THE PULSE

Can China Solve Pakistan’s Energy Crisis?

CPEC has great promise, but Pakistan must be clear-eyed
about the environmental and political costs.
By Sheraz Aziz
June 12, 2019

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The Belt and Road After COVID-19

Chinese President Xi Jinping and then-Pakistani Prime Minister Nawaz Sharif

inaugurate CPEC projects in April 2015.
Credit: Pakistan Prime Minister’s OfficeADVERTISEMENT

Pakistan’s energy crisis is a key factor hampering its economic growth. The public bears the
brunt of this chronic shortfall, which is caused by several factors. Nothing has worked so far to
find a permanent fix to this crisis, so the Pakistani government and the public have welcomed
China’s recent intervention.
Beijing is interested in making substantial investments in the country’s energy sector under
the China-Pakistan Economic Corridor (CPEC). CPEC is a part of China’s ambitious Belt and Road
Initiative, which aims to connect Europe, Africa, and the rest with China to increase trade and
growth.
When President Xi Jinping announced a $46 billion investment, many began to hope that this
would end all of Pakistan’s economic problems. Some even equated it with the Marshall Plan.
The Pakistani media and the ruling elite have suggested that that the CPEC agreement will end
all of Pakistan’s economic woes.
CPEC promises a number of infrastructure projects of various kinds — roads, highways, bridges,
and energy projects — across Pakistan to facilitate trade and connectivity between the two
nations. It will also connect China’s western province of Xinjiang to the Indian Ocean through
the port of Gwadar in Pakistan’s Balochistan province. However, the bulk of CPEC investments –
about $35 billion – will go to energy projects, including solar, coal, hydropower, and natural gas.
According to official estimates, 21 new projects will generate nearly 17,000 megawatts of
energy. Under CPEC, 17 energy projects have been finalized to date and four more are under
consideration.
While this massive multi-pronged investment is a great relief, Pakistan must approach it with
great caution.
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Pakistan should look to China for assistance as an equal partner, but it should not give China a
monopoly over its energy sector. There are already concerns that due to CPEC, Chinese firms
are benefiting more than their Pakistani counterparts.
In January 2018, Dawn reported that Pakistani firms have been denied contracts for power and
other projects. They quoted a senior government advisor who said even equipment and raw
materials for the projects were being imported from China.
“Labor is also coming from China. There are no restrictions on Chinese firms to involve Pakistani
contractors and use local equipment and labor as they take the lion’s share of infrastructure
projects,” the official complained.
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Geopolitical issues in Pakistan are another concern, as turmoil in Balochistan poses a constant
threat to peace and stability. A recent attack on Chinese investors at the Pearl Continental Hotel
in Gwadar demonstrated the seriousness of this threat. The Baloch insurgents often target
energy infrastructure projects, such as gas pipelines and electricity towers, because they see
China as an imperial force that, along with the Pakistan government, wants to plunder
Balochistan’s resources. Minimizing violence directed toward infrastructure is vital for the
success of CPEC.
Pakistan’s Energy Crisis
Pakistan’s energy sector has been in a perpetual state of crisis for several years. Electricity
outages last from 6-8 hours at a time and occur daily throughout the country. These
blackouts cost the economy $18 billion in 2015 alone. Pakistan currently produces an average of
25,000 megawatts (MW) and during peak seasons it has an average electricity shortage of up to
7,000 MW, mainly due to inefficient and outdated power plants and infrastructure. To deal with
this shortage, industries and households are forced to use diesel electric generators to meet
their daily energy demands.
According to Safiya Aftab of the Norwegian Peacebuilding Resource Center, the current crisis
started around 25 years ago when the country moved its energy production from hydropower
to imported furnace oil. Consequently, the cost of power generation increased, while
corruption and mismanagement in the energy sector let bills from households slip. This, in
return, triggered delayed payments for imported furnace oil, natural gas, and other sources. To
remedy this, the government applied for loans to finance the unprofitable energy industry, thus
plunging it into a never-ending cycle of debt. For every 100 units of electricity that power plants
generate, they only get paid for 30.

