Pakistan’s Energy Crisis

Since becoming India’s prime minister in May, Narendra Modi has worked to balance his domestic and foreign policy priorities, and has already shown positive signals of proactive decision-making and regional openness, whether by inviting the heads of state from countries in the South Asian Association for Regional Cooperation (SAARC) to his swearing-in-ceremony or by visiting Bhutan for his first official state visit and clearly articulating that "India is committed to good relations with its neighbours." His statement, if seriously acted upon in New Delhi, as well as other nearby capitals, may end up paying major dividends for the region, especially in India’s relations with Pakistan.

As far as the India-Pakistan relationship is concerned, this summer’s letter diplomacy between Modi and his Pakistani counterpart, Prime Minister Nawaz Sharif, is being seen as a game changer on at least two counts. First, Pakistan has finally shown a willingness to eliminate militancy on its own soil, though this is mostly due to a series of terror attacks against the Pakistani state itself. Second, Pakistan urged India to invest in its energy sector, which is crippled with huge power shortages, offering yet another chance to restart stalled talks on the feasibility of electricity trading between the two countries.

According to the International Business Times, Pakistan’s daily power demands average around 16,000 megawatts (MW), but the country only generates about 12,000 MW, resulting in a shortage of around 4,000 MW. This shortfall often increases during the summer to nearly 7,000 MW, resulting in regular power cuts that last about 18 to 20 hours a day.

Such power trajectories and the ongoing turmoil, which is not allowing Pakistan’s economy to grow, prompted Sharif to put forth a clear ‘trade and economics’ agenda — with resolving the power crisis at its core — when he visited India for Modi’s swearing-in ceremony.

And while Pakistan’s Cabinet approved the signing a memorandum of understanding for importing electricity from India in January — after the World Bank offered to finance its feasibility study and a transmission line to import 1,200 MW — the country is also attracting Indian investors with financial incentives, such as exemptions from customs and sales taxes in Special Economic Zones and zero import duties on machinery for energy plants, to help tackle its energy woes. Such exemptions have been reciprocated by New Delhi. For instance, proposals to lay a 110-km pipeline from Jalandhar in India to the Wagah border to supply gas to Pakistan are now in place, with the Indian government exempting Pakistan from paying the basic customs duty on the supply of natural gas.

Though India and Pakistan have long talked about trading petroleum products — particularly furnace oil, diesel, and natural gas — Pakistan is also looking to neighbors like China, as well as to imports from the Middle East, for support. Some of these steps include setting up a 600 MW coal-based electricity plant with Chinese support at Port Qasim in Karachi, building a 10,000-acre solar park in Punjab province with China’s help, and importing 1,000 MW of electricity from Iran. Unfortunately, all of these efforts may only offer Pakistan short-term solutions to its energy crisis.

A sustainable and long-term answer to Pakistan’s ongoing energy shortfall would entail integrating South Asian markets through regional energy cooperation, which should focus on the use of conventional and non-conventional sources of energy. In May 2014, a dialogue on "Trans Boundary Cooperation in Energy Sector" organized by Pakistan’s Sustainable Development Policy Institute, in cooperation with India’s CUTS International (the Consumer Unity & Trust Society) and the U.S.-based FirstEnergy Solutions, clearly advocated such collaboration. As CUTS India Deputy Executive Bipul Chatterjee noted after the meeting, while "…both countries must review reforms in their respective regulatory bodies and their capacity building must be addressed…non-conventional sources of energy including wind, solar, hydro, nuclear, coal and biogas should be tapped to meet the energy requirements."

This assumes more importance when energy experts talk about integrating Eurasian markets with South Asia, which requires an organized South Asian market for optimal results. Procuring energy imports can then be augmented by appropriate bargaining from South Asian countries, which are among the largest energy consumers. This will also help in cutting down the ‘Asian Premium,’ which will lower the cost of energy procurement across the region. As such, both India and Pakistan should take the lead and go beyond bilateral energy trading and develop more integrated markets. This in turn could pave the way for the regeneration of SAARC’s institutional framework to utilize intra-regional trading, as well as greater cooperation in the vital areas of energy security and regional peace.

Manish Vaid is a junior fellow with India’s Observer Research Foundation.

Dr. Monish Tourangbam is an assistant professor in the Department of Geopolitics and International Relations at India’s Manipal University.