Post on 26-Mar-2018
Blueprint # 1 - Normalization of NaturalGas Prices – Recommendations
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• It is recommended that natural gas pricing in Pakistan be
progressively normalized to its replacement /replenishment
value via a “gas normalization levy” for existing gas supplies
and de-regulation for new gas supplies, local or imports.
(Currently this means adjusting the natural gas price to the level
of the nearest replacement fuel in each economic sector - LPG
for residential , commercial & transport, and fuel oil for industrial
& power. In due course this will mean adjustment to the
replenishment pricing of natural gas imports).
• It is further recommended that gas pricing slabs be abolished
and a single gas price, similar to oil pricing, be applied for all
volumes. Direct subsidies may be given to life-line customers
using the additional revenues from the “gas normalization levy”.
Blueprint # 1 - Normalization of NaturalGas Prices - Benefits
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1. Reduced Gas Demand via Energy Conservation - an immediate
benefit of normalized natural gas prices would be a 15 – 20%
reduced demand from the economic sectors through energy
conservation and use of efficient gas appliances.
2. Increased Gas Supplies – normalized market-based natural gas
prices will incentivize increased E&P activity in the country. The
revenue from the gas normalization levy (estimated $ 1
billion/year for each $ 1/mmbtu price increase) will also enable the
government to fund gas imports infrastructure.
3. Enhanced GDP Growth Rate – increased gas availability should
enhance Pakistan’s GDP growth rate through assured gas supply
for industry & power. These segments will also need to modernize
and improve their production efficiencies to remain competitive in
a market-based gas pricing environment.
Blueprint # 2 – Restructuring of the Natural Gas Sector – Issues
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1. Natural gas supply has become a political tool The state-controlled gas utilities SNGPL & SSGC remain under
consistent political pressure to supply gas to non-viable
consumers regardless of business merit or availability of natural
gas, which has resulted in over-commitment and growing gas
shortages for all consumer segments.
2. Increasing Natural Gas theft & non-paymentThe quantum of unaccounted for gas (UFG) is reaching alarming
proportions, with 8 – 10% of gas supply lost, and the state-
controlled gas utilities being unable to implement strong
administrative and legal measures to control the situation due to
political pressures.
Blueprint # 2 – Restructuring of the Natural Gas Sector – Recommendations
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It is recommended that the natural gas sector be re-structured as
follows:
• A single state-controlled natural gas transmission company -
for transmitting natural gas on an open-access basis for all
suppliers / consumers at a regulator-controlled grid tariff. This
company would have no gas purchase or marketing role.
• Multiple natural gas distribution & marketing companies in the
private sector - each company managing the gas distribution
grid in a particular region or city, with the ability to purchase &
market gas at de-regulated prices to all consumer segments
within its zone, while at the same time providing open-access to
third-party gas suppliers against a regulator-controlled grid
tariff to create a competitive market.
• Gas theft to be declared a “non-bailable offence” with a high
penalty
Blueprint # 2 – Restructuring of the Natural Gas Sector – Benefits
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1. Security of Gas Transmission infrastructureState control of the vital high-pressure gas transmission trunk-line
will ensure long-term viability of this crucial infrastructure in the
national interest.
2. Business Discipline & Reduced LossesPrivatization of natural gas distribution & marketing should lead to
reduced political pressures in this sector, allowing better business
& financial discipline and more stringent control of gas losses.
3. A Competitive Gas MarketOpen access to the gas market for all third-party gas suppliers,
together with de-regulated prices, will increase natural gas
supplies into the market and, in due course, lead to healthy
competition and reducing gas prices.
Blueprint # 3 – A Dynamic E&P Sector - Issues
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1. Unattractive Price IncentivesThe current price & fiscal regime for the E&P sector in Pakistan
is not attractive for major investments to be undertaken which
are critical for creating a dynamic E&P environment, particularly
for offshore drilling and unconventional gas resources such as
tight gas, shale gas, coal bed methane, gas hydrates etc.
2. Uncertain Security & Political Environment Innovative political solutions will be required to open-up access
to large E&P acreage in the country which is currently off-limits
for security reasons, and assured continuity of policies by
successive governments will be a pre-requisite for major E&P
investments in Pakistan.
