Energy crisis in Pakistan

Terrorism is a constant threat in Pakistan, but it is not the only factor that is holding back the Asian nation. Pakistan is also in the grips of a worsening energy crisis.

The country’s infrastructure is crumbling, and this frequently causes blackouts. One of the most disruptive happened in January, when 80% of the country was plunged into darkness after a power line broke down, and this is far from an isolated incident. In some cases the public anger about these blackouts can spill over into rioting, especially in the hot summer where power is needed to make it bearable to work during the day and sleep at night.

US research organisation Wilson Center has attempted to put some numbers to this crisis. In late June, it published a report called ‘Pakistan’s Interminable Energy Crisis’, which said that energy shortfalls in Pakistan have been around 50% of the country’s total demand. In day-to-day life, these energy shortages can be every bit as disruptive as terrorist attacks.

This report also said that peak power demand in Pakistan is set to exceed current installed capacity by 10GW in the next few years; and that the country’s total energy demand is set to double by 2025. This opens an opportunity for wind energy investors to get involved in the Pakistani energy market, but those investors would be wise to exercise some caution.

Pakistan’s leaders are looking for solutions to their energy problems, and they see foreign investment as a way to help fix them, with particular interest from China, Iran and Russia. There are projects being planned in the country’s established energy sectors — oil (37% of its energy mix), hydro (31%) and gas (28%) — but wind and solar are also in its plans.

Earlier this year, Chinese power firm China Three Gorges Power Corporation completed a 49.5MW wind farm that is its first in Pakistan; and, in total, the government said last month that it has approved some 500MW of wind farms since Prime Minister Nawaz Sharif came to power in June 2013. Pakistan had wind capacity of 256MW at the end of 2014.

The country’s Alternative Energy Board is also in talks for projects totalling 774MW in wind and 771MW in solar; and is estimating that Pakistan could add as much as 50GW of wind capacity to its current generation capacity of 22GW. It is looking to renewables as a way to fill power shortfalls that the government estimates are costing the economy $2bn a year.

Lenders including International Finance Corporation, Asian Development Bank, Overseas Private Investment Corporation and Habib Bank are among those financing wind projects in the country. Other overseas investors, however, should exercise caution.

This is not only about terrorism, which is a constant risk that drives away potential foreign investors in the country. However, investors must also be wary about the lack of joined-up-thinking on energy policy that can guide the country’s approach to renewables.

Currently, energy policy is formulated by federal and local institutions, with the relevant bodies including the Ministry of Water & Power; Ministry of Planning & Development; and the Alternative Energy Board. If the country is serious about addressing its problems with energy policy then an overarching energy ministry to guide its plans would be a big help.

And then there is the lack of a reliable transmission grid, which led to the 80% blackout in January. This is a significant financial risk for operators exporting energy from wind farms.

Investors looking at Pakistan should go in with their eyes open. But then again, if you are looking to put money into this part of the world, booming India would be a better bet.