A long-running energy crisis has helped to throttle Pakistan's economy, with Islamabad turning to China first for support in 2015 and, more recently, Saudi Arabia and the UAE.
Saudi Arabia has pledged $20bn, including a $10bn investment for a new oil refinery in the south-western city of Gwadar. Last year, the UAE and Saudi Arabia promised $6.2bn in aid, including deferred payments for oil and petroleum products. Gwadar is part of the China-Pakistan Economic Corridor (CPEC) infrastructure programme which involves Beijing stumping up $60bn in loans for development and new power stations, mostly coal-fired.
But Saudi and Chinese largesse may not be enough to prevent Pakistan from being forced to seek its 12th bailout from the IMF since 1988. Crushed under an enormous weight of external debt, the country's president Imran Khan knows he must tackle the energy crisis if he wants to usher in stability.
According to the World Bank, Pakistan faces an acute balance of payments crisis brought about by a high current account deficit amounting to 5.8pc of GDP ($18.1bn) in 2018. Exports, after contracting for three consecutive fiscal years, grew by 12.6pc, but stronger import growth of 14.7pc (a large chunk made up of oil) has resulted in a higher trade deficit. "Pakistan's dependence on oil imports, poor current account deficit, and declining foreign reserves are signs of a deep worry," the Bank says.
A growing, fast-urbanising population has made the country thirsty for oil, with 85pc of its energy needs met by imported crude and petroleum products from the Middle East. In the past couple of years, Pakistan has also begun to bring in foreign LNG to meet rising demand. But the bill for crude and LNG is denominated in dollars—against which the rupee lost about 20pc of its value in 2018. Meanwhile, Pakistan's indigenous gas production has been stagnating, one reason why there is a power capacity deficit variously put at between 6GW and 8GW.
With three additional gas-fired power stations scheduled to be brought on line early this year, as well as swelling LNG imports, load shedding is less chronic than it was just 12 months ago, and supply is more closely aligned with demand than a few years back. But many areas still experience daily blackouts.
The problems are manifold. Inadequate transmission infrastructure means that, even when there is enough supply, it does not reach users. Corruption and electricity theft are all too common, as well as leakages and other inefficiencies And, despite recent measures, too often bills remain unpaid. People "are not paying for the electricity they are consuming", which is the biggest problem, says Aftab Awan, a Karachi-based analyst at brokerage Sherman Securities. "For every dollar of electricity generated and supplied, [the suppliers] are receiving 60 cents for it. The other 40 cents are not accounted for."
A revealing World Bank report says energy reforms could save Pakistan's economy $8.4bn in business losses and increase total household incomes by at least $4.5bn a year. In one World Bank survey, 66.7pc of businesses in Pakistan cited electricity shortages as a more significant obstacle to business than corruption (a mere 11.7pc).
The government is taking action to upgrade infrastructure and solve the circular debt problem. Ministers are also attempting to ease pressure by boosting indigenous gas supply by encouraging more exploration and development. Pakistan's domestic gas output has plateaued in the past five years, falling to 1.46tn ft³ in 2017-18, from 1.51tn ft³ in 2012-13, according to a petroleum ministry report.
ExxonMobil and Eni have kicked off drilling operations some 230km (143 miles) from the coast of Karachi, but much more needs to be done. Recently, Pakistani officials indicated that 30 onshore gas blocks would be auctioned off in one or two licensing rounds by the end of 2019. But it should be remembered that many Western companies upped sticks from Pakistan more than a decade ago because of Islamist militant violence. The government hopes better security and an improved pipeline network will lure them back, but that remains to be seen.
The Pakistan Economic Survey 2017-18 says that, when it comes to natural gas, "the gap between demand and supply is widening due to an increase in gas demand and depletion of existing sources". The government has made efforts to exploit indigenous resources as well as import gas though transnational pipelines and LNG to mitigate the shortfall, the report notes.
LNG imports in 2018 totalled 6.1mn t, against 4.8mn t in 2017, according to Trevor Sikorski at research firm Energy Aspects. His 2019 forecast iss for 8mn t, rising to 10mn t following the planned installation of an additional gasification plant near Karachi.
Aleena Ali, a Pakistan specialist at analyst Control Risks says Chinese and Saudi money will not alter the facts and figures behind the energy crisis. "Karachi has not been able to capitalise on the country's indigenous gas reserves, or adequately reform the energy system—as a result foreign energy imports have soared."
Additionally, she says, Pakistan has been forced to suck in capital goods from China as part of opaque loan agreements with Beijing linked to CPEC and the Belt and Road initiative. Ali adds that foreign exchange reserves stood on average at between $7bn and $9bn, insufficient even "to cover the bill for two months of imports".
Investing in its own resources is part of the government's recovery plan. The Pakistan Economic Survey 2017-18 says the government wants to leverage its large indigenous coal reserves (much to the dismay of environmentalists) which are estimated at over 186bn t-"sufficient to meet the energy requirements of the country on long-term sustainable basis".
Domestic production of coal will increase in the coming years, spearheaded by mining activity at the Thar coalfield. But by how much is difficult to predict. Pakistan is having second thoughts about a fossil fuel that is being significantly de-prioritised in neighbouring countries, including China, because of its dirty reputation. The country's planning minister has reportedly told Beijing that it is not interested in developing the Rahim Yar Khan coal-fired power plant, a potential 1.32GW project in the Punjab.
But, in the interim, the survey says the import of coal substantially increased in 2018 due to the commissioning of new coal-based power plants at Sahiwal and elsewhere.
The government is trying to manage a difficult situation. For instance, last year it twice sought to reduce its reliance on expensive imported fuel oil, imposing ad hoc bans on imports to prevent the deficit going higher. Also, it stopped fuel oil being refined at several refineries around the country. "These are forceful ways to move your domestic market away from oil," says Ali.
Importing LNG is part of the solution—it is cleaner than oil and often less pricey, but is hardly cheap. Sikorski says Pakistan has seen gas shortages this year, as well as power shortages "because tenders they went after in 2018 were not filled—as they were too expensive".
"In the September-November period, Asian spot gas was probably at around $10 or $11/mn Btu. Today, we are looking at summer prices of around $6/mn Btu, which is a lot more affordable," Sikorski adds
Pakistan is gradually focusing on renewable energy sources but from a very low base. Renewables constitutes only around 2pc of electricity power generation, although this will increase in the coming years.
In the meantime, the country has probably done enough to plug the supply gap, says Omar Malik, an adviser at Lahore-based energy consultancy Pitco. If all the plants that has been commissioned comes on line in the next couple of years, they will have addressed the supply problem. "But there remain transmission and grid issues. Once you get all this capacity, can you actually transmit it? You need to make huge improvements to infrastructure, and that will require time, and, of course, money."