Blueprint # 3 – A Dynamic E&P Sector- Recommendations
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In a major bid to raise the level of E&P development in Pakistan it is
recommended that:
• The E&P sector be progressively de-regulated and, as the first
step, be allowed to sell new natural gas discoveries, both
conventional and unconventional, at market based de-regulated
pricing under standard government taxation & royalty
conditions (with exemption from any gas normalization levy).
• E&P sector have open access to the gas transmission &
distribution grids at regulator-controlled grid tariff and be able
to sell natural gas directly to the proposed private sector
natural gas distribution & marketing companies as well as to
bulk consumers in the industry and power segments.
Blueprint # 3 – A Dynamic E&P Sector- Benefits
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1. Attracting Large-scale Investment in the E&P Sector An early benefit of normalization of natural gas prices and
opening up the gas market in Pakistan should be to attract large-
scale investment in the E&P sector, resulting in dynamic activity
in both onshore & offshore exploration areas and for
conventional & unconventional gas resources.
2. A Better Security & Policy environmentWith attractive market conditions, the E&P companies are likely to
work closely with the federal & provincial governments to develop
suitable security & policy arrangements for sustainable E&P
development.
Energy “Blueprints” for Pakistan …
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Blueprint # 4 –
Fast-tracking Liquefied Natural Gas (LNG)
Imports
Blueprint # 4 – Fast-tracking Liquefied Natural Gas (LNG) Imports - Issues
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1. Pakistan’s Ability to Pay for LNGUnlike oil imports which can be bought on short-term/spot
contracts due to a highly liquid market, LNG has been typically
sold against long-term, take-or pay contracts which require the
buyer to have a high credit rating for assurance of long-term
payments. Pakistan’s current credit rating of below investment
grade is not conducive for long-term LNG contracts.
2. Lack of Infrastructure & Inadequate Port ConditionsLNG import terminals will require significant investment (either
as capital expenditure for land-based facilities or as operating
cost for floating terminals), as well as port accessibility for large-
sized LNG vessels, which no investor can undertake without
government support.
Blueprint # 4 – Fast-tracking LNG Imports- Recommendations
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With the global LNG market becoming more liquid on the back of
increasing global LNG production and reduced demand in the
USA due to its enormous shale-gas discoveries, it is
recommended that Pakistan take benefit of this evolving market
change and fast-track LNG imports as follows:
• Merchant (tolling) LNG import terminals be set-up by the
private-sector to enable early spot/short-term LNG imports.
These terminals to be provided capacity-utilization guarantees
by the government for an initial period, and to have open-
access for third-party LNG suppliers/consumers at a regulator-
controlled terminal tariff to create a competitive market.
• Development of ports be undertaken by the government on fast-
track basis, using revenues from the proposed “gas
normalization levy”, to provide accessibility for large-sized LNG
vessels, a key requirement for sustainable LNG imports.
Blueprint # 4 – Fast-tracking Liquefied Natural Gas (LNG) Imports – Benefits
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1. Competitive LNG/Gas PricesBy fast-tracking LNG imports, Pakistan will benefit from
competitive LNG import prices through spot/short-term purchases,
which will also provide a check on local gas prices as the gas
market de-regulates.
2. Increased Gas Supplies & GDP GrowthLNG imports will be a key element in meeting the energy short-fall
in Pakistan and providing assured gas availability for the industry
& power sectors, leading to higher revenue generation and
accelerated GDP growth.
3. Improving Port AccessibilityProviding port access for large-sized shipping is a crucial step
towards reducing the cost of oil and gas imports, and making
Pakistan an attractive destination for energy supplies.
172007 data for Japan, Sri Lanka, India, Thailand; 2008 data for Hong Kong, Malaysia, Nepal; 2009 data for Philippines,
Singapore, Korea, Bangladesh, and Pakistan; converted into PKR at 83.5PKR/USD
Pakistan’s residential power tariff is one of the lowest in the region …
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An equalized National Power Tariff is the
root cause of power sector problems …
Power Distribution Companies (DISCOs) – Lahore, Gujranwala, Faisalabad, Islamabad, Multan, Hyderabad,
Quetta, Peshawar (+ KESC – Karachi)
Blueprint # 5 – Rationalization of the Power Tariff - Issues
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1. Low, Regulated Power Tariff & Circular DebtThe current power tariff in Pakistan does not reflect the change
in ground realities whereby there has been a significant shift
from hydel to thermal power generation over the past decade,
and successive governments have failed to recover true costs
from the consumer or provide sufficient subsidies, leading to a
crippling circular debt.
