Power crisis to continue in 2008 - I
ENGINEER HUSSAIN AHMAD SIDDIQUI
ARTICLE (January 29 2008): The current power demand-supply gap is playing havoc with the national economy and making lives of the people miserable. Sadly, the year 2008 does not promise any respite either to the nation-wide large-scale loadshedding.
Today, total installed capacity for power generation is 20,456 MW, whereas de-rated/dependable power generation works out to be nearly 18,000 MW. In actual, firm power supply is 16,000 MW in summer and 13,000 MW in winter after taking into account huge thefts, line losses and reduced gas supply and lean period for hydel power generation in winter.
In relation, total peak demand at present is 17,800 MW at national level, based on load demand of June 2007, which is projected to be around 19,000 MW during 2008, at 8% annual growth rate.
Thus there is likely to be shortage of power to the extent of 3,000 MW in the year 2008 at peak load, under the present conditions. Official demand-supply projections however suggest lower power deficit during the year 2008. In fact, there is no reliable system for forecast at national level due to various factors.
For instance, industrial, domestic and commercial consumer demand statistics are not available, various assumptions taken at different times do not hold good, annual growth rate is erratic and deceptive, and projections are not well co-ordinated with provinces and concerned agencies.
Demonstrating its commitment to balance the power demand and supply position, the government has been employing all its resources to meet the projected electricity shortages in the country. Necessary policy measures have been in place for the last many years to ensure reliable and sustainable addition to power generation capacity.
In response to the Power Policy 2002, as many as 64 power projects, of the cumulative capacity of over 17,100 MW, are scheduled to be commissioned by the private sector during 2008-2016. Furthermore, the Water and Power Development Authority (WAPDA)/Pakistan Electric Power Company (PEPCO) has been allowed to establish a number of thermal power plants, of a total capacity of about 1,000 MW, in addition to on-going hydel power projects.
Likewise, wind-farm power generation units of at least 700 MW capacity will be operational within a few years. Karachi Electric Supply Company Ltd (KESC) has also announced its plan to add 780-MW electricity to its existing system by 2010. Another nuclear power plant of 325 MW capacity is under construction.
To meet the energy shortage on immediate basis, the government has adopted various measures. Efforts have been made to expedite commencement of the new projects by the Independent Power Producers (IPPs) without further delay, and simultaneously, WAPDA has been asked to establish fast-track thermal power plants on rental basis. Fast track projects have also been allowed in private sector, circumventing standard procedures and requirements as per power policy in vogue.
These measures however have failed to bring in any new power project on stream in time, in particular in the private sector. This situation is generally perceived to be the result of, first, greed on the part of investors to gain optimum financial benefits out of power crisis that virtually has been created by themselves, and second, the flawed and lopsided policies of the government that also remained inconsistent.
Against the projected additional demand, the IPPs alone of cumulative capacity of 3,000 MW were scheduled to come on stream by the last quarter of 2007/first quarter of 2008. But the investors continued to demand more and more benefits and concessions, through revisions in the Power Policy as well as amendments in the security package documents, time and again. The government has been pressurised to oblige the investors. Thus the Power Policy 2002 has been re-framed and reviewed so much that it has become nearly redundant in its original form.
Yet, there is no end to seeking additional benefits and concessions over and above those granted by the government already. A few of the investors have now asked for review of tariff determination, on one pretext or the other, after accepting up-front tariff announced or tariff determined for the project earlier by the National Electric Power Regulatory Authority (NEPRA). Resultantly, the commencement of project construction delayed in each case and its commercial operation date (COD) was revised a number of times.
Under these conditions, only two power plants of cumulative capacity of 390 MW will be operational in 2008 and that too by the last quarter. Orient Power 225-MW capacity at Balloki, Punjab using natural gas is the first project being implemented under the Power Policy 2002.
The Letter of Interest (LOI) for the project was issued on 12th February 2004, but financial close could be achieved on 16th December 2006 and the plant is now scheduled to generate and sell electricity by December 2008. AttockGen Power of 165 MW capacity, the oil-based project for which the LOI was issued on 21st December 2004, has achieved financial close on 25th September 2007. The project that has the advantage of utilising the existing infrastructure of the Attock Refinery Ltd at Morgah, Rawalpindi is scheduled for operations by October 2008.
Being disappointed with the pace of work on the IPP projects, the government decided, on 2nd December 2005, to involve the leading business houses for processing of fast track projects based on oil, which were required to be commissioned by June 2008.
