The Turkish vessel, Kaya Bey, has finally arrived at the Karachi harbour, carrying the largest ship-based power plant. Her power plant has 19 engines, which are all furnace oil based. Three are brand new while the remaining 16 are re-furbished implements geared towards generating electricity.
The engine technology is rated at 47 percent efficiency and 90 percent availability. A Turkish private company, Karkey, won the contract in international bidding held by PPIB. Six other companies also remained in the bidding. The barge with a flat bottom, used for producing power, lies at anchor off Karachi coast. The power ship is under supply contract with GENCO IV; it's expected to supply 232MW to KESC as part of the 600MW contract between KESC and Wapda. Its commissioning is expected to help reduce the existing supply-demand gap within the country. However, the demand-supply gap in relation to Karachi would continue to persist until KESC's own power generation capacity gets a significant boost. Moreover, an uninterrupted gas supply that the Sui Southern Gas Company has committed to the KESC is also crucial for this utility's energy prospects.
Two facts need to be noted with respect to the ship-based power plant. First, there was a considerable delay in the execution of the project. The original contract and an amended or restated contract were signed on December 5, 2008 and September 16, 2009, respectively. Second, Karkey II for 222 MW at Mean Site Conditions at 132 kV level with the contract price (lump sum price for 60 months) was recommended for discontinuation by the third-party audit undertaken by the Asian Development Bank. That contract was estimated at 534.8 million dollars.
The down payment was to be 74.9 million dollars against an advanced payment guarantee of the seller valid for 30 days after the target COD. The monthly service fee was 7.6 million dollars after acceptance of the COD and the fuel cost component was 6.344kWh of net energy delivered to 132 kV NTDC. Given the controversy that continues to surround the RPPs it is relevant to note some of the conclusions drawn by the third-party audit with respect to this particular rental power project. Karkey was one of the eight RPPs recommended by the audit to be approved because the project contracts had been signed and advance payment made.
All those RPPS whose contracts had not been signed were recommended to be discontinued like Karkey II. The report added that tariffs would rise by 45 percent after the installation of RPPs and more than 5 billion dollars would have to be paid to the power plants in five years. Even if all the RPPs (14) were installed it would not end loadshedding, the report warned. And most damning of all the third-party audit report stated that electricity rates would have to rise by 24 percent in case the 8 power plants that were recommended to continue were installed. The report argued that changes were made in favour of the sellers after signing the agreement, a condition that is pertinent to Karkey RPP, and rental power plants were to be given 14 to 22 cents per kilowatt. Of the eight RPPs approved, Karkey has a rent at 5.89 cents per kilowatt per hour - the highest among the eight approved RPPs - plus fuel charges quoted at Rs 46,000 per tonne, raising the tariff to 14 cents per kWh. At existing furnace oil rates, tariff would be higher by one cent or more.
Be that as it may, it is equally evident that a cash starved country would be willing to accept energy at whatever cost even though the government is rightly held responsible for at least half of the shortfall through failure to curb transmission losses, inability to compel the federal and provincial government departments to pay for the energy consumed and, last but not least, ensuring the elimination of the inter-circular debt. All talks aimed at seeking damages for delays, as per contract terms, would not help improve the investment climate. The last tender held by PPIB for IPPs received only one bid! Investors are shying away as financing at local level has virtually dried up in a country that faces the grim prospect of further economic slowdown owing to a variety of reasons.
Rental power projects are only a quick-fix short-term solution. The real challenge lies in tapping all forms of domestic sources to meet the growing energy needs of the economy. This involves in exploiting the hydel potential as well as coal resources to the fullest. In addition, conditions need to be created to beef up exploration of oil and gas and also speed up completion of nuclear power plants on a timely basis.
It is interesting to note that as many as 19 agencies are presently entrusted with the job of planning and approving projects and tariffs. An integrated energy plan was presented to this government some 24 months ago to overcome the disjointed system, however, unfortunately lies collecting dust in the Prime Minister's office. It is increasingly clear that Pakistan needs to merge the water and power ministry with the ministry of petroleum and natural resources with a view to creating a unified energy policy formulation entity. The country needs to have an economic czar heading a unified and focused institutional arrangement. Its energy objectives in particular need to be precisely delineated.
The Council of Common Interests is one such constitutional forum where federal and provincial disagreements can be adequately addressed and where a common platform for the general good of the economy can surely be found. Both thermal and hydel power projects are high capital-intensive with long gestation period. They generally make it obligatory for the federal government to issue sovereign guarantees. Energy inputs such as coal and gas are provincial subjects. A holding company with requisite shareholding between the centre and a province, or provinces as the case may be, can be undertaken for an equitable and judicious payback strictly in accordance with a constitutional arrangement. The government is required to take these or similar steps without any further loss of time. It beggars belief how things in energy sector could have got this bad.
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