2. A Single, National Tariff & Pricing Slabs are not viableA single, nation-wide power tariff does not recognize the wide
disparities in power generation & distribution costs in different
regions of the country and provides no incentive for efficiency
or reduced costs, while pricing slabs force the consumer to
resort to unfair means (multi-metering etc) to remain in the
lowest pricing slab and contributes to under-recovery of costs.
Blueprint # 5 – Rationalization of thePower Tariff - Recommendations
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With the power sector in Pakistan in a state of serious crisis and
becoming a significant barrier for national development with
growing power shortages, it is recommended as follows:
• The power tariff be de-centralized to distribution circles (initially
DISCOs & KESC) to reflect the true costs of power generation &
distribution that exist in different parts of the country.
• The power tariff for each distribution circle be de-regulated,
with no pricing slabs and no government subsidy (lifeline
consumers may be given a direct subsidy).
• Open access to the power transmission & distribution grids be
provided for all third-party power suppliers to create a
competitive market.
• Tariffs for hydel & nuclear power be gradually adjusted to
reflect replacement value, which includes the high cost of
building new dams & nuclear plants.
Blueprint # 5 – Rationalization of thePower Tariff – Benefits
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The key benefits of de-centralization and de-regulation of the power
tariff will be:
• True reflection & recovery of power generation & distribution
costs in each distribution circle
• Elimination of government subsidies and burden on exchequer
• Providing a solid business grounding for the main-stream power
sector and reducing the rapid growth of small-scale “captive”
power generation in Pakistan which is the consumer response to
growing power shortages
• Cost impact of inefficiencies (line losses, non-payment) becoming
localized within each distribution circle
• De-regulation of the power tariff providing incentives for large-
scale investment in power generation capacity
• Power supply becoming a business issue instead of a political
entitlement
Blueprint # 6 – Transforming the Power Sector - Issues
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1. Power Supply has become a political tool – the power
sector in Pakistan is centrally controlled and heavily regulated
by the government, with the state-owned power utilities being
under political pressure to supply power to consumers
regardless of business merit, which has resulted in growing
shortages for all consumer segments.
2. Non-payment Culture and High T&D Losses - a
dangerous sense of entitlement has crept into the power sector
whereby both government and private consumers feel they do
not need to pay for power consumed, and are able to resort to
power theft & non-payment without fear of repercussions.
3. No Incentives for Investment – multiple problems in the
power sector, particularly low tariff and high losses leading to
circular debt, have made it unattractive for new investment.
Blueprint # 6 – Transforming the Power Sector – Recommendations
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It is recommended that the power sector in Pakistan be re-
structured to create a competitive & vibrant sector:
• NTDC/WPPO to continue functioning as the state-owned high-
voltage power transmission company, with open-access for all
power suppliers at a regulator-controlled grid tariff, but its role
as central power purchaser to be diluted and eventually
eliminated, as power purchase is progressively de-centralized
to the distribution circles.
• All power distribution & marketing companies (DISCOs) to be
privatized, with each company purchasing & marketing power
to consumer segments within its distribution circle while
providing open-access to third-party power suppliers against a
regulator-controlled grid tariff to create an open and
competitive market.
• Power theft to be declared a “non-bailable offence” with a high
penalty.
Blueprint # 6 – Transforming the Power Sector – Benefits
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1. Security of High-Voltage Transmission infrastructureState control of the vital high-voltage power transmission &
distribution trunk-lines will ensure long-term viability of this crucial
infrastructure in the national interest.
2. Business DisciplinePrivatization of the power distribution & marketing companies
(DISCOs) and a de-regulated power tariff should lead to a
transparent and efficient power sector with improved consumer
interface allowing better business & financial discipline.
3. Competitive MarketOpen access to the power sector will create a multi-buyer market
with directly negotiated pricing, allowing power suppliers the
opportunity to create innovative “power packages” for the
consumer based on specific requirements and paying ability.
Blueprint # 7 – Growing the Power Generation Capacity - Issues
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1. Insufficient Power GenerationPakistan’s current installed power generation capacity of 19,000
MW (effective 14,000 MW) is insufficient to meet the country’s
needs and will require to be at least doubled in the next 15 years.
2. Inefficient Public-sector Power PlantsThe state-owned thermal power plants (4,000 MW), with the older
steam-turbine technology, have low conversion efficiencies and
are expensive to maintain and operate.
