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1. Strategic Importance
Adequate power supply is a key to achieving sustainable economic
growth. Presently, out of around 162 million population only 65– 70%
has access to electricity and the Government is committed to provide
electricity access to total population in the minimum possible time.
2.
Strong and increasing Demand for Electricity
Demand has outstripped supply of electricity; the country is
currently facing power shortages of approximately 2500 – 3,000 MW.
It is expected that demand will exceed supply by about 5,500 MW in
the year 2010. The present electricity demand-supply gap, coupled
with consistent growth in demand (6-7% per annum), clearly indicates
the fundamental need for enhancing the country’s current power
generation capability.
3. World-Renowned Companies Already
Operating in Pakistan
Presently, sixteen Independent Power Producers (IPPs) are operating
in the country. Thus, world-renowned power sector players are
already present in the market, e.g. Siemens, General Electric, AES,
International Power, El Paso, Tenaska.
4. IPPs under Construction
Twelve IPPs
with a capacity of 2,539 MW have achieved Financial
Close and started project construction after getting approval of
tariff from NEPRA-through a well-defined process of tariff approval
that includes public hearing. These IPPs are sponsored by local as
well foreign investors.
5. GoP’s Policy Commitment to Increase
Private Sector Participation
Presently, approximately 40% of generation capacity of the country
is in private sector, and another 2,000 MW IPPs are under
construction. The successive governments in the country have
reiterated the commitment to increase private sector participation.
Consequently, major divestments of public sector units have been
made in various sectors while no thermal generation capacity has
been added in the public sector since the early 90’s.
6. Transparent Regulatory Environment
The
National Electric Power Regulatory Authority (NEPRA) has been setup
for the regulation of power sector in Pakistan; in order 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.
7. One-Window Facility and
Investor-Friendly Policy
PPIB
– with a successful track-record of attracting FDI of over US$ 4.5
Billion in the last one decade or so – provides a one-window
facility 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, and government
agencies.
8. Availability of GOP’s Guarantees
GOP
guarantees the performance obligations of its entities such as the
power purchaser, and the provinces. GOP also provides protection to
sponsors and lenders in case of termination of the project.
9. Predictable Multi-Year & Long-Term
Tariff
Typically, a long-term tariff of 25 – 30 years 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.
10. Standardized Security Package
Standardized and tested agreements – namely, the Implementation
Agreement (IA), the Power Purchase Agreement (PPA), the Fuel Supply
Agreement (FSA), etc. – are available upfront.
11. Pass-through of Fuel Cost and
Additional Taxation
Any
variation in price of fuel is to be passed on to the power
purchaser. Similarly, any additional taxation over and above the
Tariff assumptions is liable to be passed on to the power
purchaser.
12. Risk Coverage for Exchange Rate
Variation
To
cover the exchange rate variations risk, the various tariff
components are indexed for variation in the Pak Rupee and US$
exchange rates.
13. Protection against change in Duties &
Taxes and Political Risks
GOP
guarantees protection against any change in duties and taxes, and
against specified “political risks”.
14. Income Tax Exemption
Exemption from income tax, including turnover rate tax and
withholding tax on import, is available to private power generation
projects.
15. Abundant Hydel / Coal Potential
There
is an identified hydropower potential of over 50,000 MW, and
availability of abundant indigenous coal resources in the country.
The Thar lignite reserves in the Province of Sindh are estimated to
be around 175 billion tonnes.
16. Power Purchaser to bear Hydrological
Risk
For
hydropower projects, hydrological risk is to be borne by the
power purchaser.
17. Availability of Skilled Manpower
Good
quality and cost-effective technical manpower is available in
Pakistan.
18 Availability of Financing
Banks
are keen to lend to the power sector due to lower risk profile and
GoP’s guarantee for power purchaser and the provinces.
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