ISLAMABAD: K-Electric (KE) has submitted a business case of conversion of unit-1 of Jamshoro Power Company Limited (JPCL) to 100 percent on Thar-coal, which projects economic benefit of $ 2.254 billion to national economy and affordable power to the regulated consumers of Karachi, well informed sources told Business Recorder.
KE team recently held a meeting convened by Additional Secretary-1, Shakeel Qadir Khan on June 21, 2023, along with concerned stakeholders, including representatives from Jamshoro Power Company Limited (JPCL), Private Power and Infrastructure Board (PPIB), Central Power Purchase Agency-Guarantee (CPPA-G), and National Transmission and Despatch Company (NTDC).
During the meeting, KE presented the business case for conversion of unit-01 of the project to 100% local Thar coal, saying that this idea is in continuation to earlier discussions during the meeting on June 03, 2023, in which a concept paper was submitted by KE, for its interest in procuring power from Unit-01.
KE discusses options of participation in Jamshoro power unit with PD
It was further decided that a business case would be developed by KE to depict the benefits of Unit-1’s conversion to local coal, not just with regards to the viability of this opportunity, but its overall impact on the economic prosperity of Pakistan.
While developing the business case, KE solicited the inputs from relevant stakeholders including CPPA-G, PPIB, NTDC, the existing Engineering Procurement Construction (EPC) contractor, i.e., Harbin Engineering International (HEI) and Thar coal supplier.
According to KE, the case was timely developed by KE and has been submitted Additional Secretary-1 Office for approval on June 9, 2023.
KE submitted Site Visit and Preliminary Assessment Report, on February 15 2023 that also proposed the idea of KE procuring power from both units, due to the technical, commercial and legal challenges associated with the complete separation of these units, which were inherently designed to work together as a unified complex. The sources said, KE has reiterated its interest in the direct purchase of power from Unit-01 of the project after its conversion to 100% local Thar coal.
The construction works of Unit-1, being built on imported coal, are still in progress, with 90% on site completion being achieved. Based upon the information provided to KE, it is foreseen that Commercial Operations Date (COD) of Unit-1 will not be achieved prior to November 2023.
It is tentatively estimated that foreign exchange to the tune of $ 202 million will be further required for successful one year’s operations of Unit-01’s on imported coal, at utilization factor of 50%. This cost will be incurred to procure the commissioning coal, make the plant’s first fill, carry out the plant operations and maintenance, and make debt repayments for just one year from COD.
The recurring cost of foreign exchange requirements, to procure the imported coal for the remaining years of the life of the project, will be in addition to this amount.
KE has evaluated that the conversion of Unit-1 to Thar coal will require investments in modification in the power plant, railway track for transportation of coal to the project site from Thar coal mines, expansion of Thar coal mine, and the Coal Drying equipment.
The combined investment required for these infrastructure enhancements are estimated to be $ 402 million for Unit-01, having a Foreign Exchange component of $ 174 million.
“Since the Unit-1 conversion will require some additional time, and even if the additional cost impact due to the incremental Interest during Construction (IDC) is also accounted for, the overall benefit with regards to the net foreign exchange flow from the country will still stay positive,” said KE.
KE has evaluated that with the expeditious decision of Government of Pakistan (GoP) to convert Unit-1 on 100% Thar coal, valuable foreign exchange savings of $ 99 million per annum can be achieved, due to imported fuel substitution.
Additional savings of Rs 30 billion per annum will be achieved due to the coal tariff reduction of the existing power plants, attributable to economies of scale being achieved during the expansion of existing mine. Moreover, incremental benefit of Rs 1.5 billion per annum in lieu of reduced freight costs of existing coal projects will be achieved.
In addition, the conversion of Unit-01 to local coal will reduce its tariff by approx. Rs 6.19 /kWh; thus, a direct Power Purchase Agreement (PPA) for Unit-01 with KE, shall lower KE’s energy basket price, transforming into additional savings of USD 86 million per annum, due to reduction in Government’s subsidy provided to KE.
KE has claimed that all these benefits, due to the conversion of Unit-1 to local, when assessed under a wider economic perspective, translates into a net present benefit to the Pakistan’s economy amounting to a value of $ 2.254 billion.
As per the proposal given by the EPC contractor, the stipulated modification can materialize within 18 months, on best effort basis; thus, enabling the COD of Unit-l to be achieved by December 2024. Therefore, it is very important that the decision making is carried out within time, to avail this existing window of opportunity, along with curtailing the impact of incremental IDC, because of these required modifications.
Moreover, the conversion of Unit-01 on Thar coal will also create a unique opportunity for the GoP, to facilitate the conversion of currently installed 3,600-MW capacity on imported to Thar coal, by creating template for others to emulate.
“It is beyond any doubt to state that in order to provide affordable power to the regulated consumers of Karachi, and to reap the economic benefits from this conversion, time is of the essence; and coherent decision making will go a long way to serve to economic benefit of the country in the coming years,” said, Shahab Qadar Khan, Chief Strategy Officer KE, in a letter to Power Division and its attached Organizations including PPIB.
Copyright Business Recorder, 2023