Pakistan requires $62bn to $155bn for energy sector till 2030: ADB
- Power, energy sector need most significant investments.
- Largest investments needed for hydropower capacity’s development.
- Investment needs for wind, solar energy expected to reach nearly $12bn.
ISLAMABAD: The Asian Development Bank (ADB) has said that Pakistan’s energy investment ranges from $62 billion to $155 billion till 2030, The News reported Sunday.
According to ADB’s Central Asia Regional Economic Cooperation (CAREC) Energy Outlook for 2030 report, energy investment needs until 2030 vary significantly across the three scenarios.
The power generation and the energy efficiency sector need the most significant investments owing to the rapidly growing demand and low baseline efficiency. In all three scenarios, the largest investments are needed for the development of the country’s hydropower capacity, ranging from $11 billion to $26 billion.
Investment needs for wind and solar energy are expected to reach nearly $12 billion in the business-as-usual scenario, $36 billion in the government commitments scenario, and $57 billion in the green growth scenario, which illustrates the country’s ambitious plans for harnessing its large renewable energy potential.
Furthermore, according to the country’s nuclear power generation targets, investments for nuclear facility expansion and rehabilitation total nearly $12 billion in the business-as-usual scenario, $21 billion in the government commitments scenario, and $31 billion in the green growth scenario.
Generational rehabilitation and expansion are the investment categories estimated to require the largest share of the total — ranging from 60% to 75%, or $38 billion to $115 billion, varying across scenarios. The second biggest category is energy efficiency measures on the consumption side, requiring $12 billion in the business-as-usual scenario, almost $21 billion in the government commitment scenario, and over $26 billion in the green growth scenario.
The modernisation and expansion of the power and gas grids and the introduction of advanced metering equipment require investments of approximately $13 billion to $14 billion.
To further unlock Pakistan’s energy market for private companies, several challenges must be addressed. One of the key challenges is the lack of clarity regarding the categorisation of resources.
For example, although hydropower is generally considered a renewable energy resource across the world, the Alternative and Renewable Energy Policy has categorised hydropower sources as nonrenewables.
Considering the 30% renewable energy target in 2030, it would be hardly possible to reach this level only via wind and solar PV sources. If hydropower were to be included in the definition of renewable energy sources, it would make reaching the stated target and introducing stronger competition more realistic.
Another challenge is the lack of a detailed energy plan for the energy sector. Although the National Energy Policy has been approved, the corresponding division of roles among policymakers who would assign policy areas to all relevant stakeholders has not been completed yet.
In the current framework, sector-specific policies are developed by relevant authorities. For instance, the alternative energy policy is developed by the Alternative Energy Development Board (AEDB), whereas the power generation policy is drafted by National Electric Power Regulatory Authority (NEPRA). This not only creates uncertainty regarding the long-term direction of sector development but also leads to unnecessary bureaucracy and delays in project implementation.
With a strong focus on generation over the last several decades, the T&D sectors suffered greatly from underinvestment. As a result, transmission losses in Pakistan are one of the highest in the region, with some distribution companies reaching losses of 38%. While policies, such as the Transmission Line Policy, have been established to attract private investments, a centralised transmission plan considering load development in the future is required to set a long-term direction for network development and to establish realistic targets for reducing T&D losses and attracting investments.
Another challenge stems from the country’s electrification rate, with more than 25Z% of the population having no access to electricity. With an increase in rural electrification, demand will increase significantly, putting more strain on distribution companies and generation. Finally, challenges in the T&D sector are reinforced by the issue of circular debt.
With growing power generation from thermal plants, higher costs were inflicted via the import of high-priced fuels and currency devaluation. At the same time, distribution utilities tasked with energy supply face financial hurdles due to the low collection rate of tariffs and their inability to meet regulatory targets for T&D losses. As a result, distribution companies are unable to pay generation companies for purchased electricity, starting a chain of debts that reach fuel providers via power generation companies.
