IMPACT OF

PAKISTANS ENERGY
CRISIS ON
MANUFACTURING
INDUSTRY
SYED UMER NOMAN__________7457
SYEDA SAMIA ASIM __________8860

TOPIC: 07

SUBMITTED TO: SIR

SOHAIL MAJEED

[IMPACT OF PAKISTANS ENERGY CRISIS ON

MANUFACTURING INDUSTRY ]

To study the impact of energy crises on the industries in particular

manufacturing industry of Pakistan, first we must see what energy is
and its sources, energy crises in Pakistan, industries that are
affected then the impact of energy crises on industries of Pakistan

INTRODUCTION
Energy is the utilization of resources (physical and chemical) to produce
power to provide light and heat. Energy plays a vital role for the countrys
economic growth. There are various sources of energy, the major source of
energy in Pakistan are sun, wind, tides and water, natural gas, coal, fossil
fuel, petroleum and oil.

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COAL; 0.1
OIL; 36.3

SOURCE,

HYDROELECTRIC; 29.1

NUCLEAR; 5
GAS; 29.5

Figure 1

In order to produce power following percentages of energy sources was

utilized: coal 0.1%, hydroelectric 29%, nuclear 5%, gas 30% and oil is
36%. The supply of energy is 46.5 million tons and per capita
availability is 0.28 million ton per year while consumption is 48.3
million tons per year.

These energy sources generate power that produce electricity and gas for
the use in sectors such as industrial, commercial, transportation, residential,
agriculture and government. Energy is directly related to the living standards
of citizens and industrial growth. Energy as electricity and gas are used in
every sector for both living and work. It also has a major impact on industries
for the production of goods and services thus being a significant part of
manufacturing industry. Industrial growth is an important aspect of economic
growth and provides a large contribution for a countrys growth or expansion.
For any countrys industrial growth there is a direct relationship between
energy and production.

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The importance of energy is widely recognized in every sector of the
economy, in relation to the factors of production. With the globalization and
transformation of eras from hand made things to machine made products
have made production processes seriously reliant on energy, and sustainable
economic growth cannot be achieved without sufficient and continuous
supply of energy. Therefore, it is necessary for a growing country to explicitly
accept the importance of energy in order to achieve sustainable growth.
Industrial sector of a country is a dominant factor to economic growth. A
sustained and continuous supply of energy is a determinant of industrial
sector performance, which further contributes to improved growth of
economic indicators.

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ENERGY CRISES IN PAKISTAN

Being discussed about the importance of energy and its role in the industrial
sector, now we understand the utilization of energy for the purpose of
making power. But sometimes it happens that a country faces shortfall of
supply of energy or there is a rise in the price of energy then it means the
economy is having energy crises and as energy is an important element of
producing power so ultimately it will have an impact on the countrys
industrial growth in particular hitting manufacturing industry. For the last
several years Pakistan has been facing unprecedented energy crises which
are badly hitting the economy by damaging almost every sector of the
country. It is the single largest drain on Pakistans economy. The energy crisis
caused two major issues gas shortage and electricity production.

ELECTRICITY AND GAS SHORTFALL

The electricity crises actually started to get severe by late 2007 but its roots
lies in the power policy taken two decades ago when the government despite
of utilizing its own natural resources came up with the policies to quickly
meet the power demand of the growing economy by having foreign
investments on power projects and particularly transforming the countrys
power generation on fuel based. Before that more than 60% of power was
generated from hydropower but those polices changed this power generation
from hydropower to thermal power plants of which most of them were fuel
based. The crisis of electricity has reached up to 3220 megawatt (MW) with
the current demand for electricity is 12850 MW, and total production of 9630
MW.

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Although being a country with full of gas resources Pakistan faces crucial gas
crisis during last 3 years with the shortfall rising up to 1.8 billion cubic feet
though it has the resource potential to produce 282 trillion cubic feet of gas,
but it is producing 6.5 billion cubic feet. Pakistan industrial sector and power
sector is heavily dependent on the supply of gas, that is 31% and 11%
respectively.

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CONSUMPTION OF ELECTRICITY IN SECTORS (SHARES, 2013)

COMMERCIAL; 8% STREET LIGHTS; 1%

GOVERNMENT; 6%
AGRICULTURE; 12%
RESIDENTIAL; 47%
INDUSTRIAL; 28%

Figure 2

The consumption of electricity according to sectors: residential 47%

that is the highest percentage of the consumption part. The second
largest sector that consumes electricity is the industrial sector which
uses 27% of the total; the rest is agriculture 12 %, government 6%,
and commercial 7% and street lights 1%.

