up their own power plants
Captive Power Plants will reduce burden on
By AMANULLAH BASHAR
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
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
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.