The prolonged power crisis will assume alarming proportions in coming years, unless the issue is addressed effectively.

Given the present status of an independent power producers (IPPs), thermal power projects, including the fast track projects, the best estimate is that additional capability of only 1,750 MW would be created to connect to the national grid by June 2010.

This expansion in the IPPs power generation will be supplemented by the completion of on-going hydroelectric power projects being constructed by the Wapda. The national shortfall is likely to reach about 5,300 MW by 2010. This possible deficit demonstrates the unrealistic targets of the overall energy plan approved in February 2005.

The government has taken short-sighted measures, disfiguring the policies in vogue. Wapda was not allowed to establish any new thermal power plant as soon as the Energy Policy 1994 was in place, obviously with the objective of attracting private sector, in particular foreign investment. During the last decade or so, not a single IPPs project was however implemented.

The country is currently witnessing a power crisis similar to the one in 1994. In response to the Power Policy 2002, a large number of national and international investors have however obtained approval for setting up thermal power plants based on various technologies

The country has to rely on thermal power generation, which has short gestation period compared to hydroelectric power plants, to reduce the gap between demand and supply on an emergent basis. As many as 16 power projects of cumulative capacity of 3,700 MW were approved as early as in 2003-2004. None of these projects could come on stream as yet, and out of these, only four projects have recently achieved financial close. Due to a variety of factors, new thermal power projects, which have swelled to 30 in number, have either been delayed by the investors or did not materialise at all. In view of the situation, the government was forced to direct the public sector utility entity to set up new thermal power plants.

Wapda’s total capacity (in public/private sector) as on June 30, 2006 is 17,350 MW, which includes its own power generation and that being purchased in bulk from the IPPs and Chashma nuclear power plant, and imports from Iran. However, the de-rated or dependable total generation capacity is estimated as 15,800 MW.

Total installed hydroelectric capacity from Wapda’s 14 power stations is about 6,493 MW, whereas thermal power generation facilities of cumulative 4,779 MW capacity exist at another 15 sites. There are 15 private sector projects (IPPs) in operation connected to Wapda with an installed capacity of 4,306 MW.

A shortfall of 1,000-1,500 MW has been projected during 2008-09 during peak load hours in Wapda which is also obliged to provide about 500-800 MW bulk electricity to the KESC on a regular basis. Consequently, Wapda was directed to set up power plants, as a short-term measure, to meet emergent additional demand.

Within a short span of time, Wapda has added 286 MW power generation capacity to the total installed capacity, in addition to adopting energy conservation measures.

Wapda signed a contract in September 2006 for rental services of seven mobile trailer-mounted GE gas turbine generators, each of 21.5 MW capacity, at Sheikhupura. The 150-MW capacity rental power plant became fully operational by May-June 2007. It is planned to increase its capacity by another 100 MW shortly. Likewise, Alstom Power has recently commissioned another power plant of 136 MW capacity, on rental basis, at Bhikki (Sheikhupura), which is ready to be online by this month.

Wapda recently issued a tender for installing another 100 MW capacity rental power facility at Guddu thermal power station. The plant at Guddu would be operational within three months. Wapda plans to add another 100 MW to the national grid by installing another rental power facility at Guddu. Another 150-MW capacity rental power facility is being created at Wapda Piranghaib (Multan) power station. These plants will use natural gas for power generation, re-allocating the quota from Wapda’s power plants.

The IPPs are expensive source of power, more so in case of Pakistan where the resourceful investors almost dictate the government policies. Though operating on a guaranteed formula, the IPPs absorb huge amount of government funds by way of charging high tariff. The statement is verified by the fact that energy payments to the IPPs by Wapda alone were recorded at Rs92.50 billion during fiscal year 2005-06.

Here, two major aspects of the IPPs power projects are discussed briefly i.e. project cost and electricity generation cost, to illustrate how the IPPs are adversely affecting the growing national economy by making huge profits, mostly transferred abroad, thus worsening the balance-of-payment position. It is shocking to learn that the foreign companies and investors have repatriated $804 million during 2006-07 alone, and thermal power plant companies have transferred $136 million as profit and dividend.