3. Under-utilized Private-sector Power Plants (IPPs)The IPPs (currently 4,000 MW) based on newer and more
efficient oil & gas fired technologies, have multiple problems
including insufficient gas availability and the circular debt,
which are resulting in their under-utilization.
Blueprint # 7 – Growing the Power Generation Capacity - Recommendations
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The following key steps are recommended for growing the power
generation capacity in Pakistan:
• Hydel and nuclear power generation remain a state
responsibility, and their tariffs be progressively adjusted to
provide funds for the government to install new hydel
generation and nuclear power plants.
• All thermal power generation based on oil, gas and coal to be in
the private sector, and the state-owned thermal power plants
privatized. With the power tariff de-centralized and de-regulated,
these power plants will operate in a competitive market with no
requirement of government support.
• Legislation to be passed by the government to allow
disconnection of power to government bodies on account of
non-payment of power bills.
• Limited period subsidies be provided for development of wind
and solar power generation.
Blueprint # 7 – Growing the Power Generation Capacity – Benefits
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1. Increased Investment Open access to the power grid and the power market, deregulated
tariffs and reduced regulatory hurdles will be powerful incentives
for the private sector to invest in new power generation capacity in
Pakistan and, in due course, will lead to healthy competition and
reduced power tariffs.
2. Enhanced Conversion EfficienciesAll thermal power plants, being in the private sector, will need to
operate at high conversion efficiencies to be able to compete in a
de-regulated power market.
3. Accelerated GDP GrowthSustained and reliable power supply to all economic segments will
provide a strong push for accelerated GDP growth in Pakistan.
Blueprint # 8 – Oil Sector: Introduction of Future Fuels - Issues
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1. Regulated Oil Pricing Regulated pricing & margins of the main fuels, petrol and diesel,
is a significant disincentive for the introduction of future fuels in
Pakistan as it does not allow differentiated pricing for higher
quality fuels.
2. Low Quality SpecificationsGovernment specifications for petrol and diesel are out-dated
and not in line with global innovations in fuels quality,
particularly to meet modern automotive requirements and
international emissions standards.
3. Need to Upgrade Local RefineriesMost of the local refineries do not have the capability to produce
future fuels and require fiscal support for upgrading their
refining assets & processes.
Blueprint # 8 – Oil Sector: Introduction of Future Fuels - Recommendations
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• With significant competition existing in the oil marketing sector,
it is recommended that pricing & margins of the main fuels be
de-regulated and the regulatory authority be tasked with
ensuring fair competition for consumer protection.
• It is further recommended that minimum specifications for fuels
quality be progressively aligned with international
specifications and the capability of local refineries be enhanced
through time-bound fiscal support to enable them to produce
future fuels.
• Subsequent to de-regulation of oil pricing & margins, a road-
map be agreed between government and the oil sector for the
introduction of first generation bio-fuels to meet modern
emissions standards and to support the long-term development
of the agricultural sector in Pakistan.
Blueprint # 8 – Oil Sector: Introduction of Future Fuels – Benefits
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1. Consumer Choice De-regulated oil prices will open the door for the introduction of
differentiated fuels in Pakistan, allowing consumers the choice to
select from different performance fuels as per vehicle requirement.
2. Clean Fuels De-regulated oil prices & margins will allow the government to set
a time-line for the oil sector to phase out high-sulfur diesel & high-
aromatics petrol and phase-in the introduction of clean fuels in line
with international & regional standards.
3. Bio-fuels DevelopmentDe-regulation of oil prices & margins is a pre-condition for the
introduction of bio-fuels in any market, and will enable the
government and oil sector to agree a mandate for marketing of first
generation bio-fuels.
Energy “Blueprints” for Pakistan …
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Blueprint # 9 –
Thar Coal-fields as a Game-Changer for
Pakistan
Blueprint # 9 – Thar Coal-fields as a Game-changer – Challenges
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1. Highly Complex Mining The Thar coal-fields present a significant mining challenge with
thin coal seams buried deep under-ground (high over-hang) and
being immersed in vast saline aquifers.
Coal mining at Thar will be highly capital intensive and will
require very special incentives to attract the necessary foreign
expertise and investment for this giant-scale project.
2. Low Transportability of Thar CoalWith a high ash content, Thar coal cannot be readily transported
and will require to be utilized at the “mine-mouth”. This will
entail significant infrastructure development (water supply,
effluent disposal, road network, power grid etc) for transforming
Thar into a major industrial zone for utilizing its giant coal
reserves.
