$2.4bn Kohala hydropower deal finalised

[farhan_9909]

ISLAMABAD: State-run companies of Pakistan and China have finalised a 30-year tariff at 7.9 cents per unit for $2.4 billion Kohala Hydropower Project of 1,100MW capacity in Azad Kashmir.

The National Transmission and Dispatch Company (NTDC) and China International Water and Electric Corporation (CWE) — a subsidiary of Three Gorges Dam — have reached the agreement on feasibility stage tariff.

The tariff is subject to approval by National Electric Power Regulatory Authority (Nepra) as a formality.

Know more: Hydropower potential in Azad Kashmir

The NTDC has now officially sought Nepra’s consent for the agreed tariff given the special legal status of Azad Jammu and Kashmir. The project is located on the river Jhelum downstream of Muzaffarabad and Kohala. CWE of China is required to construct the project on build, own, operate and transfer (BOOT) basis.

Under the agreement, the average tariff for first 12 years has been set at 8.9 cents per unit which would come down to 5.1 cents per unit for next 18 years. The average tariff for 30-year life of the project works out at 7.9 cents per unit.

It ensures 17 per cent return on equity on internal rate of return basis.

The tariff has been finalised on the assurance of the Chinese government that the contractor would get lending from foreign financial institutions for a period of 18 years inclusive of 72-month grace period at interest rate of six-month London Interbank Offered Rate (Libor) plus 4.75pc.

The project targeted to achieve commercial operation in 2023 and generate about 5,093 gigawatt energy a year at 53.4pc average annual plant factor. It is expected to earn carbon credit from the United Nations Framework Convention on Climate Change (UNFCCC) for clean energy development under Kyoto protocol.

The two sides had agreed to develop the project during PPP tenure on specific intervention of former President Asif Ali Zardari through a government-to-government deal bypassing public procurement rules.

The PML-N government honoured the deal and continued with full support to the Chinese investor that is also developing Neelum-Jhelum Project.

Earlier, Synergics Corporation of United States had given up the project after completing feasibility study during the tenure of General Musharraf when former Wapda chairman General Zulfiqar Ali Khan offered it a tariff of 3.3 cents per unit even though the then power policy committed 4.7 cents per unit upfront tariff to investors.

As a consequence, about a dozen international investors having letter of interest and letter of support left the country, resulting in no investment in hydropower sector for more than a decade.

A special relaxation in rules was granted by the PPP government when relevant agencies reported that process of inducting new power plants through international competitive bidding had become unviable for Pakistan because of a dent caused to investor confidence for not honouring national investment policies, global financial crunch and security and political situations.

Published in Dawn, September 11th, 2014

$2.4bn Kohala hydropower deal finalised - Pakistan - DAWN.COM

 

[Kabira]

So china will finance 3 dams, Korat, Sukki kanari and now this.

 

[Kabira]

ISLAMABAD: State-run companies of Pakistan and China have finalised a 30-year tariff at 7.9 cents per unit for $2.4 billion Kohala Hydropower Project of 1,100MW capacity in Azad Kashmir.

The National Transmission and Dispatch Company (NTDC) and China International Water and Electric Corporation (CWE) — a subsidiary of Three Gorges Dam — have reached the agreement on feasibility stage tariff.
The tariff is subject to approval by National Electric Power Regulatory Authority (Nepra) as a formality.
Know more: Hydropower potential in Azad Kashmir

