Forex Savings through Biogas Energy in Pakistan (Policy)

Pakistan’s economy is facing a significant energy crisis, primarily due to its reliance on imported fossil fuels to satisfy energy needs. Currently, approximately 30 percent of the country’s import payments pertain to the Petroleum Group (State Bank of Pakistan, 2024). This dependence not only depletes foreign exchange reserves but also heightens economic vulnerabilities. The current energy mix is heavily skewed, with thermal sources contributing around 46 percent to electricity generation, while renewable sources such as solar, wind, and biogas, account for a mere 4 percent (GoP, 2024). This imbalance underscores the urgent need to diversify Pakistan’s energy portfolio and reduce long-term reliance on expensive imports.

In this context, it is essential to acknowledge the significant but underutilised potential of the biogas sector in Pakistan. Biogas, produced from organic waste such as agricultural residues and livestock manure, represents a sustainable and locally sourced energy option. By investing in this sector, Pakistan can decrease its dependence on imported petroleum products and enhance its foreign exchange reserves, provided that decisive actions are implemented now. Given the country’s elevated external debt and dwindling foreign exchange reserves, particularly following a recent foreign exchange crisis, it is critical to adopt strategies that conserve foreign exchange while addressing intertwined economic and energy challenges.

This report aims to investigate the role of the State Bank of Pakistan (SBP) in fostering, prioritising, and supporting the adoption of biogas technology in collaboration with government ministries and departments. This aligns with the SBP’s Vision 2028, leveraging the country’s strengths and existing opportunities on the global stage. The transformative potential of biogas energy can be unlocked through incentivising investments in biogas infrastructure, facilitating policy reforms, and enhancing sector development via accessible financing and awareness campaigns. Coordinated policy actions undertaken today to develop an inclusive and sustainable biogas sector could be instrumental in mitigating the energy crisis and preserving the country’s foreign exchange in the long run.

1.  ENERGY IMPORTS AND FX SPENDING

Pakistan’s energy sector is significantly dependent on fossil fuel imports, primarily due to inadequate exploration and development efforts. This heavy reliance on imported energy is unsustainable for an economy that has consistently faced a current account deficit. According to the Central Asia Regional Economic Cooperation Program (CAREC) in its Energy Outlook 2030 report, Pakistan’s energy demand is projected to escalate, reaching between 108 to 126 million tons of oil equivalent (TOE) by 2030 (Asian Development Bank, 2022).

Currently, approximately 30 percent of Pakistan’s import payments are allocated to the Petroleum Group, encompassing petroleum products, crude oil, liquefied natural gas, liquefied petroleum gas, and others. The major energy-consuming sectors within this group include transportation, power generation, industry, domestic use, and agriculture. These imports are vital for various applications, including vehicle transportation, electricity generation, industrial raw materials, residential and commercial heating, agricultural needs, and aviation. Figure A illustrates the rising expenditure on energy imports over the past decade.

The recent surge in payments for the petroleum group can be attributed primarily to escalating global energy prices, exacerbated by the COVID-19 pandemic and the Russia-Ukraine conflict. These price fluctuations have a cascading effect throughout the energy supply chain, leading to increased operational costs for businesses and a higher cost of living for citizens. Figure B illustrates the breakdown of energy import payments over the past decade.

As Pakistan’s external liabilities and debt continue to rise, a growing portion of its foreign exchange is being allocated to debt servicing. This trend could further strain foreign exchange reserves if energy imports persist without a strategic plan to reduce the energy import bill. It is pivotal to reevaluate the energy framework to achieve energy sufficiency and security, thereby conserving the foreign exchange of the country.

2.  RENEWABLE ENERGY AND BIOGAS

The Government of Pakistan (GoP) aims to achieve a 60 percent share of electricity generation capacity from indigenous clean energy technologies, including alternative renewable energy sources and hydroelectric power, by 2030 (Finance Division, GoP, 2023). Additionally, it has established a target to reduce greenhouse gas emissions by 50 percent within the same timeframe (GoP, 2024). Figure C presents the source-wise distribution of electricity generation, revealing that renewables currently account for only 4 percent of total electricity production. According to the GoP’s Economic Survey of FY23, there are 36 wind power projects with an installed capacity of 1,835 MW, seven solar projects totaling 530 MW, and eight biogas co-generation plants at sugar mills with a combined capacity of 259 MW (GoP, 2023). This data suggests a significant lack of research, initiatives, and programs aimed at promoting biogas as an energy source.