01-18 Fawad Khan

S3H Working Paper Series
Number 01: 2018
Impact of the 18th Amendment on Energy Security and

Governance Parameters in Energy Sector of Pakistan
Hafiz Fawad Khan

Faisal Jamil
April 2018
School of Social Sciences and Humanities (S3H)

National University of Sciences and Technology (NUST)
Sector H-12, Islamabad, Pakistan
Faculty Editorial Committee

Dr. Zafar Mahmood (Head)
Dr. Najma Sadiq
Dr. Samina Naveed
Ms. Nazia Malik
Number 01: 2018
Impact of the 18th Amendment on Energy Security and

Governance Parameters in Energy Sector of Pakistan
Hafiz Fawad Khan
School of Social Sciences and Humanities, NUST
Email: [email protected]
Faisal Jamil
Assistant Professor, School of Social Sciences and Humanities, NUST
Email: [email protected]
April 2018
School of Social Sciences and Humanities (S3H)

National University of Sciences and Technology (NUST)
Sector H-12, Islamabad, Pakistan
Contents
List of Tables………………………………………………………………………………...v
Abstract………………………….......................................................................................................vii
1. INTRODUCTION ............................................................................................................................... 1
1.1. The Status of Decentralization and Role of 18th Amendment on the Energy Sector ............. 2
1.1.1. Role on Oil and Natural Gas .................................................................................................. 3
1.1.2. Role on Electricity .................................................................................................................... 4
1.2. Problem Statement ............................................................................................................................ 6
1.3. Research Question ............................................................................................................................ 7
1.4. Objectives of the Study .................................................................................................................... 7
2. LITERATURE REVIEW ................................................................................................................... 7
2.1. Energy Security and Its Role in Economic Growth & Development ...................................... 8
2.2. Decentralization in Energy Sector: Regulation, Privatization & Competition ......................... 9
2.3. Research Evidence from Pakistan ................................................................................................10
2.4. Summary and Key Findings ...........................................................................................................12
3. AN OVERVIEW OF ENERGY SUPPLY CHAIN IN PAKISTAN ....................................12
3.1. Primary Energy Balance Sheet Comparison................................................................................13
3.2. Oil ......................................................................................................................................................14
3.3. Natural Gas ......................................................................................................................................14
3.3.1. Policy Reforms and Regulations in Natural Gas Utilities .................................................14
3.3.2. Natural Gas and Its Governance Parameters .....................................................................15
3.3.2.1. Natural Gas Consumers…………………………………………………………....16

3.3.2.2. Natural Gas Transmission and Distribution Network ……………………...…........16
3.3.2.3. Unaccounted for Gas (UFG)…………………………………………………...….16
3.4. Electricity ..........................................................................................................................................17
3.4.1. Policy Reforms and Regulations in Electricity Sector .......................................................17
iii
3.4.1.1. Power Policies………………………………………………………………….......18
3.4.2. Electricity and Its Governance Parameters.........................................................................19
3.4.2.1. Village's Electrification………………………………………………………....…..19

3.4.2.2. Capacity Shortfall………………………………………………………....……….20
3.4.2.3. Transmission and Distribution Losses………………………………....…………..20
4 DATA AND METHODOLOGY ....................................................................................................21
4.1. Data Sources ....................................................................................................................................21
4.2. Methodology ....................................................................................................................................22
5. TABULATION AND ANALYSIS OF DATA ............................................................................22
5.1. Exploration & Production of Oil, Natural Gas and Electricity Generation ..........................22
5.2. Consumption of Natural Gas and Electricity: ............................................................................25
6. CONCLUSION AND POLICY RECOMMENDATIONS ...................................................28
6.1 Conclusion........................................................................................................................................28
6.2. Policy Recommendations………………………………………………………………..30

REFERENCES ......................................................................................................................................... ....31
iv
List of Tables
Table 1: Primary Energy Supplier by Source ...............................................................................................13

Table 2: Final Energy Consumption by Source ..........................................................................................13
Table 3: Total Natural Gas Consumers by Province ..................................................................................16
Table 4: Natural Gas Distribution Network in Provinces .........................................................................16
Table 5: Unaccounted For Gas ......................................................................................................................17
Table 6: Villages Electrification .....................................................................................................................20
Table 7: Capacity Short Fall............................................................................................................................20
Table 8: Transmission & Distribution Losses .............................................................................................21
Table 9: Performance Measures by Energy Source ....................................................................................22
Table 10: Crude Oil Reserves by Province...................................................................................................23
Table 11: Crude Oil Production by Province ..............................................................................................23
Table 12: Natural Gas Reserves .....................................................................................................................24
Table 13: Natural Gas Production by Province ..........................................................................................24
Table 14: Electricity Generation by Source .................................................................................................25
Table 15: Natural Gas Consumption ............................................................................................................26
Table 16: Sectoral Share of Provinces in Electricity Consumption ..........................................................27
v
Abstract
The study aims to check the impact of decentralization in Pakistan on the energy supply sector.
Pakistan heavily relies on hydrocarbons (around 85%) including natural gas, oil, and coal whereas,
hydroelectricity and other renewables constitute merely 15% of primary energy supplies. The role of
public sector is dominant either as supplier or regulator in the energy supply sector. In 2010, the
parliament passed the 18th Constitutional Amendment to devolve many roles from the federal
government to the provincial governments. This Amendment does not directly affect the energy
sector nevertheless, it altered the energy scenario by modifying the Article 157, 161 and 172 of the
Constitution. This study carries out an impact assessment by using data for the years 2004-05, 2009-
10 and 2014-15. The analysis is carried out using three performance indicators including exploration
& production, consumption shares and consumer mix of an energy source. The results show that the
amendment changes the provincial shares in exploration and production of oil and natural gas
significantly. This change can be partially explained by competition among the provinces. The
cumulative natural gas reserves indicating exploration and production levels has decreased during the
period 2005-2015. Moreover, the consumption of natural gas is inclined more towards transport and
residential sectors especially in the producing provinces. The share of natural gas consumption in
power sector is adversely affected that resulted in rising share of oil in the power generation. There is
mix trend of recovery in power and natural gas sectors as uaccounted-for-gas is rising and T&D losses
are decreasing. Losses and non-recovery have serious financial consequences for the public electric
utilities that may face recurrent circular debts. The unavailability of domestic natural gas for the power
generation and industrial sectors drives these sectors to rely on imported LNG raising the production
costs.
Key Words: Decentralization, 18th Amendment, Energy Security, Energy Supplies, Consumer Mix
vii
1. INTRODUCTION
Energy is indispensable for technological development and modern economy. Energy security
is important as it is a major input to undertake production and consumption activities. Energy security
has been defined to comprise of availability, accessibility, affordability and acceptability. In most of
the developing countries, governments take the responsibility of ensuring energy security due to the
weaker markets. In the wake of management and governance issues pertaining to the public electric
utilities, the government have implemented various types of reforms in energy sector especially over
the last two decades. These reforms involve privatization and devolution that is, transition of some
roles either from public to private or from the federal government to the provincial governments
Decentralization assists in provision of better public goods, lead to more efficient governance and
helps in achieving higher economic growth.
The trend of decentralization in the energy sector took place in Chile in 1892 and then
practiced by different countries all around the world. This wave of decentralization and liberalization
transformed the energy sector of Soviet Union, Eastern Europe, Asia and Africa. These reforms were
undertaken to segregate the prime activities like generation, transmission and distribution of energy
sector. Almost all the countries have undertaken various types of reforms in the energy sector
according to their prevailing circumstances and necessities, from decentralization to liberalization and
from introducing competition to privatization and regulation of the energy sector in developed and
developing countries signified different results. The process of introducing competitive power market
varies from nation to nation and depends on prior market conditions, principal policies and regulatory
framework and short term and long term outcomes. Energy resources development and distribution
is either controlled or regulated by the government. Therefore, access to uninterrupted and affordable
energy supply for domestic purposes, agricultural and for commercial or industrial units is one of the
basic responsibilities of the government.
The driving force behind the structural reforms in the power sector of developing countries
is entirely different from developed countries, which in turn produces different reform results
(Nagayama, 2009). There are mixed outcomes of electricity reforms in countries like Bolivia, India,
Ghana, Thailand and Poland ranging from stalled reforms, uncertainty and low service delivery
(Williams & Ghanadan, 2006). The implementation of effective power policies and legal framework
would not ensure the success of power sector reforms if the regulatory authorities of the country do
not have political independence, professional expertise and financial capacity to implement regulation
1
in favor of public interest. The role of Central government and institutions also seems significant and
involves clear identification of roles and responsibilities (Nagayama, 2009).
In Pakistan the first major step towards decentralization in the energy sector was the Strategic
Plan 1992. It was the basis of enactment of National Electric Power Regulatory Authority (NEPRA)
Act, 1997. It includes regulation of generation, transmission and distribution of electric Power. The
Power Policy 1998 was introduced with the aim of commercialization and eventually privatization
according to which Water and Power Development Authority (WAPDA) was vertically and
horizontally unbundled. The vertical unbundling involved the separation of generation, transmission
and distribution functions, while the horizontal unbundling resulted in eight distribution companies
(DISCOs), a National Transmission and Dispatch Company (NTDC) and 11 state-owned thermal
power generation companies (GENCOs). The underlying notion was to promote fair competition in
the electricity industry and to protect the rights of consumers as well as producers and sellers of
electricity.
The relationship between economic development and energy is important as the energy
resources are scarce and growth and development of the economy depends on these resources
especially the hydrocarbons. Various studies from international organizations have presented robust
relationship between access to energy supply and sound economic growth along with social wellbeing.
Unfortunately, the energy sector of Pakistan is experiencing series of impulsive and irresponsible
energy policies, issues of governance and institutionalization which hampered the developmental
process and retarded economic growth.
1.1. The Status of Decentralization and Role of 18th Amendment on the Energy Sector
The government has passed 18th constitutional amendment under which many
ministries/divisions are being transferred to provinces. Although the Ministry of Water and Power
and Ministry of Petroleum and Natural Resources, which deal the energy sector are not transferred to
provinces. But still, this decentralization reforms altered the energy scenario by modifying Article 161,
Article 157 and Article 172 of the Constitution. Article 158 remain the same as before, but the verdicts
of higher courts after the 18th Amendment make it more important. This constitutional amendment
has generated several issues between the provinces and federal government in the energy sector.
2
1.1.1. Role on Oil and Natural Gas
i. Article 158: Priority of Requirements of Natural Gas:
“The Province in which a well-head of natural gas is situated shall have precedence over other parts of Pakistan in
meeting the requirements from that well-head, subject to the commitments and obligations as on the commencing day.”
ii. Article 161/1: Natural Gas and Oil:
(1) “Notwithstanding the provisions of Article 78”,-
(a)“the net proceeds of the Federal duty of excise on natural gas levied at well-head and collected by the Federal
Government and of the royalty collected by the Federal Government, shall not form part of the Federal Consolidated
Fund and shall be paid to the Province in which the well-head of natural gas is situated”, and
(b) “the net proceeds of the Federal duty of excise on oil levied at well-head and collected by the Federal Government and
of the royalty collected by the Federal Government, shall not form part of the Federal Consolidated Fund and shall be
paid to the Province in which the well-head of oil is situated”.
iii. Article 172/3: Ownerless Property:
(3) “Subject to the existing commitments and obligations, mineral oil and natural gas within the Province or the territorial
waters adjacent thereto shall vest jointly and equally in that Province and the Federal Government.”
Article 158 of 1973 constitution allow the producer provinces to fulfil their own requirements
and taken by federal government as federal excise duty. Under Article [161/ 1 (a)] the provinces get
the right to take royalty of natural gas only in which natural gas well-head is situated. With the 18th
amendment, the same clause was also added for oil [161/1(b)]. Now the provinces also get the right
to take royalty of oil in which well-head of oil is situated. However, the most important change
regarding oil and natural gas in 18th Amendment is the insertion of new subsection 3 in Article 172 of
the constitution, the mineral oil and natural gas within the province vests “jointly and equally”
ownership in that province and the federal government. This new sub section lead to duplication of
authority and created a number of misconceptions and ambiguity between the federal and provincial
governments. Both level of governments are taking advantage of this ambiguity and giving their own
explanations:
 The federal government is of the view that joint and equal ownership is only for equal sharing
of revenue collected from oil and gas reserves located in the concerned provinces.
3
 Contrary, the provinces also demanded the formation of Joint Board of Directors, having
equal representation from the provinces and the federal government. Along it, the provinces
should have an equal say in all decisions including awarding of new exploration contracts with
respect to oil and gas in their respective jurisdictions.
This new arrangement motivate the provincial governments to have more control over the
upstream of oil and natural gas and make different claims. Demand of establishing provincial
regulatory authorities, division of Oil and Gas Development Corporation Limited (OGDCL) and
Pakistan Petroleum Limited (PPL) in order to have direct interaction with E&P companies (Arif,
2012). The province of Balochistan demands the abolition of the Ministry of Petroleum and Natural
Resources (MPNR). While Sindh claims its exclusive right in the extension of exploration licenses to
oil and gas companies. The Khyber Pakhtunkhwa government even demanded to transfer the right to
collect the oil royalty from the federal government, as it is producing more than 50% of the total oil
production of the country. The process of awarding new exploration blocks of natural gas was ceased
since June 2010 due to the absence of a consensus framework between the Director General of
Petroleum Concessions and the respective provinces. The present structure of natural gas industry in
Pakistan may result in less and less production over the years in future.
1.1.2. Role on Electricity

