ISLAMABAD: Amid support for Khyber Pakhtunkhwa-like Net Hydropower Profit (NHP) for Gilgit-Baltistan, Azad Jammu & Kashmir and the tribal region, a new government policy seeks expeditious development of mega hydropower projects of about 24,200MW through public-private partnership with mostly Chinese companies.

The draft Policy for Development of Mega Hydel Power Projects was finalised on Tuesday at a consultative meeting attended by representatives of all the four provinces, AJK, GB, the Federally Administered Tribal Areas (Fata), Water and Power Development Authority (Wapda) and the federal ministries of water and power, finance, planning.

Wapda Chairman Zafar Mahmood told journalists after the meeting that the policy which took more than a year and half to be completed would now be forwarded to the Economic Coordination Committee (ECC) of the cabinet and the Council of Common Interests (CCI) for approval.

He said he supported KP-like NHP payments to GB, AJK and Fata and so was the federal government. Under a unique arrangement, KP is entitled to Rs19 billion annual NHP for power generation from Tarbela dam. He said all the provinces endorsed the draft policy for submission to the ECC and CCI for approval.

According to Mr Mahmood, the new initiative is based on past experience where private investors got fed up with time consuming preparatory works like feasibility studies, engineering design and other legal and technical formalities like tariff approvals and competitive bidding. The result was capacity addition of over 7423MW of thermal power plants by the private sector between 1995 and 2015 when only 84MW of hydropower could be harnessed because it was difficult for the private sector to execute hydro projects and the Wapda did not have financial resources and even though “this is clean energy without any input cost”.

On top of that, multilateral lenders had their own policies and priorities for financing development projects ‘in different regions’ and sensitivity towards dislocation of and disturbance to people, loss of heritage and environmental issues.

He said a total of seven mega projects of 24,200MW were being indicated for development on the Indus Cascade through the new initiative and more projects would follow. The new policy offered two options for private sector participation. Wapda would complete preliminary works and get feasibility stage upfront tariff from the regulator at attractive commercial terms before handing over the project to private investors through competitive bidding.

The competitive bidding, however, would not be based on lowest costs and tariffs because experiences suggest the companies engaged in cut throat competitions to secure projects at 20-25 per cent lower costs than engineering estimates and subsequently delayed projects or created problems for cost escalations.

Therefore, under one option Wapda will complete detailed engineering design through consulting firms of international repute, carry out environment impact assessment (EIA), acquire land and ensure resettlement of to be affected persons, construct roads and infrastructure, put in place power evacuation system and get Nepra approval on upfront tariff and engage international panel of experts (IPE) before offering the project for competitive bidding.

The IPE would shortlist bidders on the basis of technical and financial strength and bidders would be asked to compete on the basis of early completion of the project against a bank guarantee. Wapda would finance IPE for supervision of construction. The actual costs would form basis of shareholding between Wapda and the investor.

Under this option, major projects like Dasu 5400MW, Diamer-Bhasha 4500MW and Bunji 7100MW have been selected and would be offered to private sector in the first stage. For this, the construction of main dam of the Diamer-Bhasha and land acquisition would be completed by Wapda and its power generation would be offered for private-public partnership.

The second option would be applied to projects like 4000MW Thakot and 2400MW Pattan where detailed engineering design were not ready as yet. The preference for bidder would be on the basis of early project completion and maximum energy output. Even in this case, the government or Wapda would complete the EIA, land acquisition and resettlement, development roads and power evacuation system before offering the project for bidding.

The successful bidder would be selected by IPE on the basis of technical experience and financial strength against a bank guarantee to ensure committed performance targets.

In both cases, the chairman explained that the investor would have the incentive to complete the project before the deadline and secure additional revenue due to early power sale and get guaranteed additional years of operations with higher return on equity while providing savings of interest during construction and cost savings besides getting greater energy output earlier to the government and the consumers.

He explained that provinces and other territories demanded the ownership of project transferred to the government where the project would be located on completion of project life of 30 years. In new policy, exemptions in duties and taxes during construction phase, income tax holiday for initial five years of operation will be offered to private investors.

Published in Dawn, May 11th, 2016

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