The differential between NEPRA-approved and uniform tariffs is paid via a tariff differential subsidy, which adds a significant financial burden to the government. However, the government is moving toward tackling these challenges and improving the investment climate by establishing a clear and favourable environment for private investors in the energy sector. Pakistan recently approved an implementation plan for a regulatory framework that will establish a competitive market structure in the wholesale segment via a bilateral contract.
Furthermore, the government plans to unbundle natural gas utilities into transportation and distribution companies and establish a competitive natural gas market, which will prove beneficial in terms of attracting private investments in the long term.
Pakistan has already introduced specific incentives for its renewable power sector to take advantage of its substantial renewable resource potential of more than 3,000 GW (including hydropower). With feed-in tariffs for wind and solar PV technologies and a clear plan for renewable energy generation, it aims to support further development of renewable energy.
Considering the sizeable development needs in the energy sector and the government’s prioritisation of renewable energy, investment opportunities are significant.
To resolve power issues and improve energy distribution capabilities, the government is considering partial privatisation of distribution companies through management contracts and concession agreements. This opens up the possibility of ensuring sufficient power supplies, mitigating losses, and increasing competitiveness in the distribution market.
Being one of the largest markets in the CAREC region, Pakistan’s population is currently growing by 2% annually, with an ever-growing potential customer base. However, more than a quarter of the population does not have access to power. With suitable government priorities and regulatory frameworks, this would provide a substantial basis for investment in the energy sector, with more possibilities for return on investment and project implementation.
Not consulted on petrol subsidy for low-income groups: IMF
- IMF seeks details on operation, cost, targeting, protections against fraud and abuse, and offsetting measures.
- Govt, a day earlier, had announced subsidy help inflation-hit masses.
- IMF says Islamabad has made “substantial progress” on policy commitments.
The International Monetary Fund (IMF) said that the Pakistani government did not consult the global lender on its petrol subsidy for low-income groups, reported Bloomberg on Tuesday.
Esther Perez, the IMF’s resident representative for Pakistan, told the publication that the lender was not consulted on the government’s plan to raise fuel prices for wealthier motorists to finance a subsidy for lower-income people.
“Fund staff are seeking greater details on the scheme in terms of its operation, cost, targeting, protections against fraud and abuse, and offsetting measures, and will carefully discuss these elements with the authorities,” said Perez.
‘This is not subsidy’
A day earlier, Minister of State for Petroleum Musadik Malik announced that the federal government in order to cushion the effect of high petrol prices on inflation-hit masses decided to subsidise petrol up to Rs100 for motorcyclists and owners of vehicles up to 800cc.
“Prime Minister Shehbaz Sharif has directed to provide subsidy on petrol to low-income people up to Rs100 per litre,” Malik told journalists in Lahore.
Earlier, it was decided to provide a subsidy of Rs50 per litre.
The minister said under a comprehensive strategy, subsidised petrol will be available to motorcyclists and owners of vehicles up to 800cc.
Malik further said owners of vehicles above 800cc would be charged full price.
He said the decision to provide fuel at subsidised rates will be implemented within six weeks, adding that the government will make petrol cheaper for the poor.
“The owners of big vehicles will pay more for petrol. The rich will pay Rs100 more for petrol while the poor will pay Rs100 less. 210 million people are poor in a population of 220 million, we stand with poor Pakistan.”
He said that the decision on the gas tariff has been implemented from January 1. “We have separate tariffs for the poor and the rich.”
Pakistan has made ‘substantial progress’: IMF
On the staff level agreement, the IMF said that Islamabad has made “substantial progress” in meeting the policy commitments required to unlock billions of dollars in loans.
“A staff-level agreement will follow once the few remaining points are closed,” said Perez told Bloomberg.
“Ensuring there is sufficient financing to support the authorities in the implementation of their policy agenda is the paramount priority.”
Last week, Finance Minister Ishaq Dar had said that the global lender wanted to see countries finalise commitments they have promised to help Pakistan shore up its funds before signing off on the bailout package. Pakistan needs to repay about $3 billion of debt by June, while $4 billion is expected to be rolled over.