First, cost per megawatt (MW) for the IPPs projects is much higher compared to the actual cost. Let us take the case of power plants based on gas turbine/combined cycle technology. The project cost of 412-MW capacity plant set up by Rousch (Pakistan) Power Ltd in District Khanewal works out to be $1.213 million per MW and Uch Power project of 586 MW capacity has been established in district Nasirabad at a cost of $1.075 million per megawatt. Contracts for Engineering, Procurement and Construction (EPC) for both the IPPs projects were signed in 1995.

In comparison, Wapda’s Kot Addu power station, units 13 to 15 of cumulative capacity of 397 MW, for which contract was signed in May 1992, the cost per megawatt is $0.760 million, for the same technology as that of the IPPs. During the three-year gap, prices of machinery remained stable in dollars in international market.

Likewise, Wapda’s Muzaffargarh thermal power station, unit 4 of 320 MW capacity has a project cost of $ 0.522 million per megawatt. Wapda signed the contract for this project in December 1992, whereas the Hub Power Company (HUBCO) signed the contract during the same year (August 1992) for its 1,292 MW capacity plant at a cost of $1.217 million per megawatt.

Similarly, cost of AES PakGen plant at Muzaffargarh is $ 0.997 million per megawatt, its contract having signed in 1995. While all the three power plants are based on steam turbine technology, the difference in project cost indicates the level of hidden "return on investment" on the part of the IPPs.

Second, the power tariff contracted with the IPPs is too high. According to the actual payments made by Wapda during July 2005-June 2006 for the electricity purchased from the IPPs, the highest figure is that of Rs9.72 or US cents 16.20 per kwh from AES Lalpir and the lowest is Rs3.59 or cents 5.98 per kwh unit from Uch Power.

Electricity purchased from Hubco was at Rs7.15 or cents 11.91 per unit and from AES PakGen was at Rs7.59 or cents 12.65. In sharp contrast, power generation cost per kwh of Wapda’s own power plants is maximum Rs2.95 or cents 4.92 (Gas Turbine Power Station at Kotri) based on natural gas and Rs3.85 or cents 6.41 per unit for a dual-fuel (furnace oil and natural gas) from thermal power station at Jamshoro.

Thus, Wapda is absorbing high cost of power purchased from the IPPs through a mix with the low-cost hydro-electric power generation to provide electricity to its consumers at a controlled rate.

Hydro power generation cost during 2005-06 was Rs0.70 per unit or cents 1.16. Wapda purchased a total of 25,823 million kwh from the IPPs, whereas its total hydropower generation recorded was 19,264 million units during the fiscal year under review. Thus the benefit of cheap hydro power generation could not be passed on to the consumers.

The IPPs projects being set up under Power Policy 2002 are no exception in so far as the high project cost, and resultantly higher generation cost or electricity tariff, is concerned. At the time of initiation of the new thermal power projects based on reciprocating engine technology, the cost per megawatt was estimated in the range of $0.7-0.8 million. The cost of these projects however has escalated, even before the financial close, to $1.018-1.125 million per megawatt, based on same technology, with the same scope of supply and services.

Resultantly, the levelised tariff determined by Nepra for the planned projects is considered to be on the higher side comparative to other countries. Ironically, the revised proposed levelised up-front tariff of US cents 11.9713 per kwh for a period of 25 years, based on reciprocating engine technology, as announced by Nepra in September 2006, has not been acceptable to the many investors. Instead, they have asked, and are being given, higher levelised tariff, of cents 11.9998, cents 11.9955 and cents 11.9945 for various projects.

In final analysis, it will be in the best national interest, to allow Wapda to continue to construct new thermal power plants, in parallel to the projects in pipeline by the private sector.

Currently, Wapda plans to establish another three power plants, each of 200 MW capacity, at Chichoki Mallian (Sheikhupura), Nandipur (Gujranwala) and Faisalabad. Commercial and technical proposals for supply of plant machinery based on combined cycle diesel engine technology using natural gas and residual furnace oil (RFO) as base fuel ,have already been received by WAPDA from different sources. The recent reports are that the government has shelved these Wapda projects which are likely to be implemented by the private sector.

This, if true, will be suicidal, since the planned projects can come on stream quickly, the necessary infrastructure already being available at the Wapda sites. If Wapda is allowed to construct more thermal power plants, as suggested, it will also create healthy competition among machinery suppliers, largely impacting on the prevalent high prices.

In case the IPPs projects in pipeline mature-- of course there is a critical need to make accelerated progress on these projects --Wapda’s programme can be reviewed. The model has been experimented in India.