Stakeholders, including Chairman Central Development Working Party (CDWP) headed by Minister for Planning, Development and Reforms Ahsan Iqbal, have pointed out serious violations in Nawaz Sharif government's flagship Gadani Power Park designed to establish 10 imported coal fired plants of 660 MW each (10x660 MW), sources close to Secretary Water and Power told Business Recorder. Secretary Water and Power Nargis Sethi is the Chief Executive Officer (CEO) of Pakistan Power Park Management Company Ltd (PPPMCL).
The government has set up PPPMCL as a special purpose vehicle for dealing with the ten imported coal fired projects. The PPPMCL will also be responsible for operation and maintenance after completion of project. The cost of the project has been estimated at Rs 146.627 billion ($1.488.6 billion) with a 15 percent GoP equity and an 85 percent debt financing as foreign loan. The GoP's equity will be $223 million whereas debt is estimated to be $1.265.3 billion. Interest rate on foreign loan will be Libor+400 basis point/@Eurbor +400 basis points and on local loan Kibor+ 300 basis points. Average interest rate will be 6 per cent and repayment period is 12 years. Weighted cost of capital is estimated to be 6 per cent.
When the project landed in the CDWP on July 17, 2014, Chief T&C stated that the major scope of work consists of marine works including two breakwaters each measuring 3.5 km, an 1100meter-long jetty for receiving three ships of sizes 40,000 DWT to 210,000 DWT, proven cooling water facilities and other related infrastructure. A pre-CDWP meeting was also held in Planning Commission on July 16, 2014 under the chairmanship of Member (I&RC) in which some observations were addressed by the sponsors; however, some observations still need clarification.
Secretary, Water and Power on the request of Secretary Planning Division and Reforms provided additional information on the project. She stated that initially berths will be constructed and as per the requirements of master plan two more berths will be added later on, on a modular approach basis. The project is proposed to be constructed in 3 years ie October 2014 to 2017. A 50 MW power plant will also be required during the construction of the proposed infrastructure. She further confirmed that the drift of jetty will be 17.9 meters and it will accommodate ships of sizes 40,000 to 100,000 DWT. The annual requirement for the coal will be 18 million tons for all the 10x660 MW power plants.
Chief T&C made some observations after a detailed description given by the Secretary Water and Power. He stated that as per PC-I and discussions held with sponsors in the pre-CDWP meeting it was revealed that the maximum drift adopted for the design be 20 meters and the jetty will be able to accommodate ships of size ranging from 40,000 to 210,000 DWT with annual requirement of coal as 20 million tons. He further said the location of the power park is not based on a feasibility study and also re-iterated the observations of the Member (I&RC) in the pre-CDWP meeting about the hiring of a consultant on a single source basis. He also highlighted that the total dependence on imported coal is not advisable and to arrange local mining industry to supply coal as there is a need to have 20 per cent blend of local coal as agreed in the pre-CDWP meeting as pointed by Chief Energy, Planning Commission.
He also proposed establishment of a proper project monitoring and evaluation cell for proper co-ordination and to achieve targeted output. Chief Energy asked the sponsors about the quality of coal being used for the power generation in the plants as quantity of coal, according to him, varies with the improved quality, ie, less quantity of sub-bituminous coal will be required as compared to the lignite for generating the same amount of power.
Secretary Planning Division enquired about the status of acquisition of private land for the project. He further asked the sponsors if any market survey of coal producing regions has been carried out. He said that no economic analysis/commercial viability of the project has been provided in the PC-I. Chairman CDWP asked the sponsoring agency to confirm that the coal plants' technology used for their project is compatible if local coal is used in future. He also stressed that the basis design parameters such as maximum size of a vessel, maximum depth, and annual demand of coal needs to be provided with clarity by the sponsors.
Secretary, Water and Power while responding to above queries confirmed that the design of the infrastructure has been done on the draft of 17.9m and maximum ship size of 210,000 DWT and also confirmed the annual requirement of coal as 18 million tons against 20 million tons. She stated that sub-bituminous imported coal is feasible and will be used for power generation. She responded that local coal can be utilised in the proposed power plants; however, in the current scenario due to non-availability of local coal in sufficient quantities it would not be possible to meet the current coal requirements from local sources for the next three years. However, the technology supports the use of local coal and it will be blended as per requirements when local coal becomes available in the future.
