A small news item appearing in the press some three months ago apprised us that the Karachi Electric Supply Company (KESC) is refusing to accept the upcoming supply from two soon to come on-bar IPPs. This news was very surprising, because the refusal was in the face of severe shortage of power and the public's call for immediate addition to KESC's fledging generation capacity.
KESC's near belligerence was further highlighted when its management cried hoarse to the effect that WAPDA was not providing it with the promised power and which it eventually received through the Prime Ministerial intervention.
The situation got even more complicated when receipt of up to 750 MWs of power from the already power strapped WAPDA could not help and Karachi was subjected to breakdowns and blackouts. KESC's management, at this juncture, did promise addition to its power generation soon but still declined to talk about induction of IPPs to their system and specifically of the two projects already approved to be connected to it and in near completion stages. These were found to be the 150 MW Fauji Korangi and Western Electric Ltd (WEL) project of the same capacity.
According to some insiders, it has come to be known that the KESC is also contemplating and considering ways and means in order to wriggle out of the PPAs its progenitors had signed some 8 years or so ago with two IPPs namely Tapal Energy and Gul Ahmed Energy which are supplying 250 MW of power to Karachi. Although, it will be nigh impossible for the utility to relegate the PPAs in question, the mere thought of trying and thinking to come out of this stranglehold is an eye-opener and leads to the fact that IPP power and ensuing payments are the cause for concern and also the reason for KESC to start thinking of alternates.
Looking into the details, we see that the Fauji Korangi Power Project is sponsored by the Fauji Foundation. It is proposed to have a capacity of 150 MW for which a feasibility study has recently been completed and approved by the PPIB. This dual fuel gas fired project is expected to be commissioned earliest by the end of 2008.
On the other hand, Western Electric Power, a 150 MW capacity plant based on diesel engine technology using natural gas primarily as fuel, is scheduled to go into operation by early 2008. Tariff negotiations (surely of no consequence as nothing negotiable is evident in such events) seem to be held-up in both the cases due to KESC's privatisation in the first instance and on account of the utility's outright refusal to accept such power now. The fact that both these IPPs are sponsored by big players, with political and economic clout, has not deterred KESC from it's standpoint.
On KESC's refusal, instead of forcing the newly privatised utility to accept the above two IPPs - specially in order to ameliorate the extreme power crunch being faced by Pakistan's biggest city and industrial area or for that matter understanding the reasons for non-acceptance etc and taking up corrective action if required, the concerned have chosen the easy way out and thus thrown the hot potato at an entity which would not be able to resist or refuse.
The case for relocation of these projects elsewhere has been taken up - consequent of which the Economic Coordination Committee (ECC) of the Cabinet is likely to approve it. According to reports, the Prime Minister has now directed WAPDA to consider purchase of power generated by these projects which are expected to be relocated to Nawabshah.
As the gas utility SSGC is reluctant to supply gas to these utilities at Nawabshah, the ECC has further decided to resolve the controversy (?) and may also consider revision of the Liquefied Natural Gas (LNG) Policy to supply gas to such non-feasible areas (through the help of private sector). All these decisions at the highest of the fora suggest the extreme importance of these projects and their sponsors.
Experts are thus of the opinion that these projects would see the light of the dawn soon, and WAPDA would be forced to buy power from them and even if natural gas or LNG is not available, the dual fired projects would operate on imported oil. This, according to them, would be a victory for the enterprising spirit of IPP sponsors and also a fillip for the power short economy. On the other hand, providing undue incentives to some and ignoring others is not looked at as anything peculiar and nor of concern.
Dilating on the subject, we see that the 1988's one page policy under which HUBCO took birth also debarred the public sector from erecting new thermal power plants. On the basis of this edict, WAPDA had been and would keep on being subjected to expensive IPP power about which the utility cannot do anything. But the least of the requirements would be to delve into the reasons of KESC's refusal of the fast to be on-bar IPPs sponsored by the Fauji Foundation and the Western Electric Consortium (reportedly of local and foreign players).
These reasons would then have to be given extra weight because private entrepreneurs are considered to be more efficient, savvy in their operations and ones who can be emulated and followed for reference. This assumption attains great importance when we see that such set-ups are also not amenable to pressure, because they remain responsible to their share holders and not the governments or any such entities.
Further more, the ultimate goal of any private investment remains profits and nothing else. Social welfare, now known as corporate responsibility, is probably just an eyewash and no more. Actually, this word is just a perfunctory addition or appendage to the business lingo and lexicon.
Insiders opine that the KESC's management, after only having a brief look at the figures of possible tariff sought and to be awarded to these IPPs, concluded that the things were not as they seemed. Plants were grossly over-invoiced or the sponsors had badly negotiated leading to acceptance of exorbitant plant prices. Additionally, it was seen that the rated efficiencies of the plants were low against the highly efficient combined cycle plants available in the market. It also became evident that the sponsors could not get the best rates for the loans for the rest of the plant cost besides the equity etc. The overheads and other charges were found floating somewhere else.
According to some, the choice of the EPC (Engineering, Procurement and Construction) contractors was also considered to be incorrect. In other words, KESC could not be made to pay for the inefficiency, uneconomical and bad management decisions and the lavish expectations of the sponsors. This they thought was totally unwarranted and unacceptable because the costs ensuing could not be wrangled out of the customers in the presence of the existing and the future power tariffs in Pakistan and that it all would also be an extra burden to be borne.
In translation, we can easily conclude that KESC's refusal of the two IPPs can only be because of hard economics. It further means that the product of these independent power producers would be expensive to a level that it could not be adjusted or accommodated in the normal operations and that the best of the options was in-house addition by the KESC to its generating capacity.
It is however, delaying addition to its capacity against all pressures and at present just improving upon the capability of the highly derated in-house plants. According to reports, the KESC operators have been able to use all technical prowess at their disposal and add 20% to the figure while hanging on to WAPDA supply (and not paying in full for it on one pretext or the other) for the rest of the demand. This indeed is the least cost solution, but of course just a temporary relief.
KESC thus has been able to save itself from the high cost of private power and may in the end be rated an extremely prudent and responsible in its dealings and operations. It all may also be a boon for the people of Karachi as the utility, in any case, has to arrange for additional generation, which if taken up in-house would be cheaper to the hilt. All this is an indictment of the IPPs, the figures being posted by them and those being accepted by the PPIB and NEPRA without much ado.
KESC's action of refusal is additionally a lesson for the nation and for other utilities to follow. It also highlights the requirement that IPPs may only be allowed, if the produced power is available at affordable rates, calculated after most stringent diligence on the part of those responsible for it.
(The writer is Member Central Council IEEEP.)
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