Pakistan Energy Forum

The Gas Crisis I

2012-01-06T01:42:00.000-08:00

We are going through a gas crisisalong with a Power crisis, both are inter-related; one causes the other. Pakistan’senergy balance sheet has long relied on Gas as a fulcrum or main asset. That assethas been dwindling in relation to the demand. Today the gas production is 1.3TCF per annum (4 Billion Cft per day) as against a demand of 2.0 TCF per annum (6 Billion Cft per day). It is a cheap local resource that used to be abundantfor several decades. According to reliable estimates, there is still lot of gasunderneath waiting to be explored and exploited; six times more than thepresently known reserves. Unfortunately due to both, neglect and circumstances,exploration activities could not keep up pace with the growth in demand. Anotherfactor that has led us to this stage is the lack of timely diversification awayfrom local gas. We will explore in this space, some of the possible options.

Possibly, there are no immediate solutions,except load management to which government has been resorting to, and perhapsopening up and facilitating LPG truck supplies from Iran and Central Asia.Second immediate step could be to drop taxes temporarily from, Petrol and Diesel,to make it cheaper and competitive with CNG, thus alleviating pressure awayfrom CNG. This would obviate the more contentious and politically difficultstep of completely stopping CNG for the cold months.

Slowdeath of CNG

CNG station and CNG transporthave resorted to strikes and protests .On the other hand, government isreportedly considering closing down CNG stations for the month of January atleast. The genie of CNG has been strengthened, if not created, by the presentgovernment by adopting a policy of making Diesel more expensive and levyingmore taxes on it than petrol. In almost all economies of the world, Diesel iskept cheaper than Petrol due to the obvious reason of its use in the publictransport system. It also shows how quickly the market adapts to the pricesignal. Public transport system appears to have converted itself to the CNG,Diesel having been made expensive both due to taxation policies and as well asdue to higher international market prices.

It is not, however, easy forgovernment to absorb the loss in revenue, keeping in view the already lowreceipts and budgetary deficits. It finances the subsidies on Electricity,partly, from the oil taxation and levies. Petroleum taxation has beenconsidered desirable in most countries as a source of revenue. It has beenclassically considered taxation on luxury, pollution and road user charge. Thishas worked earlier when international oil prices were low. In that regime,sometimes importing countries’ governments earned more revenue than oilproducing and exporting countries. No more, today oil prices affect the livesof the poor more than any body else. In the longer run scenario, barringtransitional periods such as those prevailing these days, it may be advisableto adopt zero-energy taxation, whereby for example, oil taxation incomebalances subsidies elsewhere, say in electricity and perhaps vice versa.

It may be worthwhile to have afresh look at the petroleum pricing policy. Taxes and levies on Diesels may bereduced and eliminated making it cheaper. Also a seasonal pricing policy makingDiesel further cheaper in winters than in summers. One may have to revert toquarterly or half yearly revision of petroleum pricing as opposed to themonthly one, in order to implement a seasonal policy. There are limits to theenhancement of CNG tariff, as the recent CNG strikes and later negotiationshave shown, as a result the CNG tariff enhancement had to be halved.CNGbusiness interest would, however, resist reduction in margin which woulddecrease their market share. On the other hand government’s right and role ofmaking public policy in the interest of larger good cannot be done away withunder political pressure. Political conditions may be different next time.However, quick reversal in an entrenched market is neither feasible norpolitically advisable. Long term signals should be recognized by the CNGbusiness interests and refrain from bribing their way into getting morelicenses despite a ban. Ban in fact increases the margins of the graft.

Towardsa sustainable gas policy

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1) Implement Iran –Pakistan GasPipeline project counseling Iran on more agreeable pricing and the U.S. torefrain from opposing it. South Asia is an eventual and natural market for vastIranian gas reserves.

2) Shun LNG

3) Pay attention to E&P fornew gas finds; Re-energize OGDC ; encourage Shale and Tight gas resources.

4) Let cooking needs of homes areto be the first priority. Also facilitate LPG for this sector.

5) All thermal Power be movedaway from natural gas and be substituted by Coal (from Thar). Existing NGCCcombined cycle plants be allowed to complete their economic life on gas. AllSteam Turbine power plants be converted to coal as early as possible; all newthermal power to run on coal.

6) All fertilizer plants (Urea)be converted to Coal (local).Similarly all cement plants, whereas a number ofthese have already successfully converted to Coal.

7) Industry located in denseurban areas to be allowed to run on Gas for pollution reasons. Industriesoutside be encouraged to run on coal briquettes and possibly Bio-mass.

8) Encourage Solar Heating,replacing gas heaters. Introduce District Heating and Cooling (CHP & CCHP)

9)CNG to eventually be restrictedto urban area public transport for environmental reasons and the needs of anaffordable commuter transport .Private vehicles( more than 800cc and less than5 years old) be moved away from CNG.

10) Encourage LPG markets throughland routes on Iran and Afghanistan border. Encourage LPG in transport, iffound feasible, under varying market conditions.

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CNG sellers should see thewriting on the wall. At current prices they enjoy a gross margin of 100%;natural gas is sold to them at Rs 651 per Million Btu , which they sell at Rs1384 per Million Btu. If imported LNG is sold to CNG stations , it would costthe latter around Rs.1600/- per Million Btu. Assuming a gross margin of 100%,CNG price would be Rs.3200/- per Million Btu, as against the current retailprice of Diesel at Rs.2739/-,16.8 % higher than Diesel. If by some magic, theirgross margin is kept constant at Rs 650/- per MBtu, CNG price would come downto be Rs.2250/- per million Btu, 17 % lower than Diesel. Practically, therewould be no CNG-Diesel price differential, as the gross margin would go up. Bythe same token, LPG may not be able to acquire a reasonable market share at theprevailing price differential, unless Auto-LPG chain becomes more efficient. Itappears that LPG has been successful in Europe due to high taxation on Gasolineand Diesel, making LPG attractive. Due to low income of consumers, hightaxation on Petroleum should not be expected or recommended. In India also,high taxation on Gasoline and cross subsidies have, perhaps, made LPGviable. Also, GOP may have to developan Exit policy for CNG stations. For example, CNG stations which have alreadyworked for ten years may be delisted from supplies, so as to give opportunityfor newer investments to recoup their money. Such stations may be givenlicenses for Auto-LPG, if it becomes viable.

	Comparative Fuel Prices in Pakistan as on Ist Jan 2012

Fuel Name		Mn Btu /Tonne	S.G.	Price		Effective Price(Rs/MnBtu)
Natural Gas(for CNG)		980	0.6	651		664.2857	24.25242
CNG		50.58	0.6	70	Rs/Kg	1383.946	50.52652
LNG		50.58	0.6	18	USD per Mn Btu	1566	57.17312
LPG		45.326	0.5	110	Rs/kg	2426.863	88.60239
Kerosene		43.218	0.8	89.24		2581.1	94.23344
Gasoline		44.761	0.74	89.54	Rs/Liter	2703.246	98.69286
HSD		44.541	0.81	98.82	Rs/Liter	2739.049	100
HSD(FOB)		44.541	0.81	0.54	Euro/liter	1766.163	64.48087
Furnace Oil		40.792	0.95	74021	Rs per Tonne	1814.596	66.24912
Crude Oil		43.313	0.805	107.2	USD per bbl		0
Crude Oil		43.313	0.805	58.6566	Rs/Liter	1682.297	61.41902
Coal				40	USD/tonne
1 USD				87	Rs/USD
1 Euro				118	Rs/Euro

CNG businessmen, however, have avalid point. They argue that CNG sector would accept its share of burden anddifficulties as other users would in case of hire prices and lesseravailability. It should be done proportionally and that CNG sector should notbe closed down arbitrarily. Investments have been made on the instance of thegovernment policy. It may, however, be noted that only a few countries havefollowed the CNG band wagon in a low price and abundant gas regime and most of the world has stayedaway from it .In fact ,countries like New Zealand have opted out of it. Thereis, however, a redeeming and legitimizing feature of CNG which falls in thedomain of public transport in urban areas. CNG is a clean fuel. Undersubsidies, it can be a vehicle for organizing an affordable and pollution freepublic transport. Eventually CNG appears to be surviving in that limited role.

Unfortunately all other optionsrequire time and money, some more and come less. There are no quick fixes.However, some near term measures are possible to dilute the impact of lack ofsupplies. Some of the measures are as follows; a) encouraging or forcingconsumers to switch to other fuel sources, where such conversion is feasibleand affordable. We have already discussed the price and taxation measures. Thetop most users in this category are cement, partially textile and affluent carowners (1000 cc and less than five years old) and unauthorized public transportwhich has illegally switched to the CNG. Also come in this category are the CNGstations which have been installed illegally despite the ban on CNG stationsfor the last two years.

A number of cement plants haveconverted their system to Coal. There is no reason; others should not beobliged to convert to coal also. It should be the Cement plants which should bethe first candidates or victims of curtailing or stopping the gas supplies forthe crisis period. Similarly, Textile sector can afford to switch to oil. Theysay, it would hurt our exports and competitiveness. This sector has been agreat supporter of LNG, which is going to be 4-5 times more expensive than oras expensive as oil. Competitiveness built on cheap and underpriced energyresources is a very weak foundation. Energy, gas or otherwise, is not going tobe cheap in Pakistan anymore. Natural Gas was cheap due to highly underpriced gasfrom Sui, one of the major sour points in Balochistan-Federation relationship.Sui resource has been thoroughly consumed by now and also the prices and thusroyalty on gas from Sui has been enhanced. New resources are costing more andnewer one still more. They are all linked to price of Oil one way or the other.Even Pipeline gas from Iran is to cost almost 75-85% of the price of Oil andLNG even more.

EncouragingLPG

In the short run, gas suppliescould be enhanced through facilitating commerce in LPG. Government has alreadytaken the right step in energizing an existing LPG import terminal. Makingprojects and storages cost time.LPG could be and is being transported in Trucksand trailers from Iran and Central Asia. Imported LPG is sometimes slightlymore expensive than the locally produced one. Taxation measures can equalizethe prices or policy and market measures can enable to maintain the pricedifferences without making LPG imports commercially unattractive. These days,LPG is smuggled into Pakistan through land routes. If barriers are removed,considerable amount of LPG can enter into the Pakistan market, especially inthe northern parts, where the crisis is more acute.

Steps would also be required tochange LPG logistics in Pakistan. Currently, all users practically utilizecylinders for transport and as well as storage.LPG distribution to transportsector should be through Petrol Pumps, where filling pumps have to be installedon the style of Petrol, Diesel and CNG. This is a universal practice includingIndia. In Pakistan, LPG cylinders are moved and removed physically instead offilling LPG in the vehicle fitted cylinders. The practice is costly anddangerous and inhibits separate pricing and taxation measures for domestic andtransport use. If LPG is brought into mainstream filling station business, itwould provide some replacement to CNG sellers and buyers, although separatefilling equipment and storage (bullet-type) cylinders are required for thismode. Perhaps more investment of CNG stations is in real estate than inequipment; the latter can be sold off and exported to other countries likeBangladesh where CNG owners can enter into JVs, although it may require somescale of operations. It requires a policy in this respect .Thus CNGcurtailment, if accompanied by LPG facilitation, would be more acceptable tothe CNG stake-holders than a simple throttling of their business, investmentsand livelihood. It should be added that it may be possible to use LPG in CNGvehicles with some adjustments as well, bringing CNG users in the net as well.

It would be of interest here topoint out that in major European countries like, France, Germany, Spain, Italyand Netherlands, a differential of 50% is maintained between the prices ofPetrol and LPG and in India the differential is about 30%.In India, there areseparate prices for LPG for Automotives and home use being respectivelyequivalent to PkRs. 160 per kg and Pk.Rs.56 per kg, under a cross subsidyarrangement. In Pakistan, it is PkRs. 100 + per kg irrespective of the use.Auto LPG Stations would also solve the perpetual dilemma in LPG pricing issue;LPG imports have been thwarted by cheaper local product .Under the proposedarrangement, more expensive imported LPG can be marketed through LPG

Pumps collocated with Petrol andCNG stations. There is already an Auto- LPG Policy. One has to see what hasthwarted its implementation. One ready answer is the competition from CNG. Withthe changing situation in CNG supply, a new rationale can emerge.

GasStorage

Also some kind of cheaperstorage, both for natural gas and as well as LPG, would have to be built, inorder to meet the increased demand of heating fuels in Punjab ,KP and the othernorthern areas. Large storages can be inexpensively built in exhausted oil andgas fields. The newly exhausted ones or depleted ones would have theirequipment and infrastructure intact and conversion would be almostinstantaneous.

There are some other solutions aswell like the use of stranded or flare gas for CNG. Existing CNG pumps can betransferred to the sites of stranded and flare gas and CNG transported and soldto the nearby markets. Flare gas proposal has been reportedly mooted by the CNGassociation. I would not be too sure about it. Both the options need to beexplored and studied.

Solarheaters to replace gas heaters

Solar water heating has becomequite common in many countries ;China, Turkey , and parts of the US.A sizeablecapacity solar water heater, used for space and water heating, is today costingunder 20,000 Rs. Installing a heat-exchanger and piping may cost another 20,000Rs. Or even less. A Bungalow of 250-500 yards may require an investment totalof Rs 100-200.000/- for installing a complete solar water and space heatingsystem. For Bungalows costing more than 10 million, this is a pittance.Similarly, posh schools, hospitals, Office buildings, government offices andfacilities could switch to solar heating without having to wait for any thing.Sun is there, even in winters in Pakistan. Awareness campaign and policyfacilitation is required. For other solar solutions, we may have to wait may befor another decade or slightly lesser to be affordable.

Finally, it is the domestic(household) sector gas needs that are the most urgent and should get thehighest priority. No demand is more sacrosanct than this. Already, hundreds ofthousands of homes are suffering due to gas shortage. Government has alreadydecided to shut CNG stations during household demand hours which must receivewider support.

Concluding, Energydiversification is the name of the game. Smaller measures on a wider front maybring more security and stability in Pakistan’s Energy scenario. Till longerterm supply measures and projects such as Iran –Pakistan Gas Pipeline projector Thar coal project are implemented, the afore-mentioned measures have apotential to bring some relief to the general public and other consumer.

