Plants near mine's mouth is fine, but Fuel is not the only thing that the plant needs. It needs water, it needs skilled manpower, land. and you plan out a strategy to deliver for 25 odd years. Power plants are not built for an odd decade but quarter of a century. and it has to remain financially viable throughout. I agree to your point that this is a mistake,
Makes more viability sense to make a coal terminal at Karachi Port and build a big plant nearby, for water you can have a desalination plant, and there is a perennial snowed river too (dig a canal to the plant) , and you would get qualified manpower from Karachi a commercial hub, even the plant can be imported and you don' have to transport it to Thar desert from Karachi, and No need to set up new transmission lines which are costly (INR 5 Crore a Kilometre).
Hon Sir,
I am in total agreement with you on the economic side of the things. I have been making my ends meet as a Petroleum / Energy consultant for the last 5 years and must have looked at more than 100 feasibility studies of various refinery, exploration & power projects, but did not come across guaranteed minimum Rate of Return except in Pakistan. I also agree that power plants have 25 to 30 year life cycle and cost of clean-up & dismantling the plant are often included when working out the levelized cost of production.
This trend actually started during the Benazir Bhutto’s term of office. GOP had no funds to invest in power projects and guaranteed Returns were offered as inducements. The fact that Mr 10% was making his fortune by getting extra ordinarily profitable IPP’s approve by his wife to earn large commissions may also have something to do with it. I am aware of some projects in Punjab which are shut due to lack of natural gas but GOP is still paying the agreed Return on original investment!!
I am aware of the case of HUBCO plant. One of the Gulf based oil companies were negotiating sole rights for fuel oil supplies to 1290 MW HUBCO power plant when the plant was under construction and offered to invest in the fuel pipeline from Port Qasim to Hub.
I was surprised to learn that they were being guaranteed 15% return on investment The project was dropped because of exorbitant cost of risk insurance on the investment. HUB plant is now being expanded. I had come across the following last year.
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He said the National Electric Power Regulatory Authority (Nepra) had capped upfront fee for Sinosure (insurance cost) at seven per cent, but because of the presence of circular debt, the company asked for a fee of 9pc for credit risk insurance.
“Now, China has agreed to cap fee at 7pc and therefore this issue has been resolved,” he added.
He said that tariff for coal based power plants had been estimated to reduce by 10 cents per unit from existing 22 cents per unit.
http://www.dawn.com/news/1158111
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You can see the problems foreign investors face in Pakistan. 7% credit risk insurance! Hence very generous inducements are needed to attract investment.
As far as setting up the plant at Karachi or at the mine head; it all depends upon conditions of the agreement. I am sure you are aware that economic viability is largely dependent upon the assumptions used in the feasibility analysis. For example should GOP desire that plant should be set up at Thar for the economic upliftment of the area; they would offer higher guaranteed return than for the one in Karachi.
Additionally, Karachi is already highly polluted and coal based plants especially in the third world countries are notorious pollutants; discharging lot of poisonous gasses in the desert many be preferable, therefore extra economic inducements to make the plant viable at Thar.
By the way, water is scare in Karachi as well. I am sure that underground water would probably be available at Thar. However, most of the underground water in that area is saline and a water treatment facility would be required to make it usable increasing the capital investment.
I am glad of one thing however, Thar Lignite deposits are finally being exploited. I for one would not pass judgement on whether it is a good or bad investment unless I have seen all the facts.