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CONSUMPTION OF GAS IN SECTORS (SHARE, 2013)

TRANSPORT POWER; 11%

RESIDENTIAL ; 32%
FERTILIZER; 21%

CEMENT; 0%
COMMERCIAL ; 5%
INDUSTRY; 31%

Figure3

For the consumption of gas following are the percentages utilized by

the different sectors: residential 32%, industry 31%, commercial 5%,
cement

0%,

fertilizer

21%,

transport

power

11%.

Industrial

consumption is the second largest sector to consume natural gas .

(Source: hydrocarbon development institute of Pakistan & economic
survey of Pakistan, 2012-13)

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INDUSTRIES THAT ARE AFFECTED BY ENERGY

CRISES
Electricity and gas shortage are affecting almost every sector of the country
but the industrial sector is the one which has faced the adverse
consequences. Due to energy crises the industries cost of production have
drastically increased which made them to close their industrial units. As a
result of these energy crises total numbers of 1579 industrial units have
been closed down during last five years. 316 industrial units on average are
closed every year, making it 26 units per month thus increasing the
unemployment as well. Besides closing down, gas shortage has also made
Pakistans once Manchester, Faisalabad of no use with the increase in gas
suspension forcing them to stop working. Moreover industries like oil
refineries, soap manufacturing and others are in miserable condition because
their operation needs 10-12 hours to start, relying on gas supply.

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ENGINEERING
GOODS
INDUSTRY

AUTOMOBIL
E INDUSTRY

STEEL
INDUSTR
Y

MANUFA
CTURING
INDUSTR
Y

TEXTILE
INDUSTR
Y

FERTILIZER
INDUSTRY
CEMENT
INDUST
RY

LEATHER
INDUSTRY

Figure 4

TEXTILE INDUSTRY
Textile industry is the biggest industry in Pakistan; it is the largest export
industry. Due to lack of resource the growth of the textile industry is slow.
This industry is trying to move from old machineries and handmade concepts
to new technologies currently present in the market, but unfortunately
technology needs electricity energy for their working, yet we are standing at
the same position. This causes slow as well as low in quality of production. It
contributes up to 8.5% from its exports. Other impacts like increase in cost of
production, increased taxes are declining the rate of export. The major
industries that are placed in Faisalabad are suffering from energy crisis and

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year by year it is becoming a threat that is uncontrollable.

The potential

growth of the industry is now being in danger.

AUTOMOBILE INDUSTRY
Pakistans auto industry is one industry that is currently in development
phase but has a huge growth potential in terms of demand of all type of
vehicles in the country. It is the second largest tax payer sector besides oil
and petroleum sector.

Auto industry despite having many production and

assembly units are not able to utilize the technology and to use the
production capacity as its best because of the energy crises. Many of the
four wheeler assemblers have stopped assembling activities as a result of
energy crises. Furthermore, the hybrid car industry has also failed in Pakistan
because of the energy crises.

CEMENT INDUSTRY
Cement industry also have an important part to play in economy. Where
infrastructure is based on steel and aluminum it is also based on cement.
The plants that existed at the time of independence were 4 in numbers, and
then total 29 industries developed (small and large) that contributes to the
economy cycle. This industry widely provides job opportunities to more than
100,000, hence reducing unemployment. The industry based on mechanical
and chemical processes, thus it requires gas and electricity for quality
production of cement. Energy crisis have also hit this industry as gas
shortage leads to switching off of burners, reactors and machines that
ultimately pack those cements to be moved in the market. The count is
reduced to 25 or less from 29, and it will exceed if the situation still remains
the same. The cost and exports ultimately is affected, and import of the

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general raw material for the production is being focused by the industrialist
for their productions.

SUGAR INDUSTRY
Pakistan being an agricultural country comprises of a sugar industry which is
the largest agro based industry other than textiles. There are 81 sugar mills
which come under the sugar industry.

Because of the energy crises the

industry is facing the high cost of production along with the electricity
shutdown which puts the burden on the mill owners who transfer this burden
on the general public by increasing the sugar prices.

LEATHER INDUSTRY
The leather industry of Pakistan is the second largest export industry and
one of the major foreign exchange earning industry of Pakistan. The energy
crisis has badly damaged this sector and has made it uncompetitive in the
industrial market. Due to the unavailability of gas and extended load
shedding hours many tanning units are closed and thus the exports are
declined by more than 14% during last five years. The leather industry of
Pakistan is able to produce world class leather but due to frequent shut
downs the quality is also affected as it needs a continuous processing and
because of the electricity frequent shutdown the process gets interrupted
which in the end results in bad quality product and bad image for the
country.

ALUMINUM INDUSTRY
Aluminum industry of Pakistan is not a big industry in terms of size as
compare to textile and leather industry. With the increase in load shedding

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and gas shortage this industry is also facing the consequences of energy
crises. The aluminum industry utilizes gas in terms of combustion operation
but as with the gas shortage and increased fuel and electricity prices the
cost of production of this industry is increasing making it difficult for the
industry to survive.

