The next phase of expansion in the power generation capacity started in 2015 under the China Pakistan Economic Corridor (CPEC) programme. Power sector projects are a large component of the CPEC. Generation and transmission projects account for 7 of the 11 CPEC projects completed and 6 of the 11 CPEC projects under construction at the end of 2018. In addition, the 15 power sector projects that comprise the CPEC energy priority projects—those initially scheduled for completion by 2020 represent 55 percent of the value of all the projects on the government of Pakistan’s CPEC website with an estimated cost listed ($20.9 billion out of $38.6 billion).
Three-quarters of the new generation capacity to be added to the national grid by the CPEC power sector projects is from coal-fired power plants (see Table). Indeed, the government of Pakistan expects the CPEC power plants to contribute to an expansion of coal’s share in Pakistan’s power generation mix from 3 percent on June 30, 2017, to 20 percent on June 30, 2025.
Between 2016 and 2020, nine CPEC power plants with a total installed capacity of 5,218 Mega Watts (MW) were completed at a total cost of $7.8 billion. 75% of this additional capacity came from the power plants using imported coal as fuel. Another nine power plants are under construction with a planned addition of 6,991 MW to the power generation capacity at an estimated total cost of $12.7bn.
Over the past 20 years Pakistan did not take interest in hydro power generation, pushing instead for thermal power plants which caused the share of hydro power to decline in national electricity generation. Therefore, hydro contribution in total electricity generation has reduced from 45 percent in 1990 to 25 percent in 2020, with much of the remaining 75 percent being thermal power. This has increased the overall cost of power generation in Pakistan because of relying more on non-renewable resources.
Three things were noticeable about Pakistan’s energy policy about the independent power plants since the 1990s. First, though it offered highly generous returns, it provided no incentives to make the plant design efficient. For example, Huaneng Shandong Ruyi Company that built the imported coal power plant of 1,320 MW capacity located at Qadirabad, Sahiwal, was guaranteed a return of equity of 27.2% per the company’s agreement of March 31, 2015 signed with National Electric Power Regulatory Authority. In fact, since the government paid for all operational costs, many thermal IPPs understated their efficiency. Second, the policy was fuel blind, which meant investors were free to set up furnace oil or imported coal based thermal IPPs with the government still covering the cost of the fuel. Finally, with the government guaranteeing returns to investors, there was effectively no competition in the market.
Recently, the government has signed memoranda of understanding (MoUs) with some IPPs. The MoUs provide for changes in the terms of the existing power purchase agreements that will reduce the size of the guaranteed capacity payments or fixed costs paid to the IPPs, a major source of accumulation of the circular debt. The government is expecting savings of Rs850bn over a period of 10 years, following the modifications in PPAs. However, this scheme covers the old IPPs which were set up in the 1990s and 2000s and had consented to the alterations proposed in their power purchase deals with the government. In recent years, the major build-up in the circular debt has been caused by capacity payments to large power projects (mainly under CPEC) set up since 2015. So far, no progress has been made to get the generous terms granted to these companies under the power agreements (PPAs).
Pakistan’s flawed energy policy lies at the core of its recurring crises. The policy attracted investments only in the thermal power as it offered a quick and almost riskless way to make money due to the generous terms offered to the investors. The most difficult and challenging part, that is, managing the distribution was not privatised. As Dr Kamal Munir of Cambridge University wrote in a paper, “the most difficult tasks in the power value chain are more or less all in the public sector’s domain at the moment, i.e., bill collection, and transmission and distribution (T&D), while the IPPs have conveniently kept the “easy” bit, i.e., generation.”
As per the figures available, since 2007 Pakistan has been haemorrhaging 2-4% of its GDP to the prevalent energy crisis “. Energy crisis, as discussed in this two-part of articles, not corruption of a few political leaders, lies at the core of our recent economic crises. Pakistan’s energy crisis must be tackled at both operating and strategic level as it has imposed unjustifiable burden on the poor and the middle class, is a source of international competitive disadvantage for our industry, is a significant contributor to the debt burden and has, in fact, become a national security issue. Unfortunately, all governments have failed to understand the core issues. It is time, we consult professional energy and public finance economists and form a commission to study the energy crisis and sector in a comprehensive manner and come up with policy recommendations aimed at providing a long term and sustainable solution because clearly both the bureaucrats and the conventional wisdom offered by the World Bank and the IMF have failed to provide a sustainable solution.
