Daharki power project
(November 16 2007): The Asian Development Bank has approved a 171-megawatt gas-fired power plant worth $200 million, to be located at Daharki, Ghotki District, in Sindh, to which gas will be supplied from the nearby Mari gasfield, says a Recorder Report. The facility, which is expected to supply base load power to the national grid, will provide additional low-cost electricity to the consumers.
The plant will not only help increase our net power generation capacity but will also promote efficient management of an otherwise idle gas resource, largely due to the proximity of the plant to the gasfield. To be developed under the country's 2002 Power Policy, the project is expected to start commercial operations in the last quarter of 2009.
It should be mentioned here that about 60 percent of Pakistan's population currently has access to electricity from the national grid, while the rest has to rely on the use of kerosene, wood and other biofuels for cooking, lighting and heating purposes. The use of wood for cooking and heating by an energy-starved population, particularly in the mountainous north, has accelerated the process of deforestation, which has in turn generated ecological problems. According to an ADB estimate, Pakistan needs to add about 2,000 megawatts every year to its power generation capacity to forestall power shortages in future, particularly in view of 11 percent growth in its average annual electricity demand.
Meanwhile, as a part of the Ghotki power project, the ADB has approved equity investment of up to $2.75 million, and a guaranteed $44 million loan for the project holding company. Subject to the approval of the authorities concerned, both the guaranteed loan and the equity investment will be contributed by the holding company as equity in Foundation Power Co, Daharki Ltd, which will be the owner of the power plant.
The proceeds from the equity investment and guaranteed loan will be partially used for designing and implementing the project. A consortium of local and international banks has provided $150 million in debt financing for the project, which has been billed as the country's first "gas only" plant to be set up under the 2002 Power Policy.
As the gas will be supplied to the power project from the nearby Mari gas-field, efforts will have to be mounted to develop additional blocks so as to ensure uninterrupted supply of the precious resource. A review undertaken by the Petroleum Ministry some months ago had painted a dismal picture of gas availability in the country, leading to the conjecture that Pakistan might not be able to attract any new gas-fired or duel-fuel IPPs in future.
Keeping in view the commercial operation timeframe of the IPPs, block gas allocation at PPIB's disposal will be 300 mmcfd in 2007-08, 240 mmcfd in 2008-09 and 152 mmcfd in 2009-10. The progressive yearly decline in gas availability will be reflective of rapid depletion of the precious resource. During the past ten years, Pakistan's power sector has emerged as the largest consumer of gas (36.4 percent), followed by fertiliser (21.6 percent), industry (19.1 percent), household (17.8 percent), commercial (2.7 percent), cement (1.1 percent) and transport sector (CNG) 1.0 percent.
This reflects the high degree of dependence the country has developed on natural gas. As we have argued in this space earlier, over-dependence on the thermal option as an easy way out of the energy crisis has, meanwhile, made power supplied by IPPs prohibitively expensive, which in turn has badly eroded our competitiveness.
Incidentally, the thermal option was essentially conceived as only a small portion of the overall energy mix, though it later developed into a full-fledged sector due to a perceived policy shift under pressure of mounting power crisis. ADB has estimated that Pakistan needs to add about 2,000 megawatts every year to its energy generation capacity to forestall future energy shortages.
But can we achieve this feat, given our lethargic pace of project implementation in water and power sector? Even the World Bank has warned us against this "go-slow" policy.
Meanwhile, the average annual increase of 11 percent in Pakistan's energy demand under pressure of a fast growth trajectory poses a huge challenge for the government, which it must meet if the country is to retain its competitive edge.
We believe that fast track, but simultaneous, implementation of water and power projects alone can stave off the crisis that is staring us in the face.
Work needs to be speeded up on all water and power projects in the country. Secondly, there should be rigorous oversight on the implementation of these projects so that these are completed, as scheduled. We have often pointed out the loss our economy has suffered due to delayed implementation of water and power projects.
The government should ensure that its implementation arm, ie, the water and power bureaucracy keeps pace with policy formulation and the speed of approval of the mega projects. The approval by ADB of the Daharki power project augurs well for our energy sector. There is, however, an urgent need to develop such projects elsewhere in the country, as a part of our overall energy strategy.
Business Recorder [Pakistan's First Financial Daily]
