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Privatization and U.S. support put Pakistan on track towards 50,000 MW goal

Article - April 2, 2016

Pakistan’s power sector has hampered growth for many years. The combination of new government initiatives, a revitalized private energy sector and cooperation with international partners – namely the U.S. – is going a long way to not only deal with the issues that Pakistan faces, but also to make it one of the most dynamic and geopolitically important energy players in the world

One of the main challenges Pakistan’s economy faces today is power supply. Prime Minister Nawaz Sharif’s government has said that it plans to improve Pakistan’s power sector through reform and investment to boost growth, and hopes to end chronic power shortages that have crippled the economy for years. So, it has made real strides to tackle this issue head on.

Federal Minister for Finance Ishaq Dar has been praised for undertaking structural reforms to create an investment friendly environment, especially in the energy, infrastructure development, large scale manufacturing and agricultural sectors. The showpiece of this policy is the Integrated Energy Plan, which aims to achieve self-sufficiency by generating 50,000 megawatts (MW) of power within the next 25 years.

While addressing the recent National Energy Conference on Prospects of Power Generation, organized by South Asian Strategic Institute University in Islamabad, Minister of Water & Power Khawaja Muhammad Asif said that to develop a concrete road map for a secure energy vision for the future, the nation must work at developing indigenous scientific and industrial capacities to explore domestic energy reserves.

“The government is making every effort to increase electricity supply to the national grid through all possible avenues, private sector being one of them,” said Mr. Asif.

He also explained that the geographical position of Pakistan not only makes it a potential energy exporter, but also a trade and energy corridor for South and Central Asia. And due to this advantage, Pakistan can maneuver itself in a way that significantly increases its bargaining power in the region and beyond, thus signifying the importance of the reform of the sector.

Key to the success of this policy is energy diversification. The aim is to maximize the use of indigenous resources to achieve a more diversified energy mix (hydel 20%, coal 15%, LPG 2%, nuclear 3%, renewable 12%, domestic gas 21%, imported gas 7%, oil 20%).  

As President and CEO of General Electric (GE) Pakistan, Sarim Sheikh, recently noted, “Pakistan’s energy started developing mainly with hydro. Then they diversified into gas and in the late 90s, they invested quite heavily on heavy fuel oil as a source of power. I think what Pakistan needs to do is to continue to diversify its energy needs and also, particularly, to keep an eye on energy security and cost.”

Much progress towards this goal has already been made, with the Pakistan’s Ambassador to the U.S. Jalil Abbas Jilani recently quoted as saying: “I have no doubt that by 2017, we will not only be able to overcome the energy shortfalls, but also we will have surplus energy, as we’re going to add about 10,000 MW of power in the national grid.”

“$1.2 billion has been invested in the company and both the distribution and transmission capacity has improved to bridge the gap between the demand and supply of electricity. Our privatization stands as a success case and has helped the company get back on the track of growth”

Tayyab Tareen, CEO of K-Electric Limited

Indeed, U.S.-Pakistani relations are vital to the success of this development. When Mr. Dar met with U.S. Under Secretary of State Catherine Novelli they both agreed that energy remains the vital area that holds immense potential for enhanced cooperation. The U.S. has continuously stressed the importance of continuing to build momentum on expanded trade, investment and economic cooperation with Pakistan.

“We are grateful to the United States for the economic cooperation as well as its assistance in the energy sector. Pakistan-U.S. cooperation in the energy sector has added 1400MW of electricity to our national grid. The U.S. is also supporting large hydroelectric projects like Dasu and Diamir Bhasha dams, initiated by Pakistan,” Mr. Jilani has stated.

U.S. firms, namely GE Pakistan, have had a huge role to play in the Pakistani energy revolution. As the Chairman of the Pakistan’s Board of Investment, Dr. Miftah Ismail, says: “Some companies that are already present in the country are doing a great job, such as GE. A third of all power generation in Pakistan comes through GE turbines. The U.S. obviously has unbeatable technology, therefore we want to use their expertise.” The relationship is amicable on both sides, with GE more than happy to assist the development of the Pakistani energy sector.

“We are proud to have been a partner of Pakistan in its development story; we have been involved in building dams, we have been involved in gas power plants, so almost a third of Pakistan’s power is generated using GE technology,” said Mr. Sheikh at a recent conference.

GE established its roots in Pakistan with the country’s independence and has had a direct presence through its subsidiaries since 1980. GE has expanded its portfolio to support other GE businesses in addition to GE Power Systems (now GE Infrastructure Energy) located at Lahore, and has since been working actively with national companies and private businesses. Today, GE is a key player in supporting the development of the power sector, having signed a Memorandum of Understanding (MoU) to develop Pakistan’s energy resources to meet the projected demand of 54,000MW by 2020.  

In May 2015, GE reiterated its commitment to Pakistan when a high-level business delegation representing GE and M/s American Ethane Company visited Islamabad to show interest in setting up a new 6000MW ethane gas power plant in the country. Ethane a smart, cost effective and environment friendly fuel burns up to 80% fewer emissions as compared to oil & coal and is suitable especially for areas not served by natural gas lines. Along with American Ethane, GE Pakistan is now considering setting up the large scale plant in order to help Pakistan further reduce its energy deficit.

The announcement comes on the back of a MoU that GE signed last year with Pakistani firm Sapphire Electric Company Limited. The MoU is for the creation of ‘GE Predictivity’ solutions that will play an integral role in delivering more power to Pakistan, and help close a gap between the country’s power capacity and ongoing electricity demand.

