“The energy crisis will be solved before the government’s term ends in 2018,” said Pakistan’s petroleum minister Shahid Abbasi. After Islamabad’s drawn-out struggle with energy shortages, recent developments offer some light at the end of a dark tunnel. But some of the solutions reorient Pakistan’s foreign policies to the detriment of its long-time GCC partners.
Protesters in Karachi complain about 18-hour power cuts, while steel mills and textile factories – which yield half the country’s total exports – are shut down. Compressed natural gas fuelling stations for vehicles lie idle. Insurgents attack electricity lines and power plants, plunging all of Peshawar into darkness in 2013.
Gas production has declined slightly since 2010, while demand would have risen sharply had fuel been available. Electricity generation, meanwhile, is only at the level of 2004, with half of power stations inoperative. The crisis is estimated to cut three percentage points from economic growth.
Pakistan’s security situation has improved greatly since 2014, and the economy has been doing relatively well, but sustained success against extremism depends on delivering jobs and better living standards.
Despite long-standing security and political links, GCC countries may be concerned that Pakistan has been less supportive recently of their diplomatic positions. Meanwhile, Islamabad’s energy and economic ties to Iran and long-term ally China are strengthening.
The lower oil price benefits Pakistan, which is only a small producer. It means cheaper bills for motorists, truckers and oil-fired power plants, still more than a third of the country’s electricity. Cheap oil eases worries about dependence on Arabian Gulf suppliers and their financial aid.
After years of dithering, Pakistan started to import liquefied natural gas from Qatar in March last year and plans two more terminals. With LNG prices at a quarter of their 2014 peak, and new supplies on the way from Australia and the US, Islamabad knows it does not have to rely on Doha’s generosity.
Meanwhile, the Turkmenistan-Afghanistan-Pakistan-India (Tapi) pipeline, long championed by the US to forestall gas purchases from Iran, has shown signs of life recently. Dubai’s Dragon Oil, a subsidiary of Enoc, could be involved alongside state entities from the four partner countries. The visit of the Indian prime minister, Narendra Modi, to Turkmenistan in July was intended to kick-start the pipeline and to raise the Indian flag in what has recently been China’s backyard.
Yet the recent history of gas pipelines through troubled regions such as Yemen and Sinai is not encouraging. Security and political problems mean Tapi remains doubtful. The Iran-Pakistan gas pipeline appears much more realistic, now that the Iranian side of the line is complete and the end of sanctions on Iran should make financing easier.
The China-Pakistan Economic Corridor is meant to dedicate US$45 billion to infrastructure projects in Pakistan. By far the largest share of this, $35bn, is going towards energy, including $500 million for renewable energy projects this year, money for coal-fired power stations and about $2.5bn for the Pakistani leg of the Iran-Pakistan pipeline. Projects such as making the dusty frontier port of Gwadar an energy hub may lack commercial and geographic realism, but Pakistan and Iran are key links in the new conduit from Beijing to the Indian Ocean.
Pakistan’s energy problems lie not just in a lack of supply or infrastructure but in organisation and governance. Electricity is highly subsidised but still most bills go unpaid, while waste and power theft are commonplace. Lower oil and gas prices are a great opportunity to eliminate subsidies and the “circular debt” owed between the power companies and other government entities. Large-scale reform and privatisation of gas and electricity is badly needed.
GCC countries may not have the chequebook to compete with China but they, alongside the US and EU, can work together with Chinese largesse. This could be a more intelligent way out of Pakistan’s energy muddle.
Robin Mills is the chief executive of Qamar Energy and author of The Myth of the Oil Crisis