No Solution to Pakistan's Load Shedding Without Renegotiating IPP Contracts

Pakistan's installed generating capacity is about 20,000 MW. It exceeds current demand of 17,000 MW and actual supply of just 10,000 MW. The capacity utilization is only 50% mainly because the producers do not buy sufficient fuel and choose to operate at only 50% of capacity and still enjoy soaring profits. A third of the installed generating capacity is owned by the independent power producers (IPPs). The current IPP contracts guarantee payments and profits with no requirement for fuel efficiency.

Most private investors have built oil-powered inefficient plants because of their low construction costs and short lead times, and the oil price has skyrocketed since these plants were built in 1990s. The result is 18-20 hours of load shedding across most of Pakistan in the scorching summer heat in spite of the fact the taxpayers have shelled out billions of dollars in subsidies to the power sector since 2008.

According to an AP report, the Pakistan's government has assumed $3.6 billion of the power industry's debt. The government-owned power grid owes another $2.5 billion to private-sector generators, even as the government, according to Finance Ministry figures, spent at least $7.4 billion on electricity subsidies during the 2008-2010 period.

Here's Arif Habib Securities investment analysis of the IPPs sector:

All power companies from Arif Habib Limited research coverage witnessed surprising growth (36-58%) in net profitability. HUBC led the flock with 58% YoY jump in profit after tax, attributable to the growing indexation factors and ROE component. On the other hand, lower payables to fuel supplier and resultantly lower penal interest provided major support to KAPCO, pushing the net profitability up by 36% YoY. As far as Nishat group companies are concerned, rising fuel cost magnified the impact of fuel efficiency, which combined with O and M savings further improved the profitability. However, dividend from KAPCO and NPL disappointed the optimistic investors. Arif Habib Limited believes the dividends to rise in 2HFY13 for these companies, providing investor with greater value at the financial year end.

Source: IMF Pakistan

Pakistani government buys electricity from IPPs at a rate of Rs. 12.50 per KWhr while the consumers pay an average of Rs. 9.00, leaving a short-fall of Rs 3.50 per unit which is subsidized by the taxpayers. It adds up to hundreds of billions of rupees a year. Power subsidy target for FY 2012-13 was set at Rs 185 billion, 60 percent lower than the actual subsidy provided during FY12. The subsidy provided year-to-date (YTD) is Rs 311 billion, already having exceeded the target by 68 percent, according to PakTribune.

A significant part of the problem is the IPP contracts which guaranteed a 12 to 15 per cent annual return (indexed in dollars, not rupees), gave tax breaks and paid interest on private funding – more expensive for the government than providing the funding itself.  In addition, there are no incentives for the private power producers to produce power efficiently.

In a blog post published in Financial Times, Dr. Kamal Munir of Cambridge University's Judge Business School blames the IPP contracts signed as part of the power privatization in 1990s.

“The 1994 privatization of the energy sector offered investors generous returns and created pricey overcapacity,” he told Financial Times. “This created an expensive legacy which is the real problem of today’s energy crisis.” Unless that problem is dealt with, he sees no light at the end of the energy tunnel.

He says Pakistan’s government, helped by the World Bank, “sweetened” its energy privatisation with attractive conditions, fearing it wouldn’t be able to attract investors otherwise. It guaranteed a 12 to 15 per cent annual return (indexed in dollars, not rupees), gave tax breaks and paid interest on private funding – more expensive for the government than providing the funding itself. ”The deal was too good to be true for investors,” Munir says.

Munir says the model turned out to be badly constructed in terms of creating value for the government and people of Pakistan. Even in an environment of economic growth and efficient energy generation, it would have been hard for the government to finance the plan. But since both have been absent, it became nearly impossible to pay for privatised energy.

Since there were no incentives to be fuel-efficient, most private investors chose to build  plants using furnance oil as fuel because of their low construction costs and short lead times. This backfired as the oil price has trebled since the 1990s. Variable costs, and therefore prices to consumers, are at unsustainable levels. “No wonder many consumers can’t afford to pay their bills,” Munir says.

To make things worse, the government neglected to step on the brakes when its generous conditions attracted too many investors. Assuming economic growth would continue, it allowed too much capacity to be built and guaranteed the same return on that extra capacity, whether it was used or not.