i. Article 157: Electricity
“(1) The Federal Government may in any Province construct or cause to be constructed hydro-electric or thermal power
installations or grid stations for the generation of electricity and lay or cause to be laid inter-Provincial transmission lines
provided that the federal government, prior to taking a decision to construct or cause to be constructed hydro-electric power
station in any province, shall consult the provincial government concerned.”
“(2) The Government of a Province may:
(a) to the extent electricity is supplied to that Province from the national grid, required supply to be made in bulk for
transmission and distribution, within Province;
(b) levy tax on consumption of electricity within the Province;
(c) construct power houses and grid stations and lay transmission lines for use within the Province; and
(d) determine the tariff for distribution of electricity within the Province.
4
(3) In case of any dispute between the Federal Government and a Provincial Government in respect of any matter under
this, any of the said Governments may move the Council of Common Interests for resolution of the dispute.”
ii. Article 161/2: Hydro-electric Power
(2) “The net profits earned by the Federal Government, or any undertaking established or administered by the Federal
Government from the bulk generation of power at a hydroelectric station shall be paid to the Province in which the hydro-
electric station is situated. Explanation: For the purposes of this clause, net profits shall be computed by deducting from
the revenues accruing from the bulk supply of power from the bus-bars of a hydroelectric station at a rate to be determined
by the Council of Common Interests, the operating expenses of the station, which shall include any sums payable as
taxes, duties, interest or return on investment, and depreciations and element of obsolescence, and over-heads, and
provision for reserves.”
The 18th Amendment doesn’t alter the structure of Article 157 which is related mainly to
electricity. Sub section 1 is related to generation of electricity in the provinces from hydro-electric
power stations and thermal power plants but the only thing they added in this section in the 18 th
Amendment is the permission of concerned province in construction of hydro-electric power stations.
Sub section 2, remain the same. Insertion of new Sub section 3 in Article 157 allowed both the Federal
and Provincial governments to move to Council of Common Interest in case any dispute arises.
Moreover, Sub section 2 of Article 161 relating to profits earned by Federal government from bulk
hydro-power generation should be paid to the provinces in which the hydro-electric station is situated.
After the amendment, there is general misconception that the federal government allows the
provinces to generate electricity which were restricted prior to it. Provinces were given freedom to
generate electricity up to 20 Megawatts in Power Policy 1998. The Power Policy 2002 further allows
them to generate electricity up to 50MW, and with projects higher than 50MW, the provincial
governments had to take permission from Private Power and Infrastructure Board (PPIB).
In the after math of 18th Amendment, the Provinces demand more authority to regulate and
control the complete power generation (upstream) and distribution process (downstream). One of the
example is that the province of Khyber Pakhtunkhwa asked the federal government to give power
generation and distribution to the province for better provision of services and cost recovery.
Ultimately, demanded to hand over Peshawar Electric Supply Corporation (PESCO) to allocate and
distribute electricity in the province more efficiently and effectively.
5
1.2. Problem Statement
Pakistan is a developing economy with ever increasing energy requirements. The energy sector
of Pakistan experience fluctuations and has troubling implications on its fragile economy and volatile
political situation. Pakistan has problematic economic and political history which has made the process
of energy reforms and its implementation challenging (Borenstein, 2002; Bhattacharyya, 2005;
Bhattacharyya, 2007). Energy sources distribution has natural monopoly characteristics. Natural gas
and electricity is supplied to consumers by public monopolies who enjoy economies of scale and are
major public sector enterprises while oil and petroleum products are supplied to consumers by private
markets.
Pakistan is bestowed with enormous energy potential of both non-renewable and renewable
resources, but due to negligence of the federal government and incompetency of the provincial
governments and state institutions, the economy of Pakistan suffered because of energy scarcities and
limited power generation capacity. Pakistan is mainly relying on oil and gas as main sources of energy
despite having huge reserves of coal and significant hydro power capacity with decreased variable. The
priorities of successive governments since 1990 is to produce expensive thermal electricity and is
neglected to build hydro power stations and dams not only to produce cheaper electricity but also to
store water reserves for future generations. In other words, Pakistan moved from relatively low cost
of electricity generation from hydel to high cost generation from furnace oil. Higher energy prices
force the governments to subsidize their energy consumers. Its fiscal implication is severe especially
for energy importing countries. Subsidy policies and tariffs offered by government in power, oil and
gas have given birth to drastic problems of circular debt.
The economic and political conditions are not favourable to the electricity and gas industries
in Pakistan. Both utilities suffer from poor governance and widespread inefficiencies. In Pakistan,
there are 15 different organizations which deal with energy sector in one way or the other and
unfortunately all these entities are highly dysfunctional. Dichotomy of power and increasing political
interference is creating issues which negatively affect the national development and economic growth.
The Ministry of Water & Power and Ministry of Petroleum and Natural Resources are one of the
major hurdle in implementing an integrated energy framework. The poor coordination and loose
communication channel of provincial energy departments with the multiple energy organizations of
the federal government further worsened the state of affairs. The political involvement and crippled
regulatory authorities and improper allocation of natural resources and fuel had contributed in
worsening the crisis. Several other factors have also contributed in the declining of electricity
6
generation. These include transmission and distribution (T&D) losses, rising power theft, tariff below
cost recovery, mounting inefficiency of power plants, poor maintenance and most important
substantial decline in the availability of gas for power generation. The power crisis become much
deepened since 2010, ultimately the shortages and outages have cost the country up to 4 percent of
gross domestic product (GDP) in recent years.
1.3. Research Question