The NTDC has now officially sought Nepra’s consent for the agreed tariff given the special legal status of Azad Jammu and Kashmir. The project is located on the river Jhelum downstream of Muzaffarabad and Kohala. CWE of China is required to construct the project on build, own, operate and transfer (BOOT) basis.
Under the agreement, the average tariff for first 12 years has been set at 8.9 cents per unit which would come down to 5.1 cents per unit for next 18 years. The average tariff for 30-year life of the project works out at 7.9 cents per unit.
It ensures 17 per cent return on equity on internal rate of return basis.
The tariff has been finalised on the assurance of the Chinese government that the contractor would get lending from foreign financial institutions for a period of 18 years inclusive of 72-month grace period at interest rate of six-month London Interbank Offered Rate (Libor) plus 4.75pc.
The project targeted to achieve commercial operation in 2023 and generate about 5,093 gigawatt energy a year at 53.4pc average annual plant factor. It is expected to earn carbon credit from the United Nations Framework Convention on Climate Change (UNFCCC) for clean energy development under Kyoto protocol.
The two sides had agreed to develop the project during PPP tenure on specific intervention of former President Asif Ali Zardari through a government-to-government deal bypassing public procurement rules.
The PML-N government honoured the deal and continued with full support to the Chinese investor that is also developing Neelum-Jhelum Project.
Earlier, Synergics Corporation of United States had given up the project after completing feasibility study during the tenure of General Musharraf when former Wapda chairman General Zulfiqar Ali Khan offered it a tariff of 3.3 cents per unit even though the then power policy committed 4.7 cents per unit upfront tariff to investors.
As a consequence, about a dozen international investors having letter of interest and letter of support left the country, resulting in no investment in hydropower sector for more than a decade.
A special relaxation in rules was granted by the PPP government when relevant agencies reported that process of inducting new power plants through international competitive bidding had become unviable for Pakistan because of a dent caused to investor confidence for not honouring national investment policies, global financial crunch and security and political situations.
Published in Dawn, September 11th,

 

[HariPrasad]

You will get electricity at Rs 9 a unit which is costly. However the water storage is an additional benefit. Pakistan will have to pay more if the currency is devaluates. The agreement should have been in Pakistani rupee.

 

[Kabira]

You will get electricity at Rs 9 a unit which is costly. However the water storage is an additional benefit. Pakistan will have to pay more if the currency is devaluates. The agreement should have been in Pakistani rupee.

''Under the agreement, the average tariff for first 12 years has been set at 8.9 cents per unit which would come down to 5.1 cents per unit for next 18 years.''

And after 3 decades it will owned by Federal. And this dam is run of river, water storage is not possible unlike in Mangla or Tarbela dam.

 

[wadi79]

ISLAMABAD: State-run companies of Pakistan and China have finalised a 30-year tariff at 7.9 cents per unit for $2.4 billion Kohala Hydropower Project of 1,100MW capacity in Azad Kashmir.

The National Transmission and Dispatch Company (NTDC) and China International Water and Electric Corporation (CWE) — a subsidiary of Three Gorges Dam — have reached the agreement on feasibility stage tariff.
The tariff is subject to approval by National Electric Power Regulatory Authority (Nepra) as a formality.
Know more: Hydropower potential in Azad Kashmir

The NTDC has now officially sought Nepra’s consent for the agreed tariff given the special legal status of Azad Jammu and Kashmir. The project is located on the river Jhelum downstream of Muzaffarabad and Kohala. CWE of China is required to construct the project on build, own, operate and transfer (BOOT) basis.
Under the agreement, the average tariff for first 12 years has been set at 8.9 cents per unit which would come down to 5.1 cents per unit for next 18 years. The average tariff for 30-year life of the project works out at 7.9 cents per unit.
It ensures 17 per cent return on equity on internal rate of return basis.
The tariff has been finalised on the assurance of the Chinese government that the contractor would get lending from foreign financial institutions for a period of 18 years inclusive of 72-month grace period at interest rate of six-month London Interbank Offered Rate (Libor) plus 4.75pc.
The project targeted to achieve commercial operation in 2023 and generate about 5,093 gigawatt energy a year at 53.4pc average annual plant factor. It is expected to earn carbon credit from the United Nations Framework Convention on Climate Change (UNFCCC) for clean energy development under Kyoto protocol.
The two sides had agreed to develop the project during PPP tenure on specific intervention of former President Asif Ali Zardari through a government-to-government deal bypassing public procurement rules.
The PML-N government honoured the deal and continued with full support to the Chinese investor that is also developing Neelum-Jhelum Project.
Earlier, Synergics Corporation of United States had given up the project after completing feasibility study during the tenure of General Musharraf when former Wapda chairman General Zulfiqar Ali Khan offered it a tariff of 3.3 cents per unit even though the then power policy committed 4.7 cents per unit upfront tariff to investors.
As a consequence, about a dozen international investors having letter of interest and letter of support left the country, resulting in no investment in hydropower sector for more than a decade.
A special relaxation in rules was granted by the PPP government when relevant agencies reported that process of inducting new power plants through international competitive bidding had become unviable for Pakistan because of a dent caused to investor confidence for not honouring national investment policies, global financial crunch and security and political situations.
Published in Dawn, September 11th,

