HUBCO: THE ROLE MODEL

ECONOMIC MANAGERS MUST CONVINCE IT TO FURTHER DIVERSIFY THE BUSINESS AND HELP IT BECOME AN ENERGY CONGLOMERATE.

SHABBIR H. KAZMI
(feedback@pgeconomist.com)

May 2 - 15, 2011

Based on various appraisal parameters, the Hub Power Company (HUBCO) can be adjudged as the role model independent power producer (IPP) of Pakistan. Be it contribution to the national grid, operating efficiency of the power generation units, planned outages and overall availability, fuel efficiency or payout to the stockholders, it has an enviable track record. The added pluses are safety of the employees and contribution to the community. Its sponsors have withstood the commitment to Pakistan despite many ups and downs and also plans to making the best contribution in the coming days.

It is the first IPP of Pakistan to produce around 80MW hydel electricity from the 'waste water' of Mangla dam. While both the public and private sectors have been talking about hydel generation from 'run of the river' projects, HUBCO will be the first private sector entity to make this dream come true. Though, 80MW can be termed 'too small a capacity to make any difference in a country which recently faced as high as 7,000MW shortage of electricity, the success of a private sector entity will encourage the other players to venture into this type of business, which does not spread pollution or cause any environment degradation'.

The average electricity load shedding time in the country touches almost 10 hours in urban areas and up to 16 hours in the rural areas. HUBCO is writing a new chapter in the history of Pakistan, where experts believe up to 40,000MW electricity can be produced from hydel plants, mostly by installing turbines on the points where water can be dropped from height enough to keep these turbines running without causing any interruption or disruption in the flow of water.

The latest addition of over 200MW thermal generation by HUBCO is from a thermal power plant located at Narowal. One may ask what could be so special about this project. On the face value, it is just an ordinary small thermal power plant but the fact is 'it is the first drop of rain'. The decision by HUBCO to establish a 200MW power plant in Punjab encouraged other sponsors to come up with power plants of around the same capacity aggregating to a dependable capacity of 1,000MW. All this investment has been made by the private sector only because of HUBCO. All the other sponsors have the consensus; if HUBCO is investing, the market must be ripe to come up with more plants. The time has proved that all the sponsors were right in following the footprints of HUBCO.

Very few people may be aware of the fact that it was HUBCO, which suggested to the government of Pakistan (GoP) to establish a link close to Karachi city to avoid first dispatching the load to Jamshoro and then bringing it back to Karachi. Under the agreement WAPDA was and still remains the sole customer of HUBCO and many experts doubted realization of the 'wishful' thinking. Though attorneys burnt midnight oil to find the ways for undertaking the project, it became a reality but with a delay. During this period, Pakistan had to bear higher technical losses. It may not be wrong to say that the losses were far higher than the cost of the project. Initially, HUBCO had expressed willingness to undertake the project at its own and also bear the cost but WAPDA accomplished the project at huge cost.

Many critics were of the view that HUBCO enjoyed an undue advantage and the GoP remained entangled in a long fruitless legal battle costing billions of rupees to both the parties. One of the past CEO's of HUBCO used to say that there were ways to reducing the bulk power purchase tariff but no one listened to him. Contrary to this, rental power plants (RPPs) have been allowed almost double the tariff being paid to IPPs and were paid billions of rupees in advance. A lot of credit goes to veteran politician Faisal Saleh Hayat who helped the GoP in recovering around Rs2.5 billion from the RPPs. At present the overall contribution of RPPs hovers around 62MW.

While Xenel Group of Saudi Arabia and International Power of UK contributed a lot in realization of HUBCO at the initial stages, when the project was in doldrums, the company now has representatives from many groups on the Board of Directors. Since International Power of UK has been acquired by GDF Suez, a French conglomerate, power sector experts see further diversification of HUBCO business in Pakistan. In fact, economic managers of Pakistan are already in touch with this company. On his recent visit to France, prime minister extended the invitation to this company to make investment in Pakistan.

International Power of UK not only holds stake in HUBCO and Kot Addu Power Company (KAPCO) but also had O&M contract with both the IPPs. The two units constitute nearly half of the aggregate power generation capacity of the IPPs operating in the country. While it may not be fair to compare the two entities as these are based on different technologies, one just could not resist from saying that running of KAPCO plant on furnace oil containing high percentage of sulphur is depleting it at a much faster rate. Since WAPDA is the majority shareholder in KAPCO, it must convince the government to ensure supply of furnace oil containing low sulphur.

If the GoP is serious in involving the French giant, it may be asked to establish a LNG terminal along with HUBCO and KAPCO. Running the two power plants on natural gas can help in bringing down average cost of generation of 3,000MW capacity, enhance life of these power plants, and also help in containing environmental degradation being caused by burning furnace oil.