PRIVATE POWER & INFRASTRUCTURE BOARD

Strategic Importance
Adequate and reliable power supply is a key to achieving sustainable economic growth. Presently, out of a population exceeding 170 million, only around 70% have access to electricity and the government is committed to provide electricity access to the entire population in the minimum possible time.

Demand has outstripped supply of electricity and the country is presently facing power shortages of approximately 5,000 MW during peak demand time. The present electricity demand-supply gap, coupled with consistent growth in demand, clearly indicates the fundamental need and market for enhancing the country's current power generation capability.

Presently, 27 Independent Power Producers (IPPs) are operating in the country. Thus, leading international / local companies are already present in the market, e.g. Siemens, General Electric, AES, International Power, El Paso, Tenaska, Nishat Group, Engro, Atlas, Sapphire, Fauji Foundation etc.

PPIB, with a successful track-record of attracting foreign and local investments of about US$ 7.0 Billion, acts as a one-window facilitator for the processing of Private Power Generation projects above 50 MW. The Policy for Power Generation Projects, 2002 is an investor-friendly policy that offers an attractive set of fiscal and financial incentives to the Private sector. The Policy provides a balanced risk profile for the investors, lenders, government, and power purchaser.

A number of IPPs (both thermal and hydropower) are under construction after getting approval of tariff from NEPRA through a well-defined process of tariff determination that includes public hearing. These IPPs are sponsored by consortia of local and foreign investors.

Presently, approximately 45% of the generation capacity of the country is in the Private sector. The successive governments in the country, since the early 90s, have reiterated the commitment to increase private sector participation. Consequently, major divestments of public sector entities have been made in various sectors.

The National Electric Power Regulatory Authority (NEPRA) has been setup for the regulation of power sector in Pakistan. The Authority endeavors to balance the interests of consumers and power sector companies. NEPRA has made considerable progress towards the development of the regulatory regime and future market design for the power sector. All generation, transmission, and distribution companies are now licensees of NEPRA, and abide by the rules and regulations laid down by the regulator for reliable and efficient operation of the power sector.

GOP guarantees the performance obligations of the Power Purchaser (if it is a federal entity) and the Provinces/AJK. GOP also provides protection to sponsors and lenders in case of termination of the project under specific circumstances.

Typically, a long-term tariff of twenty-five (25) to thirty (30) years, determined by the regulator, is contracted with the Power Purchaser. The IPPs, thus, are not subjected to market risk for their output. The projects are expected to earn an attractive, competitive, and stable return on investment.

Standardized and bankable project agreements i.e. the Implementation Agreement (IA), the Power Purchase Agreement (PPA), the Water Use Agreement (WUA), are available upfront.

To cover exchange rate variation risk, various components of the Tariff are indexed for any variation in the Pak Rupee and US$ exchange rates.

Any additional taxes and duties, over and above the Tariff determined by NEPRA, are liable to be passed on to the Power Purchaser.

GOP provides protection against events (triggered by either a change in law or a political force majeure) that are beyond the reasonable control of the Sponsors and adversely affect the performance of their obligations.

Debt Financing and EPC contracts based on US Dollar, Euro, Pound Sterling and Japanese Yen have been allowed under the Policy. At Commercial Operation Date (COD), Capital Cost will be fixed in US Dollars by NEPRA based on actual currencies of the EPC contract accepted at the time of tariff determination, sources of financing, payments, and actual exchange rates against Pak Rupee for the aforementioned four currencies.

There is an identified hydropower potential of over 60,000 MW and confirmed availability of abundant indigenous coal resources (around 186 billion tons) in the country.

For hydropower projects, the investors are completely protected from any variation in water flows over the years, as Hydrological Risk is to be borne entirely by the Power Purchaser.

Good quality and cost-effective technical manpower is available in Pakistan, as IPPs have been operating in the country for more than a decade now.

Set of Incentives, Concessions and Protections for Development of Indigenous Resources

The Economic Coordination Committee (ECC) of the Cabinet has granted waiver for coal based power projects and co-generation projects utilizing coal (along with bagasse) by sugar mills from the requirement of having firm Engineering Procurement Construction (EPC) contract for tariff determination as in relaxation of earlier ECC decision dated 23^rd May, 2007.