Sep 21 - Oct 04, 2009

Pakistan is currently facing acute shortfall of power ranging between 1,500 to 2,500 MW. Resultantly, severe load shedding is affecting economy and growth of the country. Government is trying to bridge the gap yet no permanent solution has been devised. There are various probable solutions, which government is exploring currently, that include rental power, development of Thar coal, early construction of IPPs, and hydro power plants.

These days electricity crisis except in Karachi is on lower side as compared to three weeks back. Electricity crisis in Karachi has different issues and require diverse solution.

According to the Hydrocarbon Development Institute of Pakistan, Ministry of Petroleum and Natural Resources, Pakistan's installed capacity of electricity generation is 19,450 Megawatts (MW) where WAPDA's Hydel, WAPDA's Thermal, KESC Thermal, IPP Thermal and Nuclear are contributing 6,499 MW, 4,900MW, 1,756MW, 5,833, 462 MW respectively.

Further, Hydel, Gas, Oil, Nuclear, and Coal have a share of 33%, 44.1%, 20.2%, 2.7%, and 0.1% of total installed capacity respectively. Due to inherent problem i.e. non-availability of water, WAPDA cannot get electricity throughout the year from hydro power plants therefore it has to rely on thermal power plants both its own and privately owned i.e. IPP. Interestingly, Pakistan does not have any power plant based on wind and coal, though coal's share in total generation is 0.1%, which is mainly based in Lakhra Coal Power Plant.

Due to weak grid infrastructure and substantial theft of electricity, an average of 23.49% is lost from the transmission and distribution network. In order to reduce these losses, WAPDA through NTDC and DISCO have taken various steps including improving efficiency and infrastructure but a lot needs to be done. Nothing material has been done in introducing private sector in transmission and distribution system.

Since last few years, energy stakeholders in Pakistan have introduced rental power concept, which is utilized in various countries. It has been aggressively advocated that the only near term solution for the power crisis lies in rental power. Rental power means importing used machinery, dismantling, and installing in minimum possible time in Pakistan. This is different from IPP in a sense that these are used as compared to brand new plant and machines. Minimum time for the plant's dismantling and installation is 6 months. It was first started in Musharraf government where two contracts were awarded even tariff was finalized without completing the required process.

In order to address the immediate power shortfall in the country, the government approved its 'fast track private projects' initiative, which was advertised on September 26, 2008 on the basis of first International Competitive Bidding (ICB). Three bids for establishing rental power projects of around 500 MW cumulative power generation capacity were received within the bid submission deadline, and the technical and qualification bids were opened on October 30,2008 in the presence of all stakeholders and the media. The bid evaluation committee recommended two bids including, Gulf Rental Power (80.5 MW) and Independent Power Ltd (220.9MW), as responsive in accordance with the evaluation criteria. The tariffs of Gulf Rental Power and Independent Power Ltd are 16.3724 cents/Kwh and 18.8824 cents/Kwh respectively, while the term of the tariff for both these projects is 60 months (5 years) each.

In addition, present government called tenders for rental power in December 2008, which were opened in February/March 2009 by PPIB. These plants were to be commissioned by the end of 2009. The bid evaluation committee declared eight bids as responsive after evaluation of envelope-I covering technical and financial qualification. The bids included 73.92MW AVS (Pvt) Ltd, a Tapal Group project, 138MW Intermash-Stolitsa of Russia, 170MW MHK Energy (Pvt.) Ltd, 63.81MW Premier Energy (Pvt.) Ltd, 220MW Reshma Power Generation Ltd, 170MW Ruba Energy Pakistan (Pvt.) Ltd, 85MW Sialkot Rental Power, and 100MW Trimax Power (Pvt.) Ltd.

The tariff offered for AVS is 13.58 cents/kwh, for Intermash-Stolitsa 18.96 cents/kwh, MHK Energy 13.9615 cents/kwh, Premier Energy 13.26 cents/kwh, Reshma Power Generation 13.75 cents/kwh, Ruba Energy Pakistan 13.85 cents/kwh, Sialkot Rental Power 13.42 cents/kwh and Trimax Power 14.02 cents/kwh. The term of tariffs of all these projects is 60 months (5 years).

A lot has been said and written on the integrity, transparency, and efficiency of rental power but government is proceeding while ignoring all the criticism. Under the Shaukat Aziz and Mohammad Mian Soomro governments, following conditions were laid down in the tender documents and subsequent contracts awarded through ICB process: (i) 7 percent mobilization advance, adjustable against dues, to RPPs after Commercial Operation Date (COD); and (ii) SBLC for 93 percent of the contract value confirmed by an A-rated bank to cover event of default of power buyer.

In most cases of RPPs, the signed contracts have been amended in writing and new contracts awarded through ICB process containing the following: (i) 14 percent mobilization advance, adjustable against dues to RPPs after COD; and (ii) sovereign guarantee to cover any events of default on part of power buyer.

Transparency International, Pakistan Chapter, has raised many objections on rental power all of which are not wrong. Rental power's biggest demerit is not the contracts but the tariff and efficiency. The machines which have been selected have already run approximately on average 80,000 hours or above which is high, in other words 10 years plus of full operations. The machines have gone through their best time and will not be able to produce the required efficiency. Moreover, around US$ 2.2 million per MW cost and reimbursable in maximum 5 years is too high to afford. Government is of the view that they have conducted ICB for this, this is beyond one's comprehension; how two projects can be evaluated when they have different fuel, location, and size. Throughout the world, ICB means that more than one investor bid for a project where fuel, location, and size is predefined whereas in Pakistan it means that one can bid for a coal fired power plant in

South Punjab and another in North Punjab on oil fired power plant. It is absolutely not clear how projects can be ranked first and second without even considering the transmission line losses, requirement, supply of fuel etc.

Besides this, government is also considering Thar coal where Sindh government has formed a Joint Venture with Engro. Thar coal is one of the most important projects in Pakistan. Pakistan has limited resources therefore, it is important for the government to finance the Thar coal instead of paying heavy price for useless rental powers.

Most of the power plants under construction are oil based and will come online in next 12 months. There are three dual fuel power plants under construction out of which two are delayed from their original schedule due to bankruptcy of their EPC contractor. It is difficult to understand how these dual fuel power plants will be operated as government has given firm commitment for gas till 2012 and thereafter it will be either operated on diesel (secondary fuel) or on gas to be available on as and when basis.

We all are aware of the fact that in future Pakistan will also face gas load shedding. There are number of analysts who advocate wind power and compare Pakistan with India and China. No country can be compared on availability of wind basis alone. India and China have much bigger coastal line as compared to Pakistan.

Wind power plant can only be installed where high speed wind is available. If India has 6,000MW on wind then Pakistan can also have same size of wind power. We need wide coastal line, high longitude, and above all vision, which are not available.

Pakistan has huge potential of hydropower but most of the hydropower opportunities are either in NWFP or in Kashmir. Investors are reluctant to invest in Kashmir due to dispute with India. Investor is not sure what would be the status of Kashmir in next few years and from whom they get the sovereign guarantees. We all are aware of the security situation in NWFP though things are improving rapidly but investors feel insecurity going there.

Pakistan should give first priority to Thar coal and if that requires time then import coal for power generation. The cost of the plant would be lesser than imported oil. Moreover, dams and run-of-the-river hydropower projects should be encouraged through public-private partnership. In short and medium term, load shedding will remain and there is only one possibility, which can eliminate the shortfall. Whole country prays for changes, which will help in reducing the electricity demand. Last but not the least, this objective can only be possible by hard work and corrective measures of democratically elected government and its good governance.