Munir says the government should develop new power plants using cheaper fuels, and that this shouldn’t be a problem in a country with an abundance of coal, waterways and sun.

But Pakistan must first escape its vicious payment cycle.

“We need to get out of the the current deals,” says Munir. But at what cost, and does this imply default? “Your guess is as good as mine,” the academic admits.

Still, he felt it was time to make his point. “I’m not defending people who don’t pay bills and I’m not promoting government subsidies to keep prices low,” Munir says. “But why isn’t anyone talking about the policy that led to this situation to begin with?”

Fuel Cost per million BTU
The key to solving the problem is to renegotiate the old IPP contracts with new terms that reward lower fuel costs and higher efficiency. In addition to that, Pakistan's incoming government of Prime Minister Nawaz Sharif's has to explore multiple fuel options to meet the nation's growing energy needs. Some of the fuel options are as follows:

1. Developing its shale gas reserves estimated 51 trillion cubic feet near Karachi in southern Sindh province. The US experience has shown that investment in shale gas can increase production quite rapidly and prices brought down from about $12 per mmBTU in 2008 to under $2 per mmBTU recently. Pursuing this option requires US technical expertise and significant foreign investment on an accelerated schedule.

 2. Increasing production of gas from nearly 30 trillion cubic feet of remaining conventional gas reserves. This, too, requires significant investment on an accelerated schedule.

3. Converting some of the idle power generation capacity from oil and gas to imported coal to make electricity more available and affordable.

4. Utilizing Pakistan's vast coal reserves in Sindh's Thar desert.

5. Hydroelectric and other renewables including wind and solar. Several of these projects are funded and underway but it'll take a while to bring them online to make a difference.

In my view, the newly-elected government should pursue all of the above options with options 1, 2 and 3 as a priority for now. Its best interests will be served by developing its own cheap domestic shale gas on an accelerated schedule with Saudi investment and US tech know-how.

Related Links:

Haq's Musings

Comprehensive Energy Policy for Pakistan

IPP Contracts in Pakistan

Pakistan Needs Shale Gas Revolution

US Census Bureau's International Stats 

Pakistan's Vast Shale Gas Reserves

US AID Overview of Pakistan's Power Sector

US Can Help Pakistan Overcome Energy Crisis

Abundant and Cheap Coal Electricity

US Dept of Energy Report on Shale Gas

Pakistan's Twin Energy Crises

Pakistan's Electricity Crisis

Pakistan's Gas Pipeline and Distribution Network

Pakistan's Energy Statistics

US Department of Energy Data

Electrification Rates By Country

CO2 Emissions, Birth, Death Rates By Country

China Signs Power Plant Deals in Pakistan

Pakistan Pursues Hydroelectric Projects

Pakistan Energy Industry Overview

Water Scarcity in Pakistan

Energy from Thorium

Comparing US and Pakistani Tax Evasion

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Comment by Riaz Haq on May 25, 2013 at 9:26am

Here's a Daily Times report on SC hearing on load shedding:

....A three-member bench, headed by Chief Justice Iftikhar Muhammad Chaudhry and including Justice Chaudhry Ijaz Ahmed and Justice Gulzar Ahmed, noted on Tuesday that there could be a genuine problem, “but now it seems that there was an involvement of artificial factors, particularly the high inefficiency of the Pakistan Electric Power Company (PEPCO) (Private) Limited and the National Transmission and Despatch Company (NTDC) Limited officials”.

The court said that production of power plants below their capacity could be one of the reasons of severe load shedding in the country.

The court was informed that the Guddo Thermal Power Plant’s total capacity was 1,650MW, but it was presently producing 775MW, while the Jamshoro Thermal Power Plant had a capacity to produce 1,000MW, but it was generating only 300MW.

Moreover, Muzafargarh plant’s capacity was 1,100MW, but it was presently producing only 700MW.

PEPCO Managing Director Zargham Ghulam Ishaq Khan informed the court that the deterioration in production was due to faults in the machines and that spare parts had to be changed.

The court was informed that after several steps, about 975MW had been added to the current system, which would reduce the intensity of load shedding in the country.