Lack ofsustainability of LNG

OGRAhas, untypically, rejected the LNG option in its recommendations to ECC. Thereis apparently a sound logic behind it. LNG would result in gas prices whichwill be four times the existing gas prices. People are resisting the 14%proposed increase in existing gas tariff. What will happen when LNG arrives? Itwould be as expensive as oil, and would be marred with transparency problemsand issues. OGRA has recommended going for local and foreign coal. They haveestimated local coal energy cost to be 3.23 cents per kWh and imported coal tobe 5.56 cents per kWh. Furnace Oil based power plants produce electricity at 15cents and LNG would be producing almost the same as Furnace Oil. In that casewhat is the logic of LNG? Monopolycapitalist circles are pushing for soft options which are not only costly butwould increase dependence and would negatively affect Pakistan’s energy security.The existing cost-plus approaches are the bane of the problem. Commercialcompanies push for all kind of impossible projects, being assured of a fixedand hefty return.LNG interests are asking for all kind of incentives andguarantees. If LNG has some worth in it, it should compete in the free andunregulated market. No body would have or should have any objections to theimports and use of LNG. However, importing coal in a country which has one ofthe largest coal deposits in the world would be a pity. Coal imports can bejustified only as an alternate for balancing and emergency or blendingrequirement. Or in the intervening period, when may users especially oil-firedpower plants are planning to convert to coal.

Coal Gasificationand substitution

Onthe other hand, people talk about importing coal because Thar coal project doesnot move despite window dressing announcements by the relevant bureaucracy anddepartments. Provincial autonomy does not appear to have helped. There appearto be lingering political, legal and financial issues or the capacity andinertia problem. The infrastructure projects (water and transmission) have noteven crossed the PC-1 stage. Without cooling water, there is no power. However,it is good to come to know of creative approaches adopted by governmentfunctionaries. They are developing LBOD saline water for Thar coal power usage.LBOD water’s salinity is one-tenth that of the sea water that is normallydesalinated and thus it should cost much less than conventional desalination,in addition to providing water that is getting scarcer by the day. There is noescape from developing Thar coal resources on a fast track, which hasunfortunately not being done.

Besidesproducing power from Thar coal, gas and fertilizer could be produced as well. Upto now, focus has been only on electricity. The idea of coal gas is not new. Itused to be widely practiced before the advent of natural gas and oil. It hasbeen improved since. Dr. Samar Mubarakmand is working on it and is expected todemonstrate its feasibility. In fact, only yesterday TV reported a breakthroughin this respect. The demonstration should yield vital data that must besafeguarded as a vital output of the project. Up scaling would remain an issue.It would be too much to expect Dr.Samar ‘s organization to go beyond this, andthus contracts with experienced foreign companies must be made.

Manyof us keep wondering as why we do not develop our domestic resources, which maybe cheaper and more reliable and sustainable. Local production of gas is anexample, which is 50% cheaper than international price. Gas resources aredwindling and no new discoveries have been made, although there is significantpotential to make discoveries and increase the output, if investments and domesticclimate improves. However, it is a big if. The second more feasible option isThar coal route. Both gas and power could be produced from Thar coal.

Two-thirdof Pakistan’s electrical requirements is being met from oil and gas. 30% ofnatural gas production goes to the power sector. Power and fertilizer sectortogether consume almost 50% of domestic production of gas. Due to imported oil,energy is getting expensive and out of purchasing power of most consumers. GOPdoes not have the money to pay for subsidies of the energy sector and circulardebt problem is creating supply and liquidity problems. Higher energy importbill also contributed to currency devaluation.

Manycountries including China are facing the same problem as Pakistan due todwindling gas supplies. In a number of places, existing gas fed fertilizerplants have been converted to coal. Instead of cracking natural gas andproducing Hydrogen, Hydrogen is produced from burning coal with steam andOxygen under high pressure and temperature, under sub-stoichometric conditions(constrained supply of Oxygen). With full or excessive air/oxygen, coal burnsto CO2, while with lesser Oxygen, a mixture of CO+ H2 is produced in thepresence of steam. In South African Company under Lurgi and other licenses andtechnology has produced gas and as well as gasoline from coal and markets theproducts competitively. China has more than 15 plants producing Ammonia/fertilizer from coal, utilizing GE and Shell technologies catering to 60%requirement of Ammonia in that country.. In New Zealand and Australia also,coal and Lignite are being used to produce Fertilizer (Urea).Even in theUS(North Dakota) where gas is cheap and abundant , there are Ammonia andfertilizer plants running on coal, in particular Lignite

Theseplants would cost the same as pipelines (Iran) and LNG regasification, butwould result in lesser product cost due to cheap local coal. And would saveprecious foreign exchange and deliver us from rising and undulating oil prices.Engro and even other fertilizer plants are in an enviable situation, as Engrois located close to Thar area (100-200 kms) and also has interests in energyproduction. An ideal combination is a 600 MW pulverized coal power plant and atwo to three million tons per year of coal conversion into Hydrogen andAmmonia. Fauji Fertilizer should also consider entering in Coal Gas businessala Engro, as they have the same portfolio.

About 20% ofour gas consumption goes to Fertilizer production. In fact we had a fertilizerplant that used to produce from coal which was closed down due to cheaper gas(then).No more, is gas cheaper. And thanks to LNG, which curse God may save usfrom, Fertilizer production would also become expensive. Although, currentlygas is sold to Fertilizer plants literally free, which must go. Fertilizerproducers should be asked to prepare themselves to convert to coal. It takesabout three years to implement such conversions. Fortunately fertilizer plantsare located relatively close to Thar. Coal can be taken to Fertilizer plants orcoal gasified in-situ and transported to these plants. Presently, there is astrong case for negotiations with the Fertilizer (Urea) producers for areduction in their gas supplies quota. The resulting Fertilizer shortfall couldbe imported.

Therewould be an issue of subsidies adjustment that would have to be handled. Cementindustry has converted itself to coal for quite some time now, and reaping itsbenefits. There was a time when cement sector used to be a major consumer ofOil and gas. The remaining cement plants must be obliged to do the same. Thereare other initiatives which could be taken towards utilization of Thar coal andmeeting the energy demand. Thar’s Lignite coal could be converted to Briquettesand be supplied to industry for its energy needs. Textile and other extractiveindustry could benefit from it. Some small mining can be initiated at Tharwithout waiting for large infrastructure projects to materialize. Greece, atourism country, extensively utilizes its Lignite in briquette form.

Concludingquick-fix expensive approaches should be shunned in favor of sturdy localoptions which are very much there. These are cheaper, affordable and longlasting. This would require leadership on the part of government and itsministers and higher bureaucracy. If we continue following short termapproaches, we would never be able to come out of the fire-fighting approaches.

Thewriter is author of Pakistan’s EnergyDevelopment; the road ahead. Another of his publication Issues in Energy Policy is in thepress.

No to LNG

2012-01-03T23:48:00.001-08:00

Bravo Ogra! | Business Recorder

www.brecorder.com/articles-a-letters/.../1139464:bravo-ogra/?...

Pakistan's first Solar Power Plant

2011-12-20T00:21:00.001-08:00

Please follow the link;http://www.brecorder.com/articles-a-letters/single/626/187/1260427/#comments

Towards a sustainable Wind Power Policy

2011-12-19T23:37:00.000-08:00

Please follow this link:https://docs.google.com/viewer?a=v&pid=explorer&chrome=true&srcid=0B7bxkHDcg3mhYzc2ZDQ5OGYtYTRkMy00YjA2LWJjYWEtNTA5MDFkZjJhN2Iy&hl=en_US

Upfront Wind Tariff-the issues

2011-11-21T23:03:00.000-08:00

NEPRA has recently announced an upfront wind power tariff .In this space, we would attempt an evaluation of the scheme as announced, and apprise the readers of its pros and cons. First of all, let me explain some technical terms, which may not be readily intelligible to the lay reader. There are many types of tariff schemes; for the purpose of generation tariff, the following two types are relevant for our discussion. One is cost-plus, which means, the producer/seller IPP is paid its actual cost plus an agreed profit by the power purchasing company. Practically, it is almost risk-free to the seller, as all seen and unforeseen costs are paid for in this scheme of things including escalations of all kind, interest rates, foreign exchange and inflation. Determination of this tariff poses great responsibility on the shoulders of regulatory authorities, as the true costs have to be determined, in the face of the seller having a natural tendency to overcharge. In developed economies, cost-plus is mostly outmoded, as energy/electricity price is determined through market forces as these operate on energy exchanges, where electricity price is determined in an auction manner of a typical stock exchange. In Pakistan, this disease of booking unfounded cost has acquired unmitigated dimensions. The other tariff type is what we call an upfront tariff. This is also called a feed-in-tariff these days and is also being practiced in the West, for the purpose of promoting investment in the renewable sector. Under this scheme of things, regulators do their own investigations into the costs and competitive tariffs, and announce a tariff which aims at enabling the investor to recoup its investment and get an attractive return. In many developing countries (Brazil, Turkey and India and many others in Asia), this type of tariff has been determined through auction. This indeed is an ideal market based arrangement, which could also have been adopted by our decision makers. More on this is to come later.

NEPRA has approved a wind power tariff of 14.66 cents (Pk. Rs. 12.61) per unit levellised at 10% discount rate(We have seen tendency at NEPRA to compute levellised cost at a fixed 10% irrespective of the average cost of capital at which rate discounting ought to be made; more on this later).In actual terms, in the first ten years the tariff has been fixed at Rs 14.81 per unit and Rs.6.8977 for the next 11-20 years. Bad news for those who think, wind is free or cheap. It is elsewhere, but not in this land of pure. Today, in the US, Wind electricity is the cheapest at 5-6 cents, cheaper than any other alternative, fossil or renewable. In nearby India, it is IRs 3.50 per unit (1 Indian Re equals to Pakistani on the average).In Brazil and Turkey, it is has been auctioned recently at 7 cents per unit. In Germany, it is 10.61cents and lower and in Spain at 7.85 cents. NEPRA has itself in the past awarded tariff ranging between 9.5 and 10.50 cents, since 2006. Wind Turbine costs had increased in the intervening period with the hike in commodity price 0f 2008. However, in recent years Wind Turbine costs have come down by more than 20%.In Europe, Wind Projects (all costs including Turbine) cost around 1800 USD per kW and In India and USA, the same are at 1200 USD per kW, as opposed to USD 3000 per kW implicit in the upfront tariff of Pakistan and in other cost-plus tariffs awarded by NEPRA.

Source:NEPRA

In some respects, there is an improvement, as the Wind Risk clause has been practically eliminated. This was a relic from the past, when bankable wind data was not available in Pakistan. Now the data is abundant, reliable and bankable. Operational problems would have been there in implementing the wind risk, as underperformance of turbines, it was likely, could have been booked under wind risk. At times, it becomes difficult to distinguish. The new scheme under demand of stakeholders, does maintain an element of Wind risk issue in a guarded and circumscribed manner. Also, there is a provision of escalation on the lines of cost-plus schemes where in exchange and interest rate variations, and other inflationary formulae have been built in, making it almost as bulky as cost-plus regime. In India, there is no escalation and the tariff is denominated in Indian Rupees 3.5 per unit, not a lot of money to play around and to build in escalations. In Pakistan, Inflation is generally high and currency depreciates faster than it does in India. I wonder, if Wind tariff is denominated in US dollars at 12-14 cents(with out escalation ,which is taken care of by the average 5% currency devaluation per year in the long run)would have been more handy and simple. One has to study the option for its implication on both the sides. On the issue of Green Credits, there is confusion; at one place, it awards the same to the power purchaser, while at other reference is made to GOP policies. Under other schemes, Green credit is to be shared among buyers and seller equally.4) this very attractive tariff is to remain valid for the first 1500 MW and for projects that achieve financial closing before the end of 2012.

Most of the times, I have been expounding the public perspective and vantage. An affordable and payable tariff, in my view, is the only guarantee that investments would be paid back with a fair return. Excessively high tariff may not be able to attract investors, as some hope that they may queue up for this kind of return as permitted by the announcement of 15 cents , perhaps the highest ever in the world. I do sincerely hope that investment does come in and we do not become a victim of double jeopardy, low investment that would have come any way and high tariff.

We have to think about reducing the energy costs and tariffs. The earning power of our people is low and there is 30% populace living under extreme poverty line. At least, it should be competitive with other countries of the world and the regions, and not 50-100 % higher than elsewhere, as the data provided earlier indicates. Overbooking the capital costs and its institutionalization in the upfront tariff is part of the problem, although a major one. Most power projects are foreign funded in debt, if not in equity. Large projects may have majority or 100% foreign equity. Foreign debt is priced at LIBOR+3% usually. After the law and order conditions improve, this mark-up may be halved in line with other countries of the region. More crucial may be the local debt, which is unaffordably high, either for industries or power sector. One wind project has asked for KIBOR+6%, which jacks the interest rate to 17-18%.In India, Power Finance Corporation charges 12% on the average, elsewhere interest rates for power sector are even lower. Except for working capital and local construction costs, it is arguable whether permitting local currency financing is the right policy. Keeping in view the enormous investment requirements of the power sector in the coming two to three decades exceeding one hundred billion USD, consideration may be given to set up a specialized financing institution on the lines of Power Finance Corporation India. Already, it is emerging on a small scale as can be seen by the initiatives of some institutional financial companies like EOBI. Renewable energy, which is the future of energy and not a very distant one in that, poses special problems; fuel costs are zero, but the capital cost may be higher. Viability of these projects is very sensitive to the capital costs, interest rates and rates of return to equity investments. RoRs of 17-18% are simply not feasible and affordable, as the impact of these rates on unit production cost is almost twice as high as it is in the conventional energy sources.

Another important aspect that should not escape the attention decision makers is the promotion and support of local content in the imported turbines. It may be unrealistic to expect 100% local manufacture. A deletion Plan on the lines of automotive sector may be developed, building incentives for the local content. Eventually, the cost of incentives would be eventually paid off by the ultimate cost reduction and employment generation effect. There is a lot of unutilized capacity in Pakistan which could be put to use through partial local manufacture. Turkey is a recent example where local content based wind tariff has been introduced. One would be able to support such a high upfront tariff of 15 cents (levellised/average), had it been based on a local content basis.

