VZCZCXRO9632
RR RUEHLH RUEHPW
DE RUEHIL #0170/01 0110939
ZNR UUUUU ZZH
R 110939Z JAN 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 4357
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHRC/USDA FAS WASHDC 4144
RUEHNE/AMEMBASSY NEW DELHI 2633
RUEHBUL/AMEMBASSY KABUL 8037
RUEHLO/AMEMBASSY LONDON 7036
RUEHML/AMEMBASSY MANILA 2916
RUEHKP/AMCONSUL KARACHI 8617
RUEHLH/AMCONSUL LAHORE 4545
RUEHPW/AMCONSUL PESHAWAR 3202

UNCLAS SECTION 01 OF 02 ISLAMABAD 000170 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O.  12958:  N/A 
TAGS: ENRG ECON EINV PREL PK
SUBJECT:  PAKISTAN ENERGY WOES:  A SERIES OF UNFORTUNATE 
CIRCUMSTANCES 
 
 
Summary 
 
¶1.  (SBU)  Summary:  Violence, sabotage, and supply disruptions 
following Bhutto's December 27 assassination combined with routine 
winter hydroelectric maintenance have pushed Pakistan's normally 
tight energy supplies past the limit.  Since December 27, Pakistan's 
3000MW electricity deficit has increased by 50 percent to 4500 MW. 
As a result, rolling power outages have become commonplace, ranging 
from three hours daily in Islamabad to over 10 hours in Karachi. 
Rural areas with electricity are only receiving on average two hours 
supply daily.  Contractual problems with independent power producers 
and poor management of the government-owned state utilities have 
also exacerbated the problem.   The situation should, however, 
improve by the end of January when supply problems will be resolved 
and hydroelectric power is back on-line.  End summary. 
 
Bhutto assassination exacerbates power problems 
 
¶2.  (SBU)  Following Bhutto's December 27 assassination, Pakistan's 
total electricity deficit increased from 3000 MW to 4500 MW during 
peak hours (evening) because of system sabotage and insufficient 
fuel supplies.  In one case, the extra high voltage line was blown 
up in two places in Sindh.  A reduction in hydroelectric power 
generation during the dry winter months contributed to the increased 
shortfall.  The fact that some of the hydro plants are deliberately 
operating on minimum capacity for annual winter cleaning of the 
canal system has exacerbated the electricity shortfall.   Gas 
production dropped due to the crisis, and two pipeline explosions 
also affected distribution.  Higher demand due to cold weather has 
made the natural gas shortages worse. 
 
¶3.  (SBU)  As a result, the GoP has resorted to unscheduled power 
cuts of on average eight hours in urban areas and over ten hours in 
rural areas.  Many rural areas -- if they are electrified at all -- 
are only receiving two hours of electricity daily.   Islamabad has 
fared the best, with an average of four hours of daily outages, 
while Lahore and Rawalpindi experience approximately eight hours 
without electricity daily.  Karachi is without electricity at least 
ten hours daily.  In a press conference January 7, the caretaker 
Minister for Petroleum and Natural Resources Ahsanullah Khan blamed 
the current energy crisis on the post-December 27 violence, 
conveniently ignoring the GOP's lack of proactive policies on energy 
exploration and distribution. 
 
¶4.  (SBU)  Fuel supply disruptions in the aftermath of Bhutto's 
assassination demonstrated the importance of maintaining the 
newly-imposed requirement that independent power producers maintain 
a 21 day furnace oil stock. However, the GOP only notified the 
independent power producers (IPPs) December 21, 2007 that they must 
maintain 21 days of furnace oil stocks to ensure uninterrupted power 
generation in case of serious supply disruptions.  But the 
combination of the Eid holidays followed by Benazir's assassination 
made it difficult to comply with this directive, and the companies 
are reluctant to keep a 21 day fuel stock since the state-owned 
utility owe them money.  They say that they will maintain the 21 day 
fuel stock as soon as payments are cleared. 
 
¶5.  (SBU)  According to Pakistan Electric Power Company (PEPCO) 
Managing Director, Munawar Baseer, the government-owed company owes 
the IPPs Rs. 21.5 billion ($ 347 million), oil companies Rs 3.8 
billion ($ 61 million), gas companies Rs. 1.8 billion ($ 2.9 
million)  and others Rs. 25 billion ($ 403 million). PEPCO has asked 
the GoP to allocate additional funds of Rs 50 billion ( $ 806 
million) and has told the GOP that unless payments are made to the 
IPPs and oil and gas companies they are likely to call GoP's 
sovereign guarantees for fuel supplies.  (Comment:  In the unlikely 
case that any of the IPPs call in sovereign guarantees, the cases 
will go to international arbitration, possibly affecting Pakistan's 
debt ratings.  End comment.)  Meanwhile PEPCO has assured the IPPs 
and oil marketing companies that all back payments will be made by 
January 30, 2008. 
 
Some relief in sight 
 
¶6.  (SBU)  The electricity deficit should become more manageable by 
the end of January.  Once fuel supplies are restored, an additional 
1000 MW could be made available in a week's time with a buildup of 
fuel stocks. By mid-January, canal cleaning will be completed, and 
Pakistan should have additional water to generate 600MW.   Recent 
heavy rains should also help hydro generation.  By the end of 
 
ISLAMABAD 00000170  002 OF 002 
 
 
January, the power deficit is expected to be brought down to 
manageable levels of approximately 2500 MW. 
 
Comment 
 
¶7.  (SBU) Comment: The disruption in fuel supplies and the recent 
violence following Bhutto's assassination emphasize the tenuous 
balance between energy supply and demand in Pakistan.   This 
incident also points out the need to quickly get more generation 
capacity on line and to build up fuel stocks in case of further 
emergencies.  Privatization of government-owned utility WAPA -- as 
many have suggested for years -- would be another important step in 
resolving Pakistan's growing energy crisis.  End comment. 
 
PATTERSON