Blueprint # 9 – Thar Coal-fields as a Game-changer - Recommendations
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To position the Thar coal-fields as a game-changer in the economic
development of Pakistan, it is recommended that:
1. A “Thar Coal Development Master-plan” be formulated with
international support, setting out the road-map for the use of
Thar coal for large-scale power generation and for conversion
into high-value hydrocarbon products, both for domestic
consumption and as a major source of foreign exchange
earnings via exports.
2. The Thar coal-fields be designated as an “export processing
zone” with duty-free imports of equipment, machinery and raw
materials for industrial use, and stream-lined exports of its
products, including power, to within Pakistan (duty-paid) or
outside Pakistan (duty-free) at de-regulated prices directly
negotiated with buyers.
Blueprint # 9 – Thar Coal-fields as a Game-changer - Recommendations
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3. The federal and provincial governments urgently approve and
allocate funds for key infrastructure development of the Thar
coal-fields, including provision of raw water, drainage & effluent
disposal, road network and power transmission line.
4. The Government of Pakistan initiate strategic discussions for
development of Thar Coal reserves with potential international
investors including World Bank, IFC, ADB, China, US, UK,
Japan, Middle East and major global energy companies.
5. Since the Pakistani banking system is not capable of financing
infrastructure projects of this scale, there is an urgent need for
creation of a Domestic Infrastructure Bank to finance large-scale
energy sector infrastructure projects such as Thar Coal.
Blueprint # 10 – Effective Governance of the Energy Sector – Issues
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1. Excessive Regulation The heavily regulated energy sector in Pakistan has resulted in a
large bureaucratic structure which has not allowed the market
supply & demand forces to operate, leading to severe problems
in both the natural gas and the power sectors.
2. Conflicting Objectives of Major MinistriesThe often conflicting objectives of the two major energy sector
ministries, petroleum and power, and their affiliated bodies are
contributing to the on-going issues in the energy sector.
3. Unclear Role of the Regulatory AuthoritiesOGRA & NEPRA’s key purpose of ensuring transparency and
competitiveness in a de-regulated energy market has not been
achieved as the sector continues to remain heavily regulated,
and the role of the two regulatory authorities is unclear.
Blueprint # 10 – Effective Governance of the Energy Sector - Recommendations
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It is recommended that the governance of the energy sector be re-
structured in line with its proposed de-regulation as follows:
1. All energy sector functions of the government be consolidated
under a single Ministry of Energy, with major responsibilities
including development of hydel & nuclear power, management
of the natural gas and power transmission grids, setting out the
de-regulation policies of the government and facilitating energy
sector investments.
2. The regulatory functions of the energy sector be consolidated
under a single Energy Regulatory Authority, with major
responsibilities including monitoring the de-regulated energy
markets for fair competition, ensuring open third-party access
to the gas and power sectors infrastructure and tariff-setting for
such access, and monitoring safety and customer service
standards in the energy sector.
Blueprint # 10 – Effective Governance of the Energy Sector – Benefits
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1. A Vibrant Energy Sector Reduced bureaucratic role in the energy sector should enable the
market demand and supply forces to operate effectively to meet
the consumer needs, leading to a vibrant energy sector
contributing to healthy national development.
2. Clarity of Roles & ResponsibilitiesSimplifying the government role and empowering an independent
regulatory authority to oversee a de-regulated energy sector will
provide clarity of roles for growing this sector.
3. Facilitating Investment GrowthA de-regulated and competitive energy sector with reduced
bureaucratic hurdles is expected to create a positive investment
climate in this vital sector, contributing to accelerated GDP growth
in Pakistan.
“Blueprints” will bring accelerated GDP
growth through sustained Energy availability …
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0.0
10.0
20.0
30.0
40.0
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70.0
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90.0
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120.0
130.0
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1994-9
5
1996-9
7
1998-9
9
2000-0
1
2002-0
3
2004-0
5
2006-0
7
2008-0
9
2010-1
1
2012-1
3
2014-1
5
2016-1
7
2018-1
9
2020-2
1
2022-2
3
2024-2
5
(Million
TO
Es)
Natural Gas Oil Products
Coal Hydel
Nuclear Renew ables
Electricity Import
“Blueprints” Scenario
Historical Consumption