NEPRA determination appears lacking in transparency. The determination, as posted on the website, talks of all other issues but the main issues. All that has been disclosed is a table providing O&M costs, Return on equity and debt servicing component. There is no discussion or revelation on the bases on which the determination has been made. Is it market based or cost based. It cannot be market based, as it is 50% higher or even more than any other tariff, either in the region or internationally. If it is cost based, the main issues of Capital Cost and cost of capital should have been discussed and dealt with. It has been clearly avoided, which is unfortunate. One notices a trend in NEPRA proceedings and recent determinations of curtailing and avoiding the main issues, at least from consumers’ perspective. Sellers’ perspective, concerns and queries are addressed only. There are hardly any interventions representing the contra point of view. Is it general apathy or a deliberate policy on the part of NEPRA to discourage diversity of views and opinions expressed? NEPRA should make every effort that its proceedings do not appear one sided and that there is adequate representation. Clearly, all points of view cannot be accepted and adopted. However, there has to be an adequate acknowledgement and the reasons for rejection and acceptance of those. For example, why does one think that a capital cost rate of 3.1 Million USD per MW (a figure that appears to have been used in arriving at the 15 cent’s tariff) is justified which is almost twice the prevailing cost for the similar equipment in the region and elsewhere?

Concluding, it is hoped that some projects would come on stream under this excessive tariff .Reportedly the government has given a target of 500 MW in this respect, which may not be an impossibility. After this immediate period, hopefully the country may adopt an auction based competitive system which may result in a better deal for the country. Finally, there are many lose knots that have to be tightened in the energy sector. The symbiosis between fuel and electricity is to be recognized through integration of policies and institutions, be it through mergers or through other policy and administrative instruments.

The writer is the author of “Issues in Energy Policy” (in the press).

DESERTEC Foundation: Andasol 3 CSP plant opening in September 2011

2011-10-25T12:19:00.000-07:00

Pakistan's Energy Woes :The way forward by Akhtar Ali.

2011-07-28T20:10:00.000-07:00

Pakistan's economy faces serious challenges with overwhelming solutions. Akhtar Ali writes some solutions in this seminal article as he writes his new books on energy with special focus on its political economy and its relation to International best practices, development and economics. http://www.brecorder.com/articles-a-letters/single/626/0:/1215939:our-energy-woes-and-the-way-forward/?date=2011-07-27

http://developmentpakistan.blogspot.com/2010/06/pakistans-development-and-energy.html

Home Solar PV Cheaper Than Concentrating Solar Power | john-farrell-ilsr

2011-02-26T23:26:00.000-08:00

Home Solar PV Cheaper Than Concentrating Solar Power | john-farrell-ilsr

Development Pakistan

2011-02-25T01:46:00.000-08:00

Develohttps://docs.google.com/viewer?a=v&pid=explorer&chrome=true&srcid=0B7bxkHDcg3mhYTJlYmJmNzgtOGNhMS00NTQ0LWExMWEtMzA1ZTBjMWRlYTQw&hl=en&authkey=CIyZ56MKpment Pakistan

Oversupply Causes Drop in Wind Turbine Prices | Renewable Energy News Article

2011-02-24T12:34:00.000-08:00

Oversupply Causes Drop in Wind Turbine Prices | Renewable Energy News Article

Thar Coal: potential for Indo-Pakistan Collaboration

2011-02-24T06:12:00.000-08:00

Thar Coal: potential for Indo-Pakistan Collaboration

There has been a long held desire in India and Pakistan to exploit the geographical advantage and expand trade and investment among the two countries. Most of such hopes have been sacrificed at the altar of political tensions, which have existed due to the Kashmir issue, which has been further complicated by the alleged terrorism episodes India appears to be more enthusiastic in broadening trade ties, however Pakistan links it to the settlement of the political issues. Many people in both the countries argue that strong trade links may create vested interest and stakes in peace and may create the requires rationale and pressure to solve political problems. The debate can be endless, among the unwilling partners.

Lack of availability of suitable projects has also been one of the reasons inhibiting economic cooperation among the two countries. Efforts have been made, in the past and continue to be so, towards building a project portfolio for possible collaboration, if and when political environment improves. SAARC project fund has been commissioning such studies. Reportedly, there is a SAARC energy initiative as well, headquartered in Islamabad for promoting cooperation in Energy sector. Let us explore what can be done in this direction.

Thar Coal and its vast deposits , apart from meeting Pakistan’s energy requirements, may have a potential for building and expanding regional economic cooperation .There are a number of possibilities such as; a)export of Thar coal to coal deficit adjoining states of Rajhastan and Gujrat ;b) India assisting Pakistan in developing and exploiting Thar coal resource; c) India installing coal –fired power plants in its border towns ,and exporting electricity to Pakistan produced by Pakistan exported Thar coal. Let me explain and analyze these propositions a bit.

First on India assisting Pakistan in developing Thar coal resources; India has one of the largest coal industries of the world. It has a coal fired Power Plant capacity of 50,000 MW. India has one of the most efficient coal power plant construction sectors, building coal plants at a capital cost rate of 1100 USD per KW, perhaps even cheaper than or competing with Chinese prices. It can supply consulting, training and even complete plant construction services and equipment supplies. They have experience and exposure in both types of coal; hard coal and our brown coal lignite, although most of their coal is hard coal with high ash content, considered inferior by many international end-users.

Reluctance of western countries with coal is increasing. International financing agencies are under pressure from environmental lobbies not to fund and assist such projects. Chinese appear to be reluctant as well, as reportedly; numerous attempts to revive their interest in Thar have failed. They still appear to have bitter memories from their past involvement in it and the uncooperative conduct of WAPDA that was manifested by the later. India may not be able to provide the full scope of services and may not be ultimately entrusted with a major role. However, it can be suitably involved and usefully inducted in a number of ways.

Secondly, exports of Thar coal to India’s adjoining states of Gujrat, Rajhastan and Punjab. It is a misnomer in Pakistan, that Lignite can be only utilized at mine-mouth. It is true that there is limitation in long-haul and international sea transport. However, in India Lignite is being frequently transferred in large volumes up to a distance of 400 kms. Exports to adjoining states should be very feasible, if the production and transport costs are competitive. One can only be sure of it after having done a feasibility study on the subject. This is an idea worth exploring. India is falling short of coal and has started importing it due to heavy demand. The adjoining states have a deficit of fuel/coal supplies. Exports from Pakistan may reduce traffic congestion caused due to interstate transportation of coal, which is expensive as well in terms of transportation costs.

The third proposition is rather unique, ambitious and extremely profitable, all at the same time. The detail is, that Pakistan exports/barters Thar coal to Indian border towns like Munabao and Bakhsar, the latter may not be more than 50 kms from Thar coal mines. Dedicated coal train can make several trips in a day, carrying 10,000 tons of coal in one trip. India installs Coal power plant(s) in its border town, which would remain a domestic investment in India. India burns Pakistan lignite and transmits the electricity so generated to Pakistan. India is only paid for the capital cost component, as the fuel would remain Pakistan supplied. It can become a total Barter trade, if more lignite is sent/ exported to cover the capital costs afforded by India in supplying electricity to Pakistan. There is a scope for several thousand MW of such projects.

Similar ideas have been put forward earlier as well. There were proposals for exporting electricity to India due to temporary Power excess situation created in the immediate aftermath of HUBCO installation. The proposition in this form may be unique that it offers an energy exchange opportunity. Besides, it is not a temporary surplus. Thar coal deposits are of 200 billion tons and are expected to last for centuries ahead.

Easier said than done, but it can be feasible. As for the security concerns, of large volume of goods transport and human traffic, Thar is a far-off town. Indian nationals may be allowed to come to Thar only through land route or a future direct flight from to and fro Thar. It may remain as good as domestic travel for them. Special immigration rules and status can be created for Thar coal projects. There is no major security installation or threat nearby. So security issues can be managed.

So many people and nations in the world want India and Pakistan to collaborate and work together, that the above propositions may receive instant support, if presented properly. Quite some funding could be garnered under this head. The relevant departments in the two countries and the business groups may like to examine these propositions. It pays to be optimistic, however, naïve it may sound in the beginning.

Thar Coal update

2011-02-24T06:11:00.000-08:00

Thar Coal: some submissions

Our energy crisis is so huge and worsening that one finds it only appropriate to belabor the known facts and bring forward new thoughts and solutions that come to ones mind. By this time, it should have become obvious that there is no escape from fast tracking the Thar coal project. Hydro power is also an equally viable option which solves water storage problem also , but suffers from seasonal factors . The two resources together offer optimal opportunities to meet Pakistan’s Energy demands. Here we are focusing on Thar coal.

The bureaucratic circles tend to show that there is progress on Thar coal. But the fact remains, that there is almost none. Allocation of blocks, MOUs and even feasibility studies do not mean much, as many such things have been done in the past. Under-ground coal gasification project has raised false hopes among the public. Without casting doubts on the scientific credentials of its eminent promoters and on the technological potential of the route adopted, the problem of scaling up would remain for which there is no capability in the country of a level that would be acceptable to the lending banks. While the existing gasification would yield useful data, we would be back to the square one, which is of requisite financing.

The bad news is that under criticism and pressure from international Green lobbies, World Bank has discontinued its technical assistance program on Thar coal, amidst news that government of Sindh has persuaded them to renew it. Even if they do renew, it sends us ample signals on difficulties that we are going to face towards financing Thar coal. With time, the opposition to coal would increase. Our problem is immediate and the renewables are still to be perfected and improved to be cost effective and competitive. In any case, renewables are projected to have a share of 20% even by the year 2050 .What are we to do in the meantime. The threat is that by the time we put our act together, although fossil based power age may not be over, the financing regime may become too difficult and hostile against coal.

The residual issue as it stands today is not the financing issue of the mining and power parts of the projects, however difficult it may itself be, it is the financing of infrastructure part which is proving to be a stumbling block. Various estimates put these requirements to between 1 to 2 billion US dollars. More money is required for infrastructure, than the first coal mine and power plant itself .Government of Sindh, obviously would not have such resources, nor would the federal government. And in these days of emphasis on provincial autonomy, where is the appetite for common projects. There are also issues as to the technical and management capability of the provincial bureaucracy, as the project continues to be run from the narrow confines of the Sindh secretariat. Apparently, there is no shaft of light at the end of this tunnel, although it is not the only one.

In all humbleness, this scribe makes the following proposals. There are two options. One is to tender for a large project of 5000 MW or so, which may be able to assume the infrastructural development costs. The cake becomes big enough to absorb all kinds of interests. This is not new .In India, this size of coal projects are being planned already. The feasibility of this proposal in Pakistan context can only be tested once it is actually tendered. The second option would be to float tenders for establishing a mining development company that undertakes to develop and finance the infrastructure and manages the Thar coal operations on behalf of Sindh government, within the framework of the relevant rules and regulations. The company recoups its investments by granting mining leases and charging a fee on coal production by individual companies. Obviously such a company would be a multinational which may have a joint venture with local private sector and government of Sindh’s share in it. Such a company would offer many advantages. First of all to bring in finances, which appear to be well-nigh impossible for Sindh government to finance? Secondly, the operations would be more commercial like and would be on fast track. Ironically, I have made a case of yet another feasibility study? Not necessarily.

Certain issues related to the 18^th Amendment need to be sorted out. After the amendment, Electricity sector becomes a federal only subject, as there is no concurrent list any more. Earlier Electricity was in concurrent list. Coal was and is a provincial subject. If I understand correctly, federal responsibility and role in Electrical power sector should be larger than it was prior to the amendment. Thar coal power development , therefore, ought to occupy higher priority in Federal budgeting system. It may not be a bad idea considering some kind of linkage between investments in Hydro and Thar coal power; one project in hydel, and one in Thar coal. There is a technical requirement to balance hydel power as well. Gas being no more and oil unaffordably expensive and imported, thermal energy in future should mean Thar coal energy. Politicians from Sindh can suitably make a convincing case, provided they are also prepared to readily agree to federal involvement.

Let me close with good news, if at all. Some politicians lately made a statement that Thar coal is larger than the oil resources of our rich brothers of the Middle East. Many people cast a doubt on such an assertion. This scribe has collected facts and data and has made some calculations and is happy to report that these claims are by far correct with the following details and provisos. Total Middle East Oil and gas resources add up to equivalent of 385 billion tons of Brown coal, out of which Iran and Saudi Arabia own 110 billion tons of coal equivalent each. Pakistan’s Thar coal is 185 billion tons. We should, however, remember that Saudis would have been quite poor had they had 189 million people to support, instead of their current population of 25 million only.

The writer is a former Harvard University fellow, and has authored the book “ Pakistan’s Energy Development; the road ahead”,

The natural gas controversy

2011-02-24T06:07:00.000-08:00

The natural gas controversy

There is a general gas shortage in the country for the past few years. Known reserves and deposits are on the way to exhaustion, while the exploration activity has been at a low level. Most of the gas these days is being produced these days. Gone are the days when most gas used to come from Sui in Balochistan. Thanks to exploration activities in Sindh, many new deposits have been discovered in Sindh and production started from those wells. More exploration activity is expected to yield new gas resources in Sindh. Due to the political and law and order problems in Balochistan ,no new deposits are being discovered as no exploration activity could be sustained there for the past many years. This is a very unfortunate situation , in which no body is benefitting, people or province of Balochistan who are deprived of income and employment and the other parts of the country and people as they are facing gas shortages.

Shortages create many economic and political problems. A number of controversies have developed. Industries have protested and some of which closed down in protest or due to gas shortage. Earlier Sindh assembly passed a resolution demanding priority in gas allocation and a number of prominent politicians issued statements in this respect. They have complained that Sindh's gas is being taken elsewhere in the central system and that Sindh’s demands should be met first, and then the residual should go elsewhere. The issue of distribution priorities! They have argued that there is a constitutional provision in support of this stance. Now KESC has joined the debate. In a message to the public and consumers in Karachi printed in this newspaper, CEO of KESC demanded more gas allocation and implied that the gas supplies were available and adequate gas supplies are unfairly denied to his company. And in a related case, LPG distributors are going on strike because of what they think is an arbitrary increase in prices by the LPG producers’ cartel. Let us examine the merits of the issue. To top it all, some multilateral agencies are proposing to enhance gas prices to the level of line which in their view would solve many problems including the ones in gas allocation. GOP is already under severe public pressure regarding the proposed increase in electricity tariff. This last issue would require exclusive discussion and we leave it to some future opportunity. We would examine here the other issues as described earlier in the above.