He told the court that the technical audit of some of the thermal plants had been carried out and the machines shall be made functional to their full capacity.

He maintained that during the last couple of days, power generation had dropped drastically due to various technical reasons.

He informed the court that due to the non-availability of oil and gas to the power sector, the current power crises had gotten worse. He said that arrangements had been made for the supply of furnace oil to the plants, adding that natural gas would also be supplied to the companies so that maximum output was generated.

About the hydroelectric power plants, the MD said 60% to 70% of their capacity had been increased, and they were presently generating 3,900MW. The generation capacity could further be increased if discharge from Tarbela, Mangla and glacier melting was increased, he added.

PEPCO engineer and consultant Raziuddin, who appeared voluntarily, told the Supreme Court that the company and the NTDC needed a fulltime managing director rather making makeshift arrangements. He said that PEPCO had sufficient capability to make the units functional. He said the Gudu Power Plant had the installed capacity of 1,650MW, while it was currently generating 775MW due to fault in various machines, which needed to be fixed. He gave the example of a machine, stating that only fixing of one machine could add 100MW of electricity to the system.

The PEPCO MD replied that they had already completed the audit of all the machines and they had also fixed machines number 5 and 7 at Gudu, adding that the current output of the plant was 835MW and not 775MW.


He said that Jamshoro Power Plant, after necessary repair work, was ready to generate 750MW. The CJ asked why were they not generating 750MW from Jamshoro, on which the MD said that due to the deficiency of furnace oil, they could not go ahead with the new additional capacity. He further added that power generation addition would be about 975MW after the new steps by the PEPCO

Comment by Riaz Haq on May 25, 2013 at 9:35am

Here's a BMI report on Pak energy sector:

Boston, MA -- (SBWIRE) -- 05/24/2013 -- Successive energy shortages in Pakistan have led the government to acknowledge that longterm gas self-sufficiency has become impossible. A March 2013 agreement with Iran on the development of the IP pipeline by 2015 could ease the risk of an energy shortage. Domestic consumption continues to rise rapidly, boosted by the start-up of additional gas-fired power stations and continued use of Condensate Natural Gas cars. As import volumes rise, LNG is set to become part of the energy mix. In the meantime, Pakistan will again attempt to privatise more of its various state-controlled energy companies and stimulate investment in domestic oil and gas production. While we do not believe it would render Pakistan gas selfsufficient over the next 10 years, the recent start-up of shale gas exploration creates a large upside risk to our forecast.

View Full Report Details and Table of Contents

The main trends and developments we highlight for Pakistan's Oil & Gas sector are:

- Energy minister Asim Hussein has acknowledged that the current situation in Pakistan requires policy rationalisation. Several steps have been taken including a rise in regulated gas prices, a revamp of licensing regulation to promote exploration and distribution of production in local markets, the offer of 60 onshore blocks in a licensing round, offshore and unconventional exploration, and development of necessary import infrastructures.
- We expect gas reserves to fall until 2022 as consumption increases from 39bn cubic metres (bcm) in 2012 to 55bcm by the end of the forecast period. Production will not follow that trend. We see gas output peaking at 40.1bcm in 2015 and falling afterward to slightly above 35bcm by 2021 as the Sui Gas Field, the main producing field in Pakistan, reaches the end of its life.
- We see oil demand rising from an estimated 376,600 barrels per day (b/d) in 2012 to nearly 482,000b/d in 2022, about 30,000b/d more than previously forecast. While we expect production to continue its increase throughout the decade, this will leave the county with a growing import requirement. From 62,000b/d in 2011, we see oil output growing steadily until 73,500b/d in 2022.
- LNG imports will start in 2013. The government expects to import 2bcm of LNG in 2013, acquired on the spot market and arriving at Port Qasim. International supply contracts are to be allocated for up to 8bcm in the coming years, while discussions have reportedly already started with the US and Qatar.
- The controversies surrounding the IP and TAPI pipelines continue, with the US providing increasing support for Pakistan to meet its energy needs through LNG imports. While we can still see some risks to the completion of the line, especially from a political perspective, the IP pipeline appears to be on its way to start first flows in 2015. We do not believe that LNG imports will be sufficient and we hardly envisage a scenario where neither pipeline is completed by the end of the decade.