1) Is Pakistan an energy insecure country?
2) Does the 18th Amendment improve or worsen the energy sector of Pakistan?
3) Does the 18th Amendment affect the Energy relationship between Inter-Provincial
Governments and the Federal Government?
1.4. Objectives of the Study

The objective of this study is to assess and evaluate the energy sector of Pakistan and its impact
on the economy. This study would evaluate the impact of decentralization and provincial
empowerment with respect to energy sector. More specifically, it will accomplish the following
research objectives:
 To investigate all the important factors in affecting the energy sector performance of Pakistan.
 To evaluate the implications of 18th Amendment on Energy Security with Pre and Post
Amendment Analysis.
The rest of the thesis is as follows. Literature review is presented in Section 2, while Section 3 gives
an overview of energy sector in Pakistan. Section 4 deals with data and the analysis. In this section, we
discuss and compare the energy sector performance in the pre and post 18th Amendment. Finally,
Section 5 concludes the study and offers some policy recommendations.
2. LITERATURE REVIEW
Extensive literature is available relating to energy security and energy sector reforms. Research
evidence and case study analysis from developed, transitional and developing countries showed
different implications of reforms. Although the nature of the reforms vary from country to country
but the ultimate goal of the reforms is to ensure the provision of energy security. Not only the
provision of basic energy supplies like natural gas and electricity is the responsibility of the
governments but availability, accessibility and affordability of energy supplies is the object that count
7
the most. The process of introducing reforms in the energy sector varies and depends on existing
market conditions, successive policies along with the regulatory framework which exhibit short term
and long term outcomes. Jamasb (2006) and Borenstein (2002) examined the reforms in developed
and developing countries and find that reforming the energy sector is problematic.
2.1. Energy Security and Its Role in Economic Growth & Development
Energy security requires the availability of clean energy resources in sufficient amounts at
affordable prices that can support the economic sector of an economy. In general, energy security
comprises of four major components: (i) physical availability of energy resources; (ii) accessibility to
energy resources; (iii) affordability (in economic terms); and (iv) acceptability (environmental friendly).
Beside these components, many researchers have presented different definitions and dimensions
including sustainability, regulation and technological development to understand and formulate the
discussion about energy security. However, Kiriyama & Kajikawa (2014) categorized multidisciplinary
issues related to geopolitical, technological and economic policy within the energy security. The study
analysed that notion of ensuring self-sufficiency of the primary energy supply had shifted and new
policies should be adopted for diversification of secondary energy supply chain by international
coordination through development of infrastructure networks. Sovacool & Mukherjee (2011) analysed
energy policies by synthesized framework and identified and measured energy security comprising of
five dimensions related to availability, affordability, sustainability, regulation and technology
development. These five dimensions were further broken down into twenty components related to
security of supply and production, dependency and diversification for availability; price stability, access
and equity, decentralization, and low prices for affordability; innovation and research, safety and
reliability, resilience, energy efficiency, and investment for technology development; land use, water, climate
change, and air pollution for sustainability; and governance, trade, competition and knowledge for
sound regulation.
Kruyt et al. (2009) identified the indicators in a model-based scenario analysis in OECD
countries and found the fast depletion of non-renewable resources especially oil and natural gas
around 2035 and 2050 respectively due to increasing global demand. The study anticipated 142%
increase in international trade in energy carriers by 2050 as compared to 2008 in OECD. The
affordability of energy would further worsen by using expensive fuel types in future. Gasparatos &
Gadda (2009) investigated the energy security and resource consumption and its effects on economic
growth in Japan. Furthermore, the dependency of imported energy from developing countries badly
8
affected the Japanese economy and long term economic sustainability. Lu, et al. (2006) analysed that
despite high growth and development in China, domestic energy security and international climate
security is becoming a major hurdle in growth pattern. The need of clean energy and reduction in
emission of greenhouse gas is a challenging constraint. In other words, energy supply that is affordable
and acceptable (environmental friendly) would have positive effect in attaining healthy growth of the
economy.
2.2. Decentralization in Energy Sector: Regulation, Privatization & Competition

Many developed as well as developing countries had implemented various decentralization
reforms in energy sector over the last two decades. The trend of decentralization in the energy sector
took place in Chile and then practiced by different countries all around the world. These reforms were
undertaken to segregate the prime activities like generation, transmission and distribution of energy
sector and transformed the energy sector of Soviet Union, USA, UK and other Eastern European
countries (Bacon & Besant-Jones, 2002).
Decentralization lead to more efficient governance, better public goods, and higher economic
growth. This study tests Riker’s theory that decentralization depend on the level of countries' political
centralization and strength of national political parties significantly improves outcomes of
decentralization such as economic growth, quality of government, and public goods provision
(Enikolopov & Zhuravskaya, 2007). According to Vazquez & Macnab (2006), decentralization may
positively influence price stability in developed countries, though this impact is much less clear in
developing and transitional countries. From technical and financial reforms to restructuring and
introduction of new regulatory regimes along with promotion of private capital to increase
competition. These measures involve unbundling of existing utilities into separate generation,
transmission and distribution (Zhang, Parker, & Kirkpatrick, 2005). By privatization of state-owned
enterprises, establishing new regulatory bodies and competition among operators had enhanced the
performance of the generation sector. On the other hand, it is the distribution sector which lacks
modernization and new reforms are need of time for timely delivery and provision of basic energy
supplies.
Regulatory authorities and government play significant role as they have the authority and
power to monitor and regulate the state owned enterprises (Newberry, 2004). The main purpose of
developed countries is to surge the performance and efficient provision of utilities to its citizens.
Countries like UK, USA and other EU have introduced competition and suppress the monopoly
9
power in the power sector (Green & Newberry, 1996). On the other hand, the driving force behind
the structural reforms in developing countries is entirely different from developed countries which in
turn produces different reform results. Although certain reforms were implemented but the regulatory
authorities were not competent enough to have control and to manage the reforms, which raises
certain questions on the regulatory capability of the developing countries. Joskow (1997) analyzed
that for many countries the process of developing and rearranging the competitive wholesale and retail
market is very challenging. The importance of power generation is as important as effective
management of distribution and transmission network in the efficient supply of power (Williams &
Ghanadan, 2006). The study identified the mixed outcomes of electricity reforms in countries like
Bolivia, India, Ghana, Thailand and Poland ranging from stalled reforms, uncertainty and low service
delivery. They argued that implementation of effective power policies and legal framework would not
ensure the success of power sector reforms if the regulatory authorities of the country do not have
political independence, professional expertise and financial capacity to implement regulation in favor
of public interest.
2.3. Research Evidence from Pakistan

The energy sector has been controlled and managed by the federal government in Pakistan.
The devolution of powers and rights was long been demanded by the provinces. In this backdrop, the
18th Amendment was a landmark towards the decentralisation in the country. It affected the energy
sector especially the natural gas and the electricity supply. This section coves the literature on energy
reforms and its impact on economic growth in Pakistan.
According to Rauf et al. (2015) the first major step towards decentralization in the energy sector
in Pakistan was the Strategic Plan 1992. On the basis of which the Government of Pakistan enacted
the Regulation of Generation, Transmission and Distribution of Electric Power Regulation, NEPRA
Act, 1997. The Power Policy 1998 was introduced with the aim of commercialization and eventually
privatization according to which WAPDA was vertically and horizontally unbundled. The vertical
unbundling involved the separation of generation, transmission and distribution functions, while the
horizontal unbundling resulted in eight distribution companies (DISCOs), a National Transmission
and Dispatch Company (NTDC) and state owned 11 thermal power stations, (GENCOs), meant for
privatization at a later stage. The underlying notion was to promote fair competition in the electricity
industry and to protect the rights of consumers as well as producers and sellers of electricity.
10
Burki (2010) analysed that how decentralization can be successful in Pakistan after the 18th
Amendment and the 7th NFC Award. The 18th Amendment of the constitution is one of the most
important step in moving forward in terms of provision of services. Decentralization is expected to
improve governance and service delivery outcomes (Aslam & Yilmaz, 2011). Many economists are of
the view that the provision of basic utility services are better provided by governments that are nearer
to their intended beneficiaries. Technological advancement and changing lifestyles have augmented
the use and need of energy, which has tremendously increased the demand of electricity. The
availability, accessibility and affordability of energy supplies is vital for economic growth and
development of the economy. But unfortunately, Pakistan lack behind in ensuring energy security and
the provision of basic utilities that is natural gas and electricity (SDPI, 2013).
Jamil & Ahmad (2010) identified four major consumption users which are residential,
commercial, agricultural and manufacturing consumers and examine the nature and direction of
relationship between power consumption, power prices and economic activity in the form of GDP
growth and development in Pakistan. The economy of Pakistan is suffering because of unplanned
power shortages and limited power generation capacity which hampered the economic growth and
development in the country. Kessides (2013) examined that power sector of Pakistan has experienced
series of impulsive and irresponsible energy policies, issues of governance and institutionalization
which hampered the developmental process of power sector and shadowed the economic power
generation sources. Increasing power shortages in the country, damage the economic growth and
development. To ensure the successful operations and effective role of power sector in the economy
it is necessary to restructure the whole energy sector and redesign the policy framework of the country.
It would capture the interest and attention of private investors which would closely monitor the
performance of the energy sector and mitigate governance issues prevailing in the federal institutions.
These power sector reforms would help in overcoming the energy crisis and ensure the economic
growth and progress in the country. Important elements from similar country situations could be used
as benchmark to resolve the policy and governance problems. The base of power energy policy
depends on the economic, environmental and political elements, which would authorize the nature
and type of technological development in the power generation sector which would meet the
increasing power demand in the country. The power sector of Pakistan is experiencing financial crisis
and lack of proper investment because of standardized management and maintenance procedures for
the power plants. It has reduced the power generation capacity, abuse of subsidies and power tariffs
11
and improper planning of energy demand which results in power shortages (Sankar, 2004; Perwez et
al., 2015).
2.4. Summary and Key Findings

