Wapda has been lately subject of not so kind comments
from different quarters ever since the press reported its submitting a
proposal to the Ministry of Water and Power (MW&P) for permission to
set up 1200 mw new thermal generation capacity, 600 mw each at
Faisalabad and Multan. Wapda officials have attempted to clarify the
position. This has helped but not much as the press criticism continues.
The comments, surely made in good faith and perceived as in the best
interest of the country, have thrown up a number of points that, in my
view, need satisfactory resolution for forming a positive opinion for
the new capacity and its rationale. New thermal capacity is gas-based
and is an emergent measure to avoid severe load shedding in the coming
2-3 years, as hydel capacity cannot fill the supply gap in the timeframe
available. Wapda, in spite of its past position vis-a-vis IPPs, has
taken a bold step by proposing addition of new thermal power capacity at
a time when popular wish is for new hydel power plants.
The authorities are urged not to dispose of Wapda's
proposal summarily as it pertains a possible grave situation visualized
presumably on the basis of the demand-supply projections under different
scenarios and by using a set of probable annual load growth rates for
the next decade or so. Moreover, it provided food for thought for
important issues such as the proposed Power Policy-2002 including policy
regarding new thermal capacity in the public sector, future of GOP's
LTCF for financing IPPs, situation developing in the post KESC
privatization scenario. In addition, the points raised in the press
against this proposal should also be considered fully and all misgivings
in the minds of local population and the foreign investors might be
effectively removed. This may not be an easy and quick exercise and
might require lot of work at different levels. This paper is an attempt
to briefly list the steps for consideration by the GOP / Wapda for
delineating an appropriate course of action in consultation with the
international financial institutions. In order to put the things in
proper perspective, main points of the proposal, the issues raised in
the press, and Wapda's initial reaction to the comments, are first
It was first reported in the press on 14th April as a major policy
reversal. Wapda was quoted having recently written to MW&P seeking
permission to set up 1200mw gas-based thermal IPPs to meet energy
shortage expected in the next 2-3 years. MW&P is reportedly
processing Wapda's request. Main points about this proposal as gleaned
from the press reports are as under:
There had been surplus power of around 1500 mw, but
due to low availability of water in Tarbela and Mangla Dams during the
last three years, hydel power component has reduced drastically. Wapda
estimated that with no significant improvement in the availability of
hydel power or gas supplies during the December-April period and
expected load growth of six per cent, the shortfall in power supply
during winter of next year was expected to range from 300 to 600 mw. As
such if immediate measures were not initiated the country might face a
situation similar to that of 90's when load shedding had forced the
government to accept high tariffs of IPPs.
Wapda submitted the proposal to the MW&P for
establishing two 3x150mw combined cycle stations, one each at Multan and
Faisalabad within 2-3 years. From financing and ownership point of view,
Wapda suggested two options. One, that the government should persuade
donor agencies like the World Bank and Asian Development Bank to extend
soft loans for these thermal stations for development within the
shortest possible time, for which Wapda has its own land and other
infrastructure facilities. The Faisalabad and Multan plants, if allowed
to be implemented through Wapda, would produce power at around Rs1.70
per unit, which was far less than what WPADA was getting from the IPPs.
Two, Wapda may be allowed to go for IPPs through international
competitive bidding for establishment of two 300-450mw stations, one
each at Faisalabad and Multan.
ON WAPDA'S PROPOSAL FOR NEW IPPS
Wapda proposal attracted lot of attention from the
press and some of the related government departments. Main points
mentioned in this context and on Wapda approach to the hydel generation
capacity are given hereunder.
IPPs, is a move Wapda criticized for almost a decade.
Wapda has condemned the IPPs and the past governments so much in the
past and declared these projects against the interests of Pakistan.
The proposal contradicts the government's Power
Policy-1998. Power Policy- 1994, under which IPPs were allowed, was
virulently criticized that shook foreign investors' confidence in
Pakistan as an investment-friendly destination. As for the corruption
part of the deals with IPPs, allegation has not been proved in courts.
Wapda did not profitably use the respite provided by
the IPPs, for it failed to add additional hydel power to the national
grid. Instead, Wapda merely politicized itself by lashing out at IPPs
and a political government.
While Pakistan is short of oil and gas, it has plenty
of coal, although of slightly inferior quality. It appears, Wapda does
not intend to use the coal deposits, because its proposal visualizes
setting up power plants away from Sindh where coal is found. This
neglect of coal is in sharp contrast to the practice in many countries
where coal is a major source of power generation.
