Pakistan: Performance of Power Sector

Pakistan’s National Electric Power Regulatory Authority (NEPRA) has released its annual State of the Industry Report 2014 covering a detailed review of major segments of the power chain. Highlighting pertinent issues in generation, transmission and distribution and developments over the period, the report also prescribes possible solutions to relieve ailing players of the sector.

Key recommendations in the report include the diversion of gas to power generation, LNG price and tariff to be set after analyzing all alternatives, technical studies to assess the impact of new renewable energy plants on the national grid, timely completion of coal based generation projects and decentralizing the role of PEPCO and ministries. In addition, recent developments in the media regarding the planned release of the 2015 Power Policy have renewed impetus for promoting investment in the sector in the long run.

During the period under review 105,733GwH of electricity were produced, registering an increase of 6.7%YoY. Analysis reveals that diverting 150mmcfd to the four IPPs currently operating on gas would allow them to operate on gas throughout the year instead of HSD during the winter months. Gas supply deficit leaves the room for RLNG fired power plants, NEPRA has advised for a thorough analysis of alternatives before RLNG based power plants are setup. 

Deterioration in the efficiencies and generation levels of GENCO's (installed capacity of 4,829MW) is also a point of concern while GoP's initiatives to setup large coal fired plants and invest in GENCO’s repairs and extensions are beneficial. However the privatization process for these GENCO’s is already underway casting doubts on the timing of these moves. IPP's have added 7% generation to the grid over the year, with a capacity utilization averaging 77%.

Lack of proper management aside, NEPRA has highlighted the need for T&D losses to be curtailed by DISCOs, where they continued to disappoint as T&D losses still hover slightly below 19%, while recoveries remained around 89% for FY14. Moreover, NTDC has been criticized for not upgrading its systems to allow for accommodating newly initiated power projects including planned hydro projects in Dasu, Diamer Basha, and imported coal projects on coastal locations with approximate costs of US$9 billion.

Projections for future capacity additions to the grid and increase in demand show an increase in the shortfall reaching 4,920MW by FY16, with a reduction in the shortfall every year thereafter, leading to a surplus by FY20. In order to tackle the situation, major recommendation in the report include 1) diversion of gas to power generation, 2) LNG price and tariff to be set after analyzing all alternatives, 3) technical studies to assess the impact of new renewable energy plants on the national grid, 4) timely completion of coal based generation projects and 5) decentralizing the role of PEPCO and ministries.

 

US drilling rig count witnessing sharp decline

The war between United States and OPEC (led by Saudi Arabia) regarding who enjoys the power to determine crude oil price seems to be getting bitter.  Initially it appeared that neither of the groups would voluntarily cut down production but now it appears both are cutting production but at a different pace.

As the price declined by almost 50% it started pinching all but shale producers felt the real brunt. According to one of Bloomberg reports drillers have reduced the number of rigs in service by 83 to 1,140, the lowest number since December 2011.

“We’re seeing signs that the market is beginning to give greater weight in its pricing to the likelihood that shale oil production in the U.S. will be cut over coming months,” Ric Spooner, Chief Strategist at CMC Markets in Sydney, told newswire service.

According to Baker Hughes total U.S. rig count has declined by a record 435 in nine weeks. The drop of 37 at the Permian Basin, the largest oil field of the US has been the steepest since the services company began reporting basin-by-basin counts in February 2011.

OPEC alone can’t maintain “reasonable prices” and cooperation with producers outside of the group is necessary, Venezuela’s Chavez said. A news indicates that Chevron has cut output from Saudi-Kuwaiti oil fields.

According to some scanty details crude production dropped by 20 percent since October at a venture that Chevron Corp operates in the Wafra field, which Kuwait is developing in collaboration with Saudi Arabia.

The Wafra project, in which Chevron had planned to invest as much as US$40 billion, is one of the world’s largest attempts to free heavy oil by injecting steam underground.