STEEL INDUSTRY
Pakistan steel industry is one of the major industries of Pakistan. Currently
there are more than 50 companies working in the steel sector. For the last
ten years Pakistan steel industry is facing massive decline because of the
output not producing according to the maximum capacity despite having
high local demand. The reason behind it is the small scale production which
increases the steel cost. With the energy crises the situation is getting even
more severe as with the gas shortage the production has been affected and
with increased electricity, fuel and material prices the production cost is
increased resulting in damaging the industry.

FERTILIZER INDUSTRY
Pakistans fertilizer industry consists of 10 fertilizer units, out of them six are
public and four are in private sector. Along with the other industries fertilizer
industry has also been affected because of the energy crises. Many of the
industrial units are closed down because of the energy crises and those
which are currently working are not able to produce to their maximum
capacity which is 4,298,000 N tons of fertilizer are manufacturing 2,624,000
N. tons because of the frequent power break down resulting in damaging the
industry.

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ENGINEERING GOODS INDUSTRY

In Pakistan there are mainly four public sector engineering goods firms which
come

under

the

engineering

goods

manufacturing

industry.

As

manufacturing of engineering goods requires technology usage and heavy

machinery for production but due to energy crises the technology implication
is almost impossible and machines are unable to produce on their full
capacity because of the frequent electricity shutdown.

IMPACT ON MANUFACTURING INDUSTRIES

Energy is the backbone for industrial growth of any country. Out of the total
consumption of gas and electricity Pakistans industrial sector utilizes 31% of
Gas and 27% of electricity for its production usage, but due to the energy
crises this industrial sector is facing adverse effects.
Gas reduction and electricity shortage has badly affected the performance of
the industries. The natural reserves of gas and resources to produce
electricity in Pakistan are declining and the major factor that prevents new
suppliers to work in the field is the price. The shortage of the power is due to
the misallocation of the resources and low growth in the supply of gas and
electricity to the sectors. This is because of poor planning and managing of
natural gas and its supply.

COST OF PRODUCTION
In Pakistan manufacturing industries utilizes at least 33% of production cost
in terms of energy prices. With the energy crises going on the supply of
energy have declined thus increasing the cost of energy which ultimately

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affects the industries production cost. Industries are striving hard to come
up with the increased cost of production and decreased profit. If the
industries go for another source of energy that will also increase their cost as
installation of any new source is expensive. Eventually this burden of
increased prices is faced by the manufacturing industries thus their cost of
production increases which results in decrease rate of output. So in order to
increase their profit they are increasing the price of their products.

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TECHNOLOGY IMPLICATIONS
Technology play an important role in the industrial growth as by using the
advanced technology and having latest machinery we can achieve efficiency
in production, reduce the cost of production, can reduce the production time
and can achieve the economies of scale but to acquire the technology and to
use it in industrial production one must have electrical energy only then the
technology can be utilized. In Pakistan the technology implications is
impossible due to energy crises and because of those industrial machineries
are getting idle. Even if manufacturing industries go for the latest technology
they cant apply it because of electricity crises.

LEAD TIME AND LIMITED QUANTITY

Due to the energy crises we have gas and electricity shortage making it
difficult for the industries to meet the optimum quantity of their production.
With the load shedding reached to 16-17 hours the industries are unable to
run their machineries and thus the production process is affected. The
manufacturing industries are going for the manual work for the production as
for the order they received for the supply of goods they are unable to supply
them on time as their production speed has slowed which results in
increased lead time.

QUALITY
With the industrial production of the country badly affected by the energy
crises, the quality has been compromised in a way that due to electricity
shortage our manufacturing industries are unable to the efficient production
so for that to meet the demand the local industries are going for the bulk
production anyhow with the maximum usage of electricity and are not

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considering the quality, on the other hand for the material to be used in
production the industries have to import the material from abroad and thus
cannot demand the exact quality material they want as it will be expensive
for them as compare to the materials produced locally so they are giving up
on quality.

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OUTSOURCING
Manufacturing industries have started outsourcing their part of the
businesses due to various reasons; one of them is the energy crisis. It is very
difficult for a manufacturing industry to maintain its every department in
such a country where there are energy crisis and shortage of resources that
it had become a headache for the industries to manage its manufacturing
area. Industries are outsourcing its functions due to many reasons that are
uncountable but specifically if we talk about the manufacturing side
industries outsource due to the increase in the material costs of the raw
material as well as the finished goods that ultimately increase the prices of
the products or its unit cost and services as well. Industries will suffer badly
either outsourcing its functions or managing it by themselves.

EXPLOITATION OF LABOR
When the technology was applied in the industries to make the production
efficient, cost effective and to achieve economies of scale, large number of
labors were cut off from their job as machines were doing all the work but
now because of electricity crises the machineries are becoming useless and
with the increased cost of electricity the industries in order to minimize their
cost and losses are going for the manual work, but as human take more time
than machinery for production so the employers are pressurizing the labors
and even using child labor to meet the demand of production.