There is a general shortage of gas throughout the country. Power plants in Sindh are not getting enough gas and thus load shedding of electricity. Gas and electricity are distributed to user sectors and customers who pay for the service. It is not supplied to an abstract concept or entity as a province. Then gas is distributed and allocated as per priorities. For example, fertilizer sector is a priority and supposing all of the capacity is located in Sindh, allocating and distributing gas to Fertilizer sector does not mean that gas is allocated to Sindh.

If this logic of prior right of producing province is accepted, then many problems would have been created for Sindh itself. Gas exploration and abundance in Sindh is only a recent phenomenon. Previously all gas consumed by Sindh came from Balochistan and most hydro electricity came from Sarhad/KP. Very little was consumed or allocated in the producer provinces, as there was no demand or distribution investment was not justified for widely scattered insufficient demand. Similar demands and protestations were made by some circles in Balochistan, when natural gas was brought to Karachi and Sindh first leaving Balochistan towns unsupplied.

The issue is that Production, transmission and distribution facilities have to be invested in. Often the investment comes from private and foreign entities that have to be paid back. The revenue is generated through consumers and customers and not from provincial or federal government. Principles of economic efficiency, markets, sustainability and rate of return to investors are involved. If we do not learn to respect these principles, we are going to end up in more shortages due to lack of investment in supplies sector and higher production costs of utilities and services. The capacity of people to pay has already reached or even crossed their limits.

If there is a shortfall both equity and efficiency considerations are their in allocating priorities. Where there is no efficiency or criticality issue, equity principles of equal distress are to be applied and not a province based formula based on the ownership of resource.

As to the ownership issue of the resource , except for political ownership which does not mean much in practical sense ,bulk of the resource(88%) that has been extracted belongs to the producer who has spent money, effort ,resources and know-how in bringing out the resource from the earth and processing it and making it use-worthy. So the ownership of the extracted resource belongs to the producer, save the royalty portion of say 12%, and not to the province where the resource is located. What is in ground belongs to a people and provincial or federal government as per laws and constitution of the country, but when it comes out of ground it is a different issue.

Energy sector in Pakistan has been developed as one undivided market. It is still the case even after 18^th amendment. Electricity has become a federal only subject, while it used to be a concurrent subject earlier. In the past almost all investments in energy have come from federal or foreign equity or debt sources. All WAPDA investments and the ones in Oil and Gas have come from federal kitty. And even in future all investments in nuclear and hydro resources is to come from federal resources. After all these investments, would KP politicians be in their right to make similar demands of electricity ownership. Certainly, they can demand their royalties which issue should be resolved on a permanent basis. They cannot possibly demand that Tarbela should meet their demand first and then the electricity should flow to the rest of the country. KP has been suffering severe load-shedding despite Tarbela being right there. In future also when hydro power would come from Bhasha and Bunji etc dams, there would be no fundamental right of priority allocation to KP. In fact if Sindh’s argument and demand of priority allocation based on producer provinces right is accepted and established, it would be a sufferer in the long run .Temporary advantages and ups and downs do develop in various parts of the country at different times and these should not lead us to bring in constitutional issues unnecessarily.

Constitutional provisions are often desires and ideals. These have to be creatively and constructively interpreted and understood. It is well-nigh impossible for the framers of the constitution to understand the implication of every sentence they write into the constitution. American constitution explicitly allows only currency, defence and foreign policy in federal domain. American courts have interpreted the constitution so broadly and in totality, that there are sixteen federal ministries dealing with 16 or more subjects. Constitution may have to be amended if too literal interpretation of the quoted constitutional clause is attempted.

As for KESC, its issue is a bit complicated due to the tariff issue, which may not be intelligible to the non-specialist. KESC runs on what is called a constant tariff, with periodic adjustments for the fuel price inflation and general inflation as well. Gas is more thermally efficient fuel than oil in the sense that in combined cycle plants, an efficiency of 50% or more is possible to day than the traditional efficiency of steam turbine plants run on oil. KESC is expected to earn through increase in thermal efficiency and reduce other losses and leakages. There are many other issues with KESC tariff formula as it exists today. Normally such formulae are agreed to for relatively short periods. It has no answers or solutions for the long run. It may cause much more serious problems in future, details of which cannot be explained in this space. A review of this formula is required, along with a number of reforms and pro-active actions. For the time being GOP has allowed Oil sales and supply in lieu of non-supplied gas, at the price of gas. Perhaps this solves KESC’s working capital problem. A longer run solution would require the following steps; KESC should be a part of the central pool and eligible to draw from the central pool as per an agreed formula ; KESC to be treated as an IPP, and allowed to make investments in generation outside Karachi, for example utilizing cheaper gas resources elsewhere. KESC’s generation assets and activities be separated and treated at par with other IPPs .A new tariff formula based on cost-plus approach and central whole-sale pricing is introduced as it is there in other parts of Pakistan

Transparency in Oil & gas sector

2011-02-24T06:04:00.000-08:00

Transparency in Oil & gas sector

In this article, I wish to uniform my readers of something in Petroleum pricing which is almost scandalous. OGRA regulates and periodically announces Petroleum prices that includes Diesel, but that is Light Diesel Oil (LDO) which forms to be a negligible portion of the consumption. The real Diesel, HSD which is used in road transports, trucks and buses, is apparently and clearly out of OGRA’s purview. Ministry of Petroleum is fixing these prices without regulation through its own notification posted on PSO’s web-site. As mentioned earlier, LDO and its pricing are hardly of any consequence. It is such loopholes and gaps in regulatory regime that are the focus of this piece. Also the bipartisan committee which is holding session these days on economic reforms must look into this.

HSD’s latest price is Rs.78.33 per liter as compared to the regulated Rs.66.61 for LDO and Rs.72.96 for Gasoline (premium grade petrol).That means that the real Diesel (HSD) is 7.36% (higher than the ordinary petrol) and 17.59% higher than the regulated Diesel price. There are two problems here. Except in the US, Diesel is priced much lower than the Gasoline, for a very reasonable and understandable logic that the Diesel is used in public transport and thus should be priced cheaper. Those who argue against cheaper diesel normally base their argument for environmental reasons. However, in Europe where the environmental lobby is the strongest, Diesel is priced lower than gasoline. Are we trying to be more loyal than the king? No wonder we have galloping inflation, especially in the sensitive price index. Pricing although very important, however, is not the focus of this article, which has been discussed at length in an earlier piece in this newspaper by this scribe. The issue is lacking transparency and persistent attitude of the ministry of petroleum against regulation and transparency. OGRA declares no Petroleum Levy on Diesel and no dealer margin and people believe it so. But the ministry circular builds in Rs 5.00 per liter as Petroleum Levy in the basic price and adds up another Rs 14.00 to a Liter for all kinds of margins All of which outside the not so watchful eyes of our OGRA. Transparency is in order.

Ideally all prices should be determined through unhindered market forces and their competition. It requires a large number of buyers and sellers. In Pakistan and other similar developing countries, sellers are usually not in high numbers and usually collude in price fixing and hoarding and manipulation of all kind. Sugar is a good testimony to the afore-mentioned. In the case of utilities such as electric power and oil and gas, there is a strong case of due regulatory process due to the monopolistic character of this sector. NEPRA and OGRA have been formed in this perspective.

Transparency in regulated sectors is measured by the following factors;

1) Independence and reasonable domain of the regulatory agencies.

1) Written and publicly available policies, rules and regulations.

2) Public participation in Tariff and pricing.

3) Un- restricted publishing of data

Measured on the above yardsticks, Oil and gas sector in Pakistan appears to be quite lacking. On the other hand, Pakistan’s electricity sector and NEPRA’s performance in this respect appear to be far better. An examination of the websites of NEPRA and OGRA would amply demonstrate this. While NEPRA website is full of petitions and determinations, public hearings and data, OGRA website publishes tariff without any pretension of public process. We will examine transparency issues in oil and gas sector and OGRA’s role and performance in some detail in this article.

OGRA’s regulatory process seems to be only concerned with the determination of Tariff for the Transmission and Distribution of natural gas that is supplied by the two companies, SSGC and SNGPL. Measured on the above transparency criteria, the performance in this limited respect appears to be relatively much more acceptable. On the technical side (standards) also, there appears to be a reasonable OGRA activity and performance.

Oil and gas sector is worth more than twenty billion US dollar in terms of sales and output. Except for the aforementioned exception of Gas T&D and mere posting of petroleum retail prices and gas wellhead prices, there isn’t much to show by OGRA. The sector is almost totally regulated, except LPG where there is confusion as to the regulatory domain. Admittedly OGRA works within the framework of the role assigned to it by Ministry of Petroleum (MPNR) and the GOP. It cannot arrogate powers to itself, although it can build pressure towards higher domain and role for itself. The due process is lacking in the following areas: Surely there are and must be rules in the following areas which in itself is not enough. The actual application and adjudication of those rules is to be the subject of due public process, where price is not determined by the market forces. International transparency moves and initiatives these days even go beyond public tariff and pricing determinations. They are demanding Publish what you pay(PWYP)policies and regime, for it has been found that the actual payments vis-à-vis publically determine tariff may be deviating for legitimate and not so legitimate reasons. Following areas should come under some process of public input and scrutiny through the regulatory process of OGRA and the latter should not restrict to posting of results but invoke the whole regulatory input and process into these.

1) Well-head prices of oil and gas.

2) Ex-refinery prices of petroleum products such as gasoline and diesel, including crude oil imports

3) Oil pipeline tariff

4) PSO imports of petroleum products (50% of the total demand is met through imports valued at around 8 billion dollars)

5) Furnace oil pricing despite claims of being in the open sector; and most importantly

6) High Speed Diesel (HSD) pricing.

On the other hand, what little powers have been granted to OGRA, successive leadership of that organization have not chosen to make use of those. For example who stops OGRA in holding public hearing for discussions on the other constituents of petroleum prices, if the ex-refinery (wholesale or producer price) is made an untouchable tree for it?

MPNR has traditionally being reluctant to cede powers to OGRA. In all the above areas, the closed offices of oil bureaucracy have the sway. There has been much controversy regarding the self pricing role of OCAC (Oil Companies Advisory Committee) which has since been disbanded or depowered. It is ironic that OGRA is not considered adequate enough for the role of OCAC .Who does not like power and authority? Public process absolves responsibility and implication of public servants in scams and others in a highly skeptic Pakistani society today. They should support the expansion of public process. Transparency would also encourage and promoted much needed direct foreign investment in this vital sector. And finally, it is the responsibility of legislature and public representatives to intervene and write laws and require regulation in this respect.

The writer is a former Harvard University fellow and is the author of ,”Pakistan’s Energy Development; the road ahead”.

Life after 100 USD per barrel price ?

2011-02-24T06:01:00.000-08:00

Petrol prices: What after 100 dollar per barrel crude oil.

Brent Crude oil prices have touched a dollar 100 per barrel mark in the wake of political events in Egypt which through its Suez Canal passes quite some oil. No more are the OPEC and Middle Eastern countries the only beneficiaries of oil price increases. Russia has emerged as the largest oil producer and Exxon Mobil has posted 100 billion USD profit this quarter.

Pakistan imports a large amount of oil to the tune of 10-11 billion USD per year, which accounts for 33% of its total imports. High oil prices have damaged Pakistan’s economy very significantly, causing inflation, trade deficits, balance of payment difficulties, currency depreciation and shortage of energy and consequent loss of production.

Government of Pakistan has announced that it will not increase domestic Petrol and Diesel prices.

Recent oil price increase had to be reversed by the government under tremendous public pressure and political action. The reversal has been welcome domestically and opposed by international quarters erroneously calling it a subsidy. Energy prices are also on the agenda of talks going on between the two mainstream political parties of the country. Something good should come out of it on its own merit, if not for preventing an upcoming political impasse. Energy pricing improvements and policy changes offer some opportunity towards this end.

People were quite used to the existing oil pricing arrangement linking domestic prices with the movement in international prices. This time oil price increase came amidst back-breaking inflation and rising electricity prices. Besides, the petrol prices peaked to Rs.79.96 for gasoline and Rs.70.97 per liter , which was perhaps beyond the upper limit of consumer capacity to pay, as evidenced by the enormity of public pressure. The prices have been brought down to the December level. In today’s petroleum prices, there is a very low level of tax apart from the usual GST. There is no Petroleum Levy on Diesel due to the reversal and a very marginal one of Rs. 4.27 per liter on Petrol. Due to the preponderance of Diesel in the total consumption, the small levy on Petrol would not earn the government much except the GST. Is this a permanent price freeze irrespective of where the international prices go? What are the options with government in this respect? I am arguing for a zero-energy taxation regime .I will explain this a little later, after a little perspective on energy pricing.

Pakistan is among third tier countries along with other regional countries in a four- tier oil pricing regime prevailing in the world. In the first tier come the oil exporting developing countries of the middle east and south America , which grossly subsidize domestic petroleum products ,selling much below the crude prices, recouping probably the distribution cost only . The petrol price in Saudi Arabia is half a Riyal (Rs. 10) per liter; and similarly in other countries in this category. The second tier is of the U.S and others which marginally tax petroleum. Today’s Gasoline price in the US is 3.1 USD per gallon (Rs.66.57 per liter) as opposed to Rs 72.95 in Pakistan, and Rs 66.61 for Diesel. Petroleum Taxation in the U.S. does not exceed 15%.Third tier countries are Pakistan, India and Bangladesh etc which significantly tax Petrol. Current Petroleum prices in India are much higher than in Pakistan. Diesel costs Indian Rupees 42.06(Pk. Rs. 76 or 0.912 USD) per liter, while Petrol costs IRs 63.08(PkRs. 114 or 1.322 USD) per liter in Mumbai. Delhi prices are usually 5 IRs lower than elsewhere in India due to regional variations in taxation permitted by Indian Federalism. Diesel prices have not been raised since September 2010, while Gasoline has undergone frequent adjustments lately. Thus we see that in Pakistan Petroleum prices are considerably lower in Pakistan than India ; Indian Diesel price being 14% higher and Gasoline 56% higher.

In India , Petrol prices are allowed to remain stable for significant periods like six months or so and the international prices are not passed on to the consumer immediately as it is currently done in Pakistan. We had the same system earlier, which was replaced by the current system following criticism .As we have seen recently, a high but temporary rise in Petroleum price has the potential of causing social order and political swing. Lower prices normally go unnoticed. There is a rationale for day-to-day pricing in open uncontrolled markets. In a regulated market, one should reevaluate as to the merits of existing monthly price adjustments. Current reversal is a step towards the earlier system of variable taxation. Simply speaking, the government reduced the Oil Development Levy, a kind of a tax. In fourth tier countries come, most of the Europe which heavily tax petroleum. Today’s Petrol price in U.K, France, Germany and Netherlands are 1.45 Euro (Rs.167) per liter; a taxation rate of more than 100 %.