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World Bank data shows 99 percent of Pakistanis had access to electricity in 2016. However,
poor management made it difficult to attract investments in manufacturing and the service
sector.
Following China’s Lead – or Finding a Better Path
China’s record of meeting its own electricity demands, coupled with its rapid economic growth,
demonstrates that it has the potential to pull Pakistan out of its energy crisis. According to the
International Energy Agency (IEA), China’s energy consumption was at a mere 131 million
tonnes oil equivalent (Mtoe) in 1965. But with an increasing GDP, it had to meet higher and
higher demand, and by 2015, China was consuming 3,000 Mtoe. However, most of their energy
production has been fueled by coal, despite China’s commitment to becoming a global leader in
renewable energy by 2030 and a reduction in the share of coal in energy consumption from
87.1 percent in 1965 to 63.7 percent by 2015.
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China is the world’s largest carbon dixoide emitter. Considering how hard chronic air
pollution has hit Beijing and several major Chinese cities, developing countries should be
cautious in taking the same path. As Pakistan grapples with climate change as one of the
countries being hit hardest by global warming, it should consider how coal plants will affect its
cities in the long term. Last winter, Lahore ranked as one of the most polluted cities in the world
with the worst air smog ever recorded in the country.
While solving its energy needs is a priority, Pakistan should work on renewable energy projects
and look for viable solutions to meet its demands. Currently, renewable energy
production stands at one-third of total energy generation, stemming mostly from large
hydropower plants in the north. The share of renewable energy from solar power only stands at
a meager four percent of the total share of energy being produced in the country. The
International Renewable Energy Agency estimates 50 GW of theoretical wind potential in the
southern provinces of Sindh and Balochistan, but this potential remains largely untapped.
Pakistan should solve its energy problems while, at the same time, making it a priority to keep
the environment clean. Luckily, there has been some headway on that front.
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In January, the government proposed eliminating taxes for solar and wind power
manufacturing. It also announced plans to increase the share of renewable energy generation
to 30 percent by 2030. The government intends to add 18,000 MW to its grid from renewable
energy. While doing so, Pakistan should make renewable energy production a homegrown
industry by setting up manufacturing zones to boost the economy.
The Future of Energy
To be a leader in the renewable energy industry, Pakistan should follow the Indian experience,
where the government established a chain of outstanding Indian Institutes of Technology (IITs).
These institutions helped India foresee the future and produce brilliant graduates in relevant
fields.
Pakistan must embark on a similar process. This needs consistency and a vision for the future on
the part of the country’s leadership. The government should commit to a long-term plan to
exploit this industry of the future. It can take advantage of Chinese support and technical
assistance, but the attainment of self-reliance must be its ultimate goal.
With its potential in solar and wind power and a massive youth population, Pakistan can
become a major powerhouse and a beacon of hope for other developing countries in the world
in the fight against climate change. Maybe that’s the Naya Pakistan (New Pakistan) Prime
Minister Imran Khan should promise to the nation.
Sheraz Aziz, currently based in Washington, DC, is a Karachi-born engineer who has studied and
worked in the renewable energy industry in China.
Llllllll Powering the Powerless in Pakistan
A roadmap to finally solving Pakistan’s energy crisis through
“energy productivity.”
In a developing country like Pakistan, a reliable, uninterrupted, and affordable energy supply is a
fundamental precondition for reducing poverty, encouraging investment, and boosting economic
growth. Among other challenges, the newly elected Pakistan Tehreek-e-Insaf government under the
leadership of Imran Khan inherits a very stagnant energy sector. Despite broad access to electricity (99
percent of the population had access to electricity in 2016, compared to 59 percent of the population in
1990), the country experiences massive blackouts (load shedding of 6-8 hours a day for households and
1-2 hours a day for the industry). Because of poor energy management, Pakistan’s energy resources
have been used inefficiently for decades. As a result, the nation faces a serious energy crisis that has
often stymied manufacturing and the service sector and disrupted power supplies in communities and
households across the nation. According to a survey by the World Bank, 66.7 percent of the businesses
in Pakistan cite electricity shortages as a more significant obstacle to business than corruption (11.7
percent) and crime/terrorism (5.5 percent). In light of these factors, there is an urgent need to innovate
in the energy sector of the country.

Fortunately, Pakistan has a high renewable energy potential, which has been elaborated in many
studies on Pakistan. A recent report published by USAID attests to Pakistan’s energy potential, stating
that it can potentially produce 100,000 MW from solar energy alone. Despite the potential, Pakistan
remains “powerless” when it comes to adequately powering lights for its homes, machinery for its
factories, and stoves for its kitchens. Data from many sources, including the Ministry of Water & Power
and Pakistan Economic Surveys, over the past five years show that Pakistan has been facing an average
shortfall of between 4,000-5,000 MW.

This acute energy crisis is a result of flawed energy policies pursued for decades, the high cost of
generation, and aging and inadequate transmission, among other causes. In addition to transmission
losses and distribution thefts, an entrenched bureaucratic culture marked by poor organization,
planning, and project implementation among Pakistan’s power operating companies only compounds
the problem.

Power shortages are also rooted in Pakistan’s irrational and increasingly unaffordable energy mix: 64
percent thermal, 30 hydropower, and 6 percent nuclear. A high reliance on thermal power plants (which
in turn are run by natural gas, oil, or coal) and hydropower seldom assure a continuous flow of power.
Heavy dependence on oil-based energy makes power high-priced. The prevailing energy crisis is costly to
the economy in the form of huge subsidies and high circular debts. Politicians and policymakers in
Pakistan have made little real attempt to diversify the nation’s energy supplies and to shift dependence
form expensive and imported oil toward potentially cheaper and cleaner resources available in the
country (Pakistan’s dependence on oil imports is 24 percent, compared to India’s 18 percent and
Bangladesh’s 21 percent). Pakistan’s stubborn reliance on fossil fuels continued even after the oil shocks
of 1973 and 1979.