Comment by Riaz Haq on May 25, 2013 at 4:49pm

Since publishing this post on my blog, I have received some significant feedback from power industry insiders.

The feedback suggests that the power market is being deliberately manipulated by a few to make a lot of money at the expense of millions of Pakistanis.

It reminds me of the Enron scandal in US which caused load-shedding in California because of market manipulation. Enron falsely blamed it on gen capacity constraints cause by tough environmental regulations in California. Several Enron executives were convicted and jailed.

I hope that Pakistani media and judiciary will investigate and expose such a scandal in Pakistan. It will be great service to the entire nation.

Comment by Riaz Haq on May 27, 2013 at 8:38pm

Here's a Nation newspaper report on German financing of hydel projects in Pakistan:

A delegation of the KfW Development Bank, Germany, headed by Dr Claudia Loy called on Wapda Chairman here on Monday and discussed with him the matters relating to financing of various hydropower projects.
The KfW Development Bank is providing 97 million Euros for the construction of 122 MW-Keyal Khwar and has also committed to co-finance the 35 MW-Harpo Hydropower Project along with its French counterpart AFD by providing 20 million Euros. In addition, the KfW Development Bank has also shown interest in financing the 80 MW-Phandar Hydropower Project.
During the meeting with the KfW Development Bank’s delegation, Wapda Chairman thanked them for their support in financing a number of Wapda projects.
He expressed the hope that the cooperation between the KfW Development Bank and WAPDA would be further enhanced in the days to come. He apprised the delegation that main works of Keyal Khwar Hydropower Project will soon be initiated, as all the pre-requisites are almost finalised in this regard.
Wapda Chairman expressed the hope that KfW Development Bank will come forward for better investment opportunities in other hydropower projects and well being of the people of Pakistan.
The KfW Development Bank Division Chief, appreciating the technical expertise of WAPDA, said that WAPDA is one of the best organizations in Asia. She said that the KfW Development Bank and WAPDA have a long history of mutual cooperation, adding that the Bank would continue supporting WAPDA for construction of water and hydropower projects.
We feel Pakistan’s energy sector needs more financing from Germany, she added.

Comment by Riaz Haq on June 5, 2013 at 10:08pm

Here's a PakistanToday Op Ed on energy crisis:

The debate during the election was played out as a blame game between the PML-N and the PPP. The PML-N blamed the PPP for the rental power plants while its chief economic ideologue Sartaj Aziz blamed it for its 1994 power policy. The PPP’s rejoinder was that the PML-N had “cancelled the contracts of around 24,000MWs of Independent Power Plants (IPPs)” in their 1997-99 tenure, arguing that “had this additional power been available to the national grid today there would be no shortage.” But here lies the fundamental problem in the electricity debate: the crisis is not a crisis of capacity.

With over 20,000 MWs of generation capacity, Pakistan’s power sector far exceeds peak demand that hovers around 17,000 MWs. What both parties – and the PTI too – gloss over is that their energy policies during the 1990s were in fact identical. In 1992, at the insistence of the World Bank and IMF, the PML-N government’s Cabinet Committee on Privatisation approved a Strategic Plan for Restructuring WAPDA. The plan involved “unbundling” WAPDA’s Power Wing and shifting the burden of generation and distribution to the private sector. When the PPP was at the helm next, it approved the World Bank championed 1994 Power Policy which offered astonishing terms to private investors – including a 80:20 debt-to-equity ratio, minimal taxes, guaranteed capacity payments even if power plants were not producing.

The first major step in the direction was the announcement of the Hub Power Project, a 1,292 MW private sector project described as the “Deal of the Year” and later as the “Deal of the Decade.” The Hubco deal was followed by the signing of 16 IPP contracts to add 3,400MW of private thermal power to the grid, at a time when the future shortfall was assessed to be between 1000 and 1,500 MW. The PML-N, which now apparently questions the terms of the deal, only continued the process once it returned to power. In sanctioning the creation of NEPRA in 1997 and approving the unbundling of WAPDA into 13 units: eight distribution companies (DISCOS), three generation companies (GENCOS) and the National Transmission and Dispatch Company (NTDC), operating under the newly created Pakistan Electric Power Company (PEPCO). The unbundling of the WAPDA Power Wing was supposed to move the power sector “from an inefficient state-controlled monopoly to a competitive, market-driven system.” The actual plan, as the IMF describes it, was to “ready the power sector for a more attractive packaging to be sold to private investors.”

