Pakistan
Even with the recent earthquake and continued reform issues, Pakistan. s economy is expecting growth.

Pakistan's real gross domestic product (GDP) growth rate was 8.4 percent for the fiscal year (FY) ending in June 2005. This is the fastest growth rate achieved in the last two years. Real GDP growth for FY 2006 is forecasted to be 6.4 percent, although the devastating earthquake on October 8, 2005 may slow it down. In the earthquake. s aftermath, the United States pledged up to $50 million for rebuilding Pakistani infrastructure, but relief coordinators estimate that Pakistan will need billions of dollars and up to ten years to fully rebuild. Leading up to the earthquake, Pakistan. s growth was due, in part, to the United States permanently lifting sanctions against both India and Pakistan in 2001. Sanctions had been imposed in 1998 in reaction to Pakistan. s nuclear testing. A substantial aid program and debt forgiveness also contributed to the growth. The International Monetary Fund (IMF), a major donor organization to Pakistan, has acknowledged the favorable performance and progress in Pakistan. s structural reforms, but has stressed its desire to see even greater reform in the public institutions and the public energy sector where progress has been slow. In 2004, the IMF approved a fresh loan of nearly $250- million as part of its overall $1.5 billion aid package to Pakistan.

Overall, Pakistani export earnings grew by about 23 percent during FY 2005. Increases were seen in all three main sectors of the economy, with industry leading the growth at 12.5 percent. Agriculture and services had increases of 7.5 percent and 7.9 percent, respectively. Future economic growth will come from reconstruction of the recently damaged earthquake areas. India and Pakistan decided to extend aid to one another in the aftermath of the earthquake. They also agreed to continue confidence building measures, which includes the notification of missile testing, creating new bank branches and increasing the number of airline destinations in both countries. In addition, economic stimulus measures such as higher government spending, lower taxes and pay raises for state workers may bolster Pakistan's future growth.

Oil
Pakistan ambitiously seeks to increase oil production through new alliances with foreign companies.

Overview
According to the Oil and Gas Journal (OGJ), Pakistan had 28.8 million barrels of proven conventional oil reserves as of January 1, 2005. Pakistan produced 60,000 barrels per day (bbl/d) of crude oil during 2004 and is currently producing around 64,000 bbl/d. Pakistan has ambitious plans to increase its current output to 100,000 bbl/d by 2010. Consumption of petroleum products during 2005 is estimated at 351.4 thousand bbl/d. While there is no prospect for Pakistan to reach self sufficiency in oil, the government has encouraged private (including foreign) firms to develop domestic production capacity. Pakistan Petroleum Limited (PPL), expanded its interests this past year by drilling offshore at the Pasni field. It is the first time a Pakistani oil company has explored offshore. In addition, Pakistan has plans to drill 45 exploration wells during the remainder of 2005 and into 2006. The Oil and Gas Development Company Limited (OGDCL), will lead the drilling in two new blocks of the Sindh and Punjab provinces. Pakistani domestic oil production centers are concentrated in the Potwar Plateau of Punjab and lower Sindh province.

Sector Organization
In response to conditions laid down by lenders, such as the International Monetary Fund (IMF) and the World Bank, Pakistan continues to strive towards privatization of its state-owned companies. For instance, the government is offering a 51 percent stake of PPL, the largest exploration and production firm in Pakistan. Currently the government controls 93 percent of the company, which owns the Sui fields in Balochistan, as well as exploration interests in 22 blocks. Furthermore, the state-owned Pakistan State Oil (PSO) also has a 51 percent stake of its holdings up for sale. PSO holds a 60 percent domestic market share in diesel fuel and has more than 3,800 retail outlets. In addition, the Pakistani government divested a 5 percent stake of its stock in OGDCL. The stock was sold in a public offering in November 2003 for approximately $119 million. OGDCL is another leader in the Pakistani oil industry, with current production around 31,350 bbl/d.

In addition to the sale of state-owned businesses as part of the country's privatization process, Pakistan is setting up a Gas Regulatory Authority (GRA) and Petroleum Regulatory Board (PRB). These entities will work to separate out government functions from state-owned companies to be privatized. Pakistan's government hopes to reap significant revenues from these privatizations over the next several years.