In this survey of literature, our focus was on finding the importance of energy security and its
role in economic development. Moreover, studies that highlight the factors such as regulations and
reforms affecting the energy supply were also covered. Energy security has been defined to comprise
availability, accessibility, affordability and acceptability. Recent literature also included in the definition
of energy security the factors such as technological development and sustainability through sound
regulations and reforms. Review of literature showed that energy security especially clean energy is
pivotal to economic growth and development. The development and functioning of energy markets
in the longer term depends on regulation, introduction of competition and privatization.
Evidence suggest that the development of energy markets and their functioning is often halted
by the political regimes. The energy sector is predominantly controlled by the government in Pakistan.
The 18th Amendment aimed the devolution of the rights and roles of the Federal government to the
provincial governments. It directly affected the natural gas distribution and regulation regarding the
petroleum concessions. Although, the 18th amendment has significantly affected the energy sector in
Pakistan, we did not find any study that assessed the impact of decentralization on the energy sector
performance. This study aims the impact assessment using the aggregate level data for the pre and
post-decentralization.
3. AN OVERVIEW OF ENERGY SUPPLY CHAIN IN PAKISTAN
This section provides outlook of all the generation and consumption activities of primary
energy supplies:
i. Oil
ii. Natural Gas
iii. Electricity
iv. Coal
v. LPG
In 2014-15, the primary energy supplies have crossed 70 million tonnes of oil equivalent TOE. The
total energy supplies in 2014-15 was 70,263,826 TOE with overall increase of 11.37% compare to the
12
2009-10. The share of oil, natural gas, coal and LPG in energy mix is 35.54%, 43.34%, 7.05 and 0.65%
respectively as given in Table 1. The overall share of hydro-electricity, nuclear electricity, renewable
and imported electricity in total energy is 13.43%. Renewable energy sources i.e. solar, wind and
bagasse were added for the first time in energy mix in 2014-15. Pakistan also imports electricity from
Iran since 2002.
From Table 1, it is also identified that the share of oil supply increased from 31.39% in 2009-
10 to 35.54% in 2014-15. Contrary, the share of natural gas decreased from 48.83% in 2009-10 to
43.34% in 2014-15. The share of electricity and LPG in energy supplies increased slightly while that
of decreased.
3.1. Primary Energy Balance Sheet Comparison
Table 1: Primary Energy Supplier by Source (TOE)

2004-05 2009-10 2014-15
Source (%) (%) (%)
Energy Supplies Energy Supplies Energy Supplies
Share Share Share
Oil 16,329,979 29.9 19,806,314 31.4 24,970,360 35.5
Natural Gas 27,953,659 51.2 30,808,523 48.8 30,450,258 43.3
Electricity 6,794,663 12.4 7,455,891 11.8 9,433,455 13.4
Coal 3,282,482 6.0 4,621,639 7.3 4,952,556 7.0
LPG 226,999 0.4 395,583 0.6 457,197 0.6
Total 54,587,782 100 63,087,950 100 70,263,826 100
Source: Pakistan Energy Year Book: 2005, 2010 & 2015.
Table 2: Final Energy Consumption by Source (TOE)

2004-05 2009-10 2014-15
Source Final Energy (%) Final Energy (%) Final Energy (%)
Consumption Share Consumption Share Consumption Share
Oil 11,710,920 37.6 10,829,455 27.9 13,851,467 33.0
Natural Gas 11,637,566 37.3 17,024,933 43.9 15,755,616 37.5
Electricity 4,994,560 16.0 6,054,921 15.6 6,989,011 16.6
Coal 2,365,152 7.6 4,282,061 11.0 4,631,627 11.0
LPG 450,379 1.4 576,631 1.5 756,414 1.8
Total 31,158,577 100 38,768,001 100 41,984,135 100
13
Table 2 shows the consumption side, the final energy sources available for consumption is 42
million TOE that is 8.30% more than that of 2009-10. The share of oil increased from 27.935% in
2009-10 to 32.99% in 2014-15. Contrary, the share of natural gas decreased from 43.91% in 2009-10
to 37.53% in 2014-15. The share of electricity, coal and LPG on average remain the same.
3.2. Oil
The oil industry in Pakistan is extensively regulated and competitive in nature, evolving rapidly
with the global market. The Directorate General of Petroleum Concessions (DGPC) of the Policy
Wing, under the Ministry of Petroleum and Natural Resources administered and regulated the
upstream activities in the oil sector. The government had also taken many positive measures in
deregulation of petroleum sector and market-based policies are being adopted. The midstream and
downstream of oil industry is regulated by the Oil & Gas Regulatory Authority (OGRA). The federal
Government enforced the provisions of sub-section (3) of Section 23 and (a) and (b) of sub-section
(3) of section 44 of the OGRA Ordinance 2002 w.e.f. from March 15, 2006, under the existing
Pakistan Petroleum (Refining Blending and Marketing) Rules, 1971. The Petroleum Policies give much
higher Well head price for Oil, which increases the return on investment and lowers the risk. The
Federal Petroleum Policy 2012 is one of the most friendly policies in the region and developing
countries.
3.3. Natural Gas

Pakistan has one of the most developed gas transmission and distribution network in the
region. The gap between its demand and supply is widening due to increased share in energy
consumption accompanied by continuous depletion of existing natural gas fields and the slow pace of
new blocks discoveries.
3.3.1. Policy Reforms and Regulations in Natural Gas Utilities

The role of regulatory agency is essential in monopoly setting to assure that utility cannot take
advantage of the excessive demand. Oil and Gas Regulatory Authority (OGRA) set service standards
for the industry and always prescribe prices which help the government to notify consumer prices.
Two major natural gas utilities are supplying gas to all the consumer categories in Pakistan namely; Sui
Southern Gas Company (SSGC) operating in Baluchistan and Sindh and accounts for 45% of total
gas in the country. While Sui Northern Gas Pipeline Limited (SNGPL) covers Khyber-Pakhtunkhwa
and Punjab provinces and accounts for 55% of total gas in the country. The gas consumers in Pakistan
have to purchase energy from the regulated distribution company that has the legal obligation to
14
supply and to plan for the needs of all retail consumers within its franchised area. It provides an
incentive to these utilities to expand infrastructure and extend connections beyond the gas availability
in the system.
Many rules and reforms are introduced including OGRA (Fines and Recovery) Rules, 2009;
Natural Gas Theft Control Rules, 2011; Tight Gas Policy 2011; LNG Policy 2011; and Petroleum
Policy 2012. Recently, Ministry of Petroleum and Natural Resources introduced the Gas (Theft
Control & Recovery) Ordinance 2014. This ordinance intends to empower government to establish
the Gas Utility Courts at the provincial and district levels. These courts will have capacity to decide
the cases against the gas defaulters similar to that of the Finance Recovery under Financial Institutions
Ordinance.
Gas Allocation and Management Policy 2013

In 2013, the newly elected federal government asked the provincial governments to make
necessary changes in Gas Allocation and Management Policy 2005 in order to get maximum benefit
and economic output instead of wasting the scare resources in non-productive consumption. In
Council of Common Interest meeting, the opinion of federal government was, it is unfair that CNG
is available in gas producing provinces while fertilizer plants are closed due to non-availability of gas
in another province. Even though the gas producing provinces are major consumer of fertilizers.
Another reservation was that instead of provision of gas to CNG stations, it should be used for power
generation.
Consequently, the government of Pakistan announced Gas Allocation and Management Policy
2013 and redefined the consumption priorities of policy of 2005. The gas consumption by different
sectors after priority allocation has changed. The first priority is given to domestic and commercial
consumers at lower prices to make livelihood affordable. The second priority is given to power sector
instead of transport sector in order to resolve the power crisis. The third priority is assigned to
Industries, Fertilizers and Captive Power Plants while the fourth is Cement Industry. Lastly, fifth
priority goes to Transport Sector (CNG).
3.3.2. Natural Gas and Its Governance Parameters

Government needs to monitor their performance in order to improve the effectiveness of
their policies and institutions and to understand how service delivery can be improved. Governance
indicators can provide benchmark against which the government can measure their progress.
Following are major governance indicators that are relevant to the natural gas industry of Pakistan.
15
Overall performance of the sector turns out to be poor as in two out of three indicators in the sector
show deterioration.
3.3.2.1. Natural Gas Consumers

