The Cabinet has 'vetoed' a long-debated proposal of the Ministry of Water and Power regarding import of 1000 MW electricity from Central Asia -South Asia (CASA) until the project's tariff, economic feasibility and other issues are resolved, sources close to the Ministry's Additional Secretary, Zarar Aslam, told Business Recorder.
The project had been overwhelmingly pushed by World Bank, Asian Development Bank (ADB) and US government. Now, ADB is least interested in the project due to geo-political situation of the region. Last year, the Ministry of Water and Power had inked Memorandum of Understanding (MoU) with the Ministers of CASA countries, but did not get Federal Cabinet's nod before signing the agreement.
The Ministry, sources said, had submitted a summary to the Cabinet for ex post facto approval to the MoU and agreement for import of electricity from the CASA market, which was not cleared by the Cabinet in its meeting on April 8, 2009, they added.
"The Cabinet observed that the decision to import electricity could be taken only after its tariff/import price was estimated, and its economic feasibility conclusively established, in comparison with the existing sources including rental plants," sources said.
Official documents, obtained by this correspondent, show that Pakistan's team, IFI consulting teams and the representatives of the US government had met over July 3l-Aügüst 2, 2008 to discuss the CASA 1000 mw project and reached the following consensus, which is to be considered as a recommendation to the IGC for endorsement.
INSTITUTIONAL STRUCTURE The concession would now also include the Kyrgyz-Tajik link (aka AC facilities). The concession company would develop, construct and operate Tajik-Afghan-Pakistan transmission system (aka the DC facilities) as well as construct Kyrgyz-Tajik link. A decision on whether to also include the operations and maintenance of the AC facilities in the concession is under consideration.
TRADING ARRANGEMENTS In the first IGC meeting over VC, it was considered in principle that Barki Tojik (Tajikistan) could be the consolidator in the initial phase which would require Kyrgyz Genco to sell power to Barki Tojik (at the Tajik-Kyrgyz border) on the Kyrgyz-Tajik link (which is part of the CASA 1000 mw project) and Barki Tojik will then sign a single PPA each with DABM/DABS and CPPA. But this was subject to further discussion.
The documents further said that decision was reached to consider concluding a joint commitment of energy from Kyrgyz Republic and Tajikistan. While they may conclude separate direct PPM with the purchasers, they will make arrangements for close co-operation on energy delivery and storage to meet their joint commitment.
LEGAL FRAMEWORK There will be a single concession agreement. The legal advisors will examine the need for host country agreements, one with each country, to capture the country-specific rights and obligations (eg tax, labour laws) and concessionaire's rights and obligations to that country (environmental, social).
ENERGY FLOWS Until additional exportable capacities are developed, Kyrgyz Republic and Tajikistan should together firmly commit 5 TWh flow on average per year through the line during the operating period of the concession agreement (which will be 25-30 years) to be delivered during the summer months. Roughly speaking, Tajikistan should commit to 3 TWh and Kyrgyz Republic to 2 TWh. Exporting countries will invest to cover the load growth and, in doing so, they can maintain the summer surplus.
Once the line is constructed, the options for additional generation include upgrading existing facilities and constructing new generation projects. This could include thermal projects which would allow for non-summer power to be exported. The long-term objective of all the parties is to stimulate additional low cost generation to expand the CASA regional electricity market and all parties agree to ensure the conditions for early implementation of new generation capacity.
INVESTMENT AND FINANCING The inter-government negotiators had recognised that there had been increases in costs, in part because of demand for electricity equipment and in part because of commodity price increases (eg for steel and aluminium). The final project cost will be determined through the bidding process.
For purposes of determining the threshold to be used during the tendering process, the EPC cost to be used will be $774 million (DC: $574 million, AC: $200 million) as estimated by SNC (June 2008 prices). In addition, other costs are included in the total project cost in the model such as supervision by owner's engineer, interest during construction, environment and social mitigation costs, and other financing costs. ADB has noted that this EPC price does not include contingencies. Both components are to be financed 100 percent under CASA-1000 mw project. Additional financiers will be needed to be brought in to fill any financing gaps.
PROJECT TENDERING TRANSMISSION TARIFFS Average transmission tariff estimates for the TSA will be the ones calculated by IFC/Infra Ventures incorporating the assumptions referred to in the investment and financing. These tariff estimates will be adjusted once the final EPC is determined during the tendering process. IFC/Infra Ventures will recommend options for transmission service pricing between sellers and buyers as a basis for TSA negotiations.
WORKING ARRANGEMENTS The countries agree to authorise their advisors to meet for the purposes of advancing the agreement on the commercial terms of the project without the presence of IGC members and the need for formal meetings. However, each country's advisors will be responsible for seeking necessary approval of all proposed contractual terms.
ROLE OF IFC INFRA VENTURES The governments and the IFIs also recognised that IFC/Infra Ventures is contributing to the development of the project by preparing appropriate terms and documents and a financial model for consideration and negotiation by other project parties.
In elaboration of the agreed principle during the first IGC meeting via videoconference, for the early stage efforts and the risk taken by IFC/InfraVentures, an amount equal to 110 percent of the expenses incurred by IFC/InfraVentures will, if the project reaches financial close with a private investor, be convertible into an equity investment in Concession Co.
Each of the governments and the IFIs had acknowledged that IFC/InfraVentures is acting as a surrogate for a private sector project developer and not as an advisor to any government. The government and IFC/InfraVentures will conclude an agreement elaborating this arrangement at the appropriate time. Sources said that the Cabinet has accorded approval of the MoU, which is not binding, as proposed by the Ministry.
Ex post facto approval of the inter-governmental agreement was, however, deferred till tariff/ import price of electricity from these sources was estimated conclusively, established economic feasibility in comparison with the existing sources, including rental plants.