ISLAMABAD: The government has decided, in principle, to convert public and private thermal power plants to cheaper fuels due to rising furnace oil prices and depleting gas quantities, sources close to Minister for Water and Power told Business Recorder.
"We are offering substantial incentives to the IPPs which intend to covert furnace oil technology to cheaper fuels. Power sector experts in the Private Power and Infrastructure Board (PPIB) have finalised the plan and now it is being discussed with stakeholders before its presentation to the ECC," sources said.
Although conversion on furnace oil or coal is not a viable option for combined cycle gas-based power plants, there are alternative fuels--LNG/diesel/naphtha--which can be used either with minor or no modification. For conventional steam turbine thermal units, the best option would be conversion from furnace oil to coal to benefit from savings in fuel cost component, sources added.
According to thumb-rule-calculations, for conventional steam units of gencos and four IPPs, saving would be $8.04 billion, annually, or $120.6 billion in 15 years. "Pakistan's thermal power generation capability is currently facing a dilemma of rising oil prices and depleting gas quantities. This has resulted in build-up of huge circular debt, running in billions of rupees. It has become a major bottleneck for new private investments in the power sector."
According to sources, notwithstanding the benefits that may be accrued, the conversion from oil to coal may involve different issues/hurdles eg involvement of new capital costs, outage time to dismantle old boilers and assemble/commission new ones, additional auxiliary consumption, thereby reducing the net generation capacity, higher O&M costs, limitation of space for coal storage & ash handling, probable reduction of efficiency, availability of coal, and environment degradation.
PPIB has carried out an in-depth analysis of potential problems and has concluded that the conversion option might be viable, despite the issues, if the processing thereof is made simple and incentive-based, sources added.
The incentives, which are expected to be offered to the IPPs, are as follows: (i) IPPs will be given one year (or less if their conversion plan require less time) for conversion, during which they will be provided half of their escalable tariff component (which covers their returns, etc) and full non-escalable tariff component (which covers their debt servicing); (ii) any saving that would be achieved due to switching of fuels (which is expected and shown above as huge) be shared equally among the IPPs and the power purchaser; (iii) power purchaser will be allowed to legalise the arrangement and any extensions in the term of power purchase agreements with IPPs through side agreements without requiring any approval from any government agency/regulator; and (iv) for gencos, the procedure would be much simpler than IPPs, because they do not have to bother about the escalable or non-escalable (as well as debt servicing) or amendments in the agreements. They would simply outsource the conversion without paying any direct cost and by sharing the benefits with the firm that would convert the power complex to cheaper fuel.