Frequently Asked Questions (FAQs)

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What do you know about Pakistan?

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What do you know about the Punjab province of Pakistan?

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What is the organizational structure of Pakistan’s Power Sector?

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What is the total installed generation capacity in Pakistan?

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How many IPPs are functional in Pakistan?

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Why has private sector been inducted in power generation?

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Why were One-Window facilities created at federal and provincial levels as dedicated institutions to handle Private Power Projects?

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What is the institutional structure of power sector in the Province of Punjab?

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Why to invest in energy sector of Punjab?

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What is the minimum equity requirement to finance IPPs in Pakistan?

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What is the rate of return on equity investment in Pakistan?

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What is the structure of projects’ capital cost for power projects in Pakistan?

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What is meant by ‘Financial Charges’ component of projects’ capital cost for power projects in Pakistan?

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What is the repayment period of debt in the tariff structure of ‘Reference Generation Tariff’?

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What is the ‘Financing Cost’ reckoned in the tariff structure of ‘Reference Generation Tariff’?

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Induction of IPPs has resulted in increase in consumer tariff. Is it true?

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What is the average residential and industrial tariff in Pakistan?

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Is the average residential and industrial tariff in Pakistan is higher than other Asian oil-importing countries?

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Are IPPs in Pakistan getting their invoices settled in time from Power Purchaser (NTDC/DISCO)?

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What type of Security Documents shall be available for Punjab based On-Grid IPPs?

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What are the problems of setting up Power Projects in Private Sector?

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What type of efforts is being made by Government of the Punjab in providing financial assistance for speedy development of power projects in private sector?

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Who determines generation tariffs for IPPs?

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What are the basic principles of structuring generation tariff?

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What are the basic principles of structuring transmission tariff?

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What are the basic principles of structuring distribution tariff?

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What are the main categories of electricity consumers of distribution companies?

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What is the situation of power generation potential resources of Punjab Province?

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What quantum of coal is required for a 50 MW coal based power project?

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Where coal shall be imported from?

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What is the coal resource potential in the country?

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What are the difficulties in mining coal from THAR?

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What efforts are being made to develop power projects based on Thar Coal?

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Instead of conventional mining why underground coal gasification projects are not being initiated?

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How much coal is being imported into Pakistan?

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What is the prevalent Tariff for Industrial Units?

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What is the Reference Tariff for different technologies?

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Where can one find data/information on status of power projects under development in Punjab?

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What is the model of hydropower project implementation in private sector?

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What is the construction time required for development of hydropower project?

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What is the concession period for hydropower projects?

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Which are the major hydropower plants in Pakistan?

 

What do you know about Pakistan?

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Pakistan is situated between latitude 33 42 ́ North and longitude 73 10 ́ East. On the west border of the country is Iran, India is on the east, Afghanistan in the north-west, China in the north and the Arabian Sea is on the south. Pakistan has a strategically advantageous location vis--vis being a geographical centre of the Asian Continent. Forming a bridge between the Middle East and the Far East, Pakistan can be a hub for trade and communication. A wide transportation network complements this strategic placement. With three major international airports and 38 domestic airports, Pakistan serves more than 50 international airlines. Pakistan also has Karachi, Port-Qasim and Gawadar sea ports.

 

Pakistan has a continental type of climate, characterized by extreme variations of temperature. Very high altitudes modify the climate in the cold, snow-covered northern mountains. Temperatures on the Balochistan Plateau are somewhat higher. Along the coastal strip the climate is tempered by sea breezes. In the rest of the country temperatures rise steeply in the summer and hot winds blow across the plains during the day. The daily variation in temperature may be as much as 11 degree C to 17 degree centigrade. Winters are cold with minimum mean temperature of about 4 degree centigrade in January.

 

Basic Facts:

Official Name

Islamic Republic of Pakistan

Capital

Islamabad

Area

796,096 sq. kilometers

Location

South Asia

Geographic Co-ordinates

latitude 33 42́ North and longitude 73 10́ East

Climate

Hot & humid summer, dry & cold winter

Population

170 millions

Religion

Islam (Muslims 97%)

Languages

English/Urdu

Currency

Rupee (US$ 1 = 94.46, 11th October 2012)

Sea ports

Karachi, Port-Qasim, Gawadar

Dry ports

Lahore, Rawalpindi, Sialkot, Faisalabad, Peshawar and Quetta

International Airports

Karachi, Lahore, Islamabad, Peshawar, Sialkot and Quetta

Installed Generation Capacity

23412 MW

No of Electricity Consumer

22.42 million

Per Capita Electricity Consumption in Pakistan

approx. 465kWh/annum

 

 

 

What do you know about the Punjab province of Pakistan?