European taxation of Petroleum is partly a hang-over from the socialist past, wherein petroleum and cars were traditionally considered items for the rich. Today Petroleum finances public welfare expenditure in these countries. The impact is, however, only partially compensated by energy efficiency and conservation. Petroleum taxation has also been considered as a user charge of roads and transportation network. A charge of 10 cents per liter has been considered adequate for this purpose, as a recent GTZ study suggests. This comes out to Rs 8.3 per liter road tax. Infact petrol levy could be termed as Road user charge. At a consumption of 12 billion liters of consumption (85% of which is diesel), this comes out to be Rs 100.0 billion revenue stream annually. Alternatively, a subsidy at the same rate would cost the same amount. Preponderance of diesel consumption of 85% precludes any cross-subsidy option of Gasoline vis-à-vis Diesel. From the year 2009, Petroleum Levy of Rs 3.00 per liter has been charged which has been brought to zero after the price reversal. Similarly there was a constant Petrol Levy of Rs.10 per liter, which has been brought down to Rs.4.27 per liter. At crude oil prices as high as 92.40 USD per barrel, there is hardly any scope of taxation on Petroleum. Infact if it goes beyond 100 USD which is not unthinkable, GST may have to be reduced or removed , depending on the volume of crude price increase. Around the same time, we may have to consider some kind of rationing or quotas, voluntary or mandatory, however, unfashionable or unattractive that may sound.

Fortunately, the European incomes can possibly support high petrol prices and taxation. European argument does not apply in countries like ours. Secondly, Diesel a fuel used in mostly public transport and commercial vehicles used to be taxed low or none at all in many countries. Under environmental pressures Diesel is being discouraged and price differential has been reduced very significantly. In our specific situation and particularly under present conditions, this price differentiation may have to be brought back for at least next five years.

Coming to Electricity Tariff which remained somewhat affordable till 2008-09 for a variety of reasons such as reasonable exchange rate, lower oil prices, and lesser share of oil in electricity generation combined with subsidy. For several years during Musharraf period, electricity Tariff was not raised despite rise in cost of electricity generation and increasing theft. At the time of Musharraf’s exit, electrical subsidies amounted to around one rupee per unit. Falling exchange rate and rising oil prices gave rise to unfunded subsidies which gave rise to what we call Circular debt starting from a Musharraf periods level of more than one hundred billion rupees. Rising circular debt has substantially reduced working capital of utilities and Energy industries resulting in shortage in electricity production which also results in higher costs due to interest charges and higher unit fixed costs due to spread of fixed costs on a decreasing number of units produced and sold.

Thus Electricity used to be cheaper in Pakistan earlier, almost comparable to the low rates of the U.S. of an average of ten cents a unit for residential sector. For small consumer, the rates are still very low much below the cost of production. Again in Europe the Electrical tariff is very high. In several countries such as Sweden, Denmark and Netherlands, it is 25 cents (Rupees 21) per unit. A significant portion of these high prices comes from the high cost of renewable energy being promoted in these countries under high feed-in-tariff schemes.

In this rather long perspective let us revert to the zero-energy taxation regime. Simply put this means integrating the energy sector and its taxation; pooling the taxes and subsidies to balance and cancel each other. This would allow withdrawal of electrical subsidies and reduction in petroleum taxation resulting in falling petroleum prices with the rise in Electrical tariff. This may be acceptable and affordable to all parties; lower prices to consumer, no budgetary loss. Above all, it would be sellable to lenders and donors which pose a major constraint in independent economic policy making.

Petroleum taxation is a major cause of inflation in Pakistan, especially in sensitive prices index. All daily consumption items have to be transported from long distances to retail outlets and daily workers travel to suburbs which are at the city limits requiring major transportation expense. Petroleum taxation and in general all indirect taxation has been guided more by practical reasons of collectability at source or purchase and rather than much economic rationale. A marginal petroleum tax may still be maintained to cover the user charge and financing needs of the transportation sector.

The writer is a former Harvard University fellow and author of Pakistan’s Energy Development:the road ahead

2011-02-24T04:35:00.001-08:00

Curing the ailing Energy sector ;some humble submissions

By Akhtar Ali

Pakistan is facing the worst energy crisis of its history.Perhaps no other crisis or difficulty has caused as much damage to Pakistan’s social and economic conditions as energy issue has.It has caused trade and foreign exchange deficit , currency devaluation , decline in economic out and exports and has caused massive unemployment.The Energy issue merits highest attention of the government in developing and implementing short term and long term measures.Here are some of the suggestions in this respect.

1)Development of Local Energy Resources

Pakistan has imported 10-11 billion USD worth of oil per year over the past few years.High and volatile oil prices have damaged Pakistan’s economy. The continuing reliance on oil for producing electricity is a highly dangerous trend. Most projects that have come on stream in the last few years and the ones in pipeline are IC engines running on RFO. The danger stems from three directions; one is increasing cost of generation of electricity (COGE) and the other raising the foreign exchange import bill. The oil price hike of 2007-8 virtually destroyed the economy and damaged electricity / energy sector. Thirdly ,oil based IC engines are less efficient than other options.

Thar coal is larger than the oil resources of our rich brothers of the Middle East.. Total Middle East Oil and gas resources add up to equivalent of 385 billion tons of Brown coal, out of which Iran and Saudi Arabia own 110 billion tons of coal equivalent each. Pakistan’s Thar coal is 185 billion tons. There is an urgent need to develop THAR coal, without which Pakistan’s energy problem can not be solved. Federal Government (GOP) and its institutions must support THAR coal development. Only coal is provincial subject, but electricity remains a federal subject even after 18^th amendment.Similarly Hydo and Wind potential offer near term solutions.

2)Financing Thar Coal

. There are two options. One is to tender for a large project of 5000 MW or so, which may be able to assume the infrastructural development costs. The cake becomes big enough to absorb all kinds of interests. This is not new .In India, this size of coal projects are being planned already. The feasibility of this proposal in Pakistan context can only be tested once it is actually tendered. The second option would be to float tenders for establishing a mining development company that undertakes to develop and finance the infrastructure and manages the Thar coal operations on behalf of the Sindh government, within the framework of the relevant rules and regulations. The company recoups its investments by granting mining leases and charging a fee on coal production by individual companies. Obviously such a company would be a multinational which may have a joint venture with local private sector and government of Sindh’s share in it. Such a company would offer many advantages. First of all to bring in finances, which appear to be well-nigh impossible for Sindh government to finance? Secondly, the operations would be more commercial like and would be on fast track.

3) Importing Coal

Uncertainties over Thar Coal implementation have compelled investors to think about imported coal.Several projects have been proposed in the past based on imported coal. Imported coal although cheaper than oil , it is no less volatile than Oil in terms of price variability. In the oil price hike of 20007-8 , coal prices also rose proportionally and came down proportionally. It is not coal per se ,but the local resource development and controllable prices offered by local coal that is to be a preferred option. If at all , permission may be granted for imported coal for an interim period , and conversion be required to be built in when Thar coal becomes available.

Permitting imported coal project would send a final signal for closing off Thar coal resource.

4)Conversion to Coal

Many oil-fired (Steam Turbine) power plants were converted to coal in the wake of Oil crisis of 1973, and the trend continues till todate despite heightened environmental opposition. The dilemma that,however,is to be faced is whether it is local coal or imported one.Coal is already being imported for non-utility industrial purposes and local Hard coal is being mined locally as well,although under low productivity and inefficient environment.Hard coal production ,although with smaller deposits , could be fast tracked by installing modern mining equipment and management practices. Utilities use of this coal would spur such conversion.In Punjab ,50 MW coal based power plants have already been proposed under provincial domain. Conversion to imported coal should also be subject to the same provisos as has been proposed in the earlier para.

5)Controlling High Cost of Generation of Electricity(COGE)

2- All efforts must be made towards controlling the electricity cost and tariff. The full brunt of high cost projects has not yet been felt, due to the availability of one –third electricity form old hydro project like TARBELA at Rs. 1.30 per unit. There are three aspects that need special attention.

1. Capital costs esp of power generation projects.

2. Thermal efficiency

3. Reduction of technical and non-technical losses.

6)Capital Costs;

There is a general consensus among experts in Pakistan that capital cost of generation projects are high. In the adjoining table, we provide data on comparative capital cost, which is self explanatory.There may be both technical and commercial reasons for this.Regulatory effort and capability in this respect need a lot of improvement. In developed companies of all market size ,electricity generation prices are market driven.In India there is a big market and local industry and sufficient domestic market data is available.CERC India is able to announce bench mark rates for capital cost with much less difficulty.In Pakistan NEPRA does not have recourse to such inputs. Neither does NEPRA seem to have made adequate efforts to enhance its capability in this respect. It relies on simple brow beating the proponent into some down ward adjustment based on some input form in adequately informed interveners, and EPC quotes.

In this respect, we make the following recommendations :

1. NEPRA announce bench mark capital cost for three years (indexed) based on external / foreign consultant recommendations.

2. EPC for turnkey projects is replaced by a package approach, where by a project is tendered in 5-6 packages.

3. PPRA procurement rules must be made mandatory for all regulated projects, including energy and electricity.

4. NEPRA invests in acquiring and subscribing to 3^rd party data source on capital costs, intead of constructing buildings for its offices.

A case in point is the remarkable difference in capital costs and COGE of wind power, among India and Pakistan. In India the capital cost of wind projects is half that of Pakistan, 1200 USD per kW vs 2500-2700 USD per kW in Pakistan. A part from potential and ubiquitous padding, local production of wind turbines in India and total imported content in Pakistan, many have resulted in such a large cost differential.

7)Opening up of electricity market

Consideration may be given for introducing an element of open market and liberalization in the electricity sector. Some of the feasible steps may be the following:

1. promoting consumers choice for large customers (1MW+).

2. opening up electricity transmission by allowing 3^rd party access on pre-determined wheeling tariff.

3. doing away with generation licensing requirements for up to 3-5 MW. Mandatory filing many be continued for 1M and upwards.

4. promotion and permission of open market operations among producers and large consumers on mutually negotiated tariff utilizing open transmission regime.

5. promotion of independent electricity marketing companies.

8)Royalties:

8.1)Hydro royalties:

A permanent solution to hydropower royalty / net profit issue should be finalized. Ideal and most practical solution may be giving 12% free electricity ( ala- India) to the producing province with provisions for sharing with local governments. An alternative is to compute royalty dues at the rate of 12% of CPPA price ;both options are almost equivalent.

8.2)Wind power royalty:

It is unfair and even unconstitutional to drive benefit from provincial lands without adequate compensation or royalties. No royalty is being included in the NEPRA tariff calculations yet. A policy must be announced in this respect. Wind power royalty is to go to the land owner/ lessor. If a government is the owner,Federal, Provincial or Local. that government may get the royalty. If it is a private land, private owner gets it. A rate of 2% of sales has been popular in many western countries. This is also compatible with royalty formulae in mineral sector. At this moment only Sindh province would benefit from it. Wind potential is there in other provinces as well, esp in NWFP and Balochistan and FATA who would benefit from it eventually. It may be worth noting that Wind Turbines use only 3-5% of the WIND FARM area, which can continue to be utilized for agricultural purposes. Based on 150 million kWh per year of electricity sales per year of a 50MW wind power plant, a royalty of 2% would mean an royalty income of 1.5 million USD per year, that could be shared among local and provincial governments depending on the ownership status of the land. Fortunately wind power / costs are coming down due to emergence of solar option, and unsold inventories are building up. The additional 2% incidence of royalty would be tolerable now than ever before. NEPRA would be well advised to revise its determinations on WIND POWER in the light of recent downwards trend in wind power equipment prices world-wide

9)Reorganisation of the Energy sector

Recent Energy Summit deliberations and its output have indicated the need to take a total and integrated view of the Energy sector,be it short term emergent needs or longer term planning and management.Following steps are recommended in this respect :

1)Merger of the Ministry of Water & Power and Ministry of Petroleum into one Ministry of Energy.After the 18th ammendment, there is not going to be much federal involvement in mineral sector anyway.Except for India , many Federal countries have adopted this approach.

2)Merger of NEPRA and OGRA , which would enable the two organisations to learn from each others strength , cross pollinate the ideas ,and facilitate a coordinated energy regulation.In most countries ,this practice has been adopted including the USA(FERC), Singapore and elsewhere.

10)Reorganisation and liberalisation of the GAS sector

The current domination of the sector by two distribution companies (SNGPL & SSGC)must go and the sector and the two companies fragmented on the lines of electricity sector , namely replaced by one or two Transmission companies and several distribution companies like LESCO, GEPCO, FESCO etc.

2)Open transmission access regime to third-party suppliers and gas producers along with consumer choice for large customers be instituted.

3)Gas market and a parallel unregulated gas sector , in addition to the existing regulated one,be instituted to promote investment ,production and greater supplie in the sector.This should also cover and include the so called TIGHT or UNCONVENTIONAL gas exploration and production.

4)Draft Rules for TIGHT GAS , in the absence of the proposed de-regulation ,seem to be adequate and forward looking. Consideration may be given to pegging the TIGHT GAS PRICE to 75% of the oil price subject to 100 USD per barrel of upper slab,as has been the case of imported gas from Iran.

11)Demand Management

Recent energy summit has prescribed short term demand measure. Longer term rules are required to be put in place. Two most important ones are suggested in the following:

1)Restriction of air-conditioning load during peak hours for consumers having demand exceeding 100-200 KW , and obliging them either to install gas based air-conditioning of absorption chillers or buy-in chilled water from distributed cooling systems.A sufficient notice of two years be given to such users.Malaysia has introduced this provision for quite some time now.Distributed cooling through chilled water distribution has become quite well known in several middle Eastern and South East Asian countries.

2)Distributed and district cooling projects be promoted and mandated in co-generation and tri-generation mode which has a potential of a thermal efficiency of 75% as opposed to present average of 40% in good cases.

12)Revamping Existing Generation capacity.

