The Karachi Electric Supply Corporation (KESC) has awarded the contract for Phase-I of the 220 MW power plant to METKA, EPC contractor, a Greek Company of international repute, whereas Phase-II for 565 MW is under process, it is reliably learnt.
The General Electric (GE) are the manufacturer of the 220 MW power plant consisting of four GTs of 50 MW each and one steam turbine would add approximately 20 MW. The EPC cost of the project is around 186 million dollars including approximately 11 million dollars for chiller equipment.
According to a source in KESC, the bids for new power plant Phase-II of approximately 565 MW are in the process of evaluation and the contract is likely to be finalised shortly. The new power plant project Phase-I and Phase-II would be financed through medium and long-term financing facilities from local and international financial institutions, in addition to equity injection, as under:
International Finance Corporation (IFC) 125 million dollars, Asian Development Bank (ADB) 150 million dollars, syndicate of local banks Rs 12,500 million, and equity financing by KES Power and Government of Pakistan through Redeemable Preference Shares (RPS) Rs 6,000 million.
These financing arrangements would be utilised in a phased manner according to the requirement of funds for Phase-I and Phase-II of the new power plant. The cost estimate and efficiency level of the new power plant favourably match rather excel the benchmarks set by National Electric Power Regulatory Authority (Nepra) and would as such be approved by Nepra.
The evaluation of bids had been carried out in a highly professional manner by the consultants of international repute. The contract with METKA has been legally examined through in-house lawyers as well as external experts on contract laws aiming at safeguarding interest of the Company.
The setting up of a new power plant had been one of the top priority areas of the new management from day one and various proposals had been under consideration. Siemens power plant of 830 MW was also evaluated but could not be finalised because of unfavourable delivery schedule. Advance payment of Euro 25 million to Siemens has been refunded except retention money of Euro four million, which would be received back shortly.
At the last extraordinary general meeting of KESC Ltd, the Chairman had informed that 75 percent of equity injection through RPS, viz Rs 4.5 billion would be contributed by the new owner. This is in addition to initial investment of 265 million dollars at the time of privatisation of the Company in November 2005.
The medium and long-term financing facilities of upto Rs 37 billion being availed from local and international financial institutions were successfully managed with the sponsors' support and guarantee. Insofar as retention of KESC shares by the new owner is concerned it is mandatory for them to hold majority shares in the capital of the Company, following the agreement with Government of Pakistan.
The extraordinary general meeting had resolved and approved issuance of additional share capital to IFC and ADB without making a right share. The turn around strategy devised and actively pursued by KESC management with the complete support of major shareholders, is likely to produce improved operational and financial results which would benefit all the stakeholders, especially the minority shareholders during the future years.
The subscription of shares by IFC and ADB, the Chairman believed, would send a positive signal to all stakeholders. Some of the benefits that will accrue to KESC would be that the equity investment from multilateral institutions would greatly enhance KESC's image and profile.
KESC could draw upon the resources, expertise and best practices from these financial institutions, as they have considerable utility experience in other countries. The services offered by IFC include a tariff rationalisation seminar based on experiences from financing of electric utilities eg in Brazil and India. Besides this a grant of seven to eight million dollars is being provided for financing low-income connection regularisation schemes.
Improvement in corporate governance, as these financial institutions will independently assess the KESC operations and will provide feedback for corrective actions, thereby improving the monitoring, financial reporting and evaluation system.
The rate offered on the long-term facility has been reduced during the construction phase and for the remaining period this saving in interest cost is considered as a premium paid by IFC/ADB for obtaining the loan to equity conversion option.
The estimated saving from reduction in interest rate would be 14.50 million dollars, and estimated saving due to reduction in outstanding balance, assuming option is exercised in 2010 would be 14.00 million dollars. The total savings would thus be 28.50 million dollars.