8.9 cents seems fairly competitive - it translates to Rs 5.4/unit (INR), which is not bad in my view. NHPC of India has a generation cost of Rs 3/unit - but it has pre-existing plants, newer plants are more expensive. Also, post the project completion, costs won't go up as can happen with coal/gas. It doesn't emit carbon dioxide into the atmosphere, doesn't need to be imported and we know that the money being spent on energy isn't being used to fund terror. India's hydropower potential is 140,000 mw and is concentrated in a few mountainous states. Bhutan and Nepal have a hydropower potential of 23,000 mw and 40,000mw+. Going by these, I can assume that Pakistan, given the hilly terrain of some regions, should also have significant potential to generate hydropower. If someone has more detailed numbers (and source), I'll be grateful for that.

A few points to note though:
1. Hydro projects invariably get delayed (in India at least) because each project is unique due to local terrain, geology, logistics etc. Obviously, this is just a point to keep in mind, not a reason to not go ahead with the project.
2. One project in India was damaged last year during floods in Uttarakhand. Now Kashmir (where Indian dams are and Pakistani dams will be) is seeing floods. For Pakistan, any such damage to a major project like this will be a national disaster - even a small probability of such an event is unacceptable, in my view. I think from a simple risk management perspective, it may be better to split the large dam into 3-4 smaller dams. Bigger is not always better.
3. Oil rich countries such as Saudi Arabia, Iran, Qatar, Kuwait etc. don't allow foreign ownership of their energy assets. Countries which had concluded deals for oil fields in distress conditions (Venezuela, Russia) usually renegotiate them when oil prices move up, sometimes resulting in downright expropriation. However, since oil is found only in a few places, oil majors still need to cut deals with these states. Hydropower doesn't have that luxury - the country with resources has a greater need to develop it as unlike oil, it is not a commodity that can be sold globally. Hydropower to Pakistan has the potential to be a major asset - Pakistan's government should insist on some stake in the company/SPV making the project - it can be a minority stake such as 12% or 26%. Nepal is following this approach in some hydropower projects it has awarded to Indian and Chinese companies. Hydroprojects done in Bhutan (with Indian aid) are fully owned by the government. Full foreign ownership of such an asset by a foreign firm can lead to questions being raised later - if these issues arise during project construction, it can delay completion. If they happen later, it can inhibit further investment in Pakistan. So it may be a good idea to set up a state owned company which will own a stake in these projects.

 

[Chak Bamu]

The tariff is very high. No doubt about it. This is the cost of being a nation led by donkeys. Had the contract been signed in Musharraf years, we would have had at least 2500 MW in our system (1000 MW from Kohala, and 1500 MW thermal subsidised by cheaper Kohala hydroelectric power). Today nobody is interested in investing in Pakistan, and we are helpless because of our own mistakes. I do not know if I should thank Chinese for this investment or cry at the high tariff? Could Sharifs not negotiate a better deal?

 

[HariPrasad]

The tariff is very high. No doubt about it. This is the cost of being a nation led by donkeys. Had the contract been signed in Musharraf years, we would have had at least 2500 MW in our system (1000 MW from Kohala, and 1500 MW thermal subsidised by cheaper Kohala hydroelectric power). Today nobody is interested in investing in Pakistan, and we are helpless because of our own mistakes. I do not know if I should thank Chinese for this investment or cry at the high tariff? Could Sharifs not negotiate a better deal?

Best option for Pakistan is to purchase Electricity form Gujarat. You can definitely get it at cost bellow the agreement you signed.

 

[Kabira]

The tariff is very high. No doubt about it. This is the cost of being a nation led by donkeys. Had the contract been signed in Musharraf years, we would have had at least 2500 MW in our system (1000 MW from Kohala, and 1500 MW thermal subsidised by cheaper Kohala hydroelectric power). Today nobody is interested in investing in Pakistan, and we are helpless because of our own mistakes. I do not know if I should thank Chinese for this investment or cry at the high tariff? Could Sharifs not negotiate a better deal?

