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Improved
Economic and Investment Climate In Pakistan
The last year, Standard and Poor’s upgraded
Pakistan’s sovereign long-term, foreign currency credit rating from
B to single B+, and the local currency, long-term rating going up to
BB from BB-, because of the consistent improvement in the economic
reforms of the country. A boost in growth, continued fiscal
adjustment and a structural improvement in the external account have
meant that while debt declines, business conditions continue to
improve in the country.
In the fiscal year 2004, the rate of growth was
almost 6.5%, the highest level recorded since 1996 – and economic
expansion is set to accelerate further. The average inflation in
FY04 was 4.6% while investment growth rate has jumped to a record
22.3%, the highest ever in the recent history of Pakistan, pushing
the investment-GDP ratio to 18.1 percent.
The success of the privatization programme has raised
over $1billion. The trends are promising and surging economic
activity is good news for Pakistan but the greater demands for
energy this growth has fuelled, raises fears that a shortfall is on
the way. Riding on the strong economic fundamentals in last couple
of years, Pakistan's economy has shown improvement in the foreign
exchage rate against US dollar that averaged Rs. 62.93 in FY 02, Rs.
60.23 in FY03 and Rs. 59.52 in FY04 respectively.
Strong Demand for Electricity
Demand is now outstripping supply of electricity and
by 2010 demand is expected to exceed supply by approximately 5,500
MW.
Strategic Importance
Adequate power supply is a key to achieving growth
targets and each of the three projects is strategically important to
the country. Uch II uses gas reserves which are best suited for
power generation and it follows the success of Uch I. Faisalabad is
an important industrial city and a major contributor to textile
exports for the country. Lahore is a large and growing population
base and also an important commercial centre.
Transparent Regulatory Environment
The National Electric Power Regultory Authority (NEPRA),
entrusted with regulation of power sector in Pakistan, has made
considerable progress towards the development of the regulatory
regime and future market design for the power sector.
Available Infrastructure
For all three projects, sites have adequate
infrastructure. Faisalabad and Uch–II projects will be set up close
to the existing operating power plants and the Lahore power project
will be installed close to the well developed city of Lahore.
Therefore all three project sites are close to water resources and
grid stations.
Predictable Long Term Tariff
A long term tariff of 25 years will be contracted
with the power purchaser. The IPPs are not subjected to the market
risk for their output. The projects are expected to provide good
and stable return on equity.
Pass through of the fuel cost and
additional taxation
Any variation in price of fuel would be passed
through to the power purchaser. Similarly any additional taxation
over and above the Tariff assumptions is liable to be passed on to
the power purchaser.
Risk of Exchange Rate Variation
To cover the exchange rate variations risk, various
tariff components will be indexed for variation in the Pak Rupee and
US$ exchange rates.
Available GOP’s Guarantees
GOP guarantees the performance obligation of its
entities such as the power purchaser, fuel supplier, etc. and
provinces. GOP also provides protection to sponsors and lenders in
case of termination of the project.
Protection against Change in
Duties & Taxes and Political Risks
GOP guarantees protection changes in taxes & duties
and spefied “political risks”.
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