Table 3 shows the total number of natural gas consumers’ province wise. In pre Amendment
period, the total number of consumers was 4.3 Million. In 2009-10, the number increased to 5.9
Million. 77,004 Km. During the period of 2005-10, the total network augmented to 119,989 Km.
While from 2010-15, the total network further increased to 153,642 Km. However, this increase is less
than the increase from 2005-10.
Table 3: Total Natural Gas Consumers by Province (Number)

Year 2004-05 % Share 2009-10 % Share 2014-15 % Share
KPK 296,643 6.9 454,007 7.6 634,258 8.2
Balochistan 146,845 3.4 203,035 3.4 250,746 3.3
Punjab 2,185,527 51.2 3,252,694 54.6 4,347,989 56.5
Sindh 1,641,844 38.4 2,044,122 34.3 2,459,839 32.0
Total: 4,270,859 100 5,953,858 100 7,692,832 100
% Growth (5 Years) 39.41% 29.21%
3.3.2.2. Natural Gas Transmission and Distribution Network

Table 4 shows the total network of natural gas in pre and post 18th Amendment period. In
2004-05, the total network for transmission & distribution of natural gas in Pakistan was 77,004 Km.
During the period of 2005-10, the total network augmented to 119,989 Km. During 2010-15, the
total network increased to 153,642 Km however, the rate of increase has decreased.
Table 4: Natural Gas Distribution Network in Provinces (Kilometers)

Year 2004-05 % Share 2009-10 % Share 2014-15 % Share
KPK 6,848 8.9 12,248 10.2 16,075 10.5
Balochistan 5,204 6.8 6,690 5.6 8,271 5.4
Punjab 41,464 53.8 70,990 59.2 90,126 58.7
Sindh 23,488 30.5 30,061 25.0 39,170 25.5
Total: 77,004 100 119,989 100 153,642 100
% Growth (5 Years) 55.82% 28.05%
16
3.3.2.3. Unaccounted for Gas (UFG)
The Unaccounted-for-gas (UFG) due to theft and technical losses in the natural gas sector are
increasing at a phenomenal rate in Pakistan. Table 5 presents the UFG in both SSGC and SNGP. In
SSGC, the actual percentage of UFG was 7.42% in 2004-05, 11.50% in 2009-10 and 16.43% in 2014-
15. In case of SNGPL, the actual percentage of UFG was 6.86% in 2004-05, 9.75% in 2009-10 and
13.55% in 2014-15. The UFG is increasing in both companies with alarming rate but if we compare
the performance of both companies, the percentage of UFG in SSGC is higher than SNGPL.
Table 5: Unaccounted For Gas (%)

SSGC SNGPL
Year
Actual Allowed Actual Allowed
2004-05 7.42 6.00 6.86 6.00
2009-10 11.50 7.00 9.71 7.00
2014-15 16.43 8.60 13.55 7.10
Source: An Unaccounted for Gas – 2nd Draft 2017 (Oil and Gas Regulatory Authority – OGRA).
3.4. Electricity
Electricity is indeed the key element and major contributor in the growth of the economy.
Traditionally, Electricity sector is controlled or regulated by the government monopoly or near
monopoly enterprises. But now the nature of electricity industry changed with the passage of time and
there is a widespread consensus in many developed and developing countries to move towards
competitive electricity markets. The governments realized that better performance and management
of this basic utility was imperative for the efficient functioning of the economy.
3.4.1. Policy Reforms and Regulations in Electricity Sector

The electricity sector of Pakistan is a developing market and the balancing of electricity supply
and demand remained unsettled matter. Pakistan is facing acute electricity shortage of its history. In
this backdrop, the emphasis of energy policy in the country has been to increase power generation
capacity during the last several years. Electricity reforms are considered essential for improved
governance and performance of the sector which will extend energy access to all citizens, remove
dependency on subsidies and which will restore confidence of private investors. The core objective of
the reforms should make the power sector sustainable and financially self-sufficient.
The Electricity Act 1910, remain enforced in Pakistan after its independence in 1947. With
time, Water and Power Development Authority Act, 1958 was introduced by federal Government
17
entrusted with a massive agenda, which not only included generation, transmission and distribution
of power but also irrigation, water supply, drainage, flood control, etc. came under it. Under the
current constitution of 1973, electricity was placed under the concurrent list of legislation, i.e., both
federal and the provincial governments had the authority to legislate on electricity matter and in case
of inconsistency between the two, and the federal law had to prevail. Further a Council of Common
Interests under Article 153 of the Constitution was established to supervise and control functions of
institutions dealing with electricity.
The government adopted Strategic Plan 1992 which was the first major step towards
introduction of a market structure in the power sector. The vertically integrated market structure was
exposed to the forces of market competition. The main features of the plan were:
 “Corporatization and privatization of WAPDA into separate generation and distribution

companies.
 Develop the outline of a competitive, modern and dynamic power sector, which meets the
needs of the consumers in the most affordable and efficient manner.
 Creation of an independent regulatory authority to provide a level playing field to all stake
holders and to assure prospective investors that an independent agency shall objectively decide
on regulatory matters of the power sector without extraneous influence.”
In Pakistan, the history of electricity regulation would remain incomplete without referring to
Gadoon Amazai Case. In August 1997, the Supreme Court of Pakistan underlined the importance
of a regulatory authority who could safeguard public interest while fixing electricity rates and levy
surcharges upon its consumers. In the light of this verdict, National Electric Power Regulatory
Authority (NEPRA), has been established for regulation of electric power generation, transmission
and distribution in Pakistan.
3.4.1.1. Power Policies

The Power Policy 1998 was introduced with the aim of commercialization and eventually
privatization according to which WAPDA was vertically and horizontally unbundled. In view of the
government, the power policy 1998 had failed to attract the private power investors and therefore
analysed to bring new power policies, which could create a new set of incentives and friendly
atmosphere for the investors and also to keep the consumer prices affordable.
18
Under Power Policy 2002, provincial governments were allowed to develop small projects up
to 50 MW instead of 20 MW in previous policies. For the proposals of new hydel and indigenous fuel
projects above 50 MW, the provinces would consult the Private Power and Infrastructure Board
(PPIB) and the GOP will guarantee the terms and conditions of executed agreements. The time frame
for Generation Expansion Plan was also underlined as Short term, Medium term and long term.
The National Power Policy 2013 developed by the Ministry of Water and Power sets nine
objectives. Some of these focuses essentially on the improved governance and management of the
electricity sector including reduction in electricity pilferage and financial losses especially the ones that
accrue from non-payment of electricity bills. The policy set impressive targets to be achieved of
reducing T&D losses from 25% to 16% and improve collection of bills to 95%. It endeavours to
minimize the overall distributional inefficiencies from electricity distribution system of Pakistan.
However, the implementation strategy and status of such goals is not remarkable. The bottom line is
that National Power Policy 2013 emphasized on electricity generation and more specifically on energy
mix. The issues pertaining to electricity distribution including excessive T&D losses, theft and bills
collection are not properly addressed through this policy due to lack of consensus among the
provinces and the federal government.
In 2015, the government of Pakistan announced new Power Generation Policy 2015 to tackle
the electricity crises and to bridge the demand supply gap. The government aim to encourage foreign
and local investors by providing all facilities and atmosphere with competitive concessions and
attractive return on investment not only in generation but also expansion in the transmission lines and
infrastructure in the private sector.
3.4.2. Electricity and Its Governance Parameters

Electricity is the most efficient form of energy and can be termed as a measure of technological
progress of a country. Following governance parameters can be used to assess utilities’ performance.
Overall performance of the sector turns out to be poor as in two out of three indicators in the
electricity sector show deterioration.
3.4.2.1. Village’s electrification

Villages’ electrification can be termed as an important indicator for electric utilities’
performance. An important objective of public utility is to connect whole of its population to the
national electricity grid. Currently one third population has no access to electricity in Pakistan.
Competitive private firms have no incentive to extend transmission infrastructure to low usage
19
consumers of rural areas and slum dwellers. Table 6 shows the total no of villages electrified from
2004-05 to 2014-55. In 2004-05, a total of 22,128 number of villages were electrified. In 2009-10, the
number escalated to 62,174. While in 2014-15, only 42,215 villages were electrified which is less if we
compare it to pre amendment five years.
Table 6: Villages Electrification (Numbers)

Province 2004-05 % Share 2009-10 % Share 2014-15 % Share
KPK 4,454 20.1 9,408 15.1 5,982 14.2
Balochistan 1,968 8.9 6,078 9.8 6,035 14.3
Punjab 12,176 55.0 37,344 60.1 21,191 50.2
Sindh 3,530 15.9 9,344 15.0 9,007 21.3
Total 22,128 100 62,174 100 42,215 100
% Growth (5 Years) 180.97% -32.10%
3.4.2.2. Capacity Shortfall

The only way to control the capacity shortfall in the short run is to efficiently utilize the
available resources. The government lacks a strategy by adding new power plants without improving
or upgrading the existing generating capacity. If the given resources are utilized efficiently, the power
generation will increases and will earned higher revenue. The extra generated power will help in
lessening the cost of power production and would diminish the capacity shortfall. All these policy
implications are helpful in reducing circular debt. Energy security for the electricity sector requires
adequate and timely investment in generation and infrastructure development and the market can play
a fundamental role for achieving this goal efficiently. Table 7 indicates that capacity shortfall in 2004-
05 was 2197MW which significantly increases to 2562MW by 16.61% in 2009-10. The increase in
capacity shortfall is a negative sign in Electric Utilities.
Table 7: Capacity Short Fall (MW)

