Power parks

The government has initiated the establishment of power parks to overcome the electricity shortfall before the 2018 general elections, primarily focused on high value areas of sensitive votes catchment and better project viability. National Power Parks Management Company Ltd (NPPMC), a subsidiary recently established under the Ministry of Water and Power, has been established for the purpose.

Presently, two power projects are being actively pursued under the scheme – one in the district of Jhang and the other in the district of Kasur, each of a capacity of 1000MW. The Central Development Working Party (CDWP), in April 2015, approved Rs 163 billion for the two power projects without any foreign financial assistance. The funds are being appropriated from the PSDP as non-lapsable funds, a part of which will be contributed by the provincial governments as a co-stakeholder to the power projects falling in their areas. These two projects are stated to be among the five Re-gasified Liquefied Natural Gas (RLNG)-based power projects the government has been pursuing under its fast track power generation programme. National Transmission and Distribution Company (NTDC) will provide connectivity to the two power plants at a cost of Rs 7 billion. Up to now Punjab is in the lead to be the beneficiary of the scheme.

The first project likely to go on grid is a 1000MW Combined Cycle Power Plant located in Jhang district. The contract award of this Rs 82 billion is expected to be soon executed in favour of a consortium led by a Chinese company at a tariff of around 8 cents per kWh. The project is expected to start its open cycle commercial operation in 20 months followed by shift to a combined cycle in 30 months. The Jhang project invoked the interest of five global bidders from China, South Korea and Turkey associated with local partners. As usual, there were no bidders from the US, Europe or Japan – all of whom have opted to stay out of Pakistani market on account of unfavourable playing grounds related to quality of supply and services and the corresponding price level.

The challenge to these power parks is the timely and cost-effective availability of RLNG and how effective the model of these power parks is structured and integrated into the existing power system or the operation of the same in isolation from the main grid.

Nepra has approved up to Rs 10.55 per unit upfront tariff for 3,600MW of RLNG-based power plants in Punjab for 30 years, calculated at an estimated LNG price of US $12 per mmbtu thereby providing to the investors an internal rate of return (IRR) of 15 percent. Punjab is now the greatest exponent of RLNG-based power plants having much moved from its earlier obsession for coal-based power plants.

Presently, all about LNG sourcing into Pakistan is shrouded much in mystery – be its price, country of LNG origin, the operational efficiency of Engro’s LNG terminal, the amount of LNG injected into the system and its end use.

It is reported that in April this year, around 170 mmcfd LNG imported from Qatar was injected into the system to feed power plants and fertilisers. It is reportedly to have been stated by the Petroleum and Natural Resources Minister that the replacement of furnace oil with LNG is estimated to save power producers around US $300 million every year expecting to produce electricity at Rs 10 per unit as against Rs 18 to Rs 20 per unit on furnace oil. With the falling oil prices this assumption of the government does not hold good. Perhaps the government is stuck up on very old oil figures. As of today’s oil price, the electricity on furnace oil works out to be below Rs 10 per unit. How much of this saving is benefiting the investors, the government and the consumers is not much transparent except that Nepra announces the variation in tariff – off and on.

Beyond the government announcement of arrival of the first LNG shipment from Qatar and its injection into the system some few months back, nothing more than that is available to public on the subject of LNG. It is unlikely that 3600MW of power plants planned in Punjab based on LNG will be functional by the target date of 2018. The choice of fuel will largely remain to be furnace oil which is not bad if the sliding oil price trend continues.

Establishing power parks is a good model to follow provided that it is well-structured and managed. The present system of power sector has failed to deliver reliable and affordable electricity to consumers because of operational and governance issues such as line losses, receivables leading to circular debt, inefficient power generation, non-affordable fuel mix and similar. All of these ills can be significantly managed and controlled in isolated power parks. The success lies in integrating power generation and transmission and distribution as one entity supplying power to a captive consumer base – meaning the three stakeholders are looped and gelled together.

The model of power parks is best suited for residential housing societies, business bays, industrial parks and similar. Industry is worst hit by electricity shortages. National industrial parks are being sponsored by the government left and right all over the country since the last one decade but with not much industry coming up. There is a lack of interest by the investors to venture into industry due to unreliable and unaffordable power supply which puts the investors to much disadvantage to compete with imported goods or for exports. Pakistan’s electricity tariffs are rated as one of the highest in the world which put Pakistan as a ‘no go’ location for foreign investors.

Same holds good for walled residential estates and business bays cropping up all over the country. For this segment of residential estates, industrial parks and business bays power parks is a viable and sustainable option to provide a reliable and affordable power much isolated from the overall messed up system of electricity generation, transmission and distribution. Power parks may substantially contribute to divert the electricity load from the main system providing relief to consumers out of the limits of power parks.

(The writer is Chairman Avant Ventures and former President of OICCI & ABB Pakistan)