Foreign Interests
The two most significant foreign oil firms in Pakistan are BP and Eni. BP operates 43 fields in the country with average production in the first three quarters of 2005 of 30,000 bbl/d. BP holds a 50 percent share of this production. Eni, the Italian-based firm, had a net equity production of around 50,000 bbl/d oil equivalent during 2004. Eni. s main operation sites are in the Bhit and Kadanwari gas fields in Sindh Province. Other firms operating in Pakistan include BHP Billiton (Australia) OMV (Austria), Petronas (Malaysia) and Premier Oil (UK). Eni and other foreign investors are asking for the deregulation of prices for petroleum products to capitalize on higher global gas prices.

Petrobras, the Brazilian oil giant, is the most recent foreign firm to show interest in developing Pakistan. s offshore oil industry. PPL and Petrobras would set up a joint venture to explore the Pakistani coast for oil and gas. Petrobras is considered a leader in offshore exploration, according to Amanullah Khan Jadoon, the Minister of Petroleum and Natural Resources in Pakistan.

Refining/Downstream
Pakistan's net oil imports are projected to rise substantially in coming years as demand growth outpaces increases in production. Demand for refined petroleum products also greatly exceeds domestic oil refining capacity, so nearly half of Pakistani imports are refined products. Pakistan's Pak-Arab Refinery (PARCO) became operational in late 2000, adding to the country's refining capacity and helping to alleviate refined product import dependence. The PARCO Mid Country Refinery (MRC) at Mahmood Kot is Pakistan. s largest oil refinery. It was formally commissioned in 2001 and has capacity of 100,000 bbl/d of throughput (mostly crude oil from Abu Dhabi and Light Arabian Crude from Saudi Arabia), supplied to the plant by pipeline from Karachi.

A small, 30,000-bbl/d refinery operated by private Bosicor Pakistan Limited (BPL) near Karachi, began commercial operation in November 2003. The plant is supplied with shipments of crude oil from Qatar. The Bosicor plant will allow Pakistan to become a new supplier of naptha to Far Eastern markets. Naptha makes up approximately 9 percent of the plant's output. The plant produces about 10,800 bbl/d of fuel oil, 6,980 bbl/d of diesel, and 4,350 bbl/d of kerosene, among other products. PSO has a supply contract to purchase the entire output of the Bosicor refinery's products for the next 10 years.

Another major planned project is the "Iran-Pak" refinery, which would have a capacity of 130,000 bbl/d. The refinery would be located near the border with Iran in Baluchistan province and would be a 50:50 partnership between Pakistan's Petroleum Refining and Petrochemical Corporation (PERAC) and the National Iranian Oil Company (NIOC). Oil processed at the Iran-Pak refinery would come almost exclusively by sea from Iran, and would be unloaded at a terminal to be built for the refinery. A contract has not yet been signed however, as NIOC's demand for a guaranteed rate of return is at odds with Pakistan's policy against such guarantees.

Natural Gas
Pakistan. s largest energy source is natural gas, with demand and imports growing rapidly.

Currently, natural gas supplies 49 percent of Pakistan. s energy needs. (see graph below) According to the Oil and Gas Journal (OGJ), as of January 1, 2005, Pakistan had 26.83 trillion cubic feet (Tcf) of proven natural gas reserves. In 2003, the country produced around 0.84 Tcf. Consumption of natural gas during 2003 was at 0.84 Tcf, but consumption levels are expected to grow over the next few years. Pakistan is looking to increase its gas production to support increasing consumption. (see Pipelines below) Currently, Pakistan ranks third in the world for use of natural gas as a motor fuel, behind Brazil and Argentina. In addition, Pakistan hopes to make gas the . fuel of choice. for future electric power generation projects.

Sector Organization
Pakistani natural gas producers include state-owned companies Pakistan Petroleum Ltd. (PPL) and Oil and Gas Development Corporation (OGDCL), as well as BP, Eni, OMV, and BHP. PPL accounts for one-third of the country. s natural gas production. The company has probable gas reserves of 6.9 Tcf and is capable of producing around 953 million cubic feet per day (Mmcf/d). Sui field, which had its gas supply disrupted by militant attacks this past year, is by far PPL. s largest producer at 650 Mmcf/d, followed by the Adhi and Kandhkot (120 Mmcf/d), Mari, and Kandanwari fields. As part of its bold energy sector reform program, the government is committed to privatizing a 51 percent stake of PPL

Exploration and Production
Development of new natural gas fields with the help of foreign investors is moving forward in Pakistan. In the past few years, the country discovered seven new gas fields. Pakistan. s government expects the development of these new fields to add an additional 1 billion cubic feet per day (Bcf/d) to Pakistan's natural gas production. Additional producing fields in Pakistan include Sawan at about 366 Mmcf/d, Bhit at about 316 Mmcf/d, and Zamzama in Sindh province at about 248 Mmcf/d. Zamzama may now be able to produce 380 Mmcf/d, following a new gas discovery in January 2004. In addition, Pakistan gas production stands to increase following a memorandum agreement with Gazprom, Russian. s state-owned oil and gas giant. The agreement was reached this past October and will include the research and development of future gas fields.