All eyes are set at the next meeting of OPEC when Saudi Arabia, the largest producer and Kuwait, the group’s third-biggest member will join other OPEC states to assess market conditions and set production levels scheduled on June 5 in Vienna.

Reportedly, Kuwait has stopped issuing work permits for Saudi Chevron employees at Wafra oil fields, located in a shared neutral zone along Saudi Arabia because country’s ministry of labor and social affairs halted services to the company.

 

 

Indian hegemony in South Asia

The importance of Pak China cooperation in infrastructure development can be best understood if one goes through the Indian opposition of Chinese support for Gwadar port. India itself is helping Iran in the construction of Chabahar port, located at a distance of around 70 kilometers from Gwadar. It seems that India is fully aware of the fact that Pakistan offers the shortest and the most cost effective route to Central Asia via Afghanistan.

India is constructing Chabahar not only to undermine Pakistan’s importance but also for establishing its hegemony in the Indian Ocean. In this endeavor India is fully supported by the United States, as no action has been taken against India for violating economic sanctions imposed on Iran.

India terms Gawadr a threat for its existence and its maritime trade. It goes to the extent of term Gwadar a potential Chinese naval port. If India is constructing Chabahar to protect its economic interest, China is also doing the same by managing Gwadar to protect its commercial interest, especially oil being bought from Iran.

One of the points is that India had been overreacting about the Chinese assistance extended in the construction of the Gwadar port in the Baluchistan province of Pakistan. India has been creating the hype that the Chinese presence in Gwadar is not only a serious threat for India, but it would also give China extra leverage in the region.

India alleges that China has acquired management control of Gwadar to use it as its naval base. This mantra is aimed at seeking support of United States and Russia, who consider China a major power in the region.

Indian propaganda has also been aimed at creating an impression that Afghanistan was highly unhappy because it wanted to join hands with India to move its shipments through Chabahar port. India also tried to pass on the message to Central Asian countries that Chabahar located in warm waters and the road and rail network being constructed would make it the gateway for them to the rest of world. Additionally, there has also been regular propaganda about Iranian, Afghani and Indian cooperation. However, one of the news sources quoting Iranian authorities opened the Pandora’s Box and unleashed the disinformation being spread by India. In a meeting, Hassan Nourian, Iranian Consul General in India exposed the extent of cooperation being extended by India.

Being a seasoned diplomat, Nourian expressed hope that India would act fast on the Chabahar port, which it had promised to build as far back as 2003. The message in between the lines was loud and clear — that Iranians were upset with Indian attitude.

India’s exasperatingly slow progress in building the port — 11 years so far and work has not even begun — has been a major source of irritation for the Iranians. After all, they gave the project to India rejecting a Chinese offer.

A s against this, the Chinese have finished building the Gwadar port in Pakistan that is located 70 kilometers east of Chabahar. It seems that the Iranians have realized, though very late, the reason why India wanted the project — to thwart the Chinese. It has also become evident why the India is dragging its feet — for fear of annoying the US. For Iran, the Chabahar port is of great economic importance and its great economic and strategic significance is also known to India. The port has the potential to open a route that leads to Afghanistan, a lucrative market today, and beyond, to the mineral-rich countries such as Kazakhstan and Turkmenistan. As Iran is annoyed there emerges an opportunity for China, which is one of the biggest buyers of Iranian oil, seeking a port outside Strait of Hormaz. India has also realized that the game is slipping out of its hands. If India loses Chabahar to the Chinese, it would greatly undermine much talked about Indian supremacy in the Indian Ocean. Sri Lanka offered the Humbantota port development project to India, twice. The tsunami-ravaged port was in President Rajapaksa’s constituency and he was keen on re-building it. While India dithered, China jumped in.

