ISLAMABAD, Aug 11: The government is unlikely to accept private sector offers to install thermal power projects of 1,500MW on a fast-track basis because of capacity constraints, higher tariffs and resultant economic unaffordability.
It may accept bids for a maximum of 1,000MW from independent power producers (IPPs) for setting up thermal plants in Wapda’s national grid system.
According to informed sources, a committee comprising technical experts of National Electric Power Regulatory Authority (Nepra), Pakistan Electric Power Company, Private Power and Infrastructure Board (PPIB) and Ministry of Finance has completed evaluation of the technical and financial bids and it will submit its recommendations to the government this week.
The sources said there was a strong feeling among relevant institutions that hydel-thermal power generation mix had already declined from 30:70 ratio to 25-75 and hence the government should be cautious in accepting fresh offers for additional thermal power capacity because most of the new projects would be charging a tariff of over 18 US cents per unit (kWh).
They feel that Pepco’s average cost of generation from thermal plants (including IPPs and Wapda units) has already gone beyond 22 cents per unit that was partially offset by 6,500MW of cheap hydropower generation and further capacity addition in thermal sector would be affordable neither for business and industry nor for the economy as a whole. Therefore, some official stakeholders have argued that the government should accept offers only for 1,000MW of thermal power, instead of the original plan of 1,500MW.
The government had invited offers for 1,500MW – 1,000MW fast-track projects and 500MW of rental power. The private sector initially came up with offers of more than 3,600MW, but eventually nine bids were submitted, 1500MW for normal IPPs and 678 for rental power. Their tariffs ranged between 12 and 19 US cents per unit, but detailed evaluation showed some hidden charges, translating the final tariff, in some cases, exceeding 22 cents per unit.
The committee felt that it was difficult at this stage to accept power projects based on liquefied petroleum gas (LPG) because of lack of technical know-how in the public sector to determine LPG’s base price. Moreover, the bids had been invited for capacity addition in Pepco’s transmission and distribution system while rental projects and LPG-based projects could not be set up in areas where Pepco has the transmission capacity to lift this additional load.
Additionally, Pepco is reluctant to pick up additional power from Karachi because of capacity constraints and extra system losses because of long transmission lines.
Likewise, the government believed that many furnace oil- and diesel-based projects initiated in the last couple of years would start coming into production later this year with tariff going beyond 19 cents per unit. Already, Pepco is not utilising its full thermal generating capacity because of fuel costs. More thermal projects would increase the overall tariff, reduce Pepco’s paying capacity and make it unaffordable for the economy and consumers.
With its cumulative cash shortfalls having gone beyond Rs150 billion, Wapda has been struggling to make payments for fuel supplies and, as a result, a huge pile-up of inter-corporate circular debt has engulfed fuel suppliers like Pakistan State Oil and gas utilities. Non-payment or underpayment of dues to independent power producers has also been resulting in less than contracted power supplies, leading to much higher capacity payments to the IPPs even without its full utilisation.
The major problem with thermal projects is that fuel and inflation are pass-through items, making it unaffordable with rise in international oil market. That means the new thermal projects which are already in the pipeline would tilt the hydel-thermal ratio heavily in favour of expensive thermal sector to the extent of 15:85. That would mean the consumer tariff would not be less than Rs20 compared with the current rate of Rs5-6 per unit. There would be electricity but nobody will be able to use it -- neither the industry and business nor the household and agriculture sectors.