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A case of energy diplomacy
By: Dr Vaqar Ahmed

Pakistan must compete for limited pockets of energy surplus in the region for inclusive and sustainable economic growth

Pakistan’s power shortages may not see an end very soon. A shortage
of 5000 MW in power sector, policy uncertainty, governance challenges in
generation and distribution companies, technical losses, theft and an
overall high cost of producing power have resulted in an average annual
loss of 2-3 per cent of national income.

The petroleum crude and products are now contributing to a third of
Pakistani imports. This will continue to threaten the country’s balance
of payments as oil prices become volatile due to the crisis in the
Middle East, particularly in Iraq and Syria. The circular debt in the
energy sector will continue to haunt us. The government will accommodate
this debt through distortive subsidies and federal transfers to the
power sector.

The government’s narrative on energy talks of medium to longer term
solutions with assistance from bilateral and multilateral development
partners, which means more debt. With mounting debt burden, one would
have liked to also see a medium to longer term debt management strategy
in the Finance Minister’s budget speech. It is also still unclear from
the budget how the government plans to finance the promised
infrastructure in the Iran-Pakistan gas pipeline and
Turkmenistan–Afghanistan–Pakistan–India (TAPI) Pipeline.

There are some institutions at the periphery that talk about
environment-friendly renewable energy. Sadly these institutions lack
constituency within the current federal or provincial governments.
Recently, advocacy for developing shale resources has been stepped up.
What makes us think that that this opportunity will be utilised, when
18000 MT of coal, 33 trillion cubic feet of natural gas, 324 million
barrels of fossil oil, 50000 MW of hydro power is still waiting to be
explored.

What is it that the government is not telling us? First, it will
continue to increase power and gas tariffs and indeed the burden will
fall on the middle and low income groups. Second, the government will
continue to provide hidden and cross energy subsidies through tax
payers’ money and third, the government has limited control over
technical losses, implying that transmission and distribution losses and
theft of electricity will continue.

Now let us come to a completely neglected possibility in the energy
sector. Eastern African sub-region, an energy-deficient region, is now
engaging in regional energy trade to bridge its deficit. Since 2008,
Latin American countries are pursing regional energy trade possibilities
to bridge their demand and supply gap. The power sector integration is
at a fairly mature state in the gulf countries.

The Department of Public Instruction was set up in the Punjab in
1855 with William Arnold as its first director. Already the Chief
Commissioner, Sir John Lawrence, and his colleagues, Montgomery and
McLeod, had knowledge of the halkabandi system.

Here is what is happening in our own region. An energy hungry India
will now be supplied hydro power by Nepal. Hydropower from Bhutan has
now become a centerpiece in Bhutan-India ties. More recently Bangladesh
and India have signed an agreement which will ensure exchange of power
through grid connectivity between the two countries and joint investment
in power generation and capacity development of Bangladesh Power
Development Board.

The Power Grid Corporation of India and Ceylon Electricity Board in
Sri Lanka will undertake construction of submarine cables which will
allow transmission of 1500 MW between the two countries.

India maintains a longer term contract with Qatar for supplies of
both oil and gas. Similarly, India in a bid to secure its future energy
needs has entered into a long term LNG contract with US and Russia. It
is engaging with China for possible pipeline from Russia to India that
will pass through China. In March this year, India has started
negotiations towards Iran-Oman-India deep sea gas pipeline that will
transport 31 million cubic meters of gas/day to India.

As Pakistan rarely learns from its eastern neighbours so we may turn
to the west of Pakistan. Kazakhstan, Kyrgyz Republic, Uzbekistan and
Tajikistan have large surplus in generation. Afghanistan, therefore,
imports electricity from Uzbekistan and Tajikistan. Additionally,
Afghanistan is also making use of occasional electricity surpluses in
Iran and Turkmenistan.

Despite western pressures, Turkey continues to import oil and gas
from Iran. In 2013 alone Turkey imported 10 billion cubic meters of gas
from Iran. Currently, Turkey is also taking 100,000 barrels/day of
Iran’s crude. In 2013, Armenia and Iran decided to build a
hydro-electric power plant in their bordering region. North-South
railway (Iran-Armenia) is also proposed which will increase mobility of
energy resources. Not surprisingly, the interdependencies created by
energy trade are cementing overall bilateral relationships in Central
and South Asia.

How sharp is Pakistan’s energy diplomacy? Let us start from Iran.
Unlike Turkey the current and the previous governments have been
hesitant to openly pursue energy cooperation with Iran (owing to fears
of opposition from the US). Apart from the 100MW of power coming to
bordering areas of Balochistan all other plans are still a big rhetoric.
Pakistan still has to build 781 kilometres of gas pipeline for
honouring its commitment signed under Iran-Pakistan gas pipeline.

How serious is Pakistan in pursuing TAPI? Unfortunately, Pakistan has
not sought any guarantee from Turkmenistan and transit countries which
could ensure certain gas supplies. In fact, Chinese and Turkish intent
to purchase gas from Turkmenistan and possible construction of
Trans-Caspian pipeline for Europe will soon result in the end of TAPI
negotiations. It is likely that US after its exit from the region will
also not put its weight behind the materialisation of TAPI.

These developments should be worrisome for a country which has
already consumed 40 per cent of its gas deposits. The remaining reserves
may only last another 15-20 years. The current production of gas will
drop from the present 4 billion cubic feet per day (bcfd) to 2.53 bcfd
by 2020.

Let us now turn to Central Asia-South Asia (CASA) 1000 project where
Kyrgyz Republic and Tajikistan plan to export 1300 megawatts of power to
Afghanistan and Pakistan. The multilateral development partners
including the World Bank, Asian Development Bank and Islamic Development
Bank have agreed to provide financing to Pakistan for this project.

However, once again, institutional inertia can take this opportunity
away from Pakistan. Given that there are no guarantees at the moment,
nothing stops Kyrgyz Republic and Tajikistan to change their positions.
Already there are voices in Kyrgyz republic suggesting greater
cooperation with China, India and Russia. These countries are also
willing to provide financial assistance in faster development of Kyrgyz
Republic’s energy sector.

It has been reported that Dataka-Kemin power lines would allow Kyrgyz
republic the export of power to China and Kazakhstan at more attractive
terms than Afghanistan and Pakistan. China and Tajikistan have also
signed a gas pipeline deal. Already Beijing is heavily investing in
Tajikistan’s mining sector. Similarly, China has announced USD 1.4
billion for Kyrgyz part of Central Asia-China gas pipeline.

Those institutions and countries willing to connect Pakistan with
regional energy markets are not much concerned with security threats and
obsolete infrastructure. They are, however, concerned about our
inability to improve energy governance, ensuring independence of energy
regulators and an uncertain pricing regime. Expanding energy supplies is
of no use if transmission and distribution networks have leakages.
These are the circumstances where payback in power sector becomes
difficult for a government, multilateral partner or even a business
entity entering into a public private partnership.

Pakistan should quickly understand that energy diplomacy matters for
inclusive and sustainable economic growth. We need to get our act
together and compete for limited pockets of energy surplus in the
region. The standing offers of ‘trade in energy’ by Afghanistan, Iran,
India, China, Tajikistan and Kyrgyz Republic should be seriously
pursued.

Source : http://tns.thenews.com.pk/case-energy-diplomacy/#.U-CEB6PCekN

 

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The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.