Item 2004-05 2009-10 2014-15
Maximum Demand 15263 21029 24022
Maximum Demand Met 13066 18467 20966
Shortfall (MW) 2197 2562 3056
Growth 16.61% 19.28%
Source: Power System Statistics 2010, 2015 (NTDC).
20
3.4.2.3. Transmission & Distribution Losses
Reduction in Transmission & Distribution (T&D) losses is the most effective and realistic way
to reduce circular debt. The introduction of new technologies and digital metering system will further
monitor electricity use and will improve billing collection. The government should introduce new laws
regarding electricity theft and deal harshly with those who refuse to pay. It is clear from Table 8, that
T&D losses significantly decreases from 25.44% to 20.32% from 2004-05 to 2009-10. While in the
post five years, T&D losses further decreases from 20.32% to 17.04%. The reduction in T&D losses
is a positive sign in Electric Utilities.
Table 8: Transmission & Distribution Losses (GWh)

Item 2004-05 2009-10 2014-15
Electricity in the system 73,520 88,921 96463
Consumption 55,278 68,878 78113
Transmission & Distribution (T&D) Losses 18,242 20,043 18,350
% T&D Losses of Net Supply 24.8% 22.5% 19.0%
The government of Pakistan should also focus on upgrading of transmission lines and ensure
that power plants and other key infrastructure do not fall into serious disrepair. Meanwhile, energy
conservation laws are needed to convince consumers on how to use energy more efficiently. The use
of inefficient electrical appliances should be discouraged and economic incentives should be
established for consumers to use less energy.
4. DATA AND METHODOLOGY

4.1. Data Sources
Data of energy sector of Pakistan are taken from various sources mainly from Pakistan Energy
Year Books. The data sources are:
 Pakistan Energy Year Book: 2005; 2010; 2015 (Hydrocarbon Development Institute of
Pakistan)
 An Un accounted for Gas – 2nd Draft 2017 (Oil and Gas Regulatory Authority – OGRA)
 Power System Statistics by Planning Power (National Transmission and Dispatch Company)
 State of Industry Reports (National Electric Power Regulation Authority- NEPRA)
21
4.2. Methodology
Data are taken from the above sources to compare the energy supplies during the last ten
years. As the 18th Amendment took place in 2010, therefore the same year is taken as base year in
order to compare Pre-five years and Post-five years energy availability. Data of exploration and
production (E&P) and consumption of energy supplies that is, oil, natural gas and electricity are
analysed for the years 2005, 2010 and 2015. Three performance measures are identified and taken into
consideration for the comparison analysis.
Table 9: Performance measures by Energy Source

Performance Measure Oil Gas Electricity
Exploration & Production 1 1 0
Consumption 0 1 1
Consumer Mix 0 1 1
From Table 9, 1 implies that effect of 18th Amendment is analysed on the energy supplies
while 0 means that we do not analyse it.
5. TABULATION AND ANALYSIS OF DATA

This chapter explains the analysis, discussion and interpretation of data collected.
5.1. Exploration & Production of Oil, Natural Gas and Electricity Generation
i. E&P of Oil
From Table 10, the domestic Original Recoverable Reserves (ORR) of crude oil in 2004-05
were 843.93 Million Barrels. In 2009-10, the ORR increased by 14.39% and reached to 965.38 Million
Barrels. The ORR further increased by 22.84% and moved to 1185.88 Million Barrels in 2014-15.
While in ten years from 2004-05 to 2014-15, the ORR increased by 40.52%. The Cumulative
Production (CP) in 2009-10 was 23.06% more than that of 2004-05. While the CP slightly decreased
to 21.65% in 2014-15 as compared to 2009-10.
The most significant thing is the Balance Recoverable Reserves (BRR) activity in the region.
The BRR in 2009-10 declined by 0.65% from 308.56 Million Barrels to 306.56 Million Barrels.
Fortunately in 2014-15, the BRR escalated by 25.39% and reached to 384.41 Million Barrels, which
signifies Exploration activity in the oil sector in the post amendment period. The ORR in Khyber
Pakhtunkhwa was 50.56 Million Barrels in 2004-05, jumped to 119.85 Million Barrels in 2009-10 and
22
further jumped to 284.40 Million Barrels in 2014-15. It shows that tremendous work in Exploration
has been done in Khyber Pakhtunkhwa since 2005-15 and the reserves increased by more than 400%.
On the other hand, the BRR in Punjab and Sindh are decreasing with alarming rate. While in
Balochistan, the BRR slightly increased.
Table 10: Crude Oil Reserves by Province (Million Barrel)

2004-05 2009-10 2014-15
Province
ORR CP BRR ORR CP BRR ORR CP BRR
KPK 50.56 1.26 49.3 119.85 20.12 99.73 284.40 78.35 206.05
Balochistan 1.35 0 1.35 1.38 0 1.38 1.70 0.15 1.55
Punjab 411.23 289.75 121.48 407.39 323.61 83.78 426.27 348.36 77.91
Sindh 380.79 244.36 136.43 436.76 315.09 121.67 473.51 374.62 98.89
Total 843.93 535.37 308.56 965.38 658.82 306.56 1185.88 801.48 384.4
% Growth (5 Years) 14.39% 23.06% -0.65% 22.84% 21.65% 25.39%
Table 11 shows the oil production in pre and post 18th Amendment period. In 2004-05, the
crude oil production was 65,577 Barrels which reduced to 64,948 Barrels in 2009-10. In five years, the
production slightly decreased by 0.96%. In 2014-15, the production significantly increased by 45.49%
and moved to 94,493 Barrels. Provincial wise, the production share of KPK increased significantly
from 4.40% in 2004-05 to 22.37% in 2009-10 and escalated to 47.20% in 2014-15. The production
share of Balochistan also slightly increased. Contrary, the share of Punjab and Sindh deteriorated and
its production share almost moved down by 50%.
Table 11: Crude Oil Production by Province (Barrels)

KPK 1,060,939 4.40% 5,302,711 22.37% 16,279,021 47.20%
Balochistan 19,591 0.08% 21,675 0.09% 38,785 0.11%
Punjab 8,481,476 35.17% 5,121,351 21.60% 5,158,576 14.96%
Sindh 14,556,774 60.35% 13,260,411 55.94% 13,013,672 37.73%
Total Barrels 24,118,780 100.00% 23,706,148 100.00% 34,490,054 100.00%
Per Day 65,577 64,948 94,493
% Growth (5 Years) -0.96% 45.49%
ii. E&P of Natural Gas:

From Table 12, the domestic Original Recoverable Reserves (ORR) of natural gas in 2004-05
were 51.53 Trillion CFt. In 2009-10, the ORR only increased by 4.72% while the Cumulative
23
Production (CP) increased significantly by 40.93% if we compare it with 2004-05. In 2014-15, the
ORR then slightly decreased by 0.08% and moved to 53.96 Trillion CFt while the CP increased by
27.62% as compared to 2009-10. The Balance Recoverable Reserves (BRR) in 2004-05 were 32.82
Trillion CFt, declined by 15.93% to 26.37 Trillion CFt and further declined by 26.55% to 20.27 Trillion
CFt. It indicates that exploration activity has been hindered. Moreover, the CP of natural gas also
decreased and no homework has been done to explore new reserves.
Table 12: Natural Gas Reserves (Trillion CFT)

2004-05 2009-10 2014-15
Province
ORR CP BRR ORR CP BRR ORR CP BRR
KPK 2.230 0.103 2.127 2.702 0.194 2.508 1.549 0.758 0.791
Balochistan 19.694 10.244 9.45 19.866 11.926 7.94 19.268 13.379 5.889
Punjab 2.905 1.330 1.575 3.032 1.703 1.329 3.563 2.039 1.524
Sindh 26.703 7.037 19.666 28.364 12.55 15.814 29.543 17.482 12.061
Total 51.532 18.714 32.818 53.964 26.373 27.591 53.923 33.658 20.265
% Growth (5 Years) 4.72% 40.93% -15.93% -0.08% 27.62% -26.55%
Province-wise data show that the BRR in Khyber Pakhtunkhwa, Balochistan and Sindh
diminished while in Punjab, the BRR has increased slightly. Table 13 shows the natural gas production
in pre and post 18th Amendment period. In 2004-05, the natural gas production was 1,344,953 Million
CFt which increased to 1,482,848 Million CFt in 2009-10. In five years, the production was improved
by 10.25%. In 2014-15, the production declined by 1.15% with production of 1,465,761 Million CFt.
The production share of Balochistan, Punjab and Sindh deteriorated while the production share of
KPK increases significantly from 0.63% in 2004-05 to 8.95% in 2014-15.
Table 13: Natural Gas Production by Province (Million CFT)