GLOBALIZATION OF THE BUSINESS

Owners of manufacturing industries who are competent enough to take their
businesses abroad and globally are completely shutting their firms from
Pakistan, and gaining foothold in international market for further production,

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and then export their products to other countries. Globalization had make it
difficult to survive in the market for other remaining industries in Pakistan

DECLINE INVESTMENT
Energy crises have also affected the flow of investment for the industrial
sector. The investors are not interested to invest in Pakistan as those who
were doing business here and were running their factories are shutting it
down because they are unable to produce thus bearing losses, so the
investment rate is declined for the manufacturing industry.

THREAT OF EMERGING MARKETS (GLOBALLY)

A major threat to Pakistans manufacturing industries from the emerging
markets globally like china, India, Malaysia and Bangladesh as well. These
industries have sufficient energy resources to produce goods and services,
they also demand from other countries the energy resource to store and use
for

further

production.

Shutdowns

had

already

made

Pakistans

manufacturing industry sector small, and now new markets have also come
up with the energy demand making energy prices so high that it becomes
completely impossible for the Pakistans industries to buy energy externally
for production reasons. Rise in energy prices causes higher production costs
and manufacturers are forced to lower the labor costs.

EXPORT AND IMPORT

The major affect of energy crisis on manufacturing industries that directly
hits the economy is exporting of the products that contribute in the economy.
There is a constant decline in the graph of exporting products by the
manufacturing industries, though decrease in the balance of payments that

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helps us to import those products from outside the country that usually a
country cannot manufacture or provide service of. Importing ratio is
increasing day by day due to the shutdown of the industries. The
manufacturing sector is affected by the increase in dollar value that
ultimately makes the raw material importing costly, hence making it difficult
for the manufacturing firms to carry out their businesses for long time. It
leads to more shutdowns or slow growth in the industrial sector.

SHUTDOWN
During last five years the shutdown count has reached up to 1579
manufacturing industries due to energy crisis and high cost of running
businesses, and this count is likely to increase in upcoming years. Electricity
shortage and gas shortfall leads industries to shutdown their departments,
as continuous loss in their business and high prices are unaffordable
currently. The numbers of industries that are closed in the provinces are
Punjab 160 units, sindh 800, Khyber pakhtunkhwa 700, and Baluchistan 40.
The gas shutdown hits the industries like steel, cement, medicine and many
other that basically are dependent on the gas for its manufacturing products.
Shutdown of manufacturing industries causes another problem that is the
second largest problem of Pakistan is unemployment.

UNEMPLOYEMENT
Manufacturing industries are the second largest sector that contributes in the
economy and hence provides employment to all class ranked people.
Unemployment in the industries is caused due to large number of
shutdowns. The industrial sector at the current era is working backwardly,
because of which less employees are hired to work. Due to gas and

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electricity shortfall the existing industries are weakening that result in the
current unemployment ratio. Less numbers of industries leads to less number
of production, followed by the increase in prices of the products, causes
decrease in the demand of products, creates lack of interest in production of
goods, that is reason why manufacturing industries ratio of unemployment is
much higher than the services sector. Workers are hardly able to work half
day in the firms due to energy crisis the industries are facing who are
working currently in the market.

CONCLUSION
The industrial sector plays an important part in the economic growth of a
country. With the energy crises in Pakistan every sector has been affected
particularly the adverse effects can be seen on the industrial sector. Almost
every industry has become a victim of energy crisis and because of this;
shutdowns and unemployment have become the major threat with which the
economy has to deal. The problem is getting severe day by day, and if the
situation remains the same the country would completely be dependent on
other countries for production and supply of goods and basic necessities of
life. So in order to handle this curb Pakistan has to focus on its energy
utilizations plan to face the current situation, before its too late to handle.

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The upcoming impact will be more drastic as it leads to high prices of
products, increased taxes, no export, low standard of livings and etc.
Government should come up with effective power policy. There are
alternate resources of energy to produce power such as solar energy,
wind energy, biogas technology, biomass, geothermal power and
proper usage of coal, government should utilize them in the most
effective way possible as the problem is not the lack of resources but
the utilization of the resources.
Other than that, as for the short term solution in order to reduce the
impact of energy crisis on industrial sector, proper management is
necessary. Load shedding hours should be reduced with a proper
schedule notice issued to the industries mentioning their time slot so

that they can utilize that time in other ways.

Tax rate should be reduced from leather and textile industries which
are the largest contributing factor to GDP from their exports until the
energy crises issue gets resolved. Gas supply must be reallocated and
should be provided to the production sector rather than transportation
sector.

If these issues are not seriously taken in concern by government, it will end
up crunching the economy.

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