Shifting fuel mix

Some key developments are changing how the power sector looks like. These developments are largely to do with altering the fuel mix. Once a gas-heavy country, Pakistan’s depleting natural gas reserves shifted the country’s power generation to the most expensive fuel type: furnace oil. However, with new generation capacities being added (both CPEC and non-CPEC) and the government’s policy stance, this mix might change for good.

In a key development, the government of Pakistan has recently shut down some furnace oil based power plants with a cumulative capacity of around 8,000MW in order to reduce reliance on the expensive fuel. This has and will reduce the demand for furnace oil as the government is also considering a ban on furnace oil imports. And together with additional capacities in coal, renewables, and gas (particularly LNG), the fuel mix for the country’s power generation will look a lot different from what it has been like in the last decade.

Over 14,000MW of capacity addition had been planned for the medium term. Out of this, around 5000MW has been added to the system, which largely consists of LNG based power plants like Bhikki, Balloki and Haveli Bahadur Shah, Sahiwal Coal Power Plant, and some wind and solar additions. While the remaining 9000 plus megawatts that are likely to join the system by FY19 include coal, LNG and some big hydel projects. This threatens generation based on furnace oil, which is a key fuel sold by the OMCs to the power sector.

The Prime Minister has just inaugurated the second LNG terminal where the government is committed to eliminating the energy shortage from the country. Pakistan at present is importing 600 mmbtu LNG from Qatargas through a deal signed with PSO through Elengy terminal, while with the completion of the second terminal will help the country import another 600 mmbtu.

Here, the government needs to focus on fixing the transmission and distribution side that can turn the desired and expected power surplus sour. It also needs to ensure efficiency in the power sector that continues to be a victim of the circular debt, poor recoveries from the government.