KPK 8,466 0.6 74,952 5.0 131,207 8.9
Balochistan 336,493 25.0 288,393 19.4 298,800 20.4
Punjab 63,831 4.7 69,516 4.7 50,492 3.4
Sindh 936,163 69.6 1,049,987 70.8 985,262 67.2
Total: 1,344,953 100 1,482,848 100 1,465,761 100
% Growth (5 Years) 10.25% -1.15%
24
iii. Electricity Generation:
The data of electricity generation are given in Table 14. The grand total generation in 2004-05
was 85,629 GWh. The generation augmented to 95,357 GWh with an increase of 11.36% in 2009-10.
While in 2014-15, the total generation increased to 106,966 GWh with growth of 12.18%.
In 2004-05, the share of thermal power was 66.76% and further increases to 67.50% in 2009-
10. In post amendment period, the share of thermal power decreases to 63.47%. If we compare the
share of oil and gas as input in power generation. The share of oil increases more than double in ten
years from 15.78% in 2004-05 to 36.82% in 2014-15, while the share of gas reduces to half from
50.77% to 26.51% in ten years. Beside this the share of coal, in thermal power generation also cut
down by 0.06% from 2004-15.
The share of Hydel power in total generation is more or less 30% in the last ten years. The
share of nuclear power increased from 3.03% in 2009-10 to 5.43% in 2014-15, which is a positive sign.
For the first time in 2014-15, the power generation also started from renewable sources i.e. solar, wind
and bagasse with a combined generation of 802 GWh.
Table 14: Electricity Generation by Source (GWh)

% % 2009- % % % %
Type 2004-05 2014-15
Share Share 10 Share Share Share Share
Coal 175 0.2 116 0.1 145 0.1
Thermal Oil 13,516 15.8 66.7 36,175 37.9 67.5 39,390 36.8 63.5
Gas 43,472 50.8 28,079 29.4 28,352 26.5
Hydel 25,671 29.9 30.0 28,093 29.5 29.5 32,474 30.4 30.4
Nuclear 2,795 3.3 3.3 2,894 3.0 3.0 5,804 5.4 5.4
Solar 0 0.0 0 0.0 25 0.0

Renewable Wind 0 0.0 0.0 0 0.0 0.0 458 0.4 0.7
Bagasse 0 0.0 0 0.0 319 0.3
Grand Total 85,629 100 95,357 100% 106,966 100

% Growth (5 Years) 11.36% 12.18%
5.2. Consumption of Natural Gas and Electricity:
i. Natural Gas Consumption

In Table 15, data on consumption of natural gas are given in pre and post 18th Amendment
period. The grand total consumption of natural gas during 2004-05 was recorded as 1,161,043 Million
25
CFt. In 2009-10, the consumption was recorded 1,277,820 Million CFt, which shows 10.06% increase
in consumption in five years. While in post period, the total consumption was 1,224,892 Million CFt
in 2014-15, which shows 4.14% decline in consumption as compared to 2009-10.
Table 15: Natural Gas Consumption (Million CFT)

Province Sector 2004-05 2009-10 2014-15
Domestic 14,659 46.8% 19,303 40.9% 29,654 39.8%
Commercial 2,009 6.4% 2,409 5.1% 2,489 3.3%
Industries 10,861 34.7% 11,995 25.4% 15,232 20.4%
KPK
Power 0 0.0% 0 0.0% 0 0.0%
Transport (CNG) 3,794 12.1% 13,418 28.5% 27,104 36.4%
Sub Total 31,323 2.7% 47,125 3.7% 74,479 6.1%
Domestic 7,458 8.8% 8,245 9.5% 11,515 9.0%
Commercial 500 0.6% 611 0.7% 772 0.6%
Industries 201 0.2% 242 0.3% 297 0.2%
Balochistan
Power 76251 90.3% 77417 88.9% 114,001 89.1%
Transport (CNG) 27 0.0% 521 0.6% 1,364 1.1%
Sub Total 84,437 7.3% 87,036 6.8% 127,949 10.4%
Domestic 98,554 17.8% 126,023 20.21% 157,096 34.8%
Commercial 17,348 3.1% 24,341 3.90% 22,411 4.9%
Industries 224,604 40.7% 337,175 54.06% 219,144 48.5%
Punjab
Power 196,457 35.6% 75,060 12.03% 42,649 9.4%
Transport (CNG) 15,431 2.8% 61,090 9.79% 10,316 2.3%
Sub Total 552,394 47.6% 623,689 48.81% 451,616 36.8%
Domestic 51,432 10.4% 65,811 12.6% 79,805 13.9%
Commercial 7,334 1.5% 9,594 1.8% 9,515 1.7%
Industries 194,243 39.4% 206,163 39.6% 238,883 41.8%
Sindh
Power 234,689 47.6% 214,429 41.2% 214,912 37.6%
Transport (CNG) 5,191 1.0% 23,973 4.6% 27,733 4.8%
Sub Total 492,889 37.1% 519,970 40.7% 570,848 46.6%
Grand Total: 1,161,043 100% 1,277,820 100% 1,224,892 100%
% Growth (5 Years) 10.06% -4.14%

In 2009-10, Province wise share of Punjab in natural gas consumption was almost 48.8% of
the total consumption. Following the 18th Amendment, its consumption share declined to 36.8% in
2014-15. On the other side, the consumption share of KPK and Balochistan are almost doubled in
26
five years from 3.69% to 6.08% and 6.81% to 10.45% respectively. The share of Sindh consumption
also increases from 40.69% to 46.6%.
Sector wise, the first priority was given to domestic and commercial consumers in the Gas
Allocation and Management Policy 2013, followed by power, Industries and lastly to transport sector
(CNG). The 18th Amendment directly affected the consumption pattern of natural gas sectorally.
i. Electricity Consumption:
Table 16 shows the grand total consumption of electricity. In 2004-05 was the total
consumption was 61,328 GWh. In 2009-10, the consumption was recorded 73,558 GWh which shows
19.94% increase in five years. While in Post 18th Amendment, the total consumption was 84,940 GWh
in 2014-15, which shows 15.47% increase in consumption as compared to 2009-10.
Table 16: Sectoral Share of Provinces in Electricity Consumption (GWhs)

Province Sector 2004-05 2009-10 2014-15
Domestic 5,101.2 8.3% 5,453.4 7.4% 5,270.0 6.2%
Commercial 359.2 0.6% 483.4 0.7% 659.0 0.8%
Industries 1,277.1 2.1% 1,443.0 1.9% 2,083.0 2.4%
KPK
Agriculture 440.6 0.7% 363.1 0.5% 145.0 0.2%
Others 465.9 0.7% 516.5 0.7% 543.0 0.6%
Sub Total 7,644.0 12.4% 8,259.4 11.2% 8,700.0 10.2%
Domestic 378.3 0.6% 462.6 0.6% 573.0 0.7%
Commercial 80.7 0.1% 92.6 0.1% 109.0 0.1%
Industries 95.2 0.2% 113.4 0.1% 140.0 0.1%
Balochistan Agriculture 2,840.3 4.6% 3,348.3 4.5% 3,068.0 3.6%
Others 97.2 0.2% 82.2 0.1% 104.0 0.1%
Sub Total 3,491.7 5.7% 4,099.1 5.6% 3,994.0 4.7%
Domestic 16,664.6 27.2% 20,824.6 28.3% 24,682.0 29.0%
Commercial 2,482.7 4.0% 3,528.6 4.8% 3,633.0 4.3%
Industries 13,168.6 21.5% 13,640.6 18.5% 17,678.0 20.8%
Punjab
Agriculture 3,054.5 5.0% 5,087.9 6.9% 3,996.0 4.7%
Others 2,325.9 3.8% 2,824.4 3.8% 3,260.0 3.8%
Sub Total 37,696.3 61.5% 45,906.1 62.4% 53,249.0 62.7%
Domestic 5,456.5 8.9% 6,906.3 9.4% 10,203.5 12.0%
Commercial 1,157.4 1.9% 1,452.0 1.9% 2,041.4 2.4%
Industries 4,050.5 6.6% 4,561.7 6.2% 5,026.9 5.9%
Sindh
Agriculture 653.0 1.1% 890.0 1.2% 824.2 0.9%
Others 1,178.5 1.9% 1,483.5 2.0% 900.7 1.1%
Sub Total 12,495.9 20.4% 15,293.5 20.8% 18,996.7 22.4%
Grand Total 61,327.9 100% 73,558.1 100% 84,940 100%
% Growth (5 Years) 19.9% 15.5%
27
The electricity consumption of KPK and Balochistan shows decline. In 2004-05, the share of
Kpk was 12.46%, it reduces to 11.23% in 2009-10 and further reduces to 10.24% in 2014-15. Likewise,
the share of Balochistan is following the same trend and consumption in 2004-05 was 5.69%, it
reduces to 5.57% in 2009-10 and further reduces to 4.70% in 2014-15. On the other side, the
consumption share of Punjab and Sindh provinces amplified. In 2004-05, Punjab consumed 61.47%
of electricity, increases to 62.41% in 2009-10 and further increases to 62.69% of total consumption in
2014-15. Similarly, the share of Sindh also increases from 20.38% in 2004-05 to 20.79% in 2009-10
and 22.36% in 2014-15. The country-wide consumption of electricity is declined by 4.47 percentage
points, which indicates poor consumption performance overall.
6. CONCLUSION AND POLICY RECOMMENDATIONS
6.1. Conclusion
Pakistan is not an energy insecure country as both renewable and non- renewable resources
are available on large scale. But it is the poor energy mix and inconsistent reforms in energy sector
due to which Pakistan is facing severe energy crisis. Unfortunately, all the successive governments
tried to control the energy shortfall in the short run despite taking into considerations its drawbacks
in the long run. The improper and inefficient utilization of resources, lack of effective planning and
dearth of generation capacity, transmission and distribution losses, non-payment of bills, theft and
unauthorized connections lead to demand-supply gap. Poor energy governance, crippled regulatory
authorities and frequent political interferences affect pricing and investment decisions and distort the
prevailing market conditions. The government should ensure energy security and fair energy mix
which will meet the energy needs of all its population times.
After 18th Amendment, many missing links have been created in the allocation and
distribution policy in natural gas sector. The federal government and provincial governments have
started making vague and unlimited claims to their rights which are not adequately defined. Insertion
of new clause 3 in Article 172, to have Joint and Equal Ownership, over minerals and natural resources
and Article 158 give the Producer provinces to fulfil their own requirements and have precedence in
utilizing natural resources i.e. oil and natural gas. This has caused anxiety among the provinces which
may have encouraged rather frenetic efforts to acquire energy independence that may not be optimal.
Since 2010, both the federal government and provincial governments did not agree on new
terms and conditions after having joint and equal ownership of revenue collected on oil and gas
reserves located in the concerned provinces. The provision of public utilities further worsened after
28
the 18th Constitutional Amendment. With the devolution of many ministries to the provinces, the
federal government mostly meet its expenses and raise revenue by escalating the prices of energy
supplies. One way is to increase prices of POL products and other is to increase prices of utilities i.e.
natural gas and electricity. This badly hurts the standard of energy security as affordability of energy
supplies is important not availability.
One of the main fact after the 18th Amendment is that the natural gas producer provinces are
not following the existing Gas Allocation and Management Policy which on one side benefited the
consumers of the producer provinces but on the other side, it badly affected the inter provincial
relations and will weaken the federation. This matter must be taken in CCI meeting and the federal
government should take every possible measures to solve the anomalies created by the 18th
Amendment.
The demand of formation of Joint Board of Directors from provinces instead of only Director
General of Petroleum Concessions (DGPC) will create the dichotomy of power in giving new licenses
and awarding new exploratory blocks. This demand of equal representation from the provinces further
worsen the state of affairs. It would be difficult for investors to deal with both tiers of governments
as no one will be having clear mandate and decision powers in awarding new exploration and drilling
contracts with respect to oil and gas in the respective provinces jurisdictions. The results indicates 18th
Amendment positively affected the exploration and production of oil. Not only the production of oil
escalated but also the balance recoverable reserves increased significantly which show great
exploration and drilling activities in the sector. Consumption of oil is not taken into consideration as
its downstream is competitive in nature and dealt by private sector. Table 17 gives the results of
different performance indicators employed in the analysis.
Table 17: Performance Measures Results