Smaller units of WAPDA could be privatised much more easily. That was the plan the PML-N had approved in 1992 and set up for packaging in 1998. Now that it has returned in 2013, the energy plan it has announced its intention to “finish their unfinished business.”

The PML-N envisages a three-step plan. Step one: merging the Ministry of Petroleum and the Ministry of Water and Power. Step two: raising Rs500 billion through treasury bills, bank loans and printing money and paying off the circular debt. Step three: selling government shares in public-owned power companies, reducing its share to 51 percent and handing over their management to private investors. The move is expected to raise another Rs500 billion. . ...

Comment by Riaz Haq on June 12, 2013 at 7:49am

Here's a News report on Pak budget 2013:

Total outlay for Federal Budget 2013-14 Rs3.591 trillion; fiscal deficit 8%; PSDP Rs1.155 trn; GDP growth rate projected at 4.8%; inflation 9.5%; revenue target set at Rs2.475 trn; Rs926 bn allocated for debt servicing; GST raised from 16 to 17 percent; Rs75 bn allocated for Income Support Programme; Pension up by 10%; minimum pension raised from Rs3000 to 5000; Rs225 bn for energy sector development.

ISLAMABAD: The newly formed government of Pakistan Muslim League-Nawaz (PML-N) Wednesday unveiled what is being termed as ‘an investment and business friendly budget’ with a total outlay of Rs3.591 trillion for the financial year 2013-14.

Finance Minister, Senator Ishaq Dar presented the budget speech at the special budget session of the National Assembly.

The budget envisages a record allocation of Rs1.155 trillion for Public Sector Development Program (PSDP) with the aim to stimulate the dilapidated economy.

Dar proposed an increase in General Sales Tax (GST) from 16 percent to 17, a decision which is going to further raise the prices of commodities for the people already battered by the worst price hike in the country.

As an austerity measure, Ishaq Dar proposed to bring down the expenditures of Prime Minister House expenditures by 45 percent, which he claimed will result in a national saving of Rs40 billion.

There will be a complete ban on purchase of new cars for Prime Minister’s office but the ban will not be applicable for law enforcement agencies and other inevitable requirements.

An increase of 10 percent has been proposed in the pension of retired government employees and the minimum monthly pension has been raised from Rs3000 to 5000.

The budget for next fiscal earmarks an amount of Rs75 billion under Income Support Program.

The tax exemption for luxury cars is proposed to be abolished while 1200 cc hybrid cars are being exempted form import duty. A concession of 25 percent has been proposed for 1800-2500 cc cars and 1200-1800 cc cars 50% duty reduction.

GDP growth rate target for FY 2013-14 has been projected at 4.8 percent and revenue target at Rs2.475 trillion. The non-tax income will be Rs800 billion

The government has allocated Rs185 billion as power subsidy.

Ishaq Dar maintained that the circular debt amounting to more than Rs500 billion will be eliminated in 60 days.

The budget proposes to abolish the ministers’ discretionary funds.

The government will initiate a Prime Minister Laptop scheme in the days to come.

Customs duty on water filtration equipment is proposed to be decreased while the people’s works program renamed as Tamir-e-Watan Pakistan program.

Dar said that the auction for 3G technology will be held soon and the borrowing from the State Bank of Pakistan (SBP) will be reduced.

The rate of inflation will be kept under single digit and its targeted rate for FY 2013-14 has been fixed at 9.5 percent.

He said the government inherited a battered economy and the average rate of inflation stood at 13 percent in last five years.

Comment by Riaz Haq on June 13, 2013 at 9:45am

Here's FT on Pakistan's plan to settle electricity debt (called circular debt):

Pakistan is to borrow more than $5bn to pay off the country’s outstanding electricity bill amid rising anger over power cuts that have exploded into violence in some cities.
Parts of Pakistan have remained without electricity for up to 20 hours a day this summer. According to the finance ministry, the shortages have caused annual losses equivalent to 2 per cent of GDP.

