Rip Off? U decide

[muse]

Politicians are directly responsible for the power crisis - they have refused payment to IPP and are now claiming that the solution rests with RPP - you decide if you want to be taken for another ride:



Capital suggestion



Cost of rental power

Sunday, August 09, 2009
Dr Farrukh Saleem

The cost of electricity from Rental Power Projects (RPPs) stands at Rs14.65 per kilowatt hour. Compare this with Rs11.77 per kilowatt hour from new Independent Power Producers (IPPs) and Rs11.26 per kilowatt hour from existing IPPs. The bottom line is that the RPPs are 24 per cent more expensive than the new IPPs and 30 per cent more expensive than the existing IPPs.

Yes, Pakistan is short on power. But consider this: one, WAPDA's thermal power stations have a capacity of 3,580 MW and in June 2009 these power stations produced 2,715 MW -- a 25 per cent shortfall. Two, the existing IPPs have a net dependable capacity of 5,509 MW and in June 2009 these IPPs produced 4,726 MW -- a 15 per cent shortfall. Three, the two existing rental power projects have a capacity of 264 MW and in June 2009 they produced 198 MW -- a shortfall of 25 per cent. That's an accumulated shortfall of 1,714 MW -- a shortfall that can immediately be turned into power.

From among the power producers in our private sector, the cheapest electricity is from the existing IPPs and then come the new IPPs. Logically, the top priority ought to be the full utilisation of our existing IPP potential followed by the new IPPs and then the massive captive power potential that exists at our sugar mills and textile mills. Member-mills of the Pakistan Sugar Mills Association have a potential generating capacity of 2,200 MW and that too using bagasse as fuel (bagasse is the leftover residue after sugarcane stalks are crushed and juice extracted from them). Talking of bagasse, the hidden electricity potential at our sugar mills may indeed be the cheapest source of power.

Just how much is rental power going to cost Pakistan? If we were to bring in 2,200 MW of rental power capacity then our annual payment to these rental power projects will be $3.1 billion (annual fuel payment of $2.3 billion and an annual capacity payment of $862 million). If we, on the other hand, bring in 2,200 MW of new IPPs then our annual payment to these new IPPs will be $2.5 billion (an annual fuel payment of $1.9 billion and an annual capacity payment of $646 million). In effect, the difference stands at a colossal $626 million a year for a total of $3.1 billion for the five-year contract period with most rental power projects.

Rental power is a $3.1 billion question. Amazingly, $3.1 billion is what we begged -- and finally got -- from the International Monetary Fund (IMF). Were we begging the IMF to pay our rental power producers? The Asian Development Bank (ADB) claims rental power is 'inefficient'. The Private Power and Infrastructure Board (PPIB) has gone on record admitting that rental power is 'expensive'. WAPDA has failed to pay IPPs -- for electricity that is cheaper -- then how can WAPDA pay for rental power that is much more expensive. The Pakistan Electric Power Company (Pepco) knows rental power is a mistake.

Just who is going to finance this multi-billion dollar mistake? National Bank of Pakistan shall be the first lamb. Next in line: Habib Bank, United Bank Limited, MCB, Askari Bank, Allied Bank, Alfalah, Citibank and Faysal Bank. Under the hammer -- Saudi Pak Industrial and Agricultural Investment Company, Pak Kuwait Investment, Pak Libya Holding, Pak Oman and Pak China Investment (all would be as 'pak' as never before).

To be sure, there is as much love between rental power and Pakistani banks as between the wolf and the lamb. Vow, within the next five years $3.1 billion worth of loans to be written off! Remember, death to the wolf is life to the lambs. Is rental power expensive? Try ignorance.



The writer is the executive director of the Centre for Research and Security Studies (CRSS). Email: farrukh15@hotmail.com

 

[muse]

Capital suggestion



Rental power vs IPPs

Sunday, August 16, 2009
Dr Farrukh Saleem

1. Independent Power Producers (IPPs) take anywhere from two to five years to begin generating power while Rental Power Producers (RPPs) can be set up in less than a year.

2. The cost of electricity from RPPs stands at Rs14.65 per kilowatt hour while the cost of electricity from new IPPs is Rs11.77 per kilowatt hour.

3. As far as the cost of electricity is concerned, RPPs are 24 per cent more expensive than IPPs.

4. A typical second-hand, used 100 MW RPP sells in China for around $15 million while a brand-new 100 MW IPP by a reputable manufacturer costs around $100 million.

5. IPPs are mostly financed by foreign financial entities while the government is pressurising local banks and development finance institutions to finance RPPs.

6. Karkay Rental Power is the only RPP that is brand-new and is being financed by Turkish sources.

7. RPPs are paid a 'rent' that becomes a sunken cost while IPPs are under contract to handover their plants to the government after 30 years at a cost of Re1.

8. RPPs are being offered a 'machinery mobilisation advance' which is equivalent to a payment of 14 per cent of their five-year rental while IPPs are given no such advance.

9. IPPs are mostly brand-new while most RPPs are used, second-hand generators (up to 60,000 hours old).

10. IPPs come with warranties and performance guarantees while most RPPs are without warranties and performance guarantees.

11. RPPs run at an efficiency level of around 37 per cent while IPPs run at an efficiency level of around 45 per cent.

12. The government is bent upon extracting Rs214 billion from Pakistani financial institutions to finance RPPs while most banks consider RPPs as 'non-bankable' proposals.

13. Large network Pakistani banks -- including Habib Bank, MCB Bank Limited, United Bank Limited and Allied Bank of Pakistan -- are not prepared to finance used RPPs in absence of manufacturer warranties and performance guarantees (Sheikh Al Nahayan and Mian Mohammad Mansha, the owners of United Bank Limited and MCB Bank Limited, respectively, are both setting up their own IPPs).

14. In case of IPPs, the Private Power and Infrastructure Board (PPIB) derives a tariff that is based on project cost while in case of RPP tariff is not based on project cost.

15. The PPIB requires all IPPs to disclose detailed project costs while there is no such requirement for RPPs.

16. Annual fuel payment for a typical 200 MW RPP amounts to $211 million while the same for an IPP amounts to $174 million -- a difference of $37 million a year or Rs3 billion a year per RPP.

17. Annual capacity payment for a typical 200 MW RPP amounts to $79 million while the same for an IPP amounts to $60 million -- a difference of $19 million a year or Rs1.5 billion a year per RPP.

18. If the PPIB brings in 1,900 MW of rental power Pakistan will end up paying $2 billion a year in annual fuel payments.

19. If the PPIB brings in 1,900 MW of rental power Pakistan will end up paying $750 million a year in annual capacity payments.

20. RPPs are a $3 billion a year question.



The writer is the executive director of the Centre for Research and Security Studies (CRSS).

Email: farrukh15@hotmail.com