===================================================================================================================================================================ENERGY PROJECTS UNDER CPEC=================================================================================================================================================================== Project Name Sponsor Fuel Source Capacity Start Completion Cost Current Date Date $mm Status-------------------------------------------------------------------------------------------------------------------------------------------------------------------1 Sahiwal Coal-fired Power Huaneng Shandong Rui Coal 1320 Dec-15 Oct-18 1912.2 Operational Plant, Punjab Group, China (imported)2 Coal-fired Power Plants Port Qasim Electric Power Coal 1320 May-15 Apr-18 1912.2 Operational at Port Qasim Karachi Company (Private) Limited (imported)3 HUBCO Coal China Power Hub Generation Coal 1320 Mar-17 Oct-19 1912.2 Operational Power Project Company (Private) Limited (imported)4 Engro Thar Coal Engro Power Gen Thar LTd./China Coal 660 Apr-16 Jul-19 995.4 Operational Power Project Machinery Engineering (local) Corporation (CMEC)5 Quaid-e-Azam Solar Zonergy Solar 300 May-15 Jul-16 460 Operational Park (Bahawalpur)6 Hydro China Dawood Hydrochina Dawood Power Wind 49.5 Mar-15 Apr-17 112.65 Operational Wind Farm (Gharo, Thatta) Pvt. Limited (HDPPL)7 UEP Wind Farm UEP Wind Power Pvt. Wind 99 Mar-15 Jun-17 250 Operational (Jhimpir, Thatta) Limited (UEPL)8 Sachal Wind Farm Sachal Energy Development Wind 49.5 Dec-15 Apr-17 134 Operational (Jhimpir, Thatta) Pvt. Limited (SEDPL)9 Three Gorges Second and Three Gorges Second Wind Farm Wind 100 Mar-17 Jul-18 150 Operational Third Wind Power Project Pakistan Ltd. (TGSWF) & Three Gorges Third Wind Farm Pakistan Pvt. Ltd. (TGTWF)10 Thar Coal Block & Power Shanghai Electric Power Company Coal (local) 1320 Apr-16 Feb-23 1912.2 Under Plant (Shanghai Electric) Limited/CCTEG and SSRL Construction11 HUBCO Thar Coal Power HUBCO Coal (local) 330 Jan-20 Dec-21 497.7 Under Project (Thar Energy) Construction12 ThalNova Thar Coal IPP Coal (local) 330 Feb-20 Dec-21 497.7 Under Power Project Construction13 Karot Hydropower Karot Power Hydel 720 Feb-17 Jan-21 1698.26 Under Station Company Ltd. Construction14 Suki Kinari Hydropower Suki Kinari Hydro (Pvt) Ltd/China Hydel 870 Dec-16 Dec-22 1707 Under Station, Naran,Khyber Gezhouba Group Company Ltd Construction Pukhtunkhwa15 Power Project At Gwadar China Communications Coal 300 Nov-19 542.3 Under Construction Company (imported) Construction16 Matiari to Lahore 2000 MW Transmission Line Project China Electric Power Equipment and with 10% Technology Co.Ltd. (CET)/State Grid Transmission overloaded May-18 Mar-21 1658.34 Under Corporation of China (SGCC) Line capability Construction17 Thar Mine Mouth Oracle M/s Oracle Coalfields SEPCO Coal (local) 1320 LOI stage LOI stage 1912 LOI stage Power Plant & surface mine and Yanzhou Coal Actively Promoted Projects18 Kohala Hydel Project, AJK CTG/CWEI (China Three Gorges)/(CWE Hydel 1100 Jun-20 2026 2364.05 Under Investment Crop) Construction19 Cacho 50MW Wind Cacho Wind Energy Pvt. Ltd Wind 50 LOI stage LOI stage TBD LOI stage Power Project20 Western Energy (Pvt.) Ltd. Western Energy (Pvt.) Ltd Wind 50 LOI stage LOI stage TBD LOI stage 50MW Wind Power Project Azad Pattan Hydel China Gezhouba Hydel 701 Jul-20 2026 1650 Agreement Project, AJK Group/Larab Group Signed *LOI = Letter of Intent===================================================================================================================================================================Copyright Business Recorder, 2021