The misguided energy mix also exacerbates the nation’s already serious environmental problems, which
manifests itself in poor air quality and unsafe drinking water. Pakistan ranked a dismal 148th out of 175
countries, according to Yale and Columbia University’s Environmental Performance Index.
One solution to Pakistan’s energy crisis (and interrelated environmental deterioration) is to provide
incentives for the development of distributed energy resources, i.e., encourage a shift toward renewable
energy resources such as solar, wind, and biogas. Fortunately, Pakistan is endowed with renewable
energy resources. It not only has potentially bountiful supplies of solar energy but also could tap possible
sources of wind power, especially along the coastal areas of the Arabian Sea. The prospects for
renewable energy in Pakistan are heartening. Energy experts estimate that Pakistan has a total
renewable energy potential of about 167.7 GW, more than enough to meet the nation’s total demand
for electricity.

Better late than never, Pakistan has started to acknowledge its renewable energy potential as evidenced
by the construction of Quaid-e-Azam Solar Park, with a nameplate capacity of 1,000 MW. There is a need
for more additional steps beyond the Solar Park. In fact, all these steps should be part of a multipronged
“energy productivity” policy. By encouraging energy conservation (efficiency), on the one hand, and
facilitating a move toward clean renewables, on the other, the productivity policy will not only enhance
energy security but also improve the environment.

Energy Efficiency vs. Energy Productivity

Energy efficiency (doing more tasks with less energy, as defined by Berkeley physicist Richard Muller) is
“cheaper than cheap.” It doesn’t cost much. A McKinsey & Company report finds that savings made from
energy conservation and efficiency would be enough to pay for projects such as expanding wind from
energy production and installing solar panels.

In general, discussions about energy efficiency often fixate on its ability to lower energy consumption,
reduce expenditures, and curtail greenhouse gas emissions. It is worth exploring if this mantra would
work in developing Pakistan.

Like any emerging economy, Pakistan focuses on growth and poverty alleviation, and the additional
goods and services needed to produce these gains. More business activities, infrastructure, housing,
education, and health services require more energy consumption. Paradoxically, the very idea of energy
efficiency remains unappreciated, in part, by a perception that it is a tool designed to reduce rather than
expand consumption and production. Since the focus in Pakistan remains on growth, which the nation
views as central to its future good, energy efficiency is dismissed as shorthand for cutting down on
growth.

In fact, presenting energy efficiency as “doing more with less,” as is the case in developed countries,
tends to get lost in translation in countries such as Pakistan. Thus, a change in the energy efficiency
paradigm is needed to better promote energy efficiency in a way that links such efforts to improved
living standards and increased prosperity. A more inclusive alternative narrative such as energy
productivity should be advocated — that is, producing more goods and services with the same energy
(equivalently, “doing more with the same”). As opposed to the traditional energy efficiency paradigm
focusing solely on fewer inputs (“more with less”), energy productivity focuses on generating more
outputs with the same inputs.

Beyond the reframing of energy efficiency as a rhetorical concept, there is a need for developing a sound
and thoughtful energy productivity policy framework. Such a policy framework would inculcate
renewable energy as a significant aspect of energy productivity policy. In the process, it would
ameliorate energy security, address environmental degradation, stimulate economic growth, and, last
but not least, mitigate public worries.
 However, the energy productivity policy and its subsequent implementation cannot be viewed in a
vacuum. Cautious deliberations by concerned institutions must take place to advance the tactical and
strategic goals that are sought. In this regard, the government of Pakistan must play a prominent role
not only to ensure political stability and institutional revamp but also to guarantee regional peace and
security.

Aside from the distinct challenges of financing “sunk” and “fixed” costs amid the historic debts and
chronic losses, another significant constraint is the lack of appropriate technology in the implementation
of energy productivity policy. Pakistan needs to stay abreast of high technology to harness its renewable
energy resources and materialize its energy efficiency goals. There are studies that talk about
technological impoverishment of Pakistan. Technological penury is one prime reason why Pakistan has
not been able to capitalize on its high abundance of renewable energy potential. The lack of
technological knowhow also helps to explain why non-hydro renewables currently account for less than
4 percent (roughly 900 MW) of total installed electricity capacity against the medium-term plan of
having a minimum capacity of 9,700 MW by 2030. Given this, the role of technology transfer in
developing renewables and adopting energy conservation is worth exploring.

To sum it up, I promote an alternative approach of energy productivity policy that not only redefines
energy efficiency, but also includes it along with an emphasis on renewable sources to address energy
crises in Pakistan. Concerned ministries would have to be cognizant of the conditions in the energy
productivity policy that would ameliorate power blackouts. For successful implementation of the policy,
the government would have to ensure that regulatory agencies coordinate their efforts with power
companies to improve energy distribution, generation, and transmission. Undoubtedly, the government
would show its firm resolve in promoting energy productivity reforms and eliminating constraints to
effective energy productivity policy implementation. Only then the nation will witness an “energized”
homeland, healthy environment, improved economy, and, ultimately a better quality of life for all
citizens.

Muhammad Salar Khan is a Ph.D. Public Policy candidate and graduate research assistant at Schar Scool
of Policy & Government, George Mason University. He tweets at @salarppolicy
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