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The government has remained haphazard on power policies but it is crystal clear on the premise that the best bet to win the next elections, is to add adequate supply of power in the system, before 2018. The biggest reason for PPP’s loss in the 2013 elections was that they failed to resolve the power crisis. The PMLN doesn’t want to make the same mistake.
The intent is clear; but there was no homework when the PMLN came to power and it worked on an ad hoc basis. Initially, the focus was on coal-based power projects. To appease the Punjab-based business lobby, the obvious choice of installing plants at Port Qasim, was ignored.
Instead of new plants in Sindh, the Federal Government opted for Gaddani for an array of coal-based power plants. It took two years to realize that it’s not possible to work from scratch on building jetties and other port infrastructure. This coupled with environmental hazards for inhabitants of Karachi shelved the Gaddani power park.
The good news is a few coal-based projects at Port Qasim,Thar and upcountry in Punjab, have started rolling. One of the Chinese groups is working to fast track the construction of two plants of 660MW each, in Sahiwal. Contracts have been awarded and civil work is under progress. Simultaneously Pakistan Railways is working on import of locomotives to ensure transportation of coal, from port to the plant site.
Despite the swift work, coal projects entail a long gestation period. Hence they will not be completed prior to the next elections. At best, the project will start providing power to the grid by 2018-end. Similarly, another Chinese project of 1,320MW under process at Port Qasim, will also commence operations after the polls. These are apart from Hubco’s (1320MW) projects at Hub, Lucky (600MW) at Port Qasim and Engro’s in collaboration with Sindh government (660MW), at Thar.
But none of these coal projects will come online before the elections. The government, therefore, has its eye on LNG-based power plants which have lesser gestation period; and can add adequate power by 2017-end. Again, the Punjab centric approach dominates and the plants are envisaged to be built upcountry knowing that existing gas pipelines don’t have the capacity to transport imported gas. That is why government is trying hard to find investors to do so – there are banking on Russians to invest in the project.
Three projects of 1,200MW each; one by Punjab government and rest by the federal government are in the works with deadlines of commencement by 2017-end. Private sector has been conveniently sidelined. Their calls for assurances of gas supply and compensation against delay in payments due to circular debt are unheard. Additionally, private sector players were looking for projects of relatively smaller size (200-400 MW), with decent time for financial close.
Nonetheless, in order to have more power in less time; the government came into play itself. It pushed NEPRA to determine tariff and locked Chinese funding under CPEC on these plants. Add Neelam-Jhelum and other hydel extensions of large dams and new small dams; and alternate energy avenues, there will be 10000-12000 MW added into the system by 2021.
By that time, Pakistan may be energy surplus with higher efficiencies’ new plants than those producing power today. That is good work and relevant federal and provincial ministries needs to be applauded for their dedication. But at the same time, finance ministry and the Privatization Commission are taking decisions which are in contradiction to the above mentioned plans.
The pressure of IMF is to expedite privatization process while the government is doing all, to sell low hanging fruits with nothing much done on problematic public sector corporations. It sold blue chip banking and oil sector companies to generate over $1 billion in last year or so.
Now it’s eyeing on the power sector. It is looking to sell off its existing stake in KAPCO (40.25%) by the end of CY15. The word around is that KAPCO’s, PPA is likely to be extended before sale of shares. The company’s management expects KAPCO’s PPA to be extended by 10-15 years. However, the terms of extension are yet to be negotiated.
This is not fair as the upcoming capacity additions are of high efficiency. KAPCO’s weighted average thermal efficiency stands at around 43-44%. Meanwhile, existing gas-based power plants under 2002 power policy and upcoming RLNG power plants are based on a higher efficiency levels (around 51%-57%) due to the latest technology. Thus, on merit, the efficient plants should get more dispatch orders. There is no rationale for extending KAPCO’s capacity purchasing agreement beyond 2021.
In 2021, KAPCO’s existing PPA will expire. There is no way the management will uninstall the plant and pack up. Since, the plant will remain there, all government needed to have a contract based on variable cost and pay if it purchases power from that plant.
KAPCO existing tariff has built-in project cost recovery and is expiring in 2021. By that time new plants with higher efficiencies will be online and there will be no rationale to have an agreement of buying from a plant which in inefficient. Is it only to raise $300 million under privatization to curtail today’s fiscal deficit? What about the cost that the nation will have to bear beyond 2021? Why re-privatize an asset which has already been privatized in 1996?
Not to mention, the planned privatization may also be in violation of PPRA rules. There is no precedent; neither does a supportive policy exist on PPA extension. NEPRA’s consent is imperative, also. The bottom line is that pressure to appease the IMF by showing them privatization flows is there. But it should not lead the government to defy power policies and place additional burden on power consumers in years to come.

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