Pakistan has taken tough measures including increasing taxes and energy prices, and allowing its currency to weaken to restart a $6.5 billion IMF loan package. The funds will offer some relief to a nation still reeling from last year’s devastating floods and help pull the economy out of a crisis ahead of elections this year.
Pakistan-Russia final crude oil import talks start today in Karachi
- PSO has been nominated on behalf of Pakistan for talks.
- Russia’s PSC has been nominated for the talks by Moscow.
- The PSC delegation arrived in Karachi on Monday.
ISLAMABAD: A Russian technical delegation will hold talks today (Tuesday) with Pakistan State Oil (PSO) officials in Karachi, to give final touches to a crude oil import deal at a government-to-government level (GtG), a senior Energy ministry official told The News.
“In case of successful talks, both the state-owned nominated companies will sign the commercial agreement the next day (March 22),” said the official who spoke on the condition of anonymity.
PSO has been nominated as the state-owned company on behalf of Pakistan for talks and signing of the Russian crude oil import deal. The Operational Services Center (PSC), which is a state-owned company of Russia, has been nominated for the talks by Moscow.
The PSC delegation arrived in Karachi on Monday.
Both the PSC and PSO may ink the deal, as the delegation from Moscow will hold talks on March 21-22.
“The current price of Brent crude has come down to $73 per barrel whereas the Russian crude oil price remained at $52 in February 2023, which has further lowered between $42-48 in the international market,” sources within the industry told the publication.
They urged Pakistan refineries to purchase Russian oil on their own in compliance with the G7 countries’ regulations. However, the government is trying to secure a GtG deal below the $60/barrel price cap imposed by G7 countries.
Under the GtG deal, Petroleum Division wants to lock the deal at close to $50/barrel, $10/barrel below the cap price. The G7 countries had imposed a price cap on Russian oil in the wake of the war on Ukraine.
Some official sources say that Russia wants to confirm if Pakistan really wants to purchase its crude as there is no written direction from Pakistan’s top man to purchase the Russian crude. However, Pakistani officials are exploring options to purchase crude from Moscow under the direction of Pakistan’s prime minister.
“So far Russia has not indicated what discount it will offer.”
The Russian side will finalise with PSO all the prerequisites before inking an agreement that includes the mode of payment, shipping cost with premium, and insurance cost. The officials said that Russia’s PSC may offer a discount on the base price in its talks with the PSO’s technical team.
They added that the shipping of crude oil from Russian ports would take 30 days and an additional per barrel transportation cost would be $10-15/barrel.
The government does not want to divulge the mode of payment to Russia against the import of crude oil. However, the authorities are weighing their options to either use Pakistan National Shipping Corporation ships for transporting crude from the Russian port or to use the Russian tankers.
“We also have to keep in mind the landed cost of Russian crude as the crude vessel will arrive in 30 days, owing to which per barrel shipping cost would hover at $10-15,” the official said, adding that Moscow has not agreed on the discount yet. “We fear that the maximum discount would be offset by the shipping cost of the crude oil.”
However, State Minister for Petroleum Musadik Malik in a televised presser said that Pakistan would get a 30% discount on crude oil prices. Malik, while talking on Geo News programme Capital talk last week, said 80-85% of negotiations with Russia were completed.
“Our commercial deal is in the final stages, and by the month of March the entire commercial deal will be negotiated,” he said. “In April, we will give them the first shipping order. The first cargo of crude oil from Russia will arrive in by the end of April,” the state minister said.
The minister revealed that the country would receive one-third of its crude oil imports from Russia at a concessional rate “the impact of which will be translated to the people.”
“The first crude oil vessel from Russia will arrive at the end of next month of April as a test cargo to assess the landed cost of crude as compared to the cargo Pakistan gets from ADNOC and Saudi Aramco. Pakistan has sought a 30% discount in Russian crude base price.”
