Executive Summary
Pakistan’s energy sector remains one of the main obstacles to economic growth. Although Pakistan has managed to increase power generation since 2013 and mitigate power blackouts that plagued the country over the past decade, expensive fuel sources, a reliance on imported energy products, chronic natural gas and electricity shortages, major debt in the power sector, and aging and insufficient transmission and distribution systems have prevented the sector from growing and modernizing. Weak governance, uncoordinated energy policymaking and a lack of long-term energy planning only add to Pakistan’s current energy woes. U.S. and international assistance have helped Pakistan make some major strides in addressing these problems but without major reforms, Pakistan’s energy future remains challenging. According to National Electric Power Regulatory Authority’s (NEPRA) 2019 yearly report, Pakistan’s total installed power generation capacity is 39000 MW, of which 66% of energy comes from thermal (fossil fuels), 24% from hydro, and 6% from renewable (wind, solar and bagasse) and 4% from nuclear. In the current scenario, renewable energy (RE) resources can play an important role in closing the deficit. With current government’s tilt towards renewable energy, Ministry of Energy is also working on the development of a new 25-year energy policy. The policy reportedly seeks to have 20-30 percent of all energy derived from renewable energy sources by 2030 and would wean Pakistan’s dependence on imported fuel products.
In 2015, Islamabad and Beijing formally agreed to Chinese financing through China-Pakistan Economic Corridor (CPEC) worth more than $62 billion, targeting the energy sector and other infrastructure projects. CPEC is considered as a breakthrough in the development of the country’s energy sector, under which financial outlay of around US $ 35 billion has been made for energy sector projects including power generation and transmission projects to be implemented in IPP mode.
Current Market Needs
Solar and wind power entered Pakistan’s mix in 2013 after the government introduced a set of support policies to foster renewable energy development. According to the Pakistan Economic Survey, over the last five years, 20 wind power projects totaling 1,180 MW and six solar power projects totaling 418 MW initiated commercial operations and are now providing electricity to the grid. The Sindh wind corridor alone has the potential to generate 50,000 MW. In addition to this, Hydropower has also been significant source of renewable energy in Pakistan which has a total dependable capacity of 8,239MW. Renewable energy prices have plummeted globally and domestically, however, the previous government largely remained focused on large thermal and coal based powered plants to plug the generation gap. It is expected that the current government will encourage more renewable shares in the grid given their active promotion of small hydro development in KP during the previous term.
Recent Market Trends
U.S. companies are eager to participate or expand in the Pakistan energy sector, whether in renewables, conventional sources, or other services. With current government’s tilt towards renewable energy, new energy policy for the next 25 years is in the making, and it is envisioned that renewable energy will have 20% - 30% share in the total energy mix, by 2030. It is expected that current government will go for tariff competitive bidding, instead of cost-plus tariff for new RE projects. To support renewable energy in Pakistan, the World Bank has recently committed $100 million for solar energy projects in Sindh. This program would support independent power producers to develop 400 MW of new solar power projects and provide partial grants to private sector firms for the commercial provision of Solar Home Systems to 200,000 households.
With the rising costs of electricity in Pakistan and an unreliable grid supply, more industries and commercial organizations are turning to captive solar solutions. There has been a strong surge in domestic installation of rooftop photovoltaic panels in larger cities. For projects under 1 MW, net metering regulations came into effect in September 2015. This sector is trending toward significant growth soon as the GOP is targeting at least 1 million customers and adding approximately 3000 MW of solar power through net metering.
In addition to this, government is promoting waste-to-energy generation projects in country. The regulator (NEPRA) has issued first license of a 40 MW waste-to-energy generation plant to a Chinese company. The company plans to construct this plant in central Pakistan, utilizing 2000 tons of solid waste to generate electricity. Likewise, provincial governments of Sind and Punjab are keen to initiate waste-to-energy projects and have directed their respective municipal corporations to plan such projects as thousands of tons of solid waste are collected in metropolitan cities.
Competitive Landscape
American firms have a strong presence in Pakistan. Principal competitors of U.S. businesses here are Chinese, European, Japanese, and South Korean suppliers which, at times, offer credit terms on major projects and government tenders that are difficult to compete with. State-owned Chinese firms are increasingly expanding into market segments traditionally dominated by Western firms. To boost development, Pakistan and China are implementing the China-Pakistan Economic Corridor (CPEC). In 2015, Islamabad and Beijing formally agreed to Chinese financing through CPEC worth now more than $62 billion, targeting the energy sector and other infrastructure projects. These projects provide opportunities for U.S. companies to supply turbines in hydro/wind projects Though American products are considered high quality and are in demand, U.S. goods are often more expensive than other imported products.
Best Prospects for U.S. Exporters
U.S. companies are competing with Chinese and European companies in the renewable energy market. Chinese companies, due to low prices, continue to dominate, however, foreign-owned portion of the local renewable energy power generation market offers significant opportunities to U.S. companies, particularly in following products:
- Energy storage
- Wind Farm Equipment (especially turbines)
- Biomass Boilers
- Invertors / Solar Panels
- Distribution Equipment
- Biogas Equipment
- Technical Consultancy
Market Entry
One strategy for U.S. manufacturers and suppliers to penetrate Pakistan market is to utilize U.S. Department of Commerce’s Export Assistance Centers (USEAC) in the United States and U.S. Commercial Service offices in the U.S. Embassy in Islamabad and the U.S. Consulates General in Karachi and Lahore. Seeking the assistance of USEACs before exploring opportunities in this market is highly encouraged. It is recommended that U.S. firms considering using locally-registered firms to help navigate the complex business culture.
Many foreign manufacturers and suppliers employ agents or distributors to cover the entire country. Companies may also choose to work through a regional office i.e. Dubai, Singapore, or London. It is comparatively easy to switch agents and distributors in Pakistan without being exposed to legal liability. U.S. firms are also encouraged to consider the U.S. Commercial Service International Company Profile (ICP) which provides a comprehensive background check on any local Pakistani firm. In addition to this, U.S. Commercial Service Pakistan can also help identify potential local representatives / partners for US firms, through our service – International Partner Search (IPS). US firms can apply for this service through their local USEAC.
Regulations/Registration Process
The process of registering a company is not complicated. It is taken care by Securities and Exchange Commission of Pakistan (SECP). SECP is the only body who has the powers of company registration. For more details, please visit https://www.secp.gov.pk/
Technical Barriers & Tariffs
Government of Pakistan uses Harmonized System to classify goods. Customs duties are levied on ad-valorem basis. Aimed at ensuring transparency, predictability, institutionalizing entire structure of tariff regime and discourage tariff as a source of revenue, Ministry of Commerce Pakistan introduced policy guidelines in July 2020 called National Tariff Policy (NTP) 2019-24 which is aimed to promote trade. According to NTP, custom duty on 1600 items have been brought to zero, whereas, tariff lines for 300 items have been rationalized from 16 percent to 11 percent and from 11 percent to 3 percent.
U.S. Commercial Service Information
Ayan Ali Khan, Commercial Specialist,
US Embassy, Diplomatic Enclave,
Islamabad, Pakistan
Ayanali.khan@trade.gov
