November 4, 2010 / 7:12 AM / in 7 years

Pakistan energy crisis to hurt feeble government

* Energy crisis could further weaken government

* IMF demanding politically explosive reforms

* Rising electricity and gas demand

By Augustine Anthony

ISLAMABAD, Nov 4 (Reuters) - Pakistan’s energy crisis, likely to deepen as winter approaches, threatens to further undermine the credibility of a government struggling with a Taliban insurgency and an economy in tatters.

President Asif Ali Zardari’s U.S.-backed administration faces pressure from all sides on energy shortages, with the public and industry demanding an end to power cuts.

The International Monetary Fund, which has kept Pakistan’s economy afloat with a $11 billion package agreed in 2008, wants the government to take unpopular decisions such as raising tariffs to help generate funds for the power sector.

Such measures are essential for Pakistan’s long-term economic health but may be a lighting rod for public anger.

“It really boils down to the political will of the government, and so far we haven’t seen the government able to stomach these reforms,” said Standard Chartered Bank economist Sayem Ali. “Energy is a disappointing story. There is no clear strategy, there is hardly any investment in this sector.”

Winning the confidence of the IMF and donors has become increasingly urgent as Pakistan seeks financial help after summer floods inflicted nearly $10 billion in losses.

Petroleum Ministry officials say the onset of winter means consumers and businesses will face a daily gas shortfall of around one billion cubic feet, even as gas demand grows by 8.5 percent annually.

Electricity demand is expected to grow by about 8 percent annually, resulting in total demand of nearly 36,000 MW by 2015, according to a Ministry of Water and Power document. Pakistan can currently produce 14,500 MW from available resources.

GENERAL STRIKE THREATENED

Power and gas interruptions have grown so frequent that industrialists in Karachi, Pakistan’s biggest city, threatened a general strike on Wednesday. Only after the government assured them of improved supplies did they agree to postpone it, but analysts say promises are not enough.

Nuclear-armed Pakistan has long struggled to supply enough electricity and natural gas to consumers and industry. This summer, the power deficit peaked at around 4,500 MW a day.

Gohar Ejaz, chairman of the All Pakistan Textile Mills Association (APTMA), said the industry lost nearly $4 billion after interruptions to gas supply forced it to close factories for 100 days in the past 12 months.

“Please do not let the textile industry die an unnatural death,” he said. The sector is the country’s main exporter and largest manufacturing employer.

Power cuts sparked violent protests this year after the government resorted to unscheduled load shedding that stretched up to 20 hours a day in rural areas and have heavily weighed on industrial production.

Johar Ali Qandhari, chairman of the Korangi Association of Trade and Industry, said thousands of day labourers have lost their jobs after factories suspended or reduced output because of power and gas shortages.

In April, the government announced steps to cut electricity consumption, including turning off lights and cooling units in government offices, and closing shopping centres by 8 p.m. The move had little impact.

Financial constraints and security fears have been major hurdles in attracting investment in energy, compelling the government to consider importing expensive gas from Iran.

Pakistan’s reputation for rampant corruption has also made foreign companies cautious about investing.

Government moves to fill the yawning energy gap in the short term have hit delays after the Supreme Court investigated media reports of alleged irregularities in various energy deals. (Additional reporting by Kamran Haider and Sahar Ahmed; Editing by Chris Allbritton, Michael Georgy and Daniel Magnowski)

(E-mail: augustine.anthony@thomsonreuters.com; Reuters Messaging: augustine.anthony@thomsonreuters.com; Islamabad newsroom: +92 51 281 0017))

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