Pipelines
Pakistan's government is working on plans to build a pipeline that spans from Iran's massive reserves to Indian markets across Pakistani territory. Russia's biggest gas producer, Gazprom, has recently shown interest in the $7.4 billion pipeline project and has indicated its desire to invest in it. While Iran and Pakistan have made agreements to move forward, even setting a start date of April 2006, India still remains reluctant as long as political and military tensions with Pakistan over Kashmir persist. Iran has offered to cover 60 percent of the construction costs of the pipeline and Pakistani officials have stressed their ability to safeguard the pipeline. In November 2005 Pakistan will present its views on the draft agreement of the project provided by India. Pakistan could earn about $70 million annually in transit fees from the pipeline.

Another natural gas import possibility that has been considered is an eventual link to the Dolphin Project. This plan would supply gas from Qatar's North Dome gas field to the UAE and Oman, via a sub sea pipeline from Oman. Even though Pakistan has signed a preliminary agreement to eventually purchase natural gas from Qatar, it remains to be seen if further action on the project will be taken.

The final natural gas pipeline option that has been discussed is a line from Turkmenistan to Pakistan via Afghanistan. Pakistan would face serious obstacles with this option unless Afghanistan becomes more secure. In addition, completed feasibility studies on the project, funded by the Asian Development Bank (ADB), indicate that the Turkmenistan field of Dauletabad will only be able to supply a portion of the gas needed by Pakistan.

Coal
Coal plays a minor role in Pakistan's energy mix, but that may change soon.

Coal currently plays a minor role in Pakistan. s energy mix. However, Pakistan contains an estimated 3,362 million short tons (Mmst), sixth-largest in the world. Recently, the discovery of low-ash, low-sulfur lignite coal reserves in the Tharparkar (Thar) Desert in Sindh province, estimated at 1,929 Mmst, has increased both domestic and foreign development interest. China, which began developing various electric power plants in tandem with the coal mines in 1994 in Pakistan, has shown the most interest in the Thar region. A feasibility study was carried out for the construction of a coal-fired power plant near the Thar coal mines, and President Musharraf has stated that coal should make up more than the current 1 percent of electric power generation in Pakistan.

ElectricityPakistan will see power shortages by 2007unless actions are taken to increase generation and reduce transmission losses.

Pakistan has 18 gigawatts (GW) of electric generating capacity. Thermal plants using oil, natural gas, and coal account for about 70 percent of this capacity, with hydroelectricity (hydro) making up 28 percent and nuclear 2.5 percent. Pakistan's total power generating capacity has increased rapidly in recent years, due largely to foreign investment, ultimately leading to a partial alleviation of the power shortages Pakistan often faces in peak seasons. Rotating blackouts ("load shedding") are, however, still necessary in some areas. Transmission losses are about 30 percent, due to poor quality infrastructure and a significant amount of power theft. Periodic droughts affect the availability of hydropower. In the short-run, Pakistan has some excess power, but after 2007, estimations are an annual shortfall of at least 1,000 megawatts (MW). (See graph) Presently, much of Pakistan. s rural areas does not receive electric power and about half the population is not connected to the national grid.

Power theft is a pressing issue in Pakistan. While it is impossible to precisely measure theft (as opposed to line loss), it is obvious that it constitutes a sizable proportion of Pakistan's overall 30 percent loss rate. In 1999, the Pakistani government assigned army units to look for illegal connections to transmission lines and rigged meters. That action has helped to increase revenues, but power theft is just one part of the financial problems for the Water and Power Development Authority (WAPDA).

Sector Organization
The electric power sector in Pakistan is still primarily state-owned. A privatization program is underway, but little progress appears to have been made to date. The main state-owned utilities are the WAPDA, and the Karachi Electricity Supply Corporation (KESC), which serves Karachi and surrounding areas. Together, WAPDA and KESC transmit and distribute all power in Pakistan. Over half of the electricity goes to household consumers, about one third to industrial consumers, and the rest to commercial and government consumers. Rates are determined by the National Electric Power Regulatory Authority (Nepra), with disputes over rate adjustments common within the industry.