1)Against an installed capacity of some 22000 MW, existing peak generation does not go beyond 14000 MW.Although circular debt and consequent financial problems of energy companies has had a role in lack of adequate electricity generation,it is widely recognised that some 3-5000 MW of existing capacity needs a varying degree and level of revamping/BMR.Prior and immediate attention may be given to those projects including privatisation of such units along with their gas allocations.GOP/MoWP are reportedly seized of this matter , along with USAID support in this respect.

2)Single cycle gas turbines(mostly out-dated) should be put much later in the economic dispatch order ,than is the current should not have a capacity factor/utilisation of more than 20-30%.

3)NEPRA monitoring code of generation capacity should be implemented with strictness and monthly wesite publishing be made mandatory.Electricity generation data by generation facility must be published daily by CPPA/NTDC.

13)Reduction of T&D losses including theft in Electricity and Gas sector.

1)Ironically T&D losses in electricity sector in Punjab are minimal (12%), while elsewhere these exceed 25-30%.In industriallised countries T&D losses to the exclusion of non-existing theft are a mere 5 %.However in the same very Punjab, gaT&D losses ,which mostly are shear theft,are phenominally high ,much higher than in Southern sector (SSGC network) .This indicates that company culture and history ,its organsation,work-force and management has a lot to do with theft than the possible sociological factors. Regulatory authorities ought to delve deeper into this phenomenon.

2) USAID assistance ala DRUM project India must be procured where such programmes are showing good results. India, to consolation of many among us

14)Renewable Energy

14.1)Solar Energy

It appears that the earlier US target of achieving grid-parity in 2015, meaning that solar power becomes competitive with fossil power on the electric grid, would be achieved. The indicators are several; last month, the quoted capital cost rates in the U.S. markets came down to 3.5 USD per KW, it used to be more than twice this figure only some years back. Solar cells of high thermal efficiency (mono-crystalline Si- 17.5% efficiency) are costing less than 2.5 USD per KW, and thin- film lesser efficiency ones are being sold at 1.0 USD per kW or less. In China, several government contracts have been made at the rate of 1.5 USD per kW for domestic power, although Chinese rates, especially in the domestic market do not quite reflect true costs and prices. Still, it gives some trend.

However, even if grid parity in solar power is achieved as early as 2015, it would not mean overnight conversion in the US, Europe and Japan. It would take a long time to develop production and supplies infrastructure. Solar and other renewable market share in the developed world may not exceed 10-15 % by 2030, although new fossil plants construction rate may come down very significantly by that time (2030).

14.2)Towards a Solar Policy

Solar future may be far off for us, if we do not equip ourselves with the right technology at the right time. Easier said than done, but it can be done. This should not, however, mean recruiting non-productive scientists bureaucracy in our R&D institutions and elsewhere, marveling at show case projects. Throwing money at it , does not bring in technology, neither doing nothing and waiting to be supplied packaged technology ,in the rich oil producing Arab countries’ style ,suits us. Private sector would have to be integrated, which is a separate discussion and would be taken up at some other time. It would remain a difficult question as to when to enter into this and how. Although a few things can be done immediately, like introducing solar energy in schools and universities curricula, and augmented by R&D activities in PhD programs should receive immediate priority. That a trained work-force brings down technology induction costs and speeds up the process, would not be lost to anyone.

14.3)The Lessons from Wind?

We may miss the boat for early solar power , if we do not plan for it.. Look at the Wind Power. Despite a forward looking policy, we have only a few MW of wind power installation, although a few projects are at an advance stage of processing, which may mean 100-150 MW of wind power in a few years time. Due to heavy demand of Wind Turbines in the Western markets, no wind power equipment vendor was ready to supply wind turbines to our projects. Long lead times were quoted and not honored. In this atmosphere, obviously prices quoted are high also. Of late things seem to be changing; enthusiasm has shifted to solar energy, and considerable resistance developed against wind power due to noise, birds’ safety and aesthetic issues. Consequently vendors are talking to project sponsors in Pakistan, and hopefully would be offering reduced prices that may not necessarily translate into lower NEPRA tariff for reasons we have been discussing elsewhere. Prices in Pakistan do not come down so easy and automatically!!

14.4)When should we jump in ?

When should we jump in? We are already in it in limited ways , largely on the basis of foreign funded projects , which are also serving as demonstration models for manufacturers as well , and hence the rationale for foreign aid , apart from its philanthropy and ? . Solar PV costs are coming down very fast. Sometimes, in the next five years, solar power may be competitive in off-grid markets, of small and far off villages. For specialized applications such as power supply to communications tower, monitoring stations, pipelines instrumentations, health and education facilities in far off villages , it is already competitive and in demand. In Bangladesh, reportedly, a PV-LED combination has become very popular and successful in villages, where a 20 watts PV –LED power is lighting the lives in rural homes. The rent/tariff, it is said, has been kept as low as their kerosene budget for lighting. Not a bad deal, if that can be replicated here in this country.

14.5)Institutional issues

Even if the real days of Solar Power may be ahead in time, there is to be some home work and an enabling policy in place, to guide investors, businessmen, R&D institutions, vendors etc. For example in what areas and villages government is to priorities solar power. What kind of institutional arrangements are required and may be permitted and supported. In this case company model may not work as well as it does for grid power. Cooperative bodies may have to be promotes and the role and functions of such co-operatives may have to be defined. Electricity Co-operatives have worked successfully in The US in the initial days, and have survived till this day. Electricity Coops are going to be in fashion again through out the world and more so in the developing countries. May be for development purposes a few one-MW solar power plants may be permitted every year, which may require auctioning such opportunities. Local content may have to be mandated.

14.6)In Concrete Terms

Following steps are recommended.

1) a limited number of small commercial-demonstration projects may be approved and installed as IPPs, such as in the following;

1.1) one or two solar PV projects of 5 MW each.

1.2) 10 -20 MW Solar Thermal(Parabolic trough) as ISCC with an existing Steam Turbine or Gas Turbine Combined Cycle Plants in Kot Addu/Muzaffar Garh.

1.3) One or two Solar dish 1 MW projects.

These projects may be auctioned to get lowest offers as solicited projects. The preferential feed-in-tariff would not pose a heavy burden on consumer tariff.

2) In the area of Wind Power,there is already a demonstration project in the form of Zorlu.Several projects are at an advanced stage.Now that we seem to have missed the boat on early wind power, we can afford to wait till a reasonably priced Wind Power regime based on some indeginisation can be brought in.Work on this must be initiated sooner than later.

14)Full disclosure and transparency

14.1)Electrical sector

1. Freedom of information act 2003 must be implemented in letter and spirit in the regulated sector of electricity and industry. A visit to websites of Indian utility and government energy agencies may be useful in learning as to how this aspect can be improved in energy sector in Pakistan.

2. implementation of the following two NEPRA notifications must be expected;

Instead of annual reporting, monthly publishing on the websites of individual entities/companies may be instrumental in resolving many problems. A case in point is the NEPRA determination on KESC’s fuel adjustment charge(FAC) where in two and of four member have distanced themselves from siding with and signing NEPRA determination and have written “notes of dissent”. There is a petition is Sindh High court in this respect as well. Had requisite data , mandated in the two of NEPRA gazette notifications( on generation and distribution performance) been implemented and requisite data made available on monthly basis, the scope of confrontation and confusion could have been lessened if not eliminated altogether.

NEPRA has done well by publishing details of “fuel (adjustment) charges(FAC)”, for the first time in May 2010. Earlier it used to simply announced a figure in a few lines statement. We would encourage NEPRA to continue with this practice and even broaden the scope of such detailed publications in this respect.NEPRA should also publish data or/and require agencies such as PEPCO/CPPA to publish data on “Annual Fixed Cost payments”. Although “reference data” is already published by NEPRA in its determinations, there is a significant discretion and detail in this respect. Scope of such disclosure need to be broadened and extended to include IPPs.

14.2)Oiland Gas sector

Oil and gas sector is worth more than twenty billion US dollar in terms of sales and output. Except for Gas T&D tariff and mere posting of petroleum retail prices and gas wellhead prices, there isn’t much to show by OGRA. The sector is almost totally regulated, theoretically, except LPG where there is confusion as to the regulatory domain. Admittedly OGRA works within the framework of the role assigned to it by Ministry of Petroleum (MPNR) and the GOP. It cannot arrogate powers to itself, although it can build pressure towards higher domain and role for itself. The due process is lacking in the following areas: Surely there are and must be rules in the following areas which in itself is not enough. The actual application and adjudication of those rules is to be the subject of due public process, where price is not determined by the market forces. International transparency moves and initiatives these days even go beyond public tariff and pricing determinations. They are demanding Publish what you pay(PWYP)policies and regime, for it has been found that the actual payments vis-à-vis publically determine tariff may be deviating for legitimate and not so legitimate reasons. Following areas should come under some process of public input and scrutiny through the regulatory process of OGRA and the latter should not restrict to posting of results but invoke the whole regulatory input and process into these.

1) Well-head prices of oil and gas.

2) Ex-refinery prices of petroleum products such as gasoline and diesel, including crude oil imports

3) Oil pipeline tariff

4) PSO imports of petroleum products (50% of the total demand is met through imports valued at around 8 billion dollars)

5) Furnace oil pricing despite claims of being in the open sector; and most importantly

6) High Speed Diesel (HSD) pricing.

15)Energy Development Fund

Pakistan is suffering from an Energy crisis , causing social ,political and economic difficulties.The region is a victim of terrorism furthering and pronouncing the aforementioned problems.Lack of timely investments in the immediate past in the sector has been diagnosed as one of the key issue.It is more than a simple government failure. There are structural problems.Current Electrical Power installed capacity is aroun 23000MW.The demand is expected to double itself every ten years,which meansan additional capacity requrement of 75000 MW in the forhtcoming two decades.Besides eneration capacity, this would entail investments in Transmission, and Distribution.Also investments in primary energy production and transportation utilities

..This may require an investment of 200 billion USD.This can be both a problem as well as an opportunty.This is

one area where Pakistan would need support from friendly countries in terms of foreign equity and project loan investments.A commercially

viable capacity building project is being proposed to facilitate domestic and foreign investment in the energy sector.An Energy Development Fund is proposed,which would not be a ecipe of free lunch .The basic idea,as explained in the forthcoming,is that the proposed fund acts as an

intermediating and facilitatiing instrument and institution.

15.1)Energy technology indigenisation

Indegenisation often suffers from chicken egg syndrome ; indegenisation does not occur because lack of an adequate market, while market does not develop due to lack of indigenous resources. A lot of energy and power equipment is labor intensive, bulky and transport cost sensitive, pavng way for local cost efficiency. Except for turbine-generator, the rest of power plant (about50% of the total) can be locally manufactured with lower costs and higher efficiencies. There is abundant evidence from India and China, where coal power plant and wind power plant are produced at 50% of the price level presenting in OECD countries.Western companies do not even compete when Chinese/Indian suppliers are expected to bid. In automotive sector, vendor industry has been developed largely under tariff protection, which cannot be done in the case of energy sector, where near zero tariff regime exists due to the need of keeping energy prices competitive, if not low enough. in the case of power( equipment) industry, Energy Fund may go a long way towards development of local indeginous industry creating jobs, self-reliance, saving foreign

exchange and reducing costs. Apart from cost reasons, local availability is expected to facilitate speedy project completion and lesser cost escalation risks.

15.2)Risk intermediation

There are a wide variation of risks including country political risk, project location etc. The proposed Fund may offer various mechanisms to mitigate risk or offer to share or fully take up

risk premium as a subordinate lan, output grant etc.

15.3)Green Projects

The Fund may also market credit lines, concessionary or otherwise, dedicated to green projects such as alternate energy, energy conservation, energy efficiency, related BMR, CDM etc.

15.4)Commercial Credit lines and Equity Finance

EDF can also source market, manage or intermediate ordinary debt and equity instruments.

15.5)Project Development

To shorten lead times , project identification studies , preliminary and feasibility studies

and other investigations may be financed on grant or concessionary loans basis.

16)Towards Zero Energy taxation

What is zero-energy taxation regime? Simply put this means integrating the energy sector and its taxation; pooling the taxes and subsidies to balance and cancel each other. This would allow withdrawal of electrical subsidies and reduction in petroleum taxation resulting in falling petroleum prices with the rise in Electrical tariff. This may be acceptable and affordable to all parties; lower prices to consumer, no budgetary loss. Above all, it would be sellable to lenders and donors which pose a major constraint in independent economic policy making.

17)Co-operation with India

Trade with India is permitted in many products. Pakistan would tremendously benefit from trade in Power Technology sector. Indian coal and wind power is probably cheapest in the world and it is next door. Tremendous savings of time and cos t can be made through overland transfer and shipment of often very heavy and bulky power equipment.India has installed 11000 MW of Wind Power .The wind turbine price in India is almost half of what it is in Europe and elswhere.Pakistan-specific powwer plants can be built by Indian companies within Indian borders under a power purchase agreement with Pakistan companies under PPIB rules and tariff .Very interesting and economical propositions can be built . A consensus needs to be created in Pakistan among the stake-holders in this respect .This consensus seeking initiative should be launched by the political leadership. There is a bipartisan support to the improvement of trade relationship with India.Former government of President Musharraf also sought raaproachment with India.

Although one would like and prefer to have China in this role.But China is over-comitted on many projects including the hydel ones , and the latter is expanding into Africa.And India is next door.Several companies like HMC,HEC and KSEW may be revitalised under such arrangements. Otherwise many private sector companies may also benefit from such trade and Joint venture beseides cheaper inputs to the power sector.

2011-02-24T04:35:00.000-08:00

Curing the ailing Energy sector ;some humble submissions

By Akhtar Ali

1)Development of Local Energy Resources

2)Financing Thar Coal

3) Importing Coal

Permitting imported coal project would send a final signal for closing off Thar coal resource.

4)Conversion to Coal

5)Controlling High Cost of Generation of Electricity(COGE)

1. Capital costs esp of power generation projects.

2. Thermal efficiency

3. Reduction of technical and non-technical losses.

6)Capital Costs;

In this respect, we make the following recommendations :

1. NEPRA announce bench mark capital cost for three years (indexed) based on external / foreign consultant recommendations.

2. EPC for turnkey projects is replaced by a package approach, where by a project is tendered in 5-6 packages.

3. PPRA procurement rules must be made mandatory for all regulated projects, including energy and electricity.

4. NEPRA invests in acquiring and subscribing to 3^rd party data source on capital costs, intead of constructing buildings for its offices.