The move, by the new government of Prime Minister Nawaz Sharif, constitutes a gamble. The administration is looking for a quick-fix solution to ease the power crisis but some argue that by taking on more borrowing it will only lead to further debt problems in the longer term.
The government is to raise $5bn through the sale of government bonds to pay off the debt owed to the country’s private electricity producers as well as fuel suppliers.
“We have to take our country out of the mess we are in” said Ishaq Dar, the finance minister, on Thursday announcing details of the scheme. “Clearing this backlog is our top priority”.
The government has said it will clear the debts by August this year in what is the largest such single payment to tackle serious shortages of electricity in the country’s history.
Though many analysts support Mr Sharif’s government for moving to settle the outstanding bill, some are more cautious. “The government really has to reform the electricity sector where the problems are huge” said Sakib Sherani, a prominent economist. “Without reforming the sector, this decision (settling the electricity bill) could be a gamble”.

While the upcoming payments may clear the backlog of dues that have forced some electricity producers to scale down their operations, analysts warned that the power shortages were a consequence of a poorly run government-owned electricity transmission system.
In some areas of Pakistan, between 30 to 40 per cent of electricity gets lost before it reaches end users. This is mainly due to inefficient transmission systems and theft involving corrupt officials who team up with private consumers to supply connections that are never billed.
“The financial settlement will help to tackle the immediate crisis. Once the payments are made, we should have more electricity in the system,” said Shuja Rizvi of Al-Hoqani securities stock brokers in Karachi. “The danger is, there must be very aggressive reforms to tackle the [power] losses as the root cause. Otherwise, this problem will return to haunt us”.

Comment by Riaz Haq on June 13, 2013 at 5:12pm

Here's a Central Asia Online report on energy projects in Pakistan:

Pakistan is at least 5,000MW short of what it is needs to support the country this summer, the Water and Power Development Authority (WAPDA) reported. On one day in May, the national power grid generated 9,200MW, 7,000MW short of demand, UPI reported.

The acute energy crisis has taken its toll on industry, agriculture and the job market, costing millions of Pakistanis their jobs over the past 10 years, according to economists.

"The energy crisis has reduced GDP growth by 2.5-3% [per year], and it directly affects the 2.5m new job seekers who enter the market every year," Dr. Ashfaq Hassan, an economist, told Central Asia Online, adding that millions of Pakistanis lost their jobs because of the crisis in the last decade.

Pakistani energy potential
It is not a matter of lacking energy resources, but rather it is a matter of properly tapping into Pakistani potential, Hassan said.

The country has large potential for economic growth and employment if exploited carefully, he said.

Pakistan in a few years could overcome the energy crisis and massive unemployment, and the GDP growth would be higher if load shedding vanished, economist A. H. Nayyar said.

The country's power potential is 59,208MW for hydropower; 100,000MW for coal; 7,500MW for wind; 2,000MW for solar; and 25,031MW for thermal, WAPDA spokeswoman Farhat Jabeen told Central Asia Online.

Projects boost energy production
The energy crisis seems to be worsening day by day, but the power generation projects are now increasing hope and the country's future is not as dark as it once seemed.

Several stakeholders are involved and the authorities are trying hard to contain the power shortage and load shedding in Pakistan, Jabeen said.

Construction is progressing on 17 small- to medium-size dams and other power-generating projects, and some of them should be ready within a few months, she said.

More than 400MW will be added to the national grid this month, and another 4,000MW in the next five years, she added.

Three dams are nearing completion and two others are scheduled to be finished in 2015, official records reveal.

Improving job market and alternative energy
Besides helping to ease the energy crisis, the projects will boost employment.

The dam projects, for example, have directly employed 19,200 workers in the past five years, the WAPDA dams director said.

The energy development sector has provided more than 100,000 jobs in various projects over the past eight years, official records reveal.

Energy development projects are already denting the unemployment rate. There are also expectations that the increased employment will trickle down to industry and agriculture.

Development activities like those in the energy sector always have a positive effect on other areas of the economy, Nayyar said, noting more job opportunities will come to cement and other industries.