For example, Nepra announced in July 2004 that electricity rates would be lowered for domestic, industrial and agricultural customers in the three distribution areas of Hyderabad, Peshawar, and Quetta. The affected distribution companies complained that, due to the lower rates, they would be unable to cover their operating costs. Nepra has advised the federal government to subsidize the providers at a cost of around $24 million. WAPDA is at the center of a public sector "circular debt" problem, in which state firms and government ministries have failed to pay power bills, while WAPDA has failed to meet obligations to them and to private sector creditors, especially state-owned PSO.

Privatization
The Pakistan government continues to seek reform in the state-held electric companies, but efforts in that direction continue to stall. Plans have been made to transform WAPDA into three generation companies, eight distribution concerns and a transmission entity with the hope of seeing it privatized. In addition, the government has sought the sale of KESC to private investors, but with the cost of rehabilitation, modernization and expansion, investors are slow to take it on.

Future Expansion
Growth in power generation in recent years has come primarily from new independent power producers (IPP's), some of which have been funded by foreign investors, and a few WAPDA hydroelectric dam projects. The two largest private power plants in Pakistan are the Hub Power Company (HUBCO) and the Kot Addu power company (KAPCO). HUBCO, with a 1,300-MW capacity, is owned by a consortium of International Power (UK), Xenal (Saudi Arabia), and Mitsui Corporation. The Kot Addu plant, with a 1,600-MW capacity, was privatized in 1996 (from WAPDA). International Power holds a 36 percent equity stake in the Kot Addu plant, while the government holds a soon-to-be divested 64 percent stake. Both of these plants, as well as a few other small private operators, sell power to the national grid currently run by WAPDA. In May 2004, International Power cut its holdings in HUBCO from 26 percent to 16 percent, after the plant saw a drop in profits. This is reportedly part of International Power's overall global strategy and not a comment on the Pakistani energy sector.

The Pakistani Ministry of Industries and Production has granted a Chinese company to build two coal-fired power-generation plants to supply 600 MW of electricity. The plants will be located in industrialized areas of Pakistan to provide an inexpensive source of energy. Officials also hope to exploit the large, untapped coal reserves in Tharkparkar. ?At present, coal accounts for less than a 5 percent share in overall energy production.

Aside from power plants generated by coal, Pakistan is also working to expand the use of wind turbines. For instance, the Pakistan Alternative Energy Development Board (AEDB) recently approved New Park Energy Phase I, a 400-MW wind project near Port Qasim. GE Energy will be installing 30 of their 1.5-MW wind turbines.

Hydroelectric
Plans are also underway to expand Pakistan's hydroelectric generating capacity. In 2004, the Pakistani government approved the construction of 4 new hydro plants to be built in the North West Frontier Province by 2005/2006. These plants would generate several hundred megawatts of additional power. If the $5.5 billion Kalabagh project is completed . the estimated completion time is seven years - the new hydro plant could supply 2,400-3,600 MW of generation capacity. The Ghazi Barotha hydro plant came online in 2003 at a cost of $2 billion and a generation capacity of 1,450 MW.

Environment
High levels of toxic emissions and contaminated water continue to harm Pakistan. s environment.

Pakistan's attempt to raise the living standards of its citizens has meant that economic development has largely taken precedence over environmental issues. Unchecked use of hazardous chemicals, vehicle emissions, and industrial activity has contributed to a number of environmental and health hazards, chief among them being water pollution. Much of the country suffers from a lack of potable water due to industrial waste and agricultural runoff that contaminates drinking water supplies. Poverty and high population growth have aggravated, and to a certain extent, caused, these environmental problems.

In the cities, widespread use of low-quality fuel, combined with a dramatic expansion in the number of vehicles on Pakistani roads, has led to significant air pollution problems. A hopeful trend is that Pakistan has become the third-leading country in the world to use compressed natural gas (CNG) to fuel vehicles. Currently, government vehicles are being converted and soon over 100,000 taxis that have been using LPG will change to CNG. Although Pakistan's energy consumption is still low by world standards, lead and carbon emissions are major air pollutants in urban centers such as Karachi, Lahore, and Islamabad.

Theft or diversion of electricity in transmission, as well as a lack of energy efficiency standards, have contributed to Pakistan's highenergy and carbon dioxide intensities. To increase energy efficiency, the country is stepping up its use of renewable energy sources to bring electricity to rural areas. As urbanization continues and the population grows at a rapid rate, in the 21st centuryPakistan will need to confront its environmental problems in order to safeguard the health of it citizens.