7)Opening up of electricity market

Consideration may be given for introducing an element of open market and liberalization in the electricity sector. Some of the feasible steps may be the following:

1. promoting consumers choice for large customers (1MW+).

2. opening up electricity transmission by allowing 3^rd party access on pre-determined wheeling tariff.

3. doing away with generation licensing requirements for up to 3-5 MW. Mandatory filing many be continued for 1M and upwards.

4. promotion and permission of open market operations among producers and large consumers on mutually negotiated tariff utilizing open transmission regime.

5. promotion of independent electricity marketing companies.

8)Royalties:

8.1)Hydro royalties:

8.2)Wind power royalty:

9)Reorganisation of the Energy sector

10)Reorganisation and liberalisation of the GAS sector

2)Open transmission access regime to third-party suppliers and gas producers along with consumer choice for large customers be instituted.

11)Demand Management

Recent energy summit has prescribed short term demand measure. Longer term rules are required to be put in place. Two most important ones are suggested in the following:

12)Revamping Existing Generation capacity.

2)Single cycle gas turbines(mostly out-dated) should be put much later in the economic dispatch order ,than is the current should not have a capacity factor/utilisation of more than 20-30%.

13)Reduction of T&D losses including theft in Electricity and Gas sector.

2) USAID assistance ala DRUM project India must be procured where such programmes are showing good results. India, to consolation of many among us

14)Renewable Energy

14.1)Solar Energy

14.2)Towards a Solar Policy

14.3)The Lessons from Wind?

14.4)When should we jump in ?

14.5)Institutional issues

14.6)In Concrete Terms

Following steps are recommended.

1) a limited number of small commercial-demonstration projects may be approved and installed as IPPs, such as in the following;

1.1) one or two solar PV projects of 5 MW each.

1.2) 10 -20 MW Solar Thermal(Parabolic trough) as ISCC with an existing Steam Turbine or Gas Turbine Combined Cycle Plants in Kot Addu/Muzaffar Garh.

1.3) One or two Solar dish 1 MW projects.

These projects may be auctioned to get lowest offers as solicited projects. The preferential feed-in-tariff would not pose a heavy burden on consumer tariff.

14)Full disclosure and transparency

14.1)Electrical sector

2. implementation of the following two NEPRA notifications must be expected;

14.2)Oiland Gas sector

1) Well-head prices of oil and gas.

2) Ex-refinery prices of petroleum products such as gasoline and diesel, including crude oil imports

3) Oil pipeline tariff

4) PSO imports of petroleum products (50% of the total demand is met through imports valued at around 8 billion dollars)

5) Furnace oil pricing despite claims of being in the open sector; and most importantly

6) High Speed Diesel (HSD) pricing.

15)Energy Development Fund

..This may require an investment of 200 billion USD.This can be both a problem as well as an opportunty.This is

one area where Pakistan would need support from friendly countries in terms of foreign equity and project loan investments.A commercially

intermediating and facilitatiing instrument and institution.

15.1)Energy technology indigenisation

exchange and reducing costs. Apart from cost reasons, local availability is expected to facilitate speedy project completion and lesser cost escalation risks.

15.2)Risk intermediation

There are a wide variation of risks including country political risk, project location etc. The proposed Fund may offer various mechanisms to mitigate risk or offer to share or fully take up

risk premium as a subordinate lan, output grant etc.

15.3)Green Projects

The Fund may also market credit lines, concessionary or otherwise, dedicated to green projects such as alternate energy, energy conservation, energy efficiency, related BMR, CDM etc.

15.4)Commercial Credit lines and Equity Finance

EDF can also source market, manage or intermediate ordinary debt and equity instruments.

15.5)Project Development

To shorten lead times , project identification studies , preliminary and feasibility studies

and other investigations may be financed on grant or concessionary loans basis.

16)Towards Zero Energy taxation

17)Co-operation with India

Energy Security Policy ?

2011-02-24T04:34:00.000-08:00

Towards Energy Security?

Planning Commission of Pakistan prepared an Energy Security Plan (ESP) in 2005, and presented it with much fanfare to the then PM and the President. The Plan still remains operative in the books of the government departments, and is quoted and discussed annually in the Economic Survey. In practical terms, ESP was a non-starter. It was not implemented even by the previous government .By 2010, an additional 7880 MW of Electrical Power capacity was to be installed .Only a few hundred MW was installed and consequently we have a deficit of 4000 MW today. Why the “conscientious” Musharraf government was so derelict in meeting its responsibilities in this respect, is a serious question. Equally serious question is what the relevant bureaucracy was doing. Prime Minister Gilani fired the previous MD of Private Power and Infrastructure Board (PPIB) on this account, despite intense lobby in the favor of the latter’s extension of the contract. More heads should have rolled and a serious review of official practices in power sector ordered.

What is known can be visualized by one single example. A veritable Chinese company spent two years in Thar Coal field, prepared a feasibility study, offered to make the investment and supply electricity at the rate of 5.5 cents per unit. The then military commander holding charge of WAPDA for the reasons best known to him opposed and rejected the offer. We are buying electricity today at twice the Chinese offer and Thar Coal remains unexploited. It so incensed the Chinese that despite many requests the Chinese do not return to Thar.

Returning to the Energy Security Plan (ESP), there is hardly any possibility that it would be implemented as per its projections and estimates. The Plan was so grandiose and unrealistic which could have only pleased a fascist agenda and ruling culture. One gets nervous on our Planning Commission’s ability to become so frivolous in its planning practices. I will discuss the details a bit later in these passages, suffice it is to state here to support my contention that the ESP provided 4860 MW of generation capacity based on Natural Gas. Shortage of gas is in the country now for many years. It was known even in 2005, when the Plan was made. One may fail in long term projections, but what to term this kind of outright frivolity.

Long term projections can falter at the altar of reality especially in Pakistan’s boom-bust type economy and polity, reversing it in seven years cycles. ESP projected requirements of 72,270 MW by 2020, by the way of installing an additional 50,000 MW in the period 2010-2020, and again half of it to come on Natural Gas. Realistically speaking, only half of that would materialize. We should be thankful and happy, if half of that is achieved. There is no way that the demand could reach a level of 72,270 MW by 2020 in a matter of ten years. ESP predicts an electrical demand of 162,590 MW by 2030, again half of which to come from natural gas: very grotesque and unrealistic projection. Where are they seeing the gas from? Even if both the projects of LNG and the Iran-Pakistan pipeline were implemented and more of the same are added, this kind of gas wouldn’t be available.

Electricity demand in Pakistan has grown at a rate of 5% per year , and even at higher assumed rate of 7 % per annum ,the demand is to double every ten years , unless we become Chinese by some magic. By that robust formula, the demand would be 50,000 MW by 2020 , and 100,000 MW by 2030 , most of which should be planned to come from Thar Coal, Hydro ,renewables and nuclear and not from gas , as has been proposed in the ESP. There is, however, a potential of gas discoveries in Balochistan, if sufficient exploration effort and investment is directed. The prospects of such effort appear to be minimal in current political and law and order situation prevailing in that province. This may remain a much desired dream, and robust planning should not be based to depend so heavily on a break-through in that respect.

The problem with frivolous planning is that plans are not respected and a careless atmosphere ensues which results in shortfalls and other problems and inadequacies that we are facing today in energy sector. It is high time that ESP is buried with the kind of condemnation it deserves and a more realistic plan put into place and diligently implemented. Ironically, ESP was one of the rare indigenous planning efforts and failed miserably. Let us involve multi-lateral institutions in this as they do in all the other sectors to the chagrin of many nationalists and conspiracy theorists among us.

Energy security plan (Planning Commission) – 2030: electrical

	Nuclear	Hydel	Coal	Renewable	Oil	Gas	Total	Cumulative MW
Existing (2005)	400	6,460	160	180	6,400	5,940	19,540
Addition
2010	---	1.260	900	700	160	4,860	7,880	27,420
2015	900	7,570	3,000	800	300	7,550	20,120	47,540
2020	1,500	4,700	4,200	1,470	300	12,560	24,730	72,270
2025	2,000	5,600	5,400	2,700	300	22,490	38,490	110,760
2030	4,00	7,070	6,250	3,850	300	30,360	51,830	162,590
Total	8,800	32,660	19,910	9,700	7,760	83,760	162,590

Source: Planning Commission of Pakistan / Economic survey of Pakistan 2008

Solar 4:

2011-02-24T04:30:00.000-08:00

Solar Thermal

Solar Thermal is the answer to the sector that may not be adequately catered to by Solar PV. In Solar Thermal, Sunlight is concentrated by reflectors at a point or line, and the circulating medium that can be air, water or salt is heated to relative high temperatures varying between 70deg C to 500degC.Initially only solar water heaters were developed in this sector and remains to be the mainstay of it. However large Power Plants have been built for more than a decade now. Once water or any other liquid is heated at sufficiently high temperatures of 300-500 deg C, the rest is standard steam turbine electricity generation. All one may have to do is to replace the coal or oil or gas fired boiler with a Solar Heating/boiler system. For a variety of reasons, however, integration with combined cycle plants has been found to be more feasible, and implemented under the term ISCC(Integrated Solar Combined Cycle). Cost of a complete system producing electricity is high but competitive generally with Solar PV. There is another advantage to this system .Thermal energy can be stored much more economically and large volumes than electricity produced in PV. Five hours of storage at full load has become a common feature of large scale utility plants of 50-100 MW.

Spain has gone into it with much more commitment and investments. More than a dozen plants of 50 MW are already working there, and more are coming in, although under a highly supportive subsidy system in the form of very high feed-in tariff. This is obvious we cannot afford this kind of feed-in tariff, already there is a lot of social unrest on unaffordable tariff, which otherwise is quite competitive with other countries. GOP has been giving subsidies of Rs 200 billion per year to the electrical sector to sustain the existing tariff level. These subsidies have infact paid for the exceptionally high T&D losses and theft and pilferage. So theoretically, GOP could have afforded some subsidies to encourage Renewables and foster technology development, had these kinds of losses not been there. These subsidies now have to go under IMF pressure and tariff is to be raised. But some subsidy can be maintained on the account of Feed-in Tariff for renewables, if a reasonable scheme is developed for creation and support of this technology.

Technology differentiation within Solar thermal.

There are four technologies within Solar Thermal, largely depending on what kind of concentrating system is employed. That is the reason, it is also called Concentrated Solar Power (CSP), although CSP systems have been used in Solar PV as well. The four technologies are;

1)Parabolic troughs

2)heliostats and Solar Towers

3)Linear reflectors 4)Solar dish

Essentially the difference is whether one focuses sunlight on a point like a furnace or a boiler or one does it in on a line or tube carrying a fluid. Parabolic troughs have been more popular, cheaper and are now an established technology. Parabolic troughs are more prone to indigenization, as it is mostly sheet metal work and structures and framing made out of steel. There is some glass work or plastic for reflectors requiring electroplating. Considerable know-how both in formal and informal sector exists in Pakistan and other developing countries like us in this area. It is labor intensive as well. A number of our sick industries in Public sector could be revived by technology arrangements and orders in this field. Also private sector and informal sector can be strengthened.

Building a Solar Thermal (parabolic trough) Power Plant

According to the figures released by US Energy Information Administration, in January 2010,a solar thermal power plant to come on stream in 2012 would cost 4798 USD per kW. It takes three years to implement a 100 MW solar thermal power plant. If one deducts 1798 USD per KW for conventional power component, the solar component cost would be 3000 USD per KW i.e. more than 60% of the total project cost. It requires 25000 tons of steel, 12000 tons of glass and 20,000 cubic meters of concrete among major inputs. It is not round bar construction steel, although some of it is, but mostly it is steel fabrication supporting my argument that we can do it, and we will have comparative advantage in it. Over the years cost s and steel consumption would come down, but the nature of steel construction may not change. By comparison, a large coal power plant of600-1000 MW would require steel structures of 5000 tons, which in itself is a large number. Recently an ISCC plant built in Egypt under World Bank/GEF assistance generated a demand of some 4000 tons of steel fabrications for 15 MW only and should have kept the local company busy for one whole year round the clock. Such is a potential of comparative advantage and job creation in ordinary technology of steel fabrication required in Solar thermal. There are associated technologies in glass, and control system which can be bought or partially developed locally.

Solar thermal in the Middle East

Morocco, Egypt, Iran, Algiers and recently UAE have gone into this, but in a very cost effective way. They, except UAE, have launched solar –augmented combined cycle plants running on gas. Parabolic Troughs have been installed to cater to10-20% of the total fuel requirements of the combined cycle plants. We can do the same in one or more of our existing plants. All these projects, except Iran and UAE, have been financed under GEF.UAE is pursuing two tracks; one for Solar thermal power and the other Solar air-conditioning. A 100 MW Solar thermal has been contracted for, which is to be commissioned by 2012.

Admittedly, there is more solar insolation in countries around Sahara than in South Asia. DESERTEC project has been launched, presently under negotiation, through which electricity produced through Solar Thermal plants installed in Sahara, would be transmitted to Europe through HVDC (a cost effective DC technology as opposed to conventional AC) network, to meet some 20% of the power needs of Europe. Although Terrorism issues may prevent or delay the implementation of DESERTEC, the faith and confidence in Solar Thermal is adequately demonstrated by this EU project. DESERTEC like projects are being encouraged in other countries which have desert. Regional counterpart organizations and arrangements like DESERTEC-India, Asia have been formed. We have Thar, Thal and Cholistan. If Thar Coal gets going finally, there would not much scope there for any thing else. Thus Cholistan can be readied for such ventures.

Solar 3

2011-02-24T04:29:00.000-08:00

Towards indigenization?

Solar PV and Solar Thermal

There are two main technologies; Solar Photo-voltaic (PV) and Solar Thermal. Both are not competing or mutually exclusive. Solar PV converts incident sunlight to electricity directly into a DC current which has to be converted to AC and often there is requirement for storage batteries. A significant portion of cost (up to 40%) can go towards these extras which are called Balance –of-the –System (BoS) costs in the technical jargon. There are to day mainly three technologies in PV; a) Mono-crystalline Silicon b)Poly-crystalline c)thin film. Mono-crystalline Si has been most popular with the highest efficiency that has reached almost 18%.It is also the most expensive but competitive. Poly-crystalline Si is a variant of how Silicon ingots are made.