Wapda has not foreseen the possibility of the use of
Thar coal in the proposed power generation units at Multan and
There appears hardly any firm plan at Wapda's level
to give up the increased use of furnace oil and instead to switch over
to either natural gas or coal.
OF NEW CAPACITY:
One does not know where the money is going to come
from for the new thermal power projects Wapda has in mind. The foreign
investors have once burnt their fingers; they are not going to enter
Pakistan's power sector again.
POWER RELATED COMMENTS:
There had been powerful lobbies within the power
utilities that discouraged development of hydel resources and not a
single investor had been allowed during the last five years to invest in
hydel power generation.
WAPDA is discouraging the hydro developers to a stage
when the country is faced with immediate shortfalls and the nation is
left with no option but to go for quick-fix solutions like thermal
The hydel-thermal combination is currently at 30:70,
which should have been the other way round. Hydel power companies are
being offered a tariff of US 3 cents per unit which is simply impossible
while in some cases energy was being purchased from thermal producers at
US 10 cents per unit even at present.
CLARIFICATIONS OF THE COMMENTS
Wapda's clarification on some of the comments made
against its proposal for new thermal capacity to the MW&P have been
reported in the press. The clarifications on some of the points as
gleaned from the press are summarized below:
Commenting on recommendations of Wapda for new
thermal power stations, it was clarified that these power stations are
required within the next 2 to 3 years, according to load flow studies
carried out for future demand as well as stability of the power system.
Load centers are located in areas of Lahore, Faisalabad and Multan,
whereas the hydel power stations based are located in the North and the
thermal power based stations are located in the extreme south of the
As regards criticism on previous IPPs, the main
objection is that these were inducted without any competition and a
uniform tariff of 6 plus cents was allowed to all types of thermal
stations whether on gas, furnace oil, etc and installed any where in the
country without taking into account the Transmission System required for
linking the new power station with rest of the country. Quite contrary
to the past policy, Wapda has now suggested that in case, thermal
stations required are to be established through IPPs, these may be
established by an open international competitive bidding basis, and the
tariff of each station will be established, according to type of the
station and fuel used as well as location of the station.
The impression that Wapda is against the development
of coal-based power stations in the country is regretted. A task force
has been established under the chairmanship of President of Pakistan for
development of Thar. The feasibility on coal based power station has
been going on by various entrepreneurs for the last many years, but for
the first time this government has made very serious efforts to go for
thermal power station on indigenous coal. In this regard, MOUs have
already been signed with the Chinese Company to prepare feasibility on
mining the Thar coal and establishing a power station based on coal in
Sindh. The project envisages Thermal Power Station in different phases
starting from 1000 mw up to 6000 mw during the next 10 years period.
Wapda is working to reverse the present hydro and
thermal power generation ratio in the country, and it has taken up
various hydro and coal based power stations to meet future power demand
of the country under its Vision-2025, which also include development of
about 10 hydro power stations with capacity of 2500 mw to meet the
future power demand of the country. But unfortunately, the hydropower is
available for about six months of the year i.e. from April to September,
and in the remaining six months, the reliance has to be on thermal
power. However, efforts are being made that the cheaper thermal power is
available in the country through indigenous fuel i.e. gas and coal. Gas
availability in the country is restricted to less than a half of the
total requirements of Wapda and IPP; therefore, the deficit fuel has to
be met from the expensive furnace oil.
Wapda is the cheapest to establish power stations
through its own programme provided some soft loans are available through
World Bank or other donor agencies, which is normally not encouraged
these days. The second alternative, therefore, remains towards
establishment of thermal stations through IPPs, and Wapda has proposed
these two options to MW&P.
Wapda will not install any furnace oil-based thermal
plant in future in the country, while the existing ones will be
converted into combined cycle gas-fired plants. In the best national
interests, in rare cases, gas-based combined cycle thermal projects
could also be taken up for system stability in the load center areas
like Faisalabad, Multan and Lahore. This approach has justification, as
hydel power is not available throughout the year because of shortage of
water. It is only possible for a maximum of six months subject to
adequate flow of water. Wapda has never changed priorities in its policy
of power generation from hydel to thermal but in certain cases, no one
can deny the importance of thermal power. However, hydel power will
continue to be top priority.
