Lack of a transparent macroeconomic policy framework, deteriorating law and order situation, terrorism, institutional decay and lack of good governance also cause uncertainty among the foreign investors towards spending their money in Pakistan.

Notwithstanding all these odds, the fact remains that foreign investors are taking interest for investment in electricity sector of Pakistan which is a positive sign not only for its economy but also for the unemployed educated youth.

Editor: Fang Yang
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