The Gadani power park is not likely to take off in the near future because of issues in potential investors’ due diligence.

The power park of 6,600MW cumulative capacity, based on imported coal, was launched on July 26, 2013 for execution on a fast-track basis. But the government has failed to achieve substantial progress on the project and also in attracting potential investors.

Chinese investors were initially willing to set up six plants in the power park after having signed various MOUs, though in a non-transparent manner, as the procedure for the proposed investment had been violated.

Later on, the government decided to invite expressions of interest (EOIs) through the Private Power and Infrastructure Board (PPIB) on the basis of international competitive bidding. However, only six EOIs were received. These are from China Gezhouba Group Co, China Machinery Engineering Corp, China Huadian Engineering Co, Harbin Electric International Co China, ANC Holding UAE (Arab National Construction) and Genting Power Malaysia.

Interestingly, only Harbin Electric and Genting are involved in the core business of coal-power generation, and all others are either hydropower construction companies or engaged in trading, real estate and contracting. Excluding one, all other companies had earlier signed MOUs.

The project, envisaged to be developed primarily with Chinese technical and financial assistance, was included in the Pak-China economic corridor programme. According to recent reports, however, China has excluded it from the list of corridor projects.

A Qatari investor and royal family enterprise, Al-Mirqab Capital, had also signed an MOU, along with the Sinohydro Corporation of China as their technical partner, for the construction of two 660MW projects at the park. Interestingly, they decided to set up the project at Bin Qasim under a ‘short-term capacity addition initiative’ of the power policy, which allows investors to use any location, fuel and technology.

The PPIB has issued a letter of interest (LOI) to the joint venture, whereas Sinohydro, a hydropower construction company, has no experience of building coal-based power plants.

A detailed site selection study has not been conducted. Some of the Chinese companies have doubts about the sustainability of the projects, having concluded that Gadani might not be a suitable site for the proposed projects as there is no infrastructure development in the area.

Taking cue from the Qatar-China joint venture, the other investors are also considering Karachi as a viable site. Gadani does not have the capacity to transmit electricity from the south to load-centres in the north through the national grid, and policy arrangements for dispersal of power are still uncertain and unclear.

The first two power plants of 660MW each were to be established at the power park by the government from its own resources to instil confidence and security among prospective investors, who were to construct the remaining eight units of 660MW each. Equity was to be provided by the government, while the rest of the funding was to be arranged as foreign loan.

Accordingly, in September 2013, Genco Holding Co Ltd/Genco-IV initiated the appointment of consultants for preparation of the feasibility report, environmental study and bidding documents etc.

The consultants were also to select advanced technology on the least-cost basis. However, the government — within a few months of the power park’s launch — dropped the proposed public sector investment and decided that all 10 units will be developed by private investors.

Based on a feasibility study conducted by the Japan International Cooperation Agency (Jica), Genco was also supposed to develop two 660MW projects on Lakhra coal, but this project was also shelved in February.

On the other hand, the government was keen to seek an exemption from PPRA rules to exempt Chinese investors from procurement procedures and international competition. Indicative costs of IPP projects are in the range of $1.5m-1.74m per megawatt. This is agreeable to the government, whereas current international prices are not more than $1m/MW for supercritical boiler technology.

In March, the master plan for the entire park arrangement, costing over $570m, was launched. The Pakistan Power Park Management Co is to develop, maintain and operate common infrastructure facilities, including a jetty for handling 20m tonnes of imported coal, arrangement for 8,000 cusec water supply, waste water disposal, ash handling and disposal, cooling tower, switchyard, residential facilities and inter-connectivity with the transmission system.

The government’s policy, however, remains inconsistent, as it has been talking to Dubai and Qatari investors for construction of the jetty, while the transmission infrastructure is also being offered to the private sector for development.

In April, Germany’s Lahmeyer International was appointed as the consultant for the preparation of the master plan, along with Nespak and the UK’s Royal Haskoning-DHV, without any competitive bidding.

Despite the gross irregularities pointed out by the Central Development Working Party, the master plan was approved by the Executive Committee of the National Economic Council on July 18. The prequalification of contractors for construction of the dedicated coal terminal and allied infrastructure was issued the next day. However, there has been no further progress.

Sadly, the Pakistan Power Park Management Co is being managed by bureaucrats on an ad-hoc basis after the removal of N.A. Zuberi (PPIB’s managing director) as its chief executive; Zuberi had established the company on a fast-track basis.

The project’s feasibility and PC-I have been prepared and field investigations, soil, geo-tech and other surveys have been conducted. The levelling and grading of the land demarcated for two units is said to be completed.

Ironically, the required 5,000 acres of land has not been acquired yet.

Published in Dawn, Economic & Business, November 10th, 2014