ISLAMABAD: The Board of Directors (BoD) of Jamshoro Power Company Limited (JPCL) has prepared four options as an exit strategy of the company’s generation units including selling unit-1 to K-Electric.
The Board comprising, Irshad Ali(Convener), Shahid Mehmood (Member), Tanzil Rehman (Member) Rashid Ahmad Bhatti(Member) and Tanseer Ahmad, has shared exit strategy prepared under the instructions of the government for further actions. The Board has recommended that in light of the significant role played by Wapda as the majority shareholder, it is imperative to involve them in the corporate winding up process as directors of JPCL BoD hold minimal shares and lack the authority to make strategic decisions without the consent of the majority shareholder.
AsiaPak Investments seeks to convert Jamshoro plant into Thar coal
Establishing a collaborative and consultative approach by the Ministry of Energy (MoE) with Wapda will be pivotal to ensuring a smooth transition.
According to the Board, in the intricate process of winding up JPCL’s existing power generating units, there are multifaceted financial, legal, and regulatory considerations that demand expert guidance. To navigate this intricate landscape, the Board has strongly recommended that Power Division engages the services of a professional consulting firm possessing relevant experience in the power sector.
The Board argued that to streamline the winding up process, the Power Division should establish a dedicated Asset Disposal Committee (ADC) at the federal level whose primary responsibilities would include drafting comprehensive tender documents, conducting a meticulous market valuation of all existing assets encompassing land, building and plant machinery. Furthermore, an in-depth, evaluation of the current shareholding pattern must be undertaken.
2x600 MW coal-fired power project: During the AGM held on July 7, 2023, the Ministry of Energy, particularly the Power Division made a significant announcement regarding a proposal received from K-Electric. The proposal in question pertains to the construction of a robust 2X660 MW Coal-fired power plant in Jamshoro.
However, this announcement was made within the context of a broader discussion concerning the nation’s financial stability and its need to preserve foreign exchange reserves. The primary concern revolves around the substantial resources required to import foreign coal for the operation of the new power plant.
As a result, Power Division has expressed its desire for an alternative proposal from Jamshoro Power Company Limited, with a focus on several key options. Following are those options under discussions and the associated recommendations by JPCL:
Option-1: The existing arrangement be continued, i.e., 80% imported coal & 20% local coal as the COD of the unit 1 is expected by November 2023. For Option-1, JPCL needs foreign exchange for 80 per cent imported coal. Presently, Government of Pakistan is facing shortage of foreign exchange; therefore, the JPCL may face problems for import of coal. However, Afghan coal is available locally and must be explored to be utilised.
The Board stated that due to national level financial crises, the government Pakistan may be unable to inject equity in n Unit-II; therefore, the economic order of only Unit-II may not catch dispatches.
The JPCL is on the verge of attaining the Commercial Operation Date (COD) for LOT-1, a substantial 660MW project scheduled for realisation in the coming months. In preparation for this milestone, the JPCL has taken proactive steps, commencing the tendering process for the procurement of 200-000 MT coal, with no specific country restrictions in place.
Afghan coal has been rigorously tested and received the approval of the boiler supplier, successfully meeting all the necessary specifications.
What further underscores the feasibility of this coal procurement endeavour is the availability of Afghan coal and the requisite funds.
The government has allocated a significant budgetary provision amounting to Rs 9 billion, ensuring that the financial resources for this crucial procurement are firmly in place. This forward-looking approach positions JPCL to fulfil its operational requirements effectively and expediently.
The Board argued that measures are essential to ensure the smooth progression of the JPCL to fulfil initiatives and to address the pressing financial constraints and coal procurement challenges that might impede its operations.
Option-2: Both Unit 1 and Unit-II may be handed over to private sector investors at an economically feasible price so that Unit-1 may be converted to local coal and Unit-II may be installed on local coal. For Option 2, the COD may be held in 2025 or later. Additional cost of $330 million may be arranged by the private sector.
As per present agreement with K-Electric (KE), it is mandatory for the Federal Government to provide 1000-MW to the KE.
The federal government is also paying huge subsides to electricity consumers in Karachi. By opting for option 2, the federal government may save a huge amount of cost incurred on subsidies and requirement of foreign exchange reserves, and while considering Option 2, the JPCL management also highlighted the constraints to haul JPCL-produced power to Karachi.
The Board recommended that private investors be encouraged to participate through proactive measures such as organising on-site roads shows. Additionally, engaging the government of Sindh in investing in both LOT-1 and LOT-II is another avenue to explore. Converting these units to local Thar lignite coal holds the promise of improving the dispatch and merit ranking of JPCL within the National Power Control Centre (NPCC).
This transition will extend the Commercial Operation Date of LOT-1 by approximately 18 months, incurring an additional cost of roughly $ 60 million, along with the daily interest of $ 115,104 during construction (IDC). For LOT-II, a simultaneous approach is necessary for securing funding and achieving financial closure, which involves an investment of $ 303 million.
This can be executed through the establishment of a Special Purpose Vehicle (SPV) or through new investors acquiring shares in JPCL, or a combination of both.
To assess the financial viability of the entire project, the Board has recommended that LOT-1 (660MW) be commissioned as per existing arrangement to reach COD while LOT-2 (660MW) may be awarded to interested private sector entities as per applicable law/ rules based on exclusive local Thar lignite coal utilisation. Once LOT-II is commissioned, the private investor can be encouraged to undertake the conversion of LOT-1 to operate on local Thar lignite coal.
For this conversion option, it is imperative to conduct a comprehensive financial analysis, comparing it to the existing setup.
Therefore, it is strongly advised that the Power Division engage an independent consultant to thoroughly evaluate the feasibility and economic advantages of this option. This analytical step is indispensable for making informed decisions concerning the handover of LOT-II and the conversion strategy.
Option-3: The Board has recommended that Unit-1 may be continued on existing arrangement and Unit–II may be handed over to the KE for installation of machinery on local coal.
The Board has added that LOT-1 shall be sustained under the current model with an 80:20 blending ratio of imported and local coal. In the meantime, the Power Division should actively seek suitable investors as per applicable law/ rules to establish LOT-II focusing on utilising local Thar lignite coal.
Further, a comprehensive technical analysis and inspection would be required by the O&M contractor to determine whether the common auxiliaries already established for LOT- 1 can seamlessly support the operations of LOT-II.
The Board maintained that it is crucial to consider that the combined complex of both LOTs may necessitate certain modifications especially for coal storage facilities that could potentially impact the environment. Consequently, the government may need to obtain the NOC from the Sindh Environmental Protection Agency (SEPA), given that the configuration of the entire complex is subject to change.
Additionally, since the Asian Development Bank (ADB) sponsors LOT-1, their NOC will also be required for the proposed conversion, underscoring the need for thorough regulatory compliance and environmental assessments. The Board further recommended that Lakhra Power Plants may be handed over to the KE so that a new plant may also be installed on local coal.
Lakhra Power Generation Company Limited (LPGCL) operates as an independent entity. As previously discussed, the determination of whether to proceed with any changes must be made by the shareholders of LPGCL during their Annual General Meeting.
However, the Power Division can take the initiative to present the plant to potential private investors once WAPDA, as one of the shareholders, provides its consent for this new operational model. This approach ensures a collaborative and informed decision-making process while keeping all relevant stakeholders in the loop.
Copyright Business Recorder, 2023
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