Pakistan Government Releases $195 Million to State-Owned Power and Oil Companies to Solve Power Shortage Issues

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Pakistan Government has released $195 million to state-owned Pakistan Electric Power Company Limited (PEPCO) (Lahore, Pakistan) and Pakistan State Oil Company Limited (KAR:PSO) (PSO) (Karachi, Pakistan) in an attempt to find a solution to the power shortages that have led to public demonstrations and anger from both the business and industrial sectors.

State power producers, gas companies, refineries, oil marketing companies, and airlines have all been running late on their payments since the government fell into a financial crisis in June 2008. Several factors contributed to this crisis, notably a reduction in foreign investment, a substantial decrease in the flow of funds from financial markets and a slowdown in aid from external agencies such as the World Bank and the International Monetary Fund (IMF) (Washington, D.C.).

An aid package worth $7.6 billion was finally approved by the IMF last November, and the first installment of the package, valued at $3.1 billion, boosted Pakistan's foreign exchange reserves to $9.6 billion. To date, Pakistan has received $3.9 billion of the IMF loan, and a further installment of $844 million was due was in June this year. However, the IMF has deferred payment of this tranche until it has had a chance to review Pakistan's federal budget for the financial year ending June 2010.

In a further exercise designed to raise funds, in March this year the government converted about $530 million of circular debt in the energy sector into term-finance certificates, or bonds. However, it has yet to find a solution to the circular debt problem, which causing a lack of available liquidity, has caused local refineries to have a lower output, resulting in lower crude oil imports.

PEPCO received about $158 million from the government last week, which will be used to pay the refinery companies from whom PEPCO purchases fuel oil to its run power plants. PSO received about $38 million directly from the government, which is to be used to cover the difference between the price at which PSO purchased fuel oil internationally and the price at which it later sold oil to state-owned companies such as PEPCO. In total, the state-owned companies, including Pakistan Airlines and PEPCO, owe PSO about $1 billion.

Last weekend, the Ministry of Water and Power claimed that the gap between the power generated and demand had declined recently as a result of the heavy rain and changes in the weather. According to the Ministry, about 12,260 MW of power was produced on Saturday, July 25, while demand reached 14,520 MW. The gap between supply and demand was handled by load shedding.

PEPCO is attempting to enhance the company's overall generating capacity by investigating all possible methods of electricity generation, including biomass, hydroelectric, geothermal, and wind. Supply will be boosted this month when the rehabilitation of the Mangla power station is completed next week, while several plants that are currently under repair will be brought back online as soon as possible, increasing the overall system capacity by 1,200 MW.

In addition to the loan from IMF, an energy efficiency fund is also being established with the Asian Development Bank (Manila, Philippines) specifically to address the enhancement of power generating and distribution capacity in Pakistan. Several countries, such as China and France, have shown an interest in participating in projects in the energy sector in Pakistan.

For related news item see article from July 8, 2009 - PEPCO Chief Confident of Overcoming Pakistan's Power deficit Within a Year.

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