The initiative of the Al-Najibi group would be seen as a highly significant development in the context of foreign investment flows into Pakistan


May 29 - June 06, 2004

Highly encouraging respond has been received from the foreign investors for hydle and gas fired power projects in Pakistan. The government has received 33 expression of interest (EOIs) for generation of 5500MW electricity with an investment of over 5 billion dollars. The investors mostly belonged to Gulf States and the USA.

Talking informally to the newsmen in Islamabad, the Chairman of Board of Investment said that at present the country heavily depends on thermal power, which constitutes 70 percent of total power generation, while the share of other renewable and indigenous energy sources, such as coal, gas, hydel etc. remained only 30 percent. In this context, he stressed the need of reducing dependence on thermal power and said that the main objective of the government was to encourage exploitation of indigenous resources through active involvement of local engineering, design and manufacturing capabilities.

He said that apart from power and telecommunication sectors the Board was also giving special emphasis on SME sector. He observed that previously tough rules and regulations by the State Bank of Pakistan had been the main obstacle to investment in this sector and said that now this sector had been exempted from the mega prudential requirements. He also described oil and gas and agriculture sectors as prospective ones for investment.

Private Power and Infrastructure Board (PPIB) Chief Zafar Ali Khan highlighted salient features of the government's new power policy. He said that in response to the new investor-friendly power policy, PPIB had received an overwhelming response for a cumulative capacity of about 6000MW power generations and out of this capacity it has already issued letter of interests (LOIs) to six different companies for developing 1750MW generation capacity.

It will be noted that the new power policy is based on development of the power sector, exclusively, on indigenous fuelling resources such as natural gas, coal and hydro sources. Of course, the most economical among these is hydropower, contrary to which, this advantage has remained largely ignored over a long period of time. Under standably, as projects based on these sources, carry entitlement to the low rate of duty of 5 percent, besides exemption from sales tax on imported plants, which are not manufactured locally. Evidently, such investments would also enjoy exemption from income tax, including turnover tax and withholding tax. More to it, electricity tariff would be fixed on the basis of open bidding, supplemented by the provision of negotiations as an added appeal. It will thus be seen that the prospective foreign investors seem to have taken no serious notice of the prolonged tussle between the previous governments and the independent power producers (IPPs) over the highly controversial issue of power tariff during the four-year period 1995 to 1999. This, indeed, is an encouraging development that should augur well for the future of the too deficient power sector in Pakistan. Tragically, despite being too deficient power and abounding in hydro resources, the country has witnessed long decades of water wastefully flowing down into the Arabian Sea.

A consortium of investors from the Gulf countries is reported to have shown keen interest in launching a mega project for hydropower generation in the territory of Azad Jammu and Kashmir. The project would be located on the river Jhelum in the Neelum valley and have the capacity to produce about 1000 mega watt, to be built at a total cost of over Rs. 87.710 billion, including an estimated foreign exchange component of $ 1.2 billion. The leader of the consortium, Yousuf Mohammed Yousuf Al-Najibi who is a leading businessman and industrialist of the Gulf region, discussed the proposal with the WAPDA authorities and high-ranking officials of the federal government during a recent visit to Pakistan. In fact, he is already involved in investment activity in this country. His company known as Costal Trading is reported to be associated with Heavy Industries Taxila (HIT) in the production of seamless steel pipes and armored vehicles to meet the defence requirements. The company's range of defence production in HIT is stated to be very wide, pursued with a number of joint venture arrangements with the manufacturers of international repute. The Coastal Trading owned by Yousuf Mohamed Yousuf Al-Najibi is also reported to be operating in the USA, Euorpe, Middle East and Far East.

The initiative of the Al-Najibi group would be seen as a highly significant development in the context of foreign investment flows into Pakistan. An important aspect of the power project is that it would be undertaken without any loan financing from the international financing agencies like the World Bank and the Asian Development Bank. The entire investment is likely to be raised by the participating groups of entrepreneurs. As a result, the profitability of the project may be attractively high for foreign investors. Thus it will be a bold venture on the part of the sponsors who will be sharing the entire risk of capital investment among themselves. The proposed investment testifies to the confidence of foreign investors in Pakistan's economic potential.

The GSB Technologies Inc, of the USA has shown interest in establishing a power generation plant of 500 megawatt capacity in Karachi, based on garbage of the city and coal which would be available from Thar and Lakhra coal mines. A three-member delegation of the company headed by its managing director, Gerald J. Bell, reportedly met with Sindh Minister for Industries and Commerce Adil Siddiqui recently and discussed the project with him. It was pointed out by the delegation that the cost of power generation with this technology has been found to be the lowest as compared to other thermal sources. Similar plants were stated to be in operation in the US, India and Sri Lanka. The State of California in the US has also approved the establishment of such a plant, which is also environment-friendly.

Other redeeming features of the project include its contribution to establishment of a water recycling plant in Karachi besides opening up employment opportunities for as many as 700 skilled and unskilled workers. The proposed project, it was pointed out, can be set up on a relatively smaller plot of land than what a power plant of similar capacity based on other fuels usually require. However, the project should be preferably located near the seacoast where access by road was available for the transport of raw materials i.e. garbage and coal. It is estimated that the garbage output in Karachi is in the region of 10,000 tonnes per day which, supplemented with coal, can be enough to feed the power generation plant of the projected capacity. The coal supply will be available in plenty from the Thar coal mines within the next couple of years where experimental mining is already in progress by the Chinese firm which has plans to establish two coal-based power generation plants of 300 megawatt each.