Wapda, MW&P and possibly other institutions might
have to work extra hard to clarify the comments made in connection with
the Wapda's proposal for new thermal capacity. Wapda has already
considerably sorted out the matters with the IPPs through the MOUs /
fresh agreements. Practical steps with satisfactory progress towards
implementation of the hydel projects may clear the air. Wapda should
take all the stakeholder in confidence so that they also support Wapda's
proposal for the new thermal capacity. There is also need to share this
highly technical subject of load demand forecast with the public so as
Wapda's initiatives are looked in proper perspective. It will be better
if Wapda releases relevant details about its operations to the public on
its website, if there is one. Further, policy statements at government
level might be helpful particularly these are included in the Power
Policy-2002, presumably under preparation at present.
FOR SCREENING OF THE WAPDA'S PROPOSAL:
The Government, the World Bank and ADB are not
expected to easily agree to the idea of new thermal capacity with one or
more of the public sector Generating Companies as they are all committed
for such capacity to be added through the efforts and initiatives of the
private sector. The approach outlined in the following might be useful
to handle Wapda's proposal as well as the other allied issues for
streamlining the future activities:
Take stock of the conditionalities pertaining to
energy sector particularly applicable to GOP, Wapda and Kesc. If there
are defaults, the World Bank and ADB might insist on prior compliance.
The government and the IFIs might not buy the idea of
setting up further thermal capacity in the public sector. Supposing they
all agree to this, in that situation whether Wapda will be able to
contribute 40 % cost of the new projects through its own resources
keeping in view its present cash constraints.
The World Bank and ADB most probably would want the
new thermal capacity to be in the private sector. Perhaps they might
agree to joint venture between private sector and Wapda, Wapda holding
minority interest. This may be another step in public-private
participation and may be considered.
The need for new thermal capacity shall have to be
justified on the basis of demand and supply projections under different
scenarios and using a set of probable annual load growth rates. Such
projections developed by Wapda may preferably be first discussed at
MW&P, Energy Wing in the Planning Division, NEPRA, PPIB, LTCB (NBP),
MOF and other stakeholder with a view to determine need for addition
generation capacity in the specified as centers as well as in other
parts of the country. This process will also help refine and improve
Wapda methodology and the assumptions used.
There is need for finalization and implementation of
the Power Policy-2002 of the GOP. The new policy should include all
necessary checks and balances on the one hand and on the other offers
enough incentives and safeguards to the private sector to come and
invest in Pakistan in the present day conditions. As is the practice,
the IFIs may also be contributing in the finalization of this Policy.
Wapda has certain ideas about the financing of new IPPs in future in the
private sector. In my view, all these ideas may be tabled and debated at
the time of finalization of the Power Policy-2002.
In case there are delays in the finalization and
implementation of Power Policy-2002, there may not be enough time left
to negotiate fresh credit lines from the IFIs unless they are convinced
of the need for new capacity and are agreeable to process the loans on
fast track basis.
It is not clear how far the LTCF for financing up to
30 % of project cost through subordinated loan is now relevant. In the
past large thermal power generation capacity was added by the IPPs
without availing any finance from the LTCF. This issue may also need to
be discussed and a decision reached.
US AID has recently indicated for restarting its
operations in Pakistan. The government may consider attracting US AID to
the financing of private power and for providing technical grant for
In respect of critical projects, GOP may consider
allocating, out of country's huge foreign exchange reserves, part of the
foreign exchange needed to make the down payments to the plant
suppliers, selected as per prescribed procedures. This bridge facility
in cases may substantially cut the implementation time for those
Environment has assumed more importance in Pakistan
now though this aspect was better covered in developing countries where
this clearance is usually the among the first approvals. New Power
Policy may also provide full coverage for the requirements and
procedures for compliance.
Need for additional Power and the desirable fuel base
can be better established through integrated energy planning. This
process might be streamlined.
Conclusion: Wapda, in my view, by submitting the
present proposal has raised a valid point for consideration by the
Government. Naturally the calculations made by Wapda in arriving at the
need for additional capacity will be checked thoroughly at various
levels including at the level of IFIs. The comments and criticism on the
proposal for new thermal capacity will help a lot in that Wapda and
other institutions in similar position will in future make such
proposals only after justification is established and is in the best
interest of the country. The debate in my view has renewed the need for
finalizing the Power Policy-2002, as in the absence of such a policy
document; no IPP might be financed or set up in private sector in the
country. Let this draft Policy be thoroughly debated at different forums
and finalized after incorporating necessary checks and balances on all
important issues, in the light of past experience. The stakeholders
should not block the progress of essential national projects on flimsy
grounds or to reap political gains. This Policy should reflect the
aspirations of different stakeholders in the best interest of Pakistan.