In response to Power Policy 2002 proposals for setting up as many as 63 power projects with a cumulative capacity of over 13,000 MW are under process by the private power and infrastructure board of the ministry of water and power. These include 41 thermal power projects based on oil, natural gas and coal, which are planned to come on stream much faster than the hydroelectric power projects, out of which Letters of Interest (LOIs) have already been issued to sponsors of at least six projects.
These include three dual-fuel (gas and oil) projects of cumulative 500 MW capacity, two based on low BTU gas of cumulative 300 MW and one oil-based project of 150 MW capacity. The sponsors of three projects have recently completed feasibility studies and are currently negotiating tariff with NEPRA (National Electric Power Regulatory Authority), whereas further processing for achieving financial close is in advanced stage.
Another three projects, based on gas and oil-gas dual fuel, of total 1,400 MW capacity are scheduled for international competitive bidding (ICB) in April 2005 and onwards. These power projects are based on various thermal power technologies, such as diesel engine, gas turbine, steam turbine and combined cycle.
In fact, a reasonable engineering and manufacturing base for the production and supply of machinery and equipment for energy projects exists in the country. The industry, in public and private sector, is in a position to achieve indigenisation level to the extent of 30 percent to 35 percent by value and much higher by weight, for various power projects.
These industrial units, notably Heavy Mechanical Complex (HMC), Karachi Shipyard & Engineering Works, Siemens (Pakistan) Engineering, Heavy Electrical Complex, Johnson and Philips, HMC-3 and DESCON Engineering, have the requisite resources and facilities to deliver mechanical and electrical equipment, at competitive prices and of international quality.
Their dozens of engineers and technicians have been trained in Germany, Japan and China to keep abreast with the latest manufacturing techniques and quality control procedures specifically related to power plant equipment. The manufacturers have the qualification of prestigious ASME (American Society of Mechanical Engineers) stamps for the power boilers, pressure vessels and pressure piping.
The mechanical equipment supplied by these companies to thermal power projects in recent past, mainly to WAPDA and KESC, include utility boilers (covering high pressure parts for utility boiler such as headers, economizer, preheater, superheater, membrane walls, high pressure piping, and almost all the non-pressure parts), steam condensers, vessels and tanks, heat exchangers, pumps, cooling towers, ducts and piping, cranes and steel structure.
Most of the equipment was supplied in technical collaboration with foreign partners from Germany, Japan, China and UK under strict quality control and as per international codes, duly tested/checked and or witnessed by third party inspection authorities such as Lloyds Register & Shipping, ABC, Bureau Veritas and TUV.
The list of supplies include a variety of electrical equipment such as transformer, switchgear, control panels, cables etc, besides other mechanical equipment and accessories of a power plant. To encourage indeginisation, the policy makers have earmarked power projects with a cumulative capacity of at least 2,000 MW by the year 2015, for development by local engineering industry through formation of joint ventures with foreign companies.
The government allows concessions from custom duties etc on imports related to specified sectors or projects, either in public sector or private sector, only in case the goods are not manufactured domestically. To encourage use of goods produced in the country, the Central Board of Revenue notifies, and regularly updates, the list of such machinery, materials and intermediary items, under the Customs General Order (CGO).
The latest CGO No. 10 of 2003 dated 7th October 2003 relates to consumables, whereas CGO No. 12 of 2002 dated 15th June 2002 covers machinery and equipment, indicating comprehensive list of design and engineering services and machinery and equipment available locally for various industrial sectors including energy.
The related Customs General Order No. 12 of 2002 dated 15th June 2002 covers comprehensive list of design and engineering services and equipment for complete thermal power plants, separately for conventional steam power, combined cycle power, and coal-fired power plants of various capacities.
Plant machinery for a conventional steam power plant may generally have the break-up as follows: Boiler Equipment, constituting 28-35 percent of the total plant, Turbine and generator, 15-18 percent, Mechanical Equipment or Balance of Plant, 30-38 percent, and Electrical Equipment, 16-20 percent.
For a combined cycle power plant, the boiler (or heat recovery steam generator) equipment will constitute relatively a lower portion of the plant, whereas coal-fired power plant will need additional equipment such as coal firing, handling and storage equipment, ash handling equipment, etc.
According to the CGO, almost all the boiler equipment, mechanical equipment and major electrical equipment is produced locally. Similar is the case with the hydroelectric power projects, for which components of turbines, gate equipment, cranes, electrical equipment and miscellaneous mechanical accessories are manufactured within the country, and the industry has the requisite references.
As each project has to be engineered according to selected technology, configuration and site conditions, the technology for major equipment, however, has to come essentially from foreign sources. In spite of recognized domestic capacity and capability, none of the project-sponsors have shown any interest so far to availing the facilities optimally for manufacturing of machinery required for the respective power plants.
On the contrary, sponsors propose to appoint Engineering, Procurement and Construction (EPC) contractors to undertake project implementation on turnkey basis. While they are assured of international quality and reliability, and are aware of cost savings, in terms of transportation in particular, they are reluctant to support local industry mainly due to lack of confidence for timely delivery of locally manufactured machinery.
Resultantly, the sponsors have their apprehensions in that implementation of the whole project may delay, causing not only penalties but also generation and consequential losses. To avoid such a scenario, sponsors may rather not ask for concessionary rates of duties otherwise applicable, and would prefer to import equipment that otherwise is manufactured locally.
In view of past record of our engineering industry, which is constrained of technology assimilation and dependent on imported materials, the apprehensions may be genuine on the part of the investor. Looking at other side of the story, one observes that engineering industry has not geared up to market its products and services effectively in international environments.. The industry has not taken any initiative in this regard though more than two years have lapsed since the policy in vogue was announced.
Sadly, there are no joint ventures proposed as yet, either with technology partners or with project sponsors, or collaboration agreements signed with international companies for up-gradation and acquisition of new technologies. The industry has neither developed a firm understanding with any project sponsor for major sub-contracting and/or technology transfer by their proposed equipment suppliers.
The present situation will deprive our engineering industry of not only a substantial share of orders for manufacturing and supply of machinery, but also the opportunity to assimilate requisite modern technology in the area. Our dependence on foreign resources would continue to grow in future and huge investments made earlier in terms of creating design, engineering and production facilities will go down the drain.
On the other hand, if the local industry is associated in power projects to the maximum, it will provide momentum to the cherished goal of self-reliance, resulting in contributing largely towards import substitution, besides reduction in capital cost of the plant and thus minimising electricity generation cost. Other multiplier benefits of indigenisation include, in this case, safeguards from exploitation of industrialized countries, exposure to modern business management and technologies, additional job opportunities and developing a long-term dependable energy programme. Given the emerging national energy scenario, there is strong justification for making more effective the institutional and regulatory framework to promote indigenisation.
The growing role of private sector in industrial progress and economic growth, particularly through foreign direct investment, is well recognized, but at the same time, the importance of engineering industry as a catalyst in overall development strategies can not be undermined. Thus, there is a need to optimize indigenisation for thermal power plants on priority, of course, without compromising the interest of the entrepreneur.
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