The fast track projects were to be approved through relaxed processing procedures, which did not require issuance of the LOI and conducting of a feasibility study. The package also offered a tariff with built-in incentives in capacity purchase price for such projects.
Responding to the initiative, many leading business-houses had agreed to establish green-field power plants of a total capacity of 1,600 MW, which were originally scheduled to meet the target COD that was the essence of the scheme. A number of amendments in the Policy were thus made by the ECC of the Cabinet, extending additional fiscal and financial benefits to the prospective investors.
Nonetheless, these time-bound projects were not implemented and projected CODs were revised with passage of every quarter, presenting a new set of incentives and tariff-related indexations demanded by the investors. In final analysis, only three power projects could reach advanced stage. These projects are Atlas Group's 225-MW project at Sheikhupura, Nishat Power 200-MW near Lahore and Nishat Chunian 200-MW at Lahore, now expected to achieve the COD during December 2009-June 2010.
The levelised tariff is as high as US Cents 12.1253 per kWh. The other leading business-houses have finally backed out, wasting more than one year and leaving the nation in lurch. Likewise, the government had asked the existing IPPs to create, by June 2008, an aggregate capacity expansion of up to 775 MW through competitive bidding. These fast track projects based on oil as fuel were to be operational by October 2008 as per the decision of the ECC of the Cabinet. The response was poor.
Only three existing IPPs namely Kohinoor Energy, Japan Power Generation and Tapal Energy had submitted their proposals for cumulative capacity expansion of 400 MW. Even these proposals did not materialise though the government accepted levelised tariff as high as Cents 12.29 per unit. As of today, none of these fast track capacity expansion projects is in the pipeline.
Thus the strategic decision of the government to create fast track capacity addition/expansion could not pay dividend. Not being certain about sponsors' continued seriousness to put up the power projects within the agreed timeframe, the government also allowed, as a standby arrangement, many fast-track projects based on second-hand or refurbished equipment. These include 179-MW Gulf Power at Sahuwala, Tecno Engineering/Taiyo Hills 127 MW at Lahore and Glimmer/Eastern Power at Pasrur of 150 MW capacity.
Business Recorder [Pakistan's First Financial Daily]
Power crisis to continue in 2008 - II
ARTICLE (January 30 2008): The regulatory authority, NEPRA, has already determined electricity tariff for these projects. These oil-based projects on diesel-engine technology were to achieve the COD by October 2008. The sponsors could implement none of these projects in time and now these are re-scheduled for commissioning during March-December 2010, if at all these see light of the day.
The other sponsors, showing non-serious attitude, have either shelved their projects at a belated stage or transformed those from fast track to conventional projects under the Policy framework.
Similar has been the situation with the windfarm power generation. A number of LOIs have been issued by the government for establishing wind farms of 50 MW each in Sindh for the last many years, but not a single project has taken off. Meanwhile, the investors managed the formulation and announcement of an attractive Renewable Energy Policy, almost dictating their own terms and conditions. The up-front tariff of Cents 9.5 per kWh levelised over the term of project was offered in April 2006.
The prospective investors however were not satisfied, asked for higher tariff and were finally granted Cents 10.2852 and Cents 10.4754 per unit. Due to inordinate delay in execution of these projects, only 150 MW is expected to be added by 2008 to the present installed capacity. The projects in advanced stage are New Park Energy, Green Power and Win-Power having recently obtained generation license from NEPRA.
The plan to augment power generation capacity through the public sector is being pursued by the government in parallel. WAPDA's two thermal power plants acquired on rental basis are already operational. These plants, which use natural gas out of allocations available with the WAPDA, include a 150-MW rental plant located at Lahore and another 136-MW capacity plant at Bhikki that was inaugurated in December 2007.
Another 100-MW power plant is being installed on lease/rental basis at Guddu power station, which will be operational in last quarter of 2008. WAPDA is currently being restructured, with the ultimate goal of privatising all its thermal power stations, and its Power Wing and corporate entities are now placed under the management of PEPCO. This was not the opportune time for the restructuring that has created various administrative, human resource and financial problems both for WAPDA and PEPCO, and the situation is likely to affect operations and efficiency of the two organisations for sometime, hampering the progress of on-going projects. Nonetheless, PEPCO has taken measures to improve power supply position.