Mono-Crystalline PV

In Mono Crystalline, one crystal is grown as an ingot, which is fairly expensive and energy intensive task. In Poly-crystalline, larger multi crystalline ingots are cast and then sawn into smaller cylinders. There is no scope here for going into full details and we restrict the detail here to its relevance with the issues we are dealing with. Only about ten companies are reportedly into the highly capital intensive upstream portion of this business. But there is a downstream component, which is labor intensive and where countries like us have a long term potential comparative advantage. This is of fabricating/assembling the solar panels from imported solar cells. Almost half of the cost (60%) of solar panel is other than solar cells. Other supplier industries like sheet or plexi Glass and backing material like plastic sheets and structural framing components and materials are going to be energized from such local assembly of Solar panels. From the perspective of developing countries mono or multi-crystalline Si technologies are the best bet . This would be one of the ala-garment industries of the future with a potential for very significant employment. It is quite simple to assemble panels. There are many DIY approaches and even in Pakistan, an American professor trained many workers recently on the job in an improvised workshop, product of which were later installed and are working satisfactorily. Yet producing any product, however simple it may be, in reasonably high volume and with consistent and reliable quality, would require investments and participation of private sector. In India, there are several plants making these Solar panels, both for domestic demand as well as exports.

Apart from local employment perspective, there is another imperative for local production. Once Solar Power becomes really competitive, the domestic demand in the producer countries may get so heated up that developing countries like Pakistan may not get the solar supplies and products at all. What has happened in the case of Wind Turbines is quite instructive. There are many Approved and ready projects of Wind Power, but could not be implemented due to lack of availability of willing suppliers even with longer agreed lead times. Only now when there is a thaw in the Wind turbine market, due to the rush and switch to Solar Power that the vendors are now attending to our projects. Similar has been the case of other developing countries except India which has a complete local manufacturing capability in large volumes , the latter has managed to install 11000 MW of Wind Power at prices 50% lower than imported ones.

Let us pray Thin-film technology does not prosper

There are other Solar PV technologies fast coming up where there would be total automation, and no scope for labor surplus countries. Flexible Thin-Film continuous sheets are being produced in a roll-to roll environment; a roll of web material, as in a printing press, is fed in at one end and a role of PV panel taken out at the other end. It has only to be framed as one frames a painting. These are also flexible and can be mounted on curved surfaces.

Solar PV cells mainstay would be in stand alone distributed domestic and commercial lighting system, although many grid connected solar PV farms of exceeding 100 MW are already in operation and more are coming up every day. The jury is still out if PV would be able to supply the volume of utility power that is required. Besides industries require energy in primary form as heating or cooling, where PV is less competitive, although there are split AC systems in the market of 18000 btu per hour working directly on Dc power produced by solar PV.

Solar 2

2011-02-24T04:27:00.000-08:00

Towards a Solar Policy

What is the moral of the story? Solar future may be far off for us, if we do not equip ourselves with the right technology at the right time. Easier said than done, but it can be done. This should not, however, mean recruiting non-productive scientists bureaucracy in our R&D institutions and elsewhere, marveling at show case projects. Throwing money at it , does not bring in technology, neither doing nothing and waiting to be supplied packaged technology ,in the rich oil producing Arab countries’ style ,suits us. Private sector would have to be integrated, which is a separate discussion and would be taken up at some other time. It would remain a difficult question as to when to enter into this and how. Although a few things can be done immediately, like introducing solar energy in schools and universities curricula, and augmented by R&D activities in PhD programs should receive immediate priority. That a trained work-force brings down technology induction costs and speeds up the process, would not be lost to anyone.

The problems with renewable energy

For all the praise of renewable energy, we should also be cognizant of the problems with these sources, apart from the lack of development of commercially reliable and competitive technology.

Sun shines only in the day, and there may be cloudy weather sometimes, though this problem is much lesser with us, but would still influence supply. Although sun shines almost every where, wind of required speeds do not blow every where and all the times. In technical terms, this means low capacity factor. Renewable energies like solar and others may offer a capacity factor (call it utilization) as low as 25 %, as compared to 80 % of conventional power. Thus even, if the per MW cost may be identical; its actual capital cost implication is three time more. Thus if capital costs of solar or other renewables is twice the conventional as the case may be today , its actual capital cost implication would be six times higher. Additional storage costs may be extra. But for industries working in day time , only marginal storage costs may be involved for load balancing purposes only ; Similarly the offices and commercial sectors which today pay highest tariff. Laptops may have built in solar cells eventually, as today calculators work on solar cells, surviving on room lighting as energy source. Today, the solar conversion efficiency is as low as ten percent or slightly more, but is slated to rise to 40 % in a matter of two decades, almost as much as in conventional. But as of today, this seems to be a major disadvantage

When should we jump in ?

Institutional issues

Solar Power 1

2011-02-24T04:24:00.001-08:00

Solar Power is coming of age?

Fastest growth in technology and business is perhaps in Solar Energy sector these days. Human beings have been late in discovering and accepting the SUN as a useful source for meeting their daily energy requirements. It is said that SUN shines more energy in one hour than the total annual requirement of the world, rich and poor included. It is abundant, it is free and available everywhere. To utilize it profitably has not been easy, although largely due to the chicken egg problem of demand vs technology. However, the oil is now at its end .It will be extinct in less than fifty years and prohibitively expensive much earlier. Although Coal in the world is enough for two centuries, it is creating problems of pollution and green house gases. There was enthusiasm for wind power in the last decade; the availability of wind is still limited. The enthusiasm for wind is still there, however the race is now for solar energy. Solar industry is growing at a rate of more than 40 % per year. Germans are after Solar, more than any body else to be followed by China, Japan and the US.

Solar dream

Solar power has been a dream since Solar Photovoltaic Cells(PV) were first introduced in the space satellites in 1960s.High capital costs and low conversion efficiency have been the major factors making solar power unaffordable. Incremental technological advances have brought these costs down and have improved efficiency many times. Solar cells used to have an efficiency of fewer than 5 %. Today, efficiency of commercially available Solar cells is 17.5 %. There are some with lower efficiency but are also cheaper than the high efficiency (17.5%) solar PV cells.

Chicken-egg syndrome of demand and price ?

Demand and prices used to be a chicken egg problem and it still may be; higher costs are due to low demand, while low demand leads to higher costs; no more. Very high supportive feed-in tariffs have spurred the demand. Germany today offers a Feed-in Tariff of 25-30 US cents per kWh, which may be 4-5 times the conventional rate. This makes Germany today to be the highest electricity cost country. The upside, however, is that 70% of all solar pv installations in the world were in Germany. Germany will recoup the higher costs in the long run eventually in the form of a major solar exporter. German high tariff has created high demand conditions in the world. Pressure has been developed in other countries to offer such supportive rates. High demand initially created short term supply problems and thus led to increases in the prices of solar raw materials, like Silicon.

Grid parity issues

The Lessons from Wind?

What does all of this hold for us? Good news, but still not very close-by. Look at the Wind Power. Despite a forward looking policy, we have only a few MW of wind power installation, although a few projects are at an advance stage of processing, which may mean 100-150 MW of wind power in a few years time. Due to heavy demand of Wind Turbines in the Western markets, no wind power equipment vendor was ready to supply wind turbines to our projects. Long lead times were quoted and not honored. In this atmosphere, obviously prices quoted are high also. Of late things seem to be changing; enthusiasm has shifted to solar energy, and considerable resistance developed against wind power due to noise, birds’ safety and aesthetic issues. Consequently vendors are talking to project sponsors in Pakistan, and hopefully would be offering reduced prices that may not necessarily translate int0 lower NEPRA tariff for reasons I have been discussing elsewhere. Prices in Pakistan do not come down so easy and automatically!!

Cheap Wind Power in India?

In the mean time, India has installed more than 11000 MW of Wind Power, at a modest capital cost of 1100-1200 USD per kW, which is almost half the rate at which similar projects have been approved in Pakistan. Indian case, however, is different. They have a local manufacturing industry which manufactures 100 % of wind turbines and are self –sufficient, thriving upon low costs. Imported western equipment and services are comparatively much more expensive.

Perhaps this is the time for us to pursue Wind Power, even if the interest elsewhere may be waning. Firstly, it has only become available now, in practical terms as has been mentioned earlier. We have long stretches of unpopulated areas, with rich wind resources that remain totally untapped. Various ways and means should be investigated to bring down the capital costs.

Solar Power 1

2011-02-24T04:24:00.000-08:00

Solar Power is coming of age?

Solar dream

Chicken-egg syndrome of demand and price ?

Grid parity issues

The Lessons from Wind?

Cheap Wind Power in India?

LpG sector 2: More Recommendations

2011-02-24T04:22:00.000-08:00

Strengthening and Expanding LPG supply chain

Case Study of LPG sector in the U.S. and India

In the U.S., almost all of LPG demand is met through domestic production and none is imported. LPG consumption in the transport sector appears to be much less than in Residential sector. Apartment complexes have LPG tanks of 1000-5000 gallons, which are filled by LPG trucks run by the distributors. However, most houses I have seen use electricity for cooking. LPG is used mostly for heating purposes. Occasional barbecue requirements are catered by nearby hardware stores, which fill the LPG cylinders of the consumers from their own tanks and cylinders (This makes me wonder why there is a commotion against LPG shops in Pakistan who do the same).

LPG in the U.S. as elsewhere is produced both in the petroleum refineries and gas processing plants and is stored in under ground tanks. LPG is transported to UG storage and marketing companies through LPG pipelines, from where it is mostly transported through 10,000 gallon trucks-bowsers, to the distribution network and facilities. Distributors have their own storages (usually around 30,000 gallons), from where it is transported through smaller LPG trucks of 1-2000 gallons.

In India, most LPG is imported, although local LPG production is there from traditional petroleum refineries and gas processing plants. In India, LPG pipelines are more common than elsewhere, transporting 30% of the annual consumption through pipelines which often extend beyond a thousand kms. Current pipeline network is of 2500 kms, and more are being added under an ambitious expansion plan. In India, LPG pipelines have become popular due to the logistics requirements of imported LPG. However, now they are considering connecting some 200-50 cities to LPG pipeline network.

LPG pipelines are much simpler to install .These are pressurized to 300 psi, almost twice as much as tire pressure, can be as small as 6 inch in dia and may go up to 2 ft usually. However, there is a considerable pressure drop and re-pressurization is to be applied every few hundred kms. Pipeline transport is convenient, cheaper and reduces traffic congestion. However, for inner city transport, there is no option but to use roads. It can be made more cost effective and easy if LPG shops are provided with tanks from which they could fill the automobiles as well as fill LPG cylinders. In many countries, especially, in Italy one sees road-side convenient fillers occupying very small area of 8x15 ft, and even less.

Keeping in view ,the afore-mentioned logistics study of the LPG sector, it appears that quite some changes and infrastructural facilities may have to be brought about to increase the role and scope of LPG supplies in the country. By opening up the sector, GOP meant that such arrangements would develop in an open market regime. It not has happened. Our problems are of the short and medium term, and probably there is no long term in oil and gas business. So if something is to happen, it has to happen soon, so that there is enough period left in the remaining lifecycle to recoup the investments. Oil and gas story may not last beyond 2030.

LPG (Pipeline) from Iran

Already, it has been reported that depending on the season, 200-300 tons of LPG per day is imported from Iran, through informal sector. There are many other products from Iran that are smuggled. The question is why it can’t be brought under regular channel. GST evasion by the small sector appears to be the incentive and saving in the informal sector. Often there is a cost associated in all illegal businesses. Half of the 17.5% should only be the savings and then there are issues of other inefficiencies and diseconomies of small scale. S it appears to be much more than a GST evasion issue and appears to have larger socio-economic dimensions. It is perhaps the only channel through which small enterprises can operate. Running regular businesses has been made a bit too difficult. The obstacles of small businesses in running regular businesses in LPG sector should be looked into.

The smuggling cluster can be transformed and expanded into regular and legal business, supplying much needed energy. Possibilities of establishing a LPG/petroleum market on the border of Iran, somewhere near on the coast, say, in Gawadar may be investigated. Iran has become a hub of LPG business. Not only it has its own surplus of 2 million tons per year, it falls on the transit route of LPG exports from Turkmenistan and other central Asian Countries. Iran has a large supply of LPG bowsers which are utilized in transporting LPG to the adjoining countries. The same infrastructure can be shared by Pakistan as well. In fact, there appears to be a case for installing a LPG pipeline from Iran to Pakistan. This may not be a billion dollars affair, but can possibly be done under 250 million US dollars. Recent LPG pipeline project in India of 1014 kms length and a transmission capacity of 1.7 million tons per year ( 5000 tons per day) cost only 248 MUSD , and was completed in 2003.The project consisted of a 1014 kms(10-16 inch dia) pipeline,5 dispatch terminals,9 tap-off points and 3 intermediate booster stations. Another project recently commissioned by National Oil Company India, has a capacity to transmit 700,000 tons of LPG through a pipeline of 273 kms, linking Panipat with Jullandar.

If a similar project is installed at Gawadar to take surface deliveries from Iran and ocean freight deliveries from other middle-eastern sources, competitive pricing would be obtained and there would be diversity of supply sources reducing supply risk. IPI project is costing 6.7 Billion USD for 1164 Bcf of natural gas. Pakistan’s share in this project is to be 50% as per previous configuration (about 500 billion cft), with a share in investment of 2.006 billion USD. Pakistan’s annual consumption of natural gas is 1275 Bcf .If a 5000 tpd(1.7mtpa) LPG pipeline is installed between Gawadar-Nawabshah, it would cater to 80 Bcf equivalent of natural gas, which is 6.27 % of the total demand. For comparison, this would be 4 times current consumption of LPG.

LPG Hub at Pak-Afghan Border

There is a scope and rationale to establish a LPG hub somewhere on and around Pak-Afghan border to cater for the requirements of northern areas, KP and FATA. There is severe problem of modern cooking fuel in these areas. LPG prices here are found to be 25-35% higher than elsewhere in Pakistan. Piped gas has reached less than 13% of the population of this region, which is lower than the country average of 20%.LPG from Turkmenistan and other Central Asian countries comes down to Afghanistan through an established trade network. The same sources can be tapped for meeting the requirements of the northern region. A LPG hub can be established there with storage and distribution infrastructure. As mentioned earlier, subsidized or GST-less LPG can be distributed under private supply network, under a fuel Ration Card system. Alternatively, the proposed LPG hub can be created around Chanda gas field in Kohat, integrated with LPG imports from or via Afghanistan.