Before anything else, let me point out the “Misreporting” of facts the video that started this thread.
The 200 MW Nishat Chunian Power plant discussed in the video was constructed under the 2002 power policy and is owned by the Nishat Group ( Mian Mohammed Mansha ) 51.07 %, Financial institutions 20% (ABL at 8.17 percent the largest), and the general public's share accounts for almost 16 percent the balance is owned by Mutual Funds and other small shareholders. The plant was constructed and initially operated by Wartsila Corporation of Helsinki, Finland. This plant burns residual fuel oil (Furnace Oil).
Furnace oil's primary use is power plants and ships. It cannot be sold through petrol pumps as stated in the video. Since it is quite dirty to handle, furnace oil is not easily sellable albeit it can also be used It can also be used in cement factories /cotton ginning & sugar mills.
The Chunian plant was built under the policy of Musharraf Gov’t 2002. This policy clearly states that plants are built entirely by the funds provided by the shareholders. There was no 80% fund provision from the GOP. The statement in the video that profit was in rupees is also a “white lie”. The following proves it:
"
over profits of power producers
Khaleeq KianiUpdated April 17, 201
Senator Khattak said it made sense for foreign investment to have dollar indexation for any exchange rate loss but it was unfortunate that investment in rupee is also allowed 15-17pc return on equity and that too based on dollar indexation. “The exchange rate, for example, had gone down from Rs104 to Rs140 over the past few months; imagine what impact it would have on capacity payments, energy payments, and the overall tariff,” he said.
https://www.dawn.com/news/1476643 "
Full text of the 2002 policy is available at:
http://www.ppib.gov.pk/PowerPolicy2002.pdf
Before 1994, all the electricity generated in Pakistan was by the state-owned companies ( WAPDA & KESC) total installed capacity was about 10,800 MW. This was not enough to satisfy even the existing demand; let alone the future requirement. Benazir PPP gov’t did not have funds to build new plants to meet the expanding energy needs of the country. 1994 power policy was formulated to induce private entrepreneurs (Local as well as foreign) to build power plants on the “Build Operate and Transfer” (BOT) basis wherein WAPDA and KESC would purchase power at the outgoing terminal, while the plant owners had to bear all the costs up to the out-going terminal.
To make the investment attractive many inducements were offered to the investor. This included the concession period of ten years where private power producer was exempted from income taxes and production taxes.
To the best of my knowledge; under the 1994 policy the investors were provided with the annual tariff over the life of the project. The annual base tariff was limited to US cents 8.3/KWH in the first ten years while for next years it was limited up-to US cents 6.5/KWH. Capacity price per month was 19 US dollars/KW which was 569.8 rupees/KW at that time. Understand that the purchase price was to be paid in Rupees for the first ten years only.
1994 Power Policy attracted about $5- billion investment and added almost 4,500 MW of generation capacity, it is without doubt also a fact that IPP tariffs were high. This is probably due to a combination of the alleged commissions paid for the approval. 2002 Power policy of Musharraf was a modification of the 1994 policy; it also postulated that plants were financed completely by the investors but provided tax breaks for additional inducement and the payment in dollar value at the time of investment.
It is always easy to criticize with hindsight and make all projects/policy decision look like a money minting machine for the corrupt industrialists decades after the event. But when a gov’t lacks state funds to invest in state-owned power plants but also wants to overcome the power shortage crisis; the only option left is to sweeten the deal with above normal incentives.
In a fast-changing world, things change quickly and the decisions that were considered appropriate at the time of implementation can look bad after a number of years. In my opinion, the main problem with IPP’s is the fuel. Most of the IPP’s burn residual fuel oil ( Furnace oil). Firstly because a fuel oil-based plant costs less to build (at that time there were no environmental constraints in Pakistan) and secondly because fuel oil was cheap at that time.
For the record in 1994 fuel oil price averaged about $100/- per ton, in 2002 it was about $146/- per ton whereas by 2013 when oil was $100/ per bbl fuel oil price had crossed $500/- per ton which made the ‘cost-plus’ price from IPP’s extremely expensive. Now while the fuel oil prices were down to about $250 during February 2020, we had nearly 50% rupees devaluation vis-à-vis US dollar hence power from IPP’s remained expensive.
Does it mean that IPP’s are looting the GOP as suggested in the video? No, but power from IPP’s is expensive because of the terms of the policy under which these were installed. It is said that the road to hell is paved with good intentions; the intention was also good at 20 years ago when the power policy was formulated because it provided a way to resolve Pakistan’s’ perpetual power shortage. However, it did not turn out the way it was supposed to, because of the changed circumstances. Pray tell me, could anyone have foreseen that oil priced would touch $10 per bbl?
GOP is, however, is correctly demanding renegotiation of the IPP contract terms.
In the recent past, GOP announced another very attractive Power policy for renewable power projects.
“
Investment Opportunities - AEDB – Pakistan”
www.aedb.org › AE Technologies › Wind
IEEFA November 22, 2019
Read More →
Pakistan planning to add 8,000MW of renewable energy to national grid https://ieefa.org/pakistan-planning-to-add-8000mw-of-renewable-energy-to-national-grid/
The terms are very attractive, therefore it is possible that after 20 years if the circumstances have drastically changed and cheaper power is available elsewhere compared the power plants installed under this policy, some smart reporter could download another video highlighting that these renewable power plants were ‘Looting Pakistan’ implying widespread corruption.
Finally, let clarify that I have no connection whatsoever, past, or present with anyone who owns or operates any IPP nor do I own any shares of any IPP. I felt need to clarify the situation as I have been aware of the background of the IPP’s and I hate when some ‘Lifafa’ journalist misrepresents the facts.