Humbantota has developed into a fine port. India ceded a key strategic space in its own backyard to China. No one could be blamed except India, because UPA partner DMK didn’t let India do any development work in Sri Lanka. Now, Chabahar is going the Humbantota way. While India drags its feet in Myanmar, China is moving in fast. While India dumped the two hydro-electric projects terming those “too expensive”, China is going ahead with as many as 33 projects. The port of Sittwe is critically important for India, for it would open up the North East. India did secure the project — it was given to the Essar Group. There have been delays, but the work has begun. However, the project is only a part of what India had committed to doing, which was to build the entire multi-modal transport corridor — the Kaladan project. For parts of the project other than the port, even the tenders have not been floated.

At this stage, place after place in India’s neighborhood, including Afghanistan, are likely to slip out of its dominance and going under China’s influence. This is happening only because of the dichotomy of Indian policies.

India on one hand tries to extract all the possible benefits by making false promises and on the other hand desert those projects once the United States and Russia increase aid and assistance that helps in achieving the status of regional super power and creating its hegemony in South Asia.

Pakistan: Shia carnage in Shikarpur

In the second attack of 2015 on a mosque of Shia sect in Shikarpur in Sindh over 60 people were martyred, the first attack was in Rawalpindi. Police has been prompt in terming it a suicide attack. 

Reuters reported that Jundullah, a splinter group of Tehreek-i-Taliban Pakistan (TTP), which last year pledged support for the Islamic State group based in Syria and Iraq, claimed responsibility. “Our target was the Shia mosque ... They are our enemies,” said Jundullah spokesman Fahad Marwat

Residents of Sindh showed complete solidarity with the families who lost their near and dear. Sindh government announced a day of mourning in solidarity with the families of the victims and said the national flag would fly at half mast and compensation was also announced for the victims' families.

On the call of Majlis Wahdat-i-Muslimeen (MWM), a large number of men, women and children staged sit-in various parts of provincial capital as well as other cities. Protesters said that terrorists are roaming freely and the government has failed to protect citizens' lives.

MWM was joined by Sunni Ittehad Council, Sunni Alliance, Pakistan Muslim League - Quaid and the Pakistan Awami Tehreek. However, many of the political and religious parties remained completely aloof.

Over the years it has been alleged that Punjab offers the safe sanctuaries for militants but PML-N been denying it. In the aftermath of Shikarpur carnage, Federal Interior Minister Nisar Ali Khan has accepted presence of various militant groups and extremists in Punjab. 

According to the scanty information provided to media 14,000 individuals were hauled up for investigation; 341 allegedly involved in hate speech; 1,100 warned for misuse of loudspeakers; and 41 shops closed for distributing hate material. These numbers pertain to the recent National Action Plan initiated only but no one knows about those arrested and freed.

The revelations by the interior minister indicate a continuing unwillingness to be as forthright as possible. Virtually nothing has been done in over a decade to clamp down on extremist and militant outfits in the province. According to the minister the groups operating in the province have soared to 95, well above the nationally banned 72 groups that the interior ministry itself has listed.

His revelation prompts following questions rightly raised by Dawn in one of its editorial:

• Which groups comprise the list of 95 militant/extremist outfits
• Which additional groups have become active in Punjab?
• Who are the leaders of these groups?
• Where do they operate?
• What is their reach?
• Who funds them?
• Which madressahs, mosques or religious networks are they tied to?
• What attacks have they carried out?
• And, perhaps most relevantly, what types of attacks are they suspected of planning?

In any investigation, first the motive of crime has to be determined. Police by declaring this a suicide attack has freed itself and Reuters report involving Jundullah is likely to mislead further investigation. Linking Jundullah with TTP is totally misleading as these two groups have nothing in common.
 

While it is almost impossible to deny foreign involvement in such incidences, the real operators are certainly Pakistanis or those coming from other countries having found safe sanctuaries in Pakistan.

One has all the reasons to believe that most of the extremist outfits have bases in KPK, Punjab and Baluchistan

While these operators may kill hundreds of innocent people in those provinces to spread terrorism, killings in Sindh are aimed at making Pakistan economically weaker.

