I joined the Private Power and Infrastructure Board, an autonomous organisation within the Ministry of Water and Power, with governmental responsibility for overseeing all private independent power plants (IPPs) above 50 MWs in Pakistan in 2005. The last IPP had been built in 1996 under the 1994 Power Policy and no new IPP had been set up for over 10 years by 2005, under the present 2002 Power Policy.
Then like now, there was confusion on the way forward, the model documents needed to encapsulate the entire construction and operation of private power plants had not been made, Nepra was in its infancy with teething problems, long term supplies of natural gas were missing but most crucially I felt an absence of direction, of leadership. This absence I believe is caused by a proliferation of power sector institutions with often overlapping jurisdictions ranging from Wapda, PPIB, Nepra, MoW&P, MoP&NR, NTDC not to mention the host of international institutions like the World Bank, ADB, local companies like PSO and SNGPL all offering their two cents worth often at variance with each other.
The key impediment at that stage was simply to develop a financeable model/system for private oil and gas-based power plants which required an unbiased neutral market approach to the different competing interests, eg, sponsors versus oil suppliers. That these problems in relation to oil and gas fired IPPs were solved was down to a few good men, working tirelessly, who came up with out-of-the-box solutions the results of which are only now being seen eg the addition of 3,000 MWs of power to the grid system this year.
A start was made with the oil and gas IPPs, but the next stage of development, ie the longer gestation private coal and hydro power plants have almost completely failed to take off in the private sector (only the 80MW New Bong IPP is under construction). Thankfully Wapda is still here and it has managed to an extent to fill-in the hydro-void through scarce publicly financed hydro plants eg Tarbela extension, Neelum Jhelum etc.
No coal-fired power plants have been established as yet, though AES and Engro appear to be serious prospects. The problem is that Pakistan cannot afford the cost of generating electricity from oil or for that matter gas (imported LNG is expensive) while the long timeframe for new coal and hydro plants make them unfeasible to solve Pakistan's present power crisis.
Two solutions come to mind, one, which would be in the realm of orthodoxy though somewhat expensive, the second is cheap, but a risk as it has not really been tried before in any country on a large scale.
Firstly, the LNG market is a seller's market as demand outpaces supply. LNG is natural gas, which has been converted temporarily into liquid form (after liquefaction), put in a cryogenic sea vessel for transport and subsequently regasified at an LNG terminal at the point of destination and pumped through the gas pipeline system to the place of its use. LNG trade is completed by the signing a sale and purchase agreement (SPA) between a supplier and receiving terminal and by the signing of a gas sale agreement (GSA) between a receiving terminal and end-users.
The contract period used to be between 20 to 25 years but is increasingly shorter. The SPA and GSA are indexed, in Europe and the USA, to the international price of oil. All that Pakistan needs to do is establish a regasification facility, which can be done within 2 years.
The template for establishing gas-fired IPPs is already present, the sponsors and lenders can be found once the gas is made available. The downside? Price will be linked to international oil and there is no guarantee of assured long term gas supplies. Even weekly disruptions will have a profound effect. It will be expensive (final figures are not available) and perhaps unreliable and will only produce about 2,500 MW of electricity. The present gap is about 6000 MW and rising, no matter what the official figures say.
Secondly, China is running out of coal. It has according to "BP Statistical review of world energy June 2007" about 48 years of supply at current rates of consumption. After relying, until recently, on older technology coal plants, "China has since become the major world market for advanced coal-fired power plants with high-specification emission control systems," the International Energy Agency said in a report on April 20.
By adopting "ultra supercritical" technology, which uses extremely hot steam to achieve the highest efficiency and by building many identical power plants at the same time, China has cut costs dramatically through economies of scale. It now can cost a third less to build an ultra-supercritical power plant in China than to build a less efficient coal-fired plant in the United States.
The Chinese plan further calls for closing older technology coal plants supplying 13 GW in 2009 an additional 10GW in 2010 and a further 8GW in 2011. These older coal power plants will be replaced with newer plants having a combined capacity of 50 GW. China's coal plants used on average 370 grams of coal per kilowatt-hour, but by using newer technology this was reduced to 349 grams per kilowatt-hour in 2008, with some plants using 283 grams of coal.
What should Pakistan do? Buy the older technology coal plants at just above their junk value. There are dozens of these waiting to be scrapped. I wouldn't have thought that this would cost more than US $100 million a plant maybe double this at the most. A new US-supplied coal plant supplying 600 MW would cost about US $2 billion. Extra plants may be bought just for the spare parts.
A large number, if successfully operated, could mean we don't have to use our expensive oil-fired plants with consequential huge foreign exchange savings. What about the coal you may ask? There is no way around building a coal mine as the price of international coal has reached US $130 a ton (depending upon the type of coal and distance) and is rising along with oil prices. A large mine would cost in the region of US $300 to US $500 million and take between 1 to 2 years to develop (very few people know whether surface or underground coal mining would be required in Thar).
We should ask USAID to tender and finance this and the equipment can be imported from an American supplier. This is just the type of high public impact, limited administrative oversight, no corruption deal the US might buy. A desalinisation plant (one is being built apparently) costing about US $200 million would also be needed. Again request the US from the US $1.5 billion annual civil aid. In both worst case scenarios, this is self-financeable by the GoP.
This second option would with say 10 power plants of about 500 MW capacity (5,000 MW) cost US $1 billion, coal mine a further US $500 million and desalinisation plant US $200 million making a total of US $1.70 billion. About US $500 million (perhaps more) might be required for other items like roads, telecommunications, transmission lines, small airport etc. Dismantling, transportation and assembly of the coal plants would require Chinese technical and financial (free please) assistance.
A total of US $2.0 to US $3.0 billion in two years could give our electricity woes a quick fix for a significant number of years. US and Chinese assistance could lower this figure even more for Pakistan, giving it the time needed to marshal its resources for the costlier new plants and associated infrastructure to be brought on line. Worth a gamble?
(The writer is a Barrister and former chief legal of Private Power & Infrastructure Board)
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