Why has private sector been inducted in power generation ?

IPPs have resulted in sky-rocketing tariff.  The consumer tariff and electricity has become unaffordable, Is it true ?

Environment for IPPs is hostile. Are the investors expected to invest further in the business of IPPs ?

Thermal power plants using furnace oil are depriving the country of hard earned foreign exchange. What steps the Government has initiated to check this ?

What does IPP stands for ?

IPP is an abbreviation of Independent Power Producer.

How many projects in the private sector are in operation in Pakistan ?

At present there are 16 private power projects with a capacity of above 5500 MW which are in operation. This is roughly one-third of the total power generation capacity of Pakistan.

Why has private sector been inducted in power generation ?

Power shortage had been one of the chronic problems hampering Pakistan’s socio-economic growth By 1994, the problem had assumed such acute dimensions that power supply fell short of demand by almost 2000 MW during peak load hours. On a routine basis, this resulted in forced interruptions in the supply of electricity to consumers during peak hours resulting in load shedding. The unreliable power supply shattered the industrial progress. There was a gap between demand and supply due the rapid increase in electricity demand (estimated to be growing at a rate of 7-8 % per annum at that time).

This situation called for immediate intervention by the GOP through adoption of policy measures aimed at massive resource mobilization for investment in the power/energy sector. The enormous quantum of required investment compared with the constrained funding potential of the national exchequer, was not conducive to allocation of scarce GOP funds for energy. Therefore, the GOP took a bold initiative to encourage private sector investment in infrastructure development, in the power sector.

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Why did the 1994 Power Policy receive such an enthusiastic response ?

In March 1994, the GOP announced the Private Power Policy 1994 which, essentially, comprised a well-thought-out package of incentives to attract foreign direct investment (FDI) in private power generation projects, due to which the Policy received a very enthusiastic response. The package of incentives envisaged in the 1994 Power Policy was internationally competitive in terms of assured cash flow for debt repayment and returns on investment. Procedures were simplified; PPIB was created as a one window facility to eliminate unnecessary delays in finalization and approval of projects and to facilitate interaction between the GOP and investors; local currency investment requirements were reduced; and measures were adopted to create and encourage a domestic corporate debt security market.

Who are the main lenders to IPPs in Pakistan ?

The main lenders to IPPs in Pakistan are World Bank, Asian Development Bank, International Finance Co-operation, US-Exim Bank, J-Exim Bank etc.

What is the minimum equity requirement to finance IPPs in Pakistan ?

The minimum equity requirement to finance IPPs in Pakistan is 20%.

Why IPPs were allowed to do business in Pakistan ?

If projects are implemented through the public sector utilities, they absorb a significant portion of national budget allocation. The allocation for new power projects surpasses the cumulative allocation for health, housing, education and agriculture sectors. Therefore, in order to save governmental allocations for these vital sectors, private sector investment has been sought in Pakistan.

IPPs have resulted in sky-rocketing tariff.  The consumer tariff and electricity has become unaffordable, Is it true ?

Although after induction of IPPs the consumer tariff has been increased, but only IPPs can not be blamed. The price hike is mainly due to the increase in the furnace oil prices. Secondly, the electricity generated through IPPs will dip down sharply after completion of debt servicing period. The consumers will get the real benefit of IPPs at that time. The Bulk Power Tariff (BPT) offered by Pakistan was comparable to the IPP tariff in other Asian countries. As per a research conducted by a famous international firm the BPT was the third lowest amongst the list of fourteen IPPs of some other countries of the Asian region.

Environment for IPPs is hostile. Are the investors expected to invest further in the business of IPPs ?

Environment for IPPs is NOT at all hostile. The initial turbulent period has passed. The misgivings and hostilities which occurred during the teething time and which were the result of inexperience on both sides of the fence i.e. IPPs and the Government, have now been overcome. Now there is a new rapprochement between the Government and the investors. The investors are very eagerly looking forward to invest in Pakistan. Infact, pursuant to the announcement of the Power Policy 2002, a very encouraging response has been received from the investors.

The 1994 power policy resulted in induction of only RFO based thermal power plants. Reasons ?

Hydel projects are more capital intensive than the thermal projects. Although the Policy-1994 promises more tariff for the hydel projects but still due to their capital-cum-time intensiveness and hydrological risks, hydel projects could not be materialized. Thus thermal projects which could start generating the electricity in shortest possible time, and which are less time consuming for installation rushed to fill the vacuum.

Thermal power plants using furnace oil are depriving the country of hard earned foreign exchange. What steps the Government has initiated to check this ?

Conscious of this fact, the Government is exploring the avenues of transforming the thermal projects from furnace oil to gas. Almost all the public sector projects which do have useful lives and which have the appropriate technology have been converted to dual fired mode, and they consume gas as per the availability in system. Under the Power Policy for Power Generation 2002, indigenous resources like hydel and coal are being encouraged.

Coal is abundantly available in Pakistan. Why this coal is not being utilized ?

To develop coal resources of Pakistan serious efforts are afoot. A task force under the President of Pakistan is rigorously following a plan to fully exploit the coal resources especially the Thar Coal reserves. Sindh Government and PPIB are also in good liaison to develop coal resources. Many MOUs signed in this regard promise a bright future for the brown coal.