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Punjab also spelled Panjab, is the most populous province of Pakistan, with approximately 55.06% of the country's total population. Forming most of the Punjab region, the province is bordered by Kashmir (Azad Kashmir, Pakistan and Indian occupied Jammu & Kashmir) to the north-east, the Indian states of Punjab, Rajasthan, and Gujarat to the east, the Pakistani province of Sindh to the south, the province of Balochistan to the southwest, the province of Khyber Pakhtunkhwa to the west, and the Islamabad Capital Territory to the north. The Punjab is home to the Punjabis and various other groups. The main languages are Punjabi and Saraiki and the dialects of Mewati and Potohari. The name Punjab derives from the Persian words Panj (Five), and Āb (Water), i.e. (the) Five Waters - referring to five tributaries of the Indus River from which is also the origin of the name of "India" - these being Jhelum, Chenab, Ravi, Beas and Sutlej, that flow through the larger Punjab.
 

Punjab is the most developed, most populous, and most prosperous province of Pakistan. Lahore has traditionally been the capital of Punjab for a thousand years; it is Punjab's main cultural, historical, administrative and economic center. Historically, the Punjab region has been the gateway to the Indian subcontinent for people from Greece, Central Asia, Iran and Afghanistan and Vice-versa. Due to its strategic location, it has been part of various empires and civilizations throughout history, including the Indus Valley Civilization, Vedic civilization, Mauryans, Kushans, Scythians, Guptas, Greeks, Persians, Arabs, Turks, Mongols, Timurids, Mughals, Afghans, Sikhs and the British.

 

 

 

What is the organizational structure of Pakistan’s Power Sector?

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WAPDA (Water & Power Development Authority) Power Wing:
Pursuant to WAPDA Power wing restructuring Program-1992, Power wing of WAPDA has been unbundled into following segments:
 

A) Generation
WAPDA Hydroelectric comprising hydro power stations (Tarbela, Mangla, Warsak, Ghazi Barotha etc.) located all over the country with installed capacity of 6443.16 MW. National Electric Power Regulatory Authority (NEPRA) grants blanket/collective Generation Tariff for all of these hydropower stations.

WAPDA owned thermal power stations have been configured into four independent generation companies commonly named as GENCO-I, GENCO-II, GENCO-III and GENCO-IV (XWAPDA GENCOs).

 

B) Transmission
In order to own, operate and maintain 220 kV and 500 kV Grid Stations and Transmission Lines/Network previously owned by WAPDA, a company named as National Transmission & Despatch Company Limited (NTDC) was established. NEPRA granted Transmission License to NTDC on 31st December 2002. Under the regime set out in the License, the NTDC is entrusted to act as:

  • Central Power Purchasing Agency (CPPA): As CPPA, the Company is responsible to procure power from XWAPDA GNECOs, WAPDA Hydroelectric and Independent Power Producers-IPPs (under Federal Power Generation Policies of 1994 and 2002) on behalf of Distribution Companies (XWAPDA DISCOs), for delivery through 500 kV, 220 kV and 132 kV network.

  • System Operator: For secure, safe and reliable operation, control and despatch; generation facilities located all over the country have been connected with the National Grid. Commonly, it is also referred to as National Power Control Center (NPCC) located at Islamabad.

  • Transmission Network Operator: For operation, maintenance, planning design and expansion of the 500 kV and 220 kV transmission network.

  • Central Contract Registrar and Power Exchange Administrator (CRPEA): As CRPEA, the NTDC is responsible to record and monitor contracts relating to bilateral trading system. 

Besides, above mentioned organization structure of NTDC, WAPDA Power Privatization Organization (WPPO) is also functioning under the administrative control of NTDC. Primarily, it deals with IPPs under Federal Power Policy-1994 and is also responsible for negotiating and finalizing the Power Purchase Agreement (of above 50 MW capacities) between NTDC and Private Power Producers falling under the ambit of Federal Power Generation Policy-2002.

For inference, NTDC may be referred to as a Vehicle for acquisition of power generated by generation facilities (under public and private sector) and delivery thereof to distribution companies for ultimate dissemination of electricity to different categories of end consumers.
 

C) Distribution
WAPDA owned eight (08) distribution units (named as Area Electricity Boards) have been configured into independent Distribution Companies-XWAPDA DISCOs (duly incorporated by Securities and Exchange Commission of Pakistan). Two additional DISCOs, namely Sukkur Electric Supply Company (SEPCO) and Tribal Areas Electric Supply Company (TESCO) have also been carved out of these XWAPDA DISCOs. These DISCOs are responsible for channeling electricity from the transmission substations below 220 kV to the consumers at different distribution voltages. The end users are classified as residential, commercial, industrial, agriculture, bulk supply and street lighting etc. The distribution network is composed of lines and grid stations of 132 kV and lower voltage capacities, and each DISCO is responsible for constructing, operating, and maintaining the power distribution facilities within its dedicated geographic area.

One-Window Facilitators for Private Power Producers:
Private Power & Infrastructure Board (PPIB) at federal level is responsible for promoting, evaluating and negotiating private investments in the electric power sector all over the country. It also reviews Feasibility Studies and Implementation Time Tables.

