THE accumulative cost of the 6,600MW Pakistan Power Park at Gadani, Balochistan, and its allied infrastructure is estimated to go beyond the mammoth Rs1 trillion-mark. The estimates include rough costs for basic infrastructure and the construction of 10 power projects of 660MW each.

The cost is huge and questionable under normal circumstances, but the enormity of the power crisis — affecting about 2-3pc of GDP per annum — requires out-of-the-box considerations.

Future power demand over the next 15-20 years under the government’s recently launched Vision 2025 and based on a low growth scenario is estimated to be around 42,612MW by 2019-20, and 82,457MW by 2029-30.

Based on the current questionable capacity of 15,000-20,000MW, the challenge to meet the upcoming demand is hilarious. “The situation is, therefore, alarming, and needs an immediate and efficient solution,” says the planning commission.

While the CDWP and Ecnec have approved the Gadani power project, they have declined to approve its costs amid almost a dozen serious objections and observations

But with this much investment, the government claims that the end product will be quite affordable. It believes that the Gadani power project would lower the current energy mix of 31pc oil, 50pc gas (and undependable), 10.5pc hydropower and 6.6pc coal due to the involvement of comparatively low-cost imported coal. “With the introduction of supercritical technology using imported coal, the production cost of power will be much lower than oil and gas fuel,” the commission believes.

However, the upfront tariff revised by the National Electric Power Regulatory Authority (Nepra) at the government’s desire — at above Rs10 per unit — is almost double the cost of power produced using natural gas of Rs5 per unit.

The completion of 6600MW worth of plants would provide a net capacity of 5,000MW. The projects will be set up by a series of investors, mostly from China and the Middle East, on fast-track basis.

This practically is the revival of the over 5,000MW of integrated power solution offered in the mid-90s by Gorden Wu of Hong Kong, who was wooed by then-Prime Minister Benazir Bhutto and then forced to quit by then-PM Nawaz Sharif.

The cost of constructing the infrastructure for the Gadani Power Park alone at Rs147bn has been questioned by the planning commission, which was forced to manage the project’s approval separately by the Central Development Working Party (CDWP) and then its presentation to the Executive Committee of the National Economic Council (Ecnec) in less than 24 hours, despite itself having raised serious objections and observations. The government will arrange 15pc equity and 85pc debt financing.

This will be done in the public sector through a special purpose vehicle, which will own, develop and lease out land-related facilities to private investors. About 5,700 acres of land has already been acquired, while arrangements for stacking and reclaiming live and dead storage, condenser cooling water system, substation for appropriate 500kv and 220kv interconnections for power transmission to purchasers will be separately be made by the respective investors.

The cost of 10 power units to be completed by the private parties independently or in public-private mode is roughly estimated at Rs660-700bn, while transmission lines would eat up another Rs200bn, plus the money to be arranged in public-private mode for which a fresh investment policy is to be designed.

While the CDWP and Ecnec have approved the project, they have declined to approve its costs amid almost a dozen serious objections and observations. “The cost is not based on detailed design and could not be approved unless finalised at the time of the awarding of the EPC (engineering, procurement and construction) contract through competitive bidding,” reveals the official record.

The basic information will take until October 2017 to enable the setting up of 10 coal-based power plants of 660MW each. The major scope of work will include marine works like two breakwaters each measuring 3.5km, and 1.1km-long jetties for receiving ships of sizes 40,000 DWT (dead weight tonnage) to 210,000DWT, including a floating jetty for anchoring small boats, tug boats, as well as provision of cooling water facilities and other related infrastructure.

The water and power secretary has, however, clarified that three ships of 17.9 metres depth, and not 20 metres as claimed, with maximum capacity of 100,000DWT, would be accommodated. The annual requirement of coal will be about 18m tonnes for 6600MW capacity.

The planning commission has placed on the record that the feasibility study would have to be reviewed on the basis of various parameters discussed and reservations expressed because there has been a wide gap in clarifications by the water and power secretary during the meetings and those reported in the project documents.

The planning commission is also not sure whether the annual coal requirement will be 18m tonnes or 20m tonnes. It has opposed 100pc reliance on imported coal and has demanded at least 20pc blending of local coal. It has also questioned the single-source hiring of consultants for the power park.

The planning secretary was concerned over the lack of any market survey of coal producing regions, as the quality of coal can lead to significant variation in tariff and project cost.

It was, however, pointed out that the prime minister had approved Nespak as the project consultant to save time, despite the fact that Nespak is a subordinate firm of the water and power ministry. This may raise questions about conflict of interest.

A complete value chain analysis on transmission and distribution gaps is still missing and will be required for optimum utilisation of power expected to be generated at Gadani.

On top of that, the planning commission has yet not been given the financial analysis, pricing structure and business and cost recovery models. Moreover, it is still not clear how effectively the loan will be negotiated with potential lending agencies to keep the cost of interest payments at the affordable level.

Ecnec and the CDWP have directed that a project monitoring and evaluation cell be established in the ministry of water and power, and perhaps in the planning commission, to ensure proper implementation of the project within the stipulated cost and timeline.

Published in Dawn, Economic & Business, August 18th, 2014