Fueling the Future: Meeting Pakistan's Energy Needs in the 21st Century

Pakistan's economy is growing, and with this growth comes higher energy consumption and stronger pressures on the country's energy resources. At present, natural gas and oil supply the bulk (80 percent) of Pakistan's energy needs. However, the consumption of those energy sources vastly exceeds the supply. For instance, Pakistan currently produces only 18.3 percent of the oil it consumes, fostering a dependency on imports that places considerable strain on the country's financial position. On the other hand, hydropower and coal are perhaps underutilized today, as Pakistan has ample potential supplies of both.

The need to address Pakistan's present and prospective energy requirements was a topic of discussion during President Bush's visit to Pakistan earlier this year. The joint statement issued by the U.S. and Pakistani presidents at the conclusion of the Bush trip committed the two countries to working together "to develop public and private collaboration on a broad range of energy sources."

On June 23, the Asia Program hosted a day-long conference to consider Pakistan's energy needs over the next 25-30 years, and to promote a more informed discussion on how Pakistan might succeed in meeting its energy requirements. In the conference's opening address, Mukhtar Ahmed, energy adviser to the Pakistan prime minister, noted that 40 percent of Pakistani households are not even connected to the electric grid. Over the next 20 years, he warned, the country's overall demand for energy will increase by 350 percent. During this period, the percentage of Pakistan's total energy needs met from indigenous sources will fall from 72 to 38 percent. Ahmed spoke of the need to develop an integrated energy development plan combining energy imports, the development of indigenous energy resources, and programs emphasizing greater energy efficiency and better management. Pakistan can no longer afford to regard renewable energy as "a curiosity," he asserted. The government also plans to give high priority to tapping the energy resources of Pakistan's neighbors; several projects for the import of natural gas from the Middle East and Central Asia and of power from Tajikistan and Kyrgyzstan are under consideration. The "cornerstone" of the government's long-range policy involves a shift from a predominantly state-controlled industry to an arrangement where the private sector plays a leading role in the development and management of the country's energy program. Text of Keynote Address

Shahid Javed Burki, former finance minister of Pakistan, led off the first panel by arguing that Pakistan should treat energy as a "contributor to economic growth rather than reacting passively to the energy demands of economic growth." He emphasized the east-west energy divide in Pakistan, noting that energy demand is predominantly located in the eastern portions of the country while the west possesses the majority of energy resources. Burki cautioned against aggravating existing regional conflicts by an inequitable sharing of the wealth generated from the resource-rich west. Robert Looney laid out seven alternative investment scenarios that would, by 2035, produce dramatically different energy situations in Pakistan. Choices made today, he asserted, will have a major impact on whether Pakistan succeeds in generating high GDP growth rates a generation hence. Bikash Pandey drew from his extensive experience in South Asia to provide an overview of alternative clean and renewable energy initiatives in rural areas across India, Bangladesh, Sri Lanka, and Nepal. Pakistan, he observed, can learn from the successful projects of its neighbors. Consultant Dorothy Lele stated that social and human development should be the ultimate objective of Pakistan's energy development, not just a by-product. Lele stressed the significance of biomass, as it comprises 30 percent of total energy consumption in Pakistan and is the primary low-income household fuel, and asked whether the neglect of biomass in commercial energy planning is linked to the predominance of women in biomass energy use.

The next panel featured perspectives from the business communities of the two countries and explored the role of the private sector in helping Pakistan address its energy needs. Pakistani businessman Asad Umar emphasized four roadblocks keeping private enterprise from playing a larger role in the energy sector: the unstable political situation in Baluchistan; the slow rate of deregulation and privatization; the political controversy and provincial disagreements associated with storage-based hydroelectric power generation projects; and overlapping responsibilities of the Private Power Investment Board and the National Electricity Power Regulatory Authority. John Hammond of the U.S. Energy Association detailed some of the barriers to U.S. investment in Pakistan's energy sector, including a lack of knowledge on the part of American businesses about Pakistan's market and regulatory structure; a U.S. preference for sales of goods and services instead of investments; and financing difficulties due to political and financial risks. Pakistan needs to demonstrate to the investing world a "show me element"—successful, unaltered private power investment projects that operate without government interference in contractual agreements. The U.S. Chamber of Commerce's Aram Zamgochian listed eight criteria foreign investors look for before deciding to do business in Pakistan's power sector, and emphasized that smaller, less risk-averse companies in particular are interested in working in Pakistan. It all depends on what one's tolerance for risk is, he declared. Like Umar and several other conference speakers, Zamgochian insisted that the U.S. government must reconsider its aversion to a Pakistani nuclear energy program.

The conference's final panel offered perspectives from the U.S. government, the World Bank, and the International Finance Corporation (IFC). Pakistan's rising energy demand, according to the U.S. Department of State's Paul Simons, creates opportunities for regional cooperation. To this end, the U.S. Trade and Development Agency recently convened a meeting in Istanbul that produced an agreement on examining options for exporting Central Asian electricity to Pakistan. Vladislav Vucetic of the World Bank provided a troubling assessment of the state of Pakistan's electricity sector—demand is approaching maximum production capacity, while institutional capacity for policy development and implementation remains low. Worse, failing to resolve these problems may cause investment delays and hamper Pakistan's economic growth. Sanjeev Minocha of the IFC, a major source of private sector financing, noted the paucity of domestic private sector initiatives in Pakistan. The IFC has sought to raise investor confidence through its funding of private Pakistani energy companies, including the new firm Dewan Petroleum. Ultimately, stated Minocha, it is crucial that investment projects take into account the interests of local communities.

In brief concluding observations, Pakistani business executive Zaffar Khan re-emphasized the centrality of secure and affordable sources of energy for Pakistan's future. Energy, job generation, economic growth, and political stability in Pakistan go hand in hand, he averred. Pakistan, by virtue of its location and natural endowments, has many technologically feasible options to meet its growing energy requirements. The challenge lies in establishing the commercial and political feasibility of the various options, and in utilizing the country's limited capital and execution capacity optimally. One would expect all who are friends of Pakistan and who have an interest in stability in South and Central Asia to assist the country in developing its energy options.

By Robert M. Hathaway, Bhumika Muchhala, and Michael Kugelman
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