Seem like this dam being in Azad kashmir may have played role. I wonder if other 2 dams like Korat and Sukki Kinari which China will finance have similar deal? Anyway after 12 years it will be 5.1 cent and after 3 decades fully owned by Federal Gov right?

 

[Chak Bamu]

Best option for Pakistan is to purchase Electricity form Gujarat. You can definitely get it at cost bellow the agreement you signed.

That is not the point. It is about investment in infrastructure.

 

[Kabira]

8.9 cents seems fairly competitive - it translates to Rs 5.4/unit (INR), which is not bad in my view. NHPC of India has a generation cost of Rs 3/unit - but it has pre-existing plants, newer plants are more expensive. Also, post the project completion, costs won't go up as can happen with coal/gas. It doesn't emit carbon dioxide into the atmosphere, doesn't need to be imported and we know that the money being spent on energy isn't being used to fund terror. India's hydropower potential is 140,000 mw and is concentrated in a few mountainous states. Bhutan and Nepal have a hydropower potential of 23,000 mw and 40,000mw+. Going by these, I can assume that Pakistan, given the hilly terrain of some regions, should also have significant potential to generate hydropower. If someone has more detailed numbers (and source), I'll be grateful for that.

A few points to note though:
1. Hydro projects invariably get delayed (in India at least) because each project is unique due to local terrain, geology, logistics etc. Obviously, this is just a point to keep in mind, not a reason to not go ahead with the project.
2. One project in India was damaged last year during floods in Uttarakhand. Now Kashmir (where Indian dams are and Pakistani dams will be) is seeing floods. For Pakistan, any such damage to a major project like this will be a national disaster - even a small probability of such an event is unacceptable, in my view. I think from a simple risk management perspective, it may be better to split the large dam into 3-4 smaller dams. Bigger is not always better.
3. Oil rich countries such as Saudi Arabia, Iran, Qatar, Kuwait etc. don't allow foreign ownership of their energy assets. Countries which had concluded deals for oil fields in distress conditions (Venezuela, Russia) usually renegotiate them when oil prices move up, sometimes resulting in downright expropriation. However, since oil is found only in a few places, oil majors still need to cut deals with these states. Hydropower doesn't have that luxury - the country with resources has a greater need to develop it as unlike oil, it is not a commodity that can be sold globally. Hydropower to Pakistan has the potential to be a major asset - Pakistan's government should insist on some stake in the company/SPV making the project - it can be a minority stake such as 12% or 26%. Nepal is following this approach in some hydropower projects it has awarded to Indian and Chinese companies. Hydroprojects done in Bhutan (with Indian aid) are fully owned by the government. Full foreign ownership of such an asset by a foreign firm can lead to questions being raised later - if these issues arise during project construction, it can delay completion. If they happen later, it can inhibit further investment in Pakistan. So it may be a good idea to set up a state owned company which will own a stake in these projects.

Pakistan hydro power potential is 100,000MW.

 

[Chak Bamu]

Seem like this dam being in Azad kashmir may have played role. I wonder if other 2 dams like Korat and Sukki Kinari which China will finance have similar deal? Anyway after 12 years it will be 5.1 cent and after 3 decades fully owned by Federal Gov right?

PM of AJK had demanded higher tariff for future projects. So, that could have been a factor, but still.....

 

[Kabira]

Best option for Pakistan is to purchase Electricity form Gujarat. You can definitely get it at cost bellow the agreement you signed.

There is no comparison even if initially tariff is higher then expected for hydro power. Anyway Pakistan will import electricity from Tajikistan at 5 cent per unit.

CASA-1000 project: Pakistan, Tajikistan agree on electricity tariff – The Express Tribune

 

[aks18]

so on the down stream of neelum jehlum hydro another project good to see our planning commission getting importance of these rivers ... alone if we utilized indus river we can fulfill every things frm it for pakistan but sadly we are politically divided into different elements who appose the dams over indus like kala bagh

 

[Jazzbot]

Looks costly to me. Even if it is 7.9 cents per unit, it will still mean 7.9 Rs per unit, which is expansive.