February 13, 2006	Monday	Muharram 14, 1427

IN the backdrop of serious challenges of power deficit facing Pakistan from 2007 onward, the prime minister has underscored the urgent need to increase electricity generation capacity through implementation of a three-pronged strategy.

In addition to setting up various gas-based and dual-fuel thermal power plants, the independent power producers (IPPs) are being encouraged to undertake optimum expansion of their installed 6,108 MW capacity, which is estimated to add 1,300-1,400 MW power generation.

Entrepreneurs with successful track record of investment have also been asked to propose green-field projects, aiming at opening doors to further increasing power generation capacity.

The official initiatives are a major policy shift as there are no provisions for the same in the Power Policy 2002 and investors are allowed level-playing field without any discrimination, under a set procedure of prequalification, calling for international competitive bidding.

Again, success of these measures in creating additional power generation on a fast track basis poses a big question-mark in view of prevalent tariff determination issues and other irritants that have already marred the progress on a number of on-going projects.

Logically, the best option for the government should be to focus on ensuring construction of such projects, without delay, for which letter-of-support (LoS) were issued, and to direct early implementation of projects for which letter-of-interest (LoI) have also been issued by the private power and infrastructure board (PPIB). Indeed, the energy shortfall, if not addressed effectively, would have negative impact on the economic growth.

But then, almost all efforts for creating additional power generation capacity are being directed towards thermal power that is an expensive and unreliable source. There is thus a definite need to increase substantially the share of hydroelectric power generation, the cheapest and most reliable source, in the overall power mix.

One observes with dismay that in 1960 the share of hydro power was 70 per cent that declined to 35 per cent in 2002-03, in spite of nearly unlimited hydro potential that remains unexploited.

Time and again, the president and the prime minister have emphasised on maximising hydropower generation to ensure sustainable development, but nothing concrete has come up, as far as policy decisions are concerned, to extend specific and special concessions to the development of hydro-power projects.

These are rather imperatives, considering that the restructured Wapda in future will be responsible for the hydroelectric power generation of multi-purpose and reservoir type projects only, whereas run-of-river projects are to be developed by the IPPs.

Power Policy 2002 features development of hydro power schemes by the private sector on build—own-operate-and-transfer (BOOT) basis, and the PPIB has issued LoIs to the sponsors of seven raw-site projects.

Unfortunately, most of these sites are located in the earthquake-hit areas of the NWFP and Azad Kashmir, and hence the progress on these projects would not be achieved as scheduled or envisaged. These projects, run-of-river type, are 53-MW Harighal at Bagh, AJK, 130-MW Patrind in Mansehra district and 655-MW Suki Kinari near Kaghan.

The earthquake has caused changes in the topography of these sites that would now require complete review of the proposed sites involving hydrological characteristics and geological conditions. Feasibility studies of all these raw-site projects will therefore be delayed, for which no time frame can be indicated at this stage.

One of the key initiatives of the Power Policy is to encourage private-public partnership, which option so far has been overlooked by all the stakeholders, in particular investors, and not a single project has been suggested to be constructed under private-public partnership.

The proposed partnership can be well-suited to the establishment of the hydro power plants that involve a number of risks for development by private sector alone. Incentives and concessions available to private power projects as per the provisions of the policy will also be extended to projects to be implemented under private-public partnership.

It is now almost 10 years that Wapda planned to develop the ‘Fourth Extension Project of Tarbela Hydropower Station jointly with a selected technology partner, for which ‘inception report’ was prepared by NESPAK in collaboration with Chase T. Mann in October 1992.

Sulzer Hydro, the Swiss company had shown interest in the proposed project and a series of meetings were held by them with the officials sometime in 1994, but no progress was achieved.

The project, of 960 mw capacity, is to be located at Tarbela tunnel-4 and would cost about $325 million. The project will be completed within four years and generate1,900 million kwh electricity. Wapda has not yet made any progress on the project, and it would be in the larger national interest to revive the project for implementation under the private-public partnership.

Another mega project that can be identified for the private-public partnership is Kohala Hydropower Project, capacity 740 mw, located on Jhelum River, about 110 km from Islamabad. The estimated project cost is $1,381 million inclusive the cost of 500 kV transmission line to serve the project. Pre-feasibility study and interim report on feasibility have been prepared for this run-of-river type project, with 6-year implementation schedule. Synergics Hydro Asia were issued LOI in December 1995 to develop the project, but no substantive progress could be achieved and the allocation was cancelled.

Likewise, implementation of Wapda’s Hydropower Development Plan—Vision 2025 has run into snags for various reasons including financial constraints. The plan may be updated and identified projects may now be implemented under public-private partnership. Wapda may have just five per cent equity in the project, but its strength would be in providing technical and managerial expertise for its implementation.

To share its rich experience, Wapda may also become the operation and maintenance)(OM) contractor for the project. The investor will arrange for balance equity and also the project financing. Thus, the implementation of the project can be facilitated by combining the strengths of both the public and private sector.

There are a number of factors inhibiting private sector to invest in hydropower generation. First, preparation of feasibility studies is an expensive and time-consuming process and private investors are not expected to invest in these studies, which may finally conclude the project not being economically and/or technically feasible.

Recently, the World Bank has also pointed out that the non-availability of feasibility studies were one of key factors for low private sector investment in the development of hydro power plants in Pakistan.

Second, there are host of risks and specific issues linked to hydro power projects that create difficulties for the sponsors which include geological and hydrological risks, environmental and social issues, need for infrastructure and problems in water use. In few cases, it may be necessary to undertake even additional studies related to the project site. For these reasons, construction on not a single IPP hydro power project has commenced. A typical example can be quoted that of 74 MW capacity New Bong Escape project that was approved under Hydro Policy 1995 but has not yet achieved financial close.

The private-public partnership will result in minimizing these risks and help resolving the issues. On the other hand, it will effectively check any exploitation by the private investors aiming to gain better terms for power purchase and resultantly selling expensive electricity to the end-user. This methodology will also provide an excellent opportunity to the local engineering industry in forming joint ventures with foreign technology partners, in pursuance of the power policy.

Similar is the situation with the coal-fired power projects as our vast coal reserves remain unexploited. There is an inordinate delay in implementation on the Thar coal integrated power project, as the Chinese company Shenhua Group is reluctant to commence coal exploration work in the first phase, which was scheduled by the last year, due to various problems. The government has already spent millions of dollars in developing requisite infrastructure for the project and construction of transmission line.

Learning from the experience, this project, as well as other major projects for coal-fired power generation, could be undertaken under private-public partnership. The investment made for Thar coal-field by the government so far could become the equity shareholding of the public sector partner.

In view of the foregoing, the private-public partnership for developing power generation is required to be promoted to meet future power demands, which should be cost-effective too. The government is expected to adopt and implement consistent and integrated policies to achieve its objective of creating additional power generation capacity, lest we resort to importing electricity at a large scale.