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LOW Source:
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0.92% positivity

ISLAMABAD: The Power Division (PD) is likely to decide the future of 1200 MW Hub Power company (Hubco) next week as the government is in no mood to buy the plant for termination, well-informed sources told Business Recorder.

Presently, Hubco plant is on idle mode but government operates it on need basis like it did recently when the country was facing massive shortfall during dry-docking of Engro's LNG terminal.

"We will discuss different options about the future of Hubco plant as on many occasions plant was operated to meet shortfalls," the sources said, adding that an in-house discussion is scheduled next week to discuss most feasible available options.

Hubco, which is in financial trouble after the resignation of its CEO Khalid Mansoor (now appointed as SAPM on CPEC), recently terminated services of a number employees in addition to slashing salaries of senior technical people working on the plant.

Pakistan State Oil (PSO) has also written several letters to the government, seeking help to get billions of rupees due "receivables against supply of oil to Hubco power plant" in recent months. The last letter was written on August 11, 2021 for payment of RFO supplies during July-August 2021.

New subsidy mechanism: Power Division moves Nepra for approval

In the third quarter of FY 2020- 21, the government approved an amount of Rs 57.981 billion for Hubco in accordance with a renegotiated deal of which 40 per cent was paid on June 4, 2021. However, the government has deduced Rs 11 billion against fuel supplied to Hubco plant for first fill of plant after two decades with the help of an influential institution which facilitated the deal.

However, the government has put on ice a proposal of SAPM on Power and Petroleum Tabish Gauhar regarding purchase of plant to terminate it.

According to the concept paper of Tabish Gauhar, Hubco (1200MW) is an almost-idle IPP asset in South Balochistan with around 1% dispatch factor. Its PPA is expiring in 2027.

According to him, even with the recently negotiated (MoU) tariff decrease, GoP has to pay almost Rs260 billion to Hubco in take-or-pay capacity charges until 2027 (without almost no need for their power now or envisaged) which adds to the overall power sector's cost of generation and circular debt.

He maintained that one possible option for resolving this issue is an early buy-out / termination of Hubco which is also envisaged under their contract and for the GOP to take over this oil-fired power plant. The payable upfront amount is calculated to be roughly Rs. 65 billion.

However, there would be little to no use for GoP of this oil-fired plant that ranks very low on the economic / dispatch merit order. An alternative option is that GoP agrees to pay Rs. 65 billion to Hubco in lieu of Rs. 260 billion if this money is explicitly earmarked / ring fenced by Hubco for: (i) financing the conversion of 600 MW of their oil-fired units to Thar Coal and selling that power to K-Electric under a private-to- private PPA with no GoP involvement. That will also reduce, albeit partially, GoP's liability / responsibility toward continued support for KE's growing future power needs; and (ii) financing the conversion of their remaining 300-600MW power units to produce up to 300 million gallons per day of desalinated water for supply to Karachi under a Water Purchase Agreement with GoP & GoS on mutually agreed terms & conditions (including any "at-source" deduction between GoP & GoS for the water charges). A preliminary pre-feasibility study (including costing) has been done by Hubco on this.

Power subsidy rationalisation plan unveiled

Tabish Gauhar claims that both the proposed initiatives may be financed under the Karachi Transformation Plan.

Another advantage of this proposal for GoP is the potential release of a $12.5 million annual payment liability toward Asia Petroleum Limited (APL) pipeline (that was set up to supply furnace oil to Hubco but is now lying idle) and passing that on to a neighboring oil refinery for their future usage to reverse pump their diesel and petrol products across Pakistan in lieu of the current practice of tank lorries / road transportation.

He further noted that transportation of incremental Thar Coal to Hubco (and also Jamshoro, Lucky Power, etc.) via the Thar Rail Link proposal should be an integral part of the Pakistan Railways' revival plan and would also help in reducing the overall cost per ton of Thar coal (due to economies of scale) for the overall benefit of Pakistan's power sector (lower tariff, circular debt, etc.).

An official commented on this proposal by saying that "when we are financially unable to operate our own power plants, then can we buy Hubco and operate it!"

Copyright Business Recorder, 2021

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