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Power crisis
Industries setting up their own power plants

Captive Power Plants will reduce burden on KESC-WAPDA

May 07 - 13, 2001

The rationing of power in the form of load shedding especially in the industrial areas has forced the majority of the large manufacturing units to have their own power plants.

A large number of such industrial units have approached the government seeking permission to have their own power generators to overcome the problems like loss of working hours, failures in meeting the export commitments etc. mainly due to interrupted power supplies by the public sector power companies.

The government has however realized the significance of the longstanding demand of the industrial sector to own a power generating units and has started processing such applications.

Recently, the Sui Southern Gas Company (SSGC) has issued No Objection Certificates (NOCs) to as many as 120 industrial units to fire their captive power plants with gas.

The Gas Company has issued these NOCs on the basis of its expanded supplies, which are expected to be injected into its system in the near future from the newly found discoveries in Sindh.

With no real hope for any improvement in the power supply situation by the Karachi Electric Supply Corporation (KESC), the industrial units in Karachi are vigorously opting for captive power plants.

The unreliable power supply from KESC has compelled them to install their own power generators, the industrialists said. Even though the capital cost of gas fired generators is higher than that of diesel or fuel, it still appears to be an attractive option as the price of gas is pretty much cheaper said.

Most of these industrial units belong to the textile and ancillaries.

They said that the export oriented textile industry carry natural advantage of raw material availability in Pakistan, which gives it an edge over other competing countries. This advantage however is not cashed due to high cost of production mostly due to high tariff for power consumption and its interrupted supplies.

By having dual fuel generating units gas as well as diesel, the industrial units will ensure sustainable production to honor export commitments.

Meanwhile, the American Business Council of Pakistan (ABC) has suggested the promotion of on-site self-generation by setting up co-generation based power plants in industry, as a way out to overcome the present depleted power generation and distribution capacity in the country.

The ABC has moved the suggestion with a view to incorporate in the Trade Policy 2001-2002. The suggestion says that electric utility companies are ill equipped to maintain the existing power plants and handle the rising power demand in the country. In this situation the co-cogeneration is not only represent better utilization of the country's diminishing fuel reserves but also provides higher system efficiency than the conventional generator based power plants.

Since under the existing rules, Co-generation equipment imported presently has a duty component of 10 per cent plus a sales tax of 15 per cent which makes it capital intensive therefore all types of co-generation equipment should be made duty free in order to encourage the industry to set up their own generation units and thereby reduce the load on public utility companies.

ABC has further pointed out that local industry electricity cost is artificially high, which leads to Pakistani companies being un-competitive on the manufacturing costs versus other countries. A comparison below shows that Pakistan today is amongst the highest on cost per kilowatt-hour. In Pakistan the electricity cost, cents/kilowatt hour is 9.0 whereas in USA it is 3.0 followed by China 4.2, Saudi Arabia 5.0, UK 5.5 and India 8.8.

The ABC said while we encourage the government to meet international commitments, it has proposed tariff reduction through organization productivity, minimizing theft losses and recovery of dues and allow Pakistani companies immediate flexibility to move to gas fired generators, if they wish. This would result in lower cost by local industries which would help encourage exports by being competitive on manufacturing cost and overheads and keep prices lower to Pakistani companies.

In order to encourage exports, ABC has suggested the elimination of artificially high cost of telephone transmission by allowing Pakistani companies to utilize leased telephone lines for voice/video transmission, not just data (which is currently allowed).

Among the several suggestions for encouraging exports, ABC has proposed that preferential export refinance rate should be cut from present 9 per cent to 4 per cent. "No duty no Drawback" is undoubtedly ideal of exporters as it does not tie in any funds for duties on material used for export orders but its implementation is complex. The ABC has therefore proposed that one government department (one window operation) handle all aspects of no duty no drawback and eliminate separate record keeping at plant as detailed records kept at port.

As regards the repayment of custom duties/sales tax when companies export, they are entitled to claim back the custom duty, which paid on the inputs at the time of import. The current procedure to determine the rebate allowed is lengthy and tedious. Simplification of procedure has therefore been proposed which includes prepared worksheet/calculations to support application for rebate, verified/ endorsed by a Chartered Accountant firm, applications submitted to CBR Islamabad (together with verified endorsed worksheets) with a copy to the concerned Collector of Customs (Export), SRO be issued within 30 days and refund be also made within 30 days from the date of receipt of export remittance.