Performance Measure Oil Gas Electricity
E&P/ Generation Positive Negative Indirect Changed
Consumption 0 Negative No Change
Consumer Mix 0 Changed No Change
However, both exploration and production along with consumption of natural gas is
negatively affected since 2010. It indicates that exploration activity has been hindered significantly.
Moreover, the production of natural gas from existing reserves also decreased and no homework has
been done to explore new reserves. The 18th Amendment also changed the consumer mix sectorally
29
in natural gas producing provinces. The producer provinces are not following the Gas Allocation and
Management Policy 2013 and their priorities allocation seems different from the priorities given in
2013 policy. Instead of allocating gas to power sector (second priority), fertilizers and captive power
plants (third priority), the natural gas producing provinces are allocating gas to transport sector (CNG),
which is last in priority wise in the Gas Allocation and Management Policy 2013.
The 18th Amendment did not altered articles related to electricity in the Constitution and
ultimately it did not changed the electricity sector directly. However, the unavailability of natural gas
for thermal power generation ultimately increase the share of oil in the power generation significantly.
It has serious financial consequences for the public electric utility that faces recurrent circular debts.
The unavailability of domestic natural gas for the power generation and industrial sectors drives these
sectors to rely on imported LNG which raises their production costs. The consumption share of
electricity province wise and sectoral wise more or less remain the same. And no significant change
has been identified in consumption pattern.
6.2. Policy Recommendations

Pakistan should concentrate more on achieving more affordable energy balance. The proper
tapping and efficient utilization of indigenous resources would narrow the gap between demand and
supply of utilities, i.e., electricity, natural gas along with other crude oil products. Instead of importing
and producing expensive electricity from oil, Pakistan should target renewables and coal. Thermal
sources are providing 65% of electricity in the country. This energy mix is not favorable to a
developing country like Pakistan and we have to create energy portfolio that is more reliable and
affordable. The ultimate aim should be to convert our energy mix the other way round i.e. 35 percent
from non-renewable and 65 percent from renewables.
Besides, to ensure the successful operations and effective role of Energy sector. It is necessary
to restructure the whole energy sector and redesign the policy framework in Pakistan. The Ministry of
Water and Power and Ministry of Petroleum and Natural Resources and other concerned
organizations should be merged to make Ministry of Energy. This step would help in making uniform
policies and to achieve target growths in energy sector. Likewise, the dismantling of national electricity
grid and natural gas provision and transferred it to provinces like other ministries that are transferred
to provinces under the 18th Amendment. Competition can be introduced in supply sector from where
provincial governments could buy energy and sells it to districts supply companies.
30
The federal government should take all the federating units in confidence to readdress the
energy sector. It is also the responsibility of provinces to show leniency in making uniform energy
policies and to assist the federal government up to the extent to revise the existing clauses of 18 th
Amendment related to energy sector. The new amendment should restructure the whole energy sector
and redesign the existing policies, regulatory authorities and framework to ensure energy security in
Pakistan. These steps would make the energy supply more affordable, reliable and sustainable and will
alleviate the energy crisis. Furthermore, it will assist Pakistan’s economic growth and development and
will bring stability in energy sector in the long run.
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S3H Working Paper Series

Number 01: 2018

Impact of the 18th Amendment on Energy Security and

Hafiz Fawad Khan

School of Social Sciences and Humanities (S3H)

Faculty Editorial Committee

Impact of the 18th Amendment on Energy Security and

School of Social Sciences and Humanities (S3H)

1.1.1. Role on Oil and Natural Gas .................................................................................................. 3

1.1.2. Role on Electricity .................................................................................................................... 4

1.2. Problem Statement ............................................................................................................................ 6

1.3. Research Question ............................................................................................................................ 7

1.4. Objectives of the Study .................................................................................................................... 7

2. LITERATURE REVIEW ................................................................................................................... 7

2.2. Decentralization in Energy Sector: Regulation, Privatization & Competition ......................... 9

2.3. Research Evidence from Pakistan ................................................................................................10

2.4. Summary and Key Findings ...........................................................................................................12

3. AN OVERVIEW OF ENERGY SUPPLY CHAIN IN PAKISTAN ....................................12

3.1. Primary Energy Balance Sheet Comparison................................................................................13

3.2. Oil ......................................................................................................................................................14

3.3. Natural Gas ......................................................................................................................................14

3.3.1. Policy Reforms and Regulations in Natural Gas Utilities .................................................14

3.3.2. Natural Gas and Its Governance Parameters .....................................................................15

3.3.2.1. Natural Gas Consumers…………………………………………………………....16

3.4.1. Policy Reforms and Regulations in Electricity Sector .......................................................17

3.4.2.1. Village's Electrification………………………………………………………....…..19

4.1. Data Sources ....................................................................................................................................21

4.2. Methodology ....................................................................................................................................22

5. TABULATION AND ANALYSIS OF DATA ............................................................................22

5.2. Consumption of Natural Gas and Electricity: ............................................................................25

6. CONCLUSION AND POLICY RECOMMENDATIONS ...................................................28

6.2. Policy Recommendations………………………………………………………………..30

Table 1: Primary Energy Supplier by Source ...............................................................................................13

ii. Article 161/1: Natural Gas and Oil:

(1) “Notwithstanding the provisions of Article 78”,-

iii. Article 172/3: Ownerless Property:

1.1.2. Role on Electricity

“(2) The Government of a Province may:

ii. Article 161/2: Hydro-electric Power

1.3. Research Question

1.4. Objectives of the Study

2.2. Decentralization in Energy Sector: Regulation, Privatization & Competition

2.3. Research Evidence from Pakistan

2.4. Summary and Key Findings

3. AN OVERVIEW OF ENERGY SUPPLY CHAIN IN PAKISTAN

3.1. Primary Energy Balance Sheet Comparison

Table 1: Primary Energy Supplier by Source (TOE)

Table 2: Final Energy Consumption by Source (TOE)

3.3. Natural Gas

3.3.1. Policy Reforms and Regulations in Natural Gas Utilities

Gas Allocation and Management Policy 2013

3.3.2. Natural Gas and Its Governance Parameters

3.3.2.1. Natural Gas Consumers

Table 3: Total Natural Gas Consumers by Province (Number)

3.3.2.2. Natural Gas Transmission and Distribution Network

Table 4: Natural Gas Distribution Network in Provinces (Kilometers)

Table 5: Unaccounted For Gas (%)

3.4.1. Policy Reforms and Regulations in Electricity Sector

 “Corporatization and privatization of WAPDA into separate generation and distribution

3.4.1.1. Power Policies