PESHAWAR – Pakistan has signed an agreement to borrow US$4.5 billion to alleviate oil and gas shortages that are crippling the economy and people’s livelihoods through power cuts and fuel disruptions.
The loan, issued by the Saudi Arabia-based Islamic Development Bank (IDB), will be used to pay for crude oil, refined petroleum products, liquefied natural gas (LNG) and industrial chemical urea over the next three years.
The agreement was reached with the International Islamic Trade Finance Corporation (ITFC), the trading arm of the Jeddah-based IDB.
Opposition parties blame the crisis on lethargy and mismanagement by the Imran Khan government. They have pointed to delays in buying furnace oil and say a vessel crucial to the distribution of LNG is inexplicably out of action in drydock when it is most needed.
The government hopes things will return to normal over the next few days. The energy shortfall has hit power generation hard amid reduced water flows into the Mangla and Tarbela hydroelectric dams on the Jhelum and Indus rivers.
Dam water levels are now so low they can hardly turn the turbines at full capacity, reports say. The situation worsened on Friday when the hydropower shortfall exceeded 4,000 megawatts. Pakistan generates about 7,320 megawatts from its reservoirs.
As the power situation deteriorated, the government last week cut water distribution to provinces by 10%, with more cuts planned if the situation does not improve. Low water supplies have reportedly hit the production of rice, sugarcane, cotton crops as well as orchards in Sindh and Punjab provinces.
The government has also suspended gas supplies to non-export industrial units and compressed natural gas (CNG) stations to meet domestic demand for gas. However, the gas supply to domestic consumers has also been curtailed through what is called a “supply management process.”
Domestic consumers face suspensions of gas supplies lasting between 18 to 20 hours.
Farrukh Saleem, an Islamabad-based Pakistani political scientist, economist and financial analyst, told Asia Times that mismanagement, lack of planning and non-adherence to supply chain mechanisms are behind the crisis.
Part of this lay in the process of importing LNG. The first part was seeking tenders. Next, LNG is brought in by ship. It is then transferred to specialist vessels known as Floating Storage and Regasification Units (FSRU) which store and turn the liquefied product into gas which is then distributed to users by pipeline.
“Unfortunately, the Engro FSRU was shut down for drydocking and the supply chain was interrupted,” he said. The government did not follow a set sequence or schedule while performing these tasks and overstepped many processes, which brought on the energy crisis, he said.
“Simultaneously, the authority shut Kunner Pasaki Gas Field to meet an international safety standard for the maintenance of gas fields, which further reduced the supply of by 160 million standard cubic feet per day (mmscfd).
“Closure of FSRU has already cut the gas supply by 690 mmscfd. In total, the government faced an 850 mmscfd gas shortfall due to mismanagement,” he said.
Mohammed Khalid Idrees Rana, director of operations at the Indus River System Authority (IRSA), told Asia Times he was not authorized to talk to the foreign media.
However, Arab News quoted him as saying that the water in the dams will run out in a week or two if the weather in the northern areas does not warm up enough for glaciers to start melting.
“We will be in for real trouble in such an eventuality because if this situation persists, a crisis-like situation would emerge over the next few weeks,” he said.
Glacial meltwater contributes 42% to Pakistan’s rivers followed by snowmelt at 22% and rainfall at 27%.
Industrialists and analysts say the crisis will deepen in the coming weeks, as water is drying up in the dams due to cold weather in the northern regions of Gilgit-Baltistan and Khyber Pakhtunkhwa.
Nasser Hyatt, president of the Federation of Pakistan Chamber of Commerce and Industry (FPCCI), has demanded an immediate resumption of gas supplies to industries. He said disruptions had caused unbearable losses to industrialists and harmed the export-oriented manufacturing sector.
Zubair Motiwala, chairperson of Businessmen Group, said, “They charge us 40% more than the international gas prices and yet local industries are not getting enough gas to continue operations.”
He demanded an investigation into the gas shortage, claiming that Karachi, which is the industrial hub of the country, was getting only 380 million metric cubic feet (mmcf) of gas, 18% of normal.
Media reports claim Engro Elengy Terminal (Private) Limited (EETL) had made it part of an agreement with Sui Southern Gas Company (SSGC) that the FSRU vessel would be shut down for drydocking twice over 15 years.
The EETL had notified the SSGC of the shutdown but authorities reportedly trivialized the issue and delayed a decision to arrange for an alternative.
PML-N leader and former finance minister Miftah Ismail said the Khan government was directly responsible for the energy crisis. Ismail said the government continued to delay the purchase of furnace oil and then went for it in haste at an exorbitant price when the crisis became apparent.
A day earlier Federal Energy Minister Hammad Azhar conceded the country could face a power shortage as the regasification terminal would be out of action. The minister said EETL and Pakistan Gasport had not alerted authorities about the FSRU shutdown so that the government could have prepared an alternative plan.
Pakistan’s energy woes have been compounded by a deal with Saudi Arabia that has turned sour. The Saudis agreed in 2018 to help Pakistan stave off a current account crisis with $3 billion in currency support for a year.
This was supplemented in 2019 with a deal that said the Saudis would supply oil for three years for which Pakistan would make deferred payments. However, the Saudis ended the arrangement after one year for reasons which were not made public.