Alternative energy plans on tap, too
The government is not only encouraging the dams as energy sources but also promoting solar, wind, nuclear and other means. It initiated projects in this direction as well.

The Alternative Energy Development Board initiated wind, solar and other projects that will add 500MW to the national grid within two years, Chief Executive Arif Alauddin told Central Asia Online.

But the potential for such projects is much greater as these sectors are attracting huge investment, he said.

Comment by Riaz Haq on June 26, 2013 at 7:20pm

Here's a report from The National newspaper on Pakistan switching from oil to coal:

Pakistan plans to use a port in the Arabian Gulf to import coal and to reduce its dependence on more costly GCC oil. That dependence is "killing its economy", said the country's water and power minister in Dubai yesterday.

One of the aims of the expansion of Gwadar port in Pakistan's Balochistan province is to help Pakistan to overcome an energy crisis by widening the mix of its power supply. The port is financed more than 80 per cent by the Chinese.

Currently oil from Saudi Arabia, the UAE and Kuwait has accounted for "almost all" of Pakistan's energy imports, said Khawaja Asif, the water and power minister, speaking on the sidelines of the US-Pakistan Business Opportunities Conference in Dubai.

"We can develop some area close to Gwadar port for coal imports and coal-based plants. We will import coal from different places like South Africa, Indonesia and Australia," said Mr Asif. "It will lessen our dependence [on oil].
"The energy mix we have today is killing our economy and not providing us with cheap electricity."...
Coal accounts for only 1 per cent of Pakistan's energy generation even though Thar mines in Pakistan's Sindh province account for the world's third-largest coal reserves. While Gwadar will help to serve Pakistan's energy needs, attracting greater scrutiny is China's plans to use the facility.
In February, the management of the port was handed from Singapore's PSA International to Chinese Overseas Port Holdings. Gwadar's close proximity to the Strait of Hormuz, through which a large portion of the world's oil flows, will give energy-hungry China closer access to GCC crude.
The two sides plan to link Gwadar, in the south-west of Pakistan, with China's far western province of Xinjiang through road and rail connections. The proposals have stirred anxiety among officials in New Delhi , where there are concerns that the facilities may be part of a Chinese attempt to encircle India through a string of overseas ports stretching from Gwadar to Myanmar.
Mr Asif played down the geopolitical significance of the port.
"It's purely a commercial thing and will develop a backward province of Balochistan and create job opportunities," he said.
The port aspired to follow the lead set by the thriving commercial trading hubs of Dubai and Singapore, he added. The government of Pakistan's newly elected prime minister, Nawaz Sharif, has declared Gwadar a duty-free port on the lines of Jebel Ali.
"In Dubai and Singapore and all of these ports there economies are based on their ports and access to major sea routes," Mr Asif said.

Comment by Riaz Haq on June 27, 2013 at 7:00pm

Here's a Dawn report on MOU with IPPs on new terms:

A meeting presided over by Finance Minister Ishaq Dar decided to make the payment to IPPs to clear a major part of the Rs506bn circular debt with four major conditions for which a fresh memorandum of understanding (MoU) will be signed on Friday morning, followed by immediate disbursements, finance ministry spokesman Rana Assad Amin told Dawn.

In return, the IPPs will commit in writing in the MoU to achieve their maximum generation capacity and provide 1,700MW to the national grid before Ramazan.

The Hubco, Lalpir, Pakgen and Saba plants, having almost 1,800 megawatts capacity, will make a commitment to convert to coal-based power generation within 16 months.

All IPPs have also agreed to reduce their interest rate on receivables by two percentage points from the existing Kibor (Karachi Inter-Bank Offer Rate) plus four per cent and increase their credit period from 45 to 60 days to ease the payment pressure on distribution companies.

Since the two relaxations would require amendments to the existing power purchase agreements, the IPPs would initially sign an MoU, Mr Rana said. Subsequently, the National Electric Power Regulatory Authority and Private Power and Infrastructure Board would approve an addendum to the agreements, he said.

He said the IPPs and the government had agreed to resolve through arbitration their dispute over Rs23bn outstanding amounts currently pending before the Supreme Court.


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