September 04, 2006	Monday	Sha'aban 10, 1427

The non-addition to power infrastructure in the late 1980s and early 1900s resulted in an acute shortage of electricity. The solution was sought in the World Bank idea of independent power producers (IPPs). Consequently, as many as 14 such ventures were contracted to supply power to Wapda and the KESC.

HUBCO had already joined into the fray on the basis of a policy letter of 1985. But the power purchase agreements (PPAs) with HUBCO and the IPPs suffered from faulty assessment; the costs were over-invoiced at $1.2 million per MW, when in reality the world prices of such plants were in the vicinity of $0.6 million per MW or so.

Power policy: Besides, the power policy of 1994 also did not specify or fix the locations in consultation with the utilities and nor was any specific technology considered as appropriate to be inducted by the IPPs. This led to the most inappropriate tariffs.

Such an increase in power rates became unaffordable not just for the general public but also for the industry and agriculture. Incidentally, Wapda alone had to pay a colossal sum of Rs810 billion as HUBCO/IPPs payments during the last 10 years for only 202 billion electricity units.

This can be further gauged from the fact that HUBCO/IPP cost per unit on the 10-year average has been Rs4.009 and in 2005-06 it was Rs4.83 per unit and that too, because these plants had supplied power at a phenomenal load factor of up to 73 per cent; otherwise, the cost per unit could have gone up to Rs6:50 against the average sale price of Rs3.102 per unit for Wapda during this period.

However, this did give us 5,900 MW of dependable power. The offshoot was a single point agenda as to how the surpluses could be used to neutralise the effect of huge capacity payments being made to the IPPs and HUBCO without actual use of power.

Furthermore, availability of power at affordable rates also became a national issue. But as there were no emergency in sight, efforts to arrange for generation beyond 2008 slackened. This line of thinking led to placing coal power and hydro generation projects in the private sector, to the back burner. This has been most damaging, specially when the public sector was barred from entering into thermal power, while major hydro generation projects had been hit by politics.

Crunch: In the summer of 2005, the country was hit by power crunch and as a first step, PPIB contacted the IPPs to add on to their capacities. Because of the already available infrastructure, the private generators could arrange quickly for extra–generation at affordable prices. These producers sought much more incentives than were provided in the earlier agreements. The hope that these entities would help in overcoming the power crises was flawed. Private investors operate when they are assured a generous profit.

Except a very stringent regulatory regime which ensures the highest level of diligence ensuring the best of the tariffs, no government will actively be left with any breathing space after an IPP onslaught. After the brush-off from the existing private producers, there were hopes that PPIB would be able to deliver through induction of new IPPs. However, the Board is bogged down and has yet to float international competitive bidding (ICB).

Once the prime minister was told that the power crises was actually upon us and that something will have to be done immediately to counter the shortage at the quickest of pace, an edict that power at all costs was required seems to have been issued.

This negates the earlier claim that the government would arrange for power at affordable rates. The power policy of 1994 has been reinstated. This new edict has been triggered due to the ongoing brown-outs in the upper parts of the country and the complete collapse of the KESC. That no one has been held responsible is an indicator of bad planning and delays. Sometimes back, the government allowed Wapda to develop three thermal generating stations in the public sector. However, this sanction was most short-lived and within 15 days, it was decided to open-up these sites to the private sector through international competitive bidding. Unfortunately, PPIB has not been able to float the tenders till date, but four local industrial groups have been issued LOIs for setting up power plants at the same locations.

These local players are with NEPRA for determination of the eventual tariffs. The data made available through the notices for hearings reveals that the front loaded tariff (for the first 10 years of the PPA) in view of the listed and quoted price per MW of capacity, the applicable IRR on equity, the lending rate for the rest of the outlays, efficiency of the proposed plant and the O&M costs in conjuration with the present RFO price of Rs27,000 per ton would be around 14 cents or so. This may increase because of a possible hike in crude prices.

Alternate energy: During the last three years, alternate energy is being propagated as the solution to power crisis. Alternate Energy Development Board (AEDB) has pursuaded one party which plans to set up a 50 MW wind farm at Gharo (Sindh). NEPRA has since approved a front loaded tariff of 12 cents per unit of wind power which converts into a levelised figure of 9.7 cents per unit for the life of the PPA.

Experts recommend that no such project should be approved without proven technology being used. For any viable project, the offered model must be operated in the proposed area by the investor and only after completion of required running hours and confirmation of viability, firm order can be placed for full plant/wind farm. The cost of the experimental station would thereafter be paid to the successful investor. They further opine that keeping in view the $1.2 million cost of wind power/MW, the affordable tariff should be in the range of 6-7 cents / KWhr only. The PPIB may not be able to deliver soon.

Thermal power plant: Once again Wapda has been asked to take up a 450 MW combined cycle thermal power plant at Chichoki Malian. Within a week of receiving the sanction Wapda has floated an international tender. With the deepening of the power crisis, about 450-500 MW of rental power is also known to be underway at three of the existing thermal power station sites of Wapda which can be made operational quickly. But whatever is being contemplated cannot lead to production of cheap power while availability of power at affordable rates has become a requirement both, for the industry and the agriculture.

Some experts consider power from indigenous coal as solution to the price problems which lead us to the Thar and Lakra Coal reserves. Though the use of Thar coal (estimated at 175 billion tons) and its importance for power generation has been under-scored. But nothing has come out of it.

The situation becomes more grim when we see that the Chinese State Company interested in setting up coal fired power station in Sindh could not be offered more than 5.9 cent per unit, while those in the process of setting of the wind farm at Gharo (Sindh) have been allowed a hefty tariff of 12 cent per unit and some of the IPPs in the pipe line are being awarded a tariff upwards of 14 cents per unit.

As a quick fix solution, generation of electricity from indigenous coal should be handed over to Wapda. The utility has the experience of setting up 150 MW FBC Lakhra Power House. Wapda can easily and very quickly set up a plant of capacity of 300 MW at Lakhra (not withstanding the proposed lease-off to the Associated Group) and also initiate the process of setting up a bigger unit of up to 1000 MW from Thar Coal.

Actually, the cost of power per unit should be made the criteria to accept or reject any offer. Similarly, the utilities should be allowed to fix the location and select the technology in case of IPPs.