As such the interfaith harmony is at its peak in Sindh and Shia-Sunni rift is not a local phenomenon. Many in Sindh believe that sectarian killing in the province is done by groups based in other provinces.

Tale of two ports Chabahar and Gwadar

Lately two ports, namely Gawadar and Chabahar, have emerged on Makran coast that are located at a distance of about 70 kilometers. One is located in Baluchistan province of Pakistan and other is also situated in Sistan-Baluchistan province of Iran. Both the ports have been constructed with the stated objective of finding efficient and cost effective routes to energy-rich Central Asian countries passing through Afghanistan.

The point to be explored is that both the ports have been constructed by two rivals, China and India, one an accepted world super power and the other a self-proclaimed regional super power. The story is not as simple as being narrated because the United States is fully supporting India in establishing its hegemony in the region by not taking any action against India for supporting Iran facing economic sanctions for more than three decades.

Afghan transit trade has been passing through Pakistan since independence. Arms, ammunition and combat forces also used this route when USSR attacked Afghanistan and also when the United States attached Afghanistan in the aftermath of 9/11. While this route has been used for supplies for combat forces for more than four decades, the need was felt for developing another route that could provide easy access to landlocked countries to ‘warm waters’.

Since the United States could not construct an alternative rout passing through Iran at its own, it encouraged India to support Iran, facing economic sanctions for more than three decades, in building a port outside Strait of Hormuz and link it with Central Asian states via Afghanistan.

The work on both the ports started around the same time. While the rulers in Pakistan remained engrossed in ‘war against terror’ and didn’t raise any objection on Indian involvement in an Iranian port, India remained critical of Chinese involvement in Gwadar. On almost every forum India tries to prove that Chinese involvement in Gwadar is a threat for its (Indian) existence.

The plea taken by India is that Indian Ocean should remain ‘arms free’. However, navies of almost all the major powers are present in the area to protect their maritime trade. It is on record that almost 60% of global maritime trade passes through Indian Ocean. It may not be wrong to say that in the name of protecting their maritime trade certain countries have deployed their submarines and aircraft carriers in the Indian Ocean, which could become a ground for proxy war.

Pakistan has over 1,200 kilometer long coastal line, which offers the country opportunities to establish Special Economic Zones and attract huge foreign investment. However, presence of insurgent and resistance groups in Baluchistan has kept foreign investors away from Pakistan. Fallout of the war going on in the neighborhood is that some of the militant groups have found safe havens in the province.

There is also a loud talk about creation of ‘Greater Baluchistan’ comprising of one slice each from Iran, Pakistan and Afghanistan. Since India has played a major role in turning East Pakistan into Bangladesh, keeping an eye on its involvement in Chabahar, growing insurgency in Baluchistan and armed conflicts at Pak Iran border is necessary.

US to stay in Afghanistan beyond 2014

I wrote a blog as back as in August 2012 raising a question, will US pull troops out of Afghanistan? My gut feeling even at that time was that the troops would not be pulled out for one or the reason. I recently read an article which substantiates my point of view. I have all the reasons to believe that point of view of author is right.

The basic premise of author is that after 13 years of war, President Barack Obama has declared the end of U.S. combat operations in Afghanistan. “Our combat mission in Afghanistan is ending, and the longest war in American history is coming to a responsible conclusion,'” Obama said in a statement from Honolulu, where he is spending his Christmas vacation. But that should not be taken to mean that there will be no U.S. forces in the country, nor that they will not be engaged in warfare in the New Year.  He mentioned five reasons for the retention of US troops that are:

Afghanistan wants help

American troops will remain in Afghanistan for more time. A day after his oath taking Afghan President Mohammed Ashraf Ghani signed a bilateral security agreement with the U.S., extending the American military presence in his country beyond 2014. Obama has announced plans for a phased withdrawal of troops over the next two years that will leave about 5,500 there by the end of 2015 and 1,000 by the beginning of 2017.

