Pest Analysis of Energy Industry of Pakistan

Managing Organizational Change

IBM-UET

PESTLE ANALYSIS OF ENERGY INDUSTRY OF PAKISTAN INTRODUCTION:-

Until early 90’s, there were two major publically owned power companies WAPDA and KESC, which were involved in Generation, Transmission and Distribution of electricity in the cou ntry. The 1994 Power Policy helped in the induction of a number of power plants, which resulted in surplus power in the country between 1996 and 2002. Until FY07, country witnessed  phenomenal economic growth resulting in higher power demand from industrial, commercial and household sectors. However, no major power generation capacity was added to the system. Performance of transmission and distribution sectors also deteriorated due to the lack of timely investments. In addition, exogenous factors including skyrocketing oil prices also increased the cost of power production. As a result of these factors, power deficit rose at a fast pace and currently stands at around 2,400-4,500MW. There are three major sources of power generation in the country including hydel (33%), oil (32%) and gas (31%). Electricity based on coal and nuclear energy is also part of the system but their share is almost negligible. POLITICAL ANALSIS: 

Lack of political consensus on building dams, thus undermining cheap hydel-based  power generation

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Exploitation of energy resources has been slow due to a shortage of capital and domestic and international political constraints.

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Significant challenge in revamping its network responsible for the supply of electricity.

ECONOMIC ANALYSIS: 

Increase in the international price of oil through calendar 2009, which put enormous upward pressure on the cost structure in the power generation.

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Circular debt is the biggest challenge undermining po wer sector’s cash generation.

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Pilferage and line losses are major issues for the sector.

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Heavy reliance on expensive Furnace Oil (FO) based power generation

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The lower availability of hydel resources for generation

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The circular debt problem plaguing the power sector stems from a disparity between cost and tariffs of Energy.

Abubakar Mehmood

MBA 1.5

Managing Organizational Change

IBM-UET

SOCIO-CULTURAL ANALYSIS:

Electricity is one of the commodities having almost inelastic demand

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This “imbalance” between cost of generation and distribution, and the final tariff.

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Wastages and deliberate inefficiencies being the principal factors.

LEGAL ANALYSIS:

Power Purchase Agreements (PPA) between producers and government ensures consistent income stream for producers.

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PPA also provides a hedge against exchange rate depreciation; power projects’ cash flow increases with the exchange rate depreciation.

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Power projects are usually considered to have an Internal Rate of Return (IRR) of above 13-14%.

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Huge potential of coal-based electricity production.

TECHNICAL ANALYSIS: 

Absence of technology and infrastructure and line loses.

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Lacking of effective managerial resources and Inefficient production units

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Renovation, rehabilitation, capacitor installation and strengthening the distribution system network are a continuous process for controlling wastage of power 

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Pakistan Atomic Energy has been assigned the task of installing 8,800 MW nuclear  power capacity by the year 2030 with increasing share of indigenization

ECOLOGICAL ANALYSIS: 

Floods and earthquake effects power stations, power distribution and transmission and other energy infrastructures were damaged.

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Refineries were threatened by rising waters and had to be shut down.

CONCLUSION:

Given the supply-demand gap, potential for private investment in the sector is huge. GoP also has a very supportive power policy in place to encourage private power generation. In addition, Enhanced Partnership with Pakistan Act (2009), approved by US Senate in October 2009, also encourages public private partnership in energy generation projects.

Abubakar Mehmood

MBA 1.5