“The government is making every effort to increase electricity supply to the national grid through all possible avenues, private sector being one of them.”

Khawaja Muhammad Asif, Minister of Water and Power

GE explained in its press release: ‘Predictivity solutions combine the power of the company’s connected machines network, data analytics and people at work to help power generators manage their plant facilities more productively, and make well informed operational decisions. The MoU is part of GE’s strategic partnership approach to co-create tailored solutions that will increase the plant’s (Muridke Power Station) output.’

 “We are proud to strengthen our partnership with Sapphire Electric Company through this important agreement, which will help drive more momentum in expanding Pakistan’s power generation capacity,” said Azeez Mohammed, CEO and President of GE Power and Generation Services (Middle East and Africa). “Strengthening its energy sector capacity is crucial to meet the growing demand for power in Pakistan. It also highlights the capabilities of our Power Generation Services business to provide smarter, cleaner and more efficient solutions to our customers, and the communities they serve.”

Aside from the American multinational, the recent privatization of domestic energy firms also marks a huge step toward the Pakistani energy challenge; with the privatization of Hubco and K-Electric Limited dramatically improving the efficiency of both firms.

For instance, since it was taken over by Pakistani investor Hussain Dawood in 2012, Hubco’s (Hub Power Company Limited) profits have soared. In the fiscal year ending June 2015, Hubco recorded a 50% growth in net profit, while its gross profit margin at 11% was one its highest ever. Furthermore, in January 2015, Hubco announced it would set up 1320MW coal-based power plants next to its thermal power station in Balochistan and gradually enhance coal based generation to 3600MW.

Meanwhile, K-Electric (KE) Pakistan’s only vertically integrated power utility has also turned its fortunes around since it was privatized in 2005 and taken over by UAE’s Abraaj Capital three years later. Since then, the company has enhanced its generation capacity by 1037MW through the addition of four new power plants and a steam turbine, and in FY2014-2015 its tax profit stood at PKR28,325 million ($271 million).

“I have no doubt that by 2017, we will not only be able to overcome the energy shortfalls, but also we will have surplus energy, as we’re going  to add about 10,000 MW of power in the national grid”

Jalil Abbas Jilani, Pakistan Ambassador to the U.S.

“We had to change the mindset of our workers from a public sector institution to a private one,” explains CEO of KE, Tayyab Tareen. “$1.2 billion has been invested in the company and both the distribution and transmission capacity has improved to bridge the gap between the demand and supply of electricity. Our privatization stands as a success case and has helped the company get back on the track of growth.”

“K-Electric’s turnaround from a loss making entity into a profitable one is a story of sustained optimism and unwavering determination that set a benchmark for state run power entities in the country,” adds Chairman Tabish Gauhar.

KE – formerly known as Karachi Electric Supply Company Limited (KESC) – manages the generation, transmission and distribution of electricity to Karachi, and in doing so lights up one of the most populous cities in the world (20 million people).

“Karachi was once considered the city of lights and we want to restore that pride back,” says CEO Mr. Tareen. “I believe that through the transformation our company is achieving we are changing people’s lives and lifestyle.”

Today the company covers an area of over 6,500 square kilometers and provides electricity to all the industrial, commercial, agricultural and residential areas that come under its network, which totals a number of more than 2.2 million customers in Karachi and in the nearby towns of Dhabeji and Gharo in Sindh and Hub, Uthal, Vindar and Bela in Balochistan.

Having demonstrated a strong ability to bring about a sustainable change, the company has followed a path of growth and transformation, in turn placing itself amongst the most dynamic institutions in Pakistan and in the South Asia region. “We will ensure we keep the ‘lights on’ and we will improve our performance to provide the energy that Pakistan needs to grow,” says Mr. Tareen.

This sentiment was reaffirmed last month when KEL announced a deal for a coal-fired power plant, signing a Joint Development Agreement, with the China Datang Overseas Investment Company (CDTO) and China Machinery Company (CMEC), for the development of a 700-MW project at Port Qasim.    

“I think what Pakistan needs to do is to continue to diversify its energy needs and also, particularly, keep an eye on energy security and cost”

Sarim Sheikh, CEO and President, GE Pakistan

“KE is developing new generation projects and is giving them the highest priority. This particular project will go a long way in addressing the power needs of the country, specifically the people of Karachi,” said Mr. Tareen, commenting after the three parties issued a statement in September. The statement declared that “considerable progress” had been made on the project during the last few months and that the agreement was a major step forward towards the finalization of the flagship project.

The project is set to bring in an investment of over $1 billion to Pakistan, not only helping the country to diversify its fuel mix, but lower generation costs as well, ultimately benefiting the end consumer. Going forward, KE is set to invest further in the future of Pakistan with the realization of even more power projects. “An LNG (Liquid Natural Gas) based power project of around 225MW is in the works. We believe LNG can be an effective tool to overcome energy shortages,” says Mr. Tareen.

Should progress in the energy sector in Pakistan continue at its current pace – in no short thanks to the continued investment of companies such as K-Electric –  there is no doubt Pakistan will remain well on its way to achieving the ambitious energy goals. Such goals are so important not only on a domestic level in terms of Pakistani energy use, but also on an international level as the country looks set to gain massively from the excess electrical capacity which will be developed in coming years.

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