Energizing Pakistan's Energy Sector

ENERGIZING PAKISTAN'S ENERGY SECTOR

“Resource rich, energy poor” — this is how economist Peter Kiernan labeled Africa’s energy woes. And this description fits well on Pakistan, a country with the world’s 5th largest coal reserves and a severe energy shortage. Pakistan, like many other developing countries, is caught in an energy-economy cycle whereby it is in deep debt, and thus can secure limited budgets for the development of energy infrastructure; this results in ineffective energy supplies, which further worsens the country’s budget. Raza Rafique, along with Kwon Gi Mun and Yao Zhao, designs a new energy supply chain for coal utilization that has the potential to break Pakistan’s worsening energy-economy cycle.

Pakistan possesses 185 billion tons of coal, equivalent to almost 300 billion barrels of oil, exceeding the combined oil reserves of Saudi Arabia and Iran; this coal is nearly untapped. A coal-fired energy supply system has five major tiers: (1) coal mines; (2) railway networks; (3) power plants; (4) transmission networks; and (5) demand zones.

Pakistan has three major coal reserves, accounting for 98% of its total: Thar; Sonda/Lakhra; and Salt Range. Thar is the largest reserve, located in an area of the Sindh province, far away from all major demand zones, requiring the greatest amount of investment. Salt Range is the smallest reserve, located in close proximity to the largest demand zones in the Punjab province, and requiring the least amount of investment. The Sonda/Lakhra reserves in Sindh fall somewhere between the two.

While the plan of the Pakistani government is to exploit the distant largest reserve at Thar and build all power plants near demand centers in Sindh (a gigantic investment), it will require 800 miles of transmission lines to carry that power to the Punjab and to the rest of the country. This will result in unbearable line losses that will increase the costs of meeting the energy requirements in the long run. Moreover, considering that Pakistan needs a strong injection of energy in the short run to kick-start its economy, using the resources at Salt Range are more feasible than the ones at Thar.

Using a multi-period mixed integer linear program (MILP), and in contrast to the government’s plan, Rafique et al. come to the conclusion that there is a first best and a politically best solution to Pakistan’s energy woes. In order to jump start the energy sector and the economy at large, Pakistan should invest in the Salt Range reserve first. This is the first best option coming out from the mathematical model that takes into account the construction of power plants near the reserves, among numerous other factors. As opposed to the government’s take on the Salt Range reserve, Rafique et al. think of it not as a resource waste but as a worthy and necessary investment. The politically best solution proposes the use of the Sonda/Lakhra reserve with a budgetary split of 60–40 between the Punjab and Sindh, respectively.

When compared with the government’s plans, it turns out that the aforementioned solutions significantly increase cost efficiency, significantly increase net GDP in the 15th year from $382 billion to $512 billion, reduce the country-wide energy gap from the government-proposed 25% to zero in the optimal situation, and reduce the burning of coal by 16% to produce the desired level of energy. Overall, this new supply chain, rigorously produced through mathematical models, can go a long way in addressing the energy crisis in Pakistan. While it is true that in the long run Pakistan must think of its environment and rely more on renewable resources like hydro, solar, and wind, this proposed coal energy model can help the country get back on its feet in the short run, something that is desperately needed.

Reference: Rafique, R., Mun, K.G., & Zhao, Y. (2017). Designing energy supply chains: dynamic models for energy security and economic prosperity. Production and Operations Management, 26(6), 1120–1141.
doi: 10.1111/poms.12689