In case, the test ship’s cost is found low enough to bring down the prices of petroleum products, Pakistan would give a green signal for the import of Russian oil in a month which may be 2-4 cargos.
Since Pakistan is facing a US dollar liquidity crunch, it would pay Russia in the currencies of friendly countries that include China, Saudi Arabia, and UAE. The officials said that the ship carrying Russian crude will have the NICL’s (National Insurance Company Limited) insurance and Pakistan Reinsurance Company Limited (PakRE) will reinsure the asset (ship with crude oil).
The State Bank of Pakistan, which earlier showed hesitance for any transaction with Russian banks keeping in view the G7 regulations and the US and EU countries, has now shown a willingness to talk with the Russian counter bank over a payment mechanism for oil import in three currencies other than dollars.
Banking crisis on cards as Pakistan’s textile sector near brink of default
- APTMA has asked for a Zoom meeting with top functionaries of SBP.
- Commerce ministry says textile industry representatives may hold an urgent meeting SBP officials today.
- APTMA says textile sector already running at less than 50% capacity.
ISLAMABAD: The textile sector has reached the brink of default in the wake of its inability to service the loans it received under TERF (Temporary Economic Refinance Facility) and LTFF (long-term facing facilities) which may also lead to a possible banking crisis, discloses the letter of APTMA to the State Bank of Pakistan written on February 27, 2023.
The State Bank of Pakistan (SBP) during the PTI era provided the TERF and LTFF facilities to help industrialists install more textile units for growth in exports of the country.
However, because of the ongoing LCs crisis, stuck-up consignments of imported cotton at the ports owing to the dollars liquidity crunch and withdrawal of RCET by the government in line with IMF diktat, all the new and expansion units in the sector have become non-functional. This has led to immense pressure on export-reignited units which are unable to generate funds to pay even interest on the loans, leading to massive defaults, curtailment capacity and a possible banking crisis.
The textile industry has asked the SBP to extend the moratorium on debt under TERF and LTFF from June 1, 2023, to December 2023 to avoid large-scale Non-Performing Loans (NPLs) and severe negative impacts on the banking sector.
The APTMA has also asked for a Zoom meeting with top functionaries of the central bank of Pakistan.
Banks are not opening LCs or retiring cotton imports, the letter says, which had led to the non-functioning of the textile units.
“Now loyal international customers are reluctant and asking Pakistani suppliers whether or not they will be able to meet deadlines and ship orders on time resulting in a loss of export orders. The industry is running out of cotton stocks and textile mills have either shut down or will shut down in the very near future if decisive and urgent action is not taken.”
The textile sector also urged the SBP to declare the opening of LCs of cotton imports the status of “Must Open.”
The commerce ministry says that textile industry representatives may hold today (Monday) an urgent meeting with top mandarins of the SBP.
The commerce ministry’s top sources said that the prime minister convened meetings on export sector issues four times but the said meetings couldn’t be held mainly because of the premier’s pressing engagements.
The APTMA also mentioned that the business plan for new industrial units and expansion of the existing units had been carved out based on RCET (Regionally Competitive Energy Tariff) — electricity tariff of Rs19.90 per unit and gas rate at 9 cents per MMBTU.
However, with the withdrawal of RCET, the industry is forced to run on an electricity tariff of 40 per unit owing to which the textile sector has started dying out day by day.
The letter disclosed alarming facts saying that the textile sector is already running at less than 50% capacity. Around 7 million workers in the textile sector and textile-related industry were laid off since last summer and if this sector is closed down it will lead to more layoffs resulting in significant unemployment of more than 10 million workers and further deterioration in the balance of payments in the shape of at least $10 billion exports per annum.
The textile industry also highlighted in its letter the bleak cotton production in the country, saying that the country’s cotton production has declined to a historic low this year dropping to 5 million bales due to heavy rains and floods. The cotton production loss has been worth more than $2 billion.
The textile industry consumes nearly 15 million bales and the current season’s anticipated demand indicates that about 10 million bales will need to be imported. However, banks are not opening LCs for the import of cotton.
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