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Business

Pakistan turns to Qatar to meet its burgeoning energy needs

Pakistan has inked a multibillion-dollar gas deal with Qatar that allows it to import supplies for 15 years. Islamabad hopes the agreement would help the country overcome its acute energy crisis.

The pact on the long-term purchase of liquefied natural gas (LNG), worth $15 billion (13.3 billion euros), was signed by the two countries on Wednesday, February 10, in the presence of Qatari Emir Sheikh Hamad bin Khalifa Al Thani and Pakistani Prime Minister Nawaz Sharif, who is on a two-day visit to Doha.

Under the deal, Pakistan will import 3.75 million tons of LNG annually from Qatar.

"It is the single largest energy contract in Pakistan's history and will enable the import of 1.5 million tons of LNG in the first year and 3.5 million tons from the second year," Petroleum Minister Shahid Khaqan Abbasi told the DPA news agency.

The deal allows Pakistan to import cheaper gas for 15 years and comes at a time when the country is striving hard to resolve its severe energy crisis - a factor that has caused electricity outages and dragged down the economy.

A huge shortfall

Pakistan has been facing a power crunch for some years, and the current shortfall in energy generated is projected to be around 5,500 megawatts. In effect, there is significant electricity load shedding being implemented across the country in both urban and rural areas.

Pakistan Nawaz Sharif

Pakistani PM Sharif is on a two-day visit to Qatar to improve the bilateral partnership

The shortages are estimated to have cost the country around 2 percent of gross domestic product (GDP) annually, according to a report published by the United States Institute of Peace last year.

Furthermore, they have led to many factory closures and discouraged foreign investment in the country, resulting in lower employment, economic output and exports.

And credit ratings agency Moody's warned in early 2015 that energy problems would damage Pakistan's credit worthiness. Surveys also show that Pakistanis view power shortages as one of their country's major challenges.

The public's growing dissatisfaction has triggered mass protests and destruction of public property time and again. Still, the problem is expected to worsen in the coming years as the mismatch between energy supply and demand in the country is projected to widen.

An uphill challenge

PM Sharif's party, the Pakistan Muslim League, came to power in 2013 in part due to its campaign promise of tackling the energy crisis, which is caused by an array of factors including low electricity tariffs due to subsidies - leading to accumulated losses for the power companies - as well as insufficient investment in new power generation capacity and electricity theft.

To solve these problems, the government has looked for ways to expand the nation's energy infrastructure and add more power generation capacity, while reducing losses associated with electricity transmission and distribution.

In addition, Islamabad has sought foreign investment to revitalize its power sector, and pinned its hopes on the multibillion dollar investment package China pledged to Pakistan last year. Around three-fourths of the $46 billion package - some $35 billion - was earmarked for energy projects, including coal-fired and renewable power plants.

It is expected that the latest gas deal with Qatar would allow Pakistan to further boost its generation capacity.

It should also serve as cheaper fuel for transport, fertilizers factories, other industries and consumers, Minister Abbasi told dpa. "One of the major results of this deal will be that the issue of electricity outages will be largely handled by the end of 2017, as imported gas will help to generate 4,600 megawatts of extra power," he said.

Still, the country's growing population, rising demand and existing shortfall means the government faces an uphill task in fulfilling the nation's energy needs.