John C. K. Daly
Silk Road Reporters
Published Date: Mar 18, 2015
Azerbaijan, like fellow petro-states Norway and Saudi Arabia, has too much cash generated from its hydrocarbon exports to invest in their national economy.
Now Pakistan is seeking some of that largesse. On March 14 in Baku Pakistani President Mamnoon Hussain invited Azerbaijan to invest in Pakistan’s oil and gas sector.
During a meeting with Azeri Minister of Energy Natig Aliyev, Hussain said that Pakistan was looking forward to expanding cooperation with Azerbaijan in developing Pakistan’s oil and gas industries. But Hussain did not arrive empty-handed. Stressing the necessity for enhancing bilateral energy cooperation, Hussain suggested that bilateral cooperation to take advantage from each other’s expertise in different energy sectors. Aliyev replied that Azerbaijan wanted to benefit from Pakistan’s hydroelectric expertise.
The discussions were not limited to energy issues. Hussain emphasized the importance of upgrading Azerbaijan-Pakistan ties not only in the energy sphere but also improving cooperation in the fields of trade, investment, defense, education, culture, science and technology.
Hussain also burnished his academic credentials during the visit as Baku State University conferred an honorary doctorate on him.
The two countries also expressed political reciprocal support; Hussain told Azeri Minister of Foreign Affairs Elmar Maharram Mammadyarov that Pakistan would continue supporting Azerbaijan’s position on Nagorno-Karabakh and expressed gratitude for their support on Pakistan’s dispute with India on Jammu and Kashmir.
What is beyond dispute is that Pakistan’s government has stated that addressing the country’s worsening energy crisis is a top priority, as expensive energy imports, circular debt, and inefficient transmission and distribution systems have caused a major energy crisis. The Asian Development Bank (ADB) estimated that prolonged power shortages have cut Pakistan’s GDP by about 2 percent. This in turn has led Pakistan’s economy to continue to struggle with underemployment, slow economic growth, and high inflation.
According to a report by the Sustainable Development Policy Institute, in 2012 Pakistan’s role as a net importer of crude oil and refined products accounted for 31 percent of Pakistan’s primary energy supply. Since the 1990s Pakistani crude oil imports have run 55,000-70,000 barrels per day (bpd). Despite massive exploration, Pakistan has been unable to increase domestic oil production, which in 2013 was a meager 64,000 bpd versus a domestic oil consumption rate averaging 437,000 bpd. In 2013 the Pakistani government reported that the country produced 36 percent of its electricity from oil, 29 percent from natural gas, 29 percent from hydroelectricity, and 5 percent from nuclear.
A soaring birthrate has meant that domestic electricity production has been unable to keep up. Pakistan’s domestic electrical generation rose from 69 billion kilowatt hours (kWh) in 2001 to 90 billion kWh in 2011. However, according to the Pakistani government, available capacity was only 85 percent of installed capacity in 2012, and utilization rates for power plants were less than 60 percent. Accordingly, the International Energy Agency estimated that in 2013 less than 70 percent of the Pakistani population had access to electricity. Pakistan’s National Grid accordingly faces more than a 5,000-megawatt shortfall in power generation, leading to blackouts in both urban and rural areas of the country. Due to unscheduled shortages by the National Power Control Center, urban areas face unscheduled minimum 8-hour power blackouts each day, while in rural areas the blackouts can last as long as 14 hours.
Accordingly, the government is pinning its hopes on the Diamer-Bhasha Dam (DBD), which will straddle the Indus River in Pakistan’s Gilgit-Baltistan region of occupied Kashmir. Pakistan’s Prime Minister Yusuf Raza Gilani laid the DBD’s foundation stone on October 18, 2011. When complete the DBD will produce 4,500 megawatts of electricity as well as store 8.5 million acre feet of water that Pakistan could use for irrigation and drinking.
But if the political will exists in Pakistan to construct the Diamer-Bhasha Dam, funding remains a major stumbling block, which Azeri finance could help ameliorate. In mid-January the ADB asked for a four month extension to consider Pakistan’s long pending request for funding the DBD. ADB’s delay, announced after a meeting between Pakistan’s Finance Minister Ishaq Dar and the ADB Country Director Werner Liepach in Islamabad, is yet another serious setback to Pakistan’s relentless efforts to obtain funds for constructing the mega hydropower project on the Indus. Accordingly, Hussain’s visit to Baku could not be more timely, as other funding sources have been sending mixed signals.
Pakistan has taken up the DBD issue with the U.S. on several occasions, including via working group meetings under the U.S.-Pakistan Strategic Dialogues, but despite Washington’s promotion of Pakistan as an invaluable ally in the war on terror, the U.S. has been sending out mixed and rather confusing signals on the DBD and has been largely non-committal.
Pakistan’s closest regional ally, China, has been similarly constrained. While China has committed $45 billion towards the China Pakistan Economic Corridor (CPEC), Chinese risk-averse investors have been decidedly lukewarm on the DBD, perhaps because of the DBD’s location in Kashmir, which has competing territorial claims between Pakistan, India and China.
Azeri investment would have none of these geopolitical constraints, and an added advantage for Azerbaijan is that Pakistan in the interim could prove a profitable market for Azeri tanker oil exports sent to the Mediterranean via the Baku-Tbilisi-Ceyhan pipeline.
Hussain is also thinking about possible long-term Azeri assistance and expertise in the field of oil and gas exploration, extraction and refining, which he told his hosts could “potentially bring great benefits to Pakistan.” As Pakistan’s one other great hope for energy from the post-Soviet Caspian space is the $7.6 billion 1,078-mile Turkmenistan-Afghanistan-Pakistan-India Pipeline (TAPI), designed to transport Turkmen natural gas from its massive South Iolotan field across Afghanistan onwards to Pakistan, and India has yet to resolve the security question of transiting Afghanistan, the DBD may not seem like such a long shot after all.