PEPCO plans to implement rehabilitation of its existing thermal power stations on fast track basis, aiming to recover lost output estimated to be around 300 MW. Instructions have already been given to the thermal power generation companies (GENCOs) to undertake immediate repairs at Guddu and Jamshoro power stations and to improve plant efficiency. It has also been decided to replace the old power plant at Guddu with the advanced and efficient power generation units of 800 MW capacity.
Malakand-III hydropower project of 81 MW capacity constructed by the Government of the NWFP has been commissioned and will generate power by January 2008. However, WAPDA's on-going hydel power projects, namely Duber Khwar, Allai Khwar and Khan Khwar, of an aggregate capacity of 323 MW, have run into snags, once again, as the financing agency (Abu Dhabi Fund for Development) has cancelled the $272 million agreement, and thus completion would be further delayed.
Only the 72-MW capacity Khan Khwar project is likely to be completed by October 2008. Mangla Dam Raising project has also been delayed due to contractor's inefficiency and mismanagement, and is now due for completion by June 2008. The project is expected to add about 180 MW power generation to the installed capacity.
WAPDA's coal-fired Lakhra power plant of total 150 MW installed capacity, which was giving only 23 MW output till recently, has been leased out to a private company. The private company is committed to rehabilitate and revamp the power station on fast track and to generate 100 MW of electricity by September 2008, thereby increasing power generation to full installed capacity in the following year.
Import of electricity from Iran will continue to the level of 1,000 MW, while PEPCO system will shortly have an additional 100 MW in its network through purchase from small power producers like textile mills. Furthermore, PEPCO has launched an effective public awareness campaign and enforcement of energy conservation measures. These demand side measures are expected to save more than 500 MW.
Strengthening and widening of the electricity transmission and distribution systems remain the sole responsibility of WAPDA/PEPCO (excluding KESC system). Accordingly, major revamping, modernisation and expansion of PEPCO's existing transmission and distribution network is currently being undertaken, ensuring dispersal of additional power generated in near future. Asian Development Bank has extended a loan amounting to US $1,450 million for the purpose, to be utilised for transmission/distribution schemes undertaken during the period 2007-2016.
The power scenario of Karachi is complex and different from the rest of the country. The demand for electricity in the metropolis is growing at a fast pace but there seems to be no respite to the residents, businessmen and industrialists in near future due to a number of factors. First, KESC's transmission and distribution system is not capable of taking any additional load, and not much has been done so far to invest in rehabilitating and strengthening the network.
Second, KESC has failed to achieve major physical progress on implementation of its generation capacity expansion plan announced after the take-over. Currently, work on capacity expansion of Korangi thermal power station is in progress and additional 220 MW electricity is expected to be generated by March 2008.
The government has allocated, in June 2007, additional 21-mmcfd gas for 100 MW power generation through rental power plant. However, KESC has not yet firmed up arrangements for establishing power plant on rental basis that is the immediate solution to create additional capacity. To date, WAPDA remains obliged to "export" 700 MW bulk electricity to the KESC system on a regular basis.
To summarise, optimally an additional capability of around 2,000 MW will be available to the national grid, progressively, during January-December 2008 that would partially offset the growing demand for electricity during the year. The redeeming factor is that though the measures would not bring in significant improvement in the power system in 2008 the power crisis is not likely to worsen either.
As for the future, four IPPs of cumulative capacity of 775 MW, all gas-fuelled, are scheduled to go into operation, if everything goes well, during July-December 2009. These are Sapphire Group's 225-MW project at Muridke (Punjab) for which construction has begun, Fauji Foundation's 175-MW on-going project at Mari (Sindh), Halmore's 225-MW project at Bhikki (Punjab) and Engro Group's 150-MW project at Daharki (Sindh). The dispersal of power from all these projects was originally scheduled by 2007-08, whereas financial close for the last two projects is still awaited. A few of the so-called fast-track projects may also come up.
WAPDA's on-going hydel power projects are re-scheduled for completion by 2009. PEPCO will set up two thermal power stations at Nandipur (Gujranwala) and Chichoki Mallian (Sheikhupura), each of 400-500 MW capacity, which are scheduled to go into production by 2009. Originally, the Chichoki Mallian project was scheduled to go into operation in 2008 for which WAPDA had finalised contract sometime in February 2007.
The government then decided to transfer the project to a selected foreign investor who has abandoned the project recently and it is now being reverted to the public sector for implementation. This week PEPCO has issued Letter of Acceptance to the Chinese bidders for award of contract for Chichoki Mallian project.
Business Recorder [Pakistan's First Financial Daily]