On hiring of Nespak as consultant, she clarified that this has been approved by the Prime Minister for Gadani project. She further stated that the current cost is an estimated cost and will be subject to change as per the detailed design. In response to a query raised by the Chairman CDWP, the consultants revealed that proper coal study has been done and 8 to 9 countries were specified for the procurement of coal, including South Africa, Indonesia and Australia. The economic viability of the project was also carried out and a delta tariff of $5.6 per MW is proposed to achieve beneficial return on investment and to negotiate with IPPs. The process of acquisition of land with the help of Government of Balochistan is almost completed. Chief (Economic Appraisal) stated that as per PC-I the cost of development and operation of common facility will be recovered through a delta tariff in addition to the tariff in power purchase agreement between IPP and NTDCL. He further stated that the cost estimates are yet to be confirmed and any increase in cost (CAPEX and OPEX) may further increase the delta tariff. Therefore, the sponsors should examine the impact of an additional cost due to inclusion of delta tariff in the up-front tariff determined by Nepra for imported coal-fired power plants.
Member I&RC inquired about the capacity of distribution system to absorb the proposed generated 6,600 MW power. He further asked whether NTDC has been consulted for the distribution of this 6600 MW power into the system after construction of a proposed plant. He also pointed out that the proposed feasibility study will not be a bankable document as it is being carried out by M/s Nespak which is under Ministry of Water and Power and this may give a sense of conflict of interest.
Chairman CDWP stated that the electricity generated through this project would be available to the end user only if the proposed project is complemented by power plants and most importantly the transmission & distribution system capable of functioning efficiently. He expressed reservations on the feasibility study for not taking into consideration the capacity of distribution system to absorb this new 6,600 MW power generation. He maintained that the feasibility study should have addressed the whole value chain for effective utilisation of proposed 10x660 MW plants otherwise power will be generated but due to a weak or faulty transmission and distribution system, the whole investment will be of no use.
PD, MPFP, Planning Commission/Co-ordinator (Energy) while endorsing the view of the Chairman CDWP, stated that currently the distribution lines can handle 15,000 MW of power, however, the problem lies at the distribution stage where the current equipment installed at 220KV and 132KV grid stations are obsolete and they were not upgraded in the past. He quoted a recent episode of electricity breakdown in Lahore which was mainly due to the obsolescence of transformers and distribution lines which are being administered by private companies. He also suggested that it should be the responsibility of the IPPs to sign the Fuel Supply Agreements (FSA) for ensuring uninterrupted supply of coal during plant operations instead of making arrangements by the PPPMCL.
The consultant revealed that the distribution component was not studied in the feasibility study and it covered the system up to the transmission line. However, Secretary Water & Power agreed with the above and stated that it is the responsibility of the Ministry and they are working on the up-gradation plan of local distribution lines.
Secretary, P&D, Balochistan, while supporting the project, stated that local coal available in Balochistan at Chamalung and at other potential sites may also be used for power generation in future. Chairman CDWP stated that the feasibility study must have raised the issue of distribution capacity hence it needs to be refined. He further stated that keeping in view the strategic importance of the project it could be approved in principle subject to certain conditions. He also stated that due diligence and prudence cannot be compromised in haste of approving the project. He also stressed all codal formalities must be followed for the award of contract.
Chairman CDWP argued that as the estimated cost of Rs 146. 627.00 billion is not based on a detailed design, the cost will be finalised at the time of award of EPC contract on a competitive basis (when the detailed design will become available). He also raised the following issues: (i) feasibility study needs to be reviewed in light of the above observations made in the CDWP meeting; (ii) absolute clarity of the design parameters will be provided by the sponsors based on which firmed up cost will be developed; (iii) a complete value chain analysis would be provided by sponsors in order to establish the transmission and distribution gaps that would be required to be filled for optimum utilisation of the power that is expected to be generated at the Gadani Power Park; (iv) a financial analysis, pricing structure, business model, and cost recovery model will also be provided by the sponsors; (v) loan will be effectively negotiated with the potential lending agency to keep the cost of interest payments to a minimum; and (vi) a project monitoring and evaluation cell will be established in the Ministry of Water & Power for proper execution of the project within the approved cost and time lines.
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