Withdrawals are already delayed

The New Year has begun with as many as 10,800 American troops still in Afghanistan, or about 1,000 more than Obama had planned. Departing Defense Secretary Chuck Hagel, who announced the withdrawal slowdown earlier, said delays in Afghanistan's election process and in the signing of the security agreement left allies unable to commit enough troops in time. While the extra American troops may stay only for several months, the need for them underscores continuing tensions between military commanders worried that Afghan forces aren't ready to stave off the Taliban and a president determined to keep his promise to end the war on schedule.

Afghan training continues

While the U.S. and allied combat mission is officially over, American troops who stay on will spend the next two years training and advising Afghan forces. The Afghans also still need aviation and intelligence support that the U.S. will provide in 2015. That role could still put U.S. troops in combat as a Taliban offensive is under way. Kabul, once among the most secure cities, has been the scene of daily bombings lately.

The War on Terror isn't over

The U.S. forces are still conducting counterterrorism operations. As part of their redefined mission for the next two years, Americans will focus on terrorist threats that may be posed by Taliban leaders or remnants of al-Qaeda. Those operations could still risk combat casualties, albeit in smaller numbers.

The Taliban isn't done either

Shortly before declaring combat over, Obama quietly authorized continuation of some offensive air and ground operations in 2015 to protect any remaining U.S. forces, ensuring their right of self-defense. The Taliban and other militants have stepped up attacks across the country in recent weeks in an attempt to overthrow Ghani's new government. The violence has killed and wounded about 10,000 civilians in 2014, according to the United Nations. More than 2,300 Americans have died in the war, which began as an effort to oust the Taliban after 9/11 terrorist attacks on the U.S.. More than 20,000 U.S. troops have been wounded.

Greed and fear driving crude oil prices

It is becoming more evident that both the U.S. and OPEC members are falling prey to greed and fear.  All the producers want to pump more oil to retain their respective market share. While it seems almost impossible to boost demand, production at faster rate is creating glut. In the past hedge funds were prompt in enhancing their stake in oil but this time they seem least interested.

Does this mean they are also victim of fear and don’t see prices rebounding in the near future. It may not be wrong to say that many of the reports being published by the western media are opinion not the news. These reports suggest that the glut is because OPEC members are not willing to curtail production. However, there has been no suggestion that the U.S. should curtail production.

Having reach a point that OPEC may not be keen in reducing output and also read news that even geopolitics is not working, it was feared that oil countries suffering from turmoil would be the first to stop production. The fears came true as dispatches from Libya and Nigeria are almost halted.

Oil prices have already declined by almost 45 percent this year to a five-year low after OPEC producers including Saudi Arabia, Kuwait and Iraq reduced prices and the International Energy Agency cut its estimate for global demand for the fourth time in five months.

People like Michael Lynch, President of Strategic Energy and Economic Research in Winchester, Massachusetts believe that prices are close to the bottom. Many readers consider this ‘disinformation’ because other still believe price could slip below US$40/barrel. This is a level which is certainly not liked by Shale oil producers, who have also started propagating that higher production is helping in bringing down cost of production.

 “This shows that there’s a lot of skepticism about the selloff and a feeling that prices should soon rebound,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, informed and continued, “We’re seeing bargain hunting by investors of all stripes.”

OPEC will stand by its decision not to cut output even if oil drops to as low as US$40 a barrel and will wait at least three months before considering an emergency meeting, United Arab Emirates Energy Minister Suhail Al-Mazrouei said at a conference in Dubai. The 12-member group maintained its collective target of 30 million barrels a day at a Nov. 27 meeting in Vienna.

The slump in benchmark U.S. crude futures, is driving producers to move drill rigs to lower-cost fields. While there’s evidence of some rebalancing starting to occur in the market, many believe it isn’t sufficient.

There is growing impression that costs are falling nearly as fast as the price, which means oil producers can spend less to get the same or potentially even more in terms of production. While reductions in capex are coming faster than expected, it is unlikely to translate into less supply, despite that number of drill-rig has dropped as much as 20 percent.