  • Similar to PPIB, Alternative Energy Development Board (AEDB) plays the role of One-Window facility with respect to renewable energy based power projects in the country

  • Likewise PPIB and AEDB, One-Window facilities have also been established at provincial levels like PPDB and SHYDO etc. in Punjab and KPK respectively

National Electric Power Regulatory Authority (NEPRA):
As evident from the name, NEPRA plays the role of regulator (established under the NEPRA Act, 1997) with respect to power sector of the country as a whole. NEPRA, interalia, has been mandated to regulate the provision of electric power services including determinations of electricity tariff, rates, charges and other terms and conditions for supply of electric power services by the generation, transmission and distribution companies.
 

Independent Power Producers (IPPs):
Generation facilities based on different fuels have been established in Pakistan under federal power generation policies issued from time to time.

 

 

 

What is the total installed generation capacity in Pakistan?

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Total installed generation capacity in the country is 23,412 MW.

 

 

 

 

How many IPPs are functional in Pakistan?

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At present there are 27 private power projects with an installed capacity of about 6870 MW which are in operation. In addition Kot Addu Power Company (1650MW) and KESC power plants (1946 MW) are also operating in the private sector.

 

 

Why has private sector been inducted in power generation?

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Power shortage had been one of the chronic problems hampering Pakistan's socio-economic growth since late 1980s; the problem had assumed such acute dimensions that power supply fell short of demand by almost 2000 MW during peak load hours. On a routine basis, this resulted in forced interruptions in the supply of electricity to consumers during peak hours resulting in load shedding. The unreliable power supply shattered the industrial progress. There was a gap between demand and supply due to the rapid increase in electricity demand (estimated to be growing at a rate of 7-8 % per annum at that time).

 

This situation called for immediate intervention by the GOP through adoption of policy measures aimed at massive resource mobilization for investment in the power/energy sector. The enormous quantum of required investment compared with the constrained funding potential of the national exchequer, was not conducive to allocation of scarce GOP funds for power/energy. Therefore, the GOP took a bold initiative in late 80s to induct private sector investment in the power sector.

 

 

 

Why were One-Window facilities created at federal and provincial levels as dedicated institutions to handle Private Power Projects?

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Developing power generation capacity is very capital intensive. Such amounts cannot be carved out from the annual budget of federal government. As such in late eighties the Government of Pakistan made in principle decision to seek private sector investment in power generation. Attracting investment of that big magnitude require a team of highly qualified professionals who are trained in project, financial and contract management / analysis beside being courteous and imbued in corporate culture. Long and tedious experimentations by various governmental agencies on part time basis with HUBCO (the first private sector power generation project) and other prospective Independent power Producers (IPPs) in late 1980's convinced the government to create a dedicated organization having roots in government but having a corporate look that could provide a suitable interface to private sector entrepreneurs, their consultants, lawyers, and lenders feel easy to approach, Private Power and Infrastructure Board(PPIB) was created as a dedicated one window facilitator for attracting private investments in power sector. Similarly, One-Window facilities like Punjab Power Development Board (PPDB) and Sarhad Hydro Development Organization (SHDO) were also established at provincial levels.

 

 

 

What is the institutional structure of power sector in the Province of Punjab?

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Government of the Punjab established Energy Department so that the province could contribute in the generation, transmission, distribution and conservation of power. Punjab Power Development Board (PPDB), working under Energy Department, provides a ‘One-Window Facility’ to private investors for implementation of IPPs in the Province under Punjab Power Generation Policy, 2009. Punjab Power Development Board Act, 2011 has been promulgated to provide legal cover to the activities of PPDB. To stimulate development of power projects in public and public-private partnership modes, Punjab Power Development Company Limited (PPDCL), has been constituted. Moreover, Punjab Minerals Company (PMC), with the objective, interalia, of ensuring supply of coal to the coal based power projects in the province, has also been established in the Provincial Mines and Minerals Department.

 

 

 

Why to invest in energy sector of Punjab?

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The Extremely Attractive/ investor-friendly Punjab Power Generation Policy- 2009; ensuring:

  • Risk (hydrology, wind & solar) Coverage

  • Buy Back Guarantee

  • Liberal Political Risk Coverage

  • Liberal Fiscal / Financial Incentives

  • Attractive IRR

Facilitation for procurement / lease of land for projects provided by PPDB (unheard of in other territories around the world):

  • Earmarking of 5000 acres of land in Cholistan for Solar Farms

  • Extremely cheap rates offered for land lease for hydro and solar power projects.

  • Environmental issues dealt with by PPDB on behalf of investors.

  • Attractive tariff offered.

 

 

 

What is the minimum equity requirement to finance IPPs in Pakistan?

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The minimum equity requirement for an IPP in Pakistan is 20% of the total Project Cost.

 

 

What is the rate of return on equity investment in Pakistan?

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During recent past, NEPRA has allowed ‘Internal Rate of Return’ based ‘Rate of Return’ on ‘Equity’ portion of Project’s Capital Cost ranging from 15% (thermal) to 18% (RE and hydro) net of with-holding tax. Federal government has also offered higher rate of return up to 20% for indigenous coal based power projects.

 

 

What is the structure of projects’ capital cost for power projects in Pakistan?

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Normally, NEPRA allows capital structure with Debt: Equity ratio of 80:20 and in some cases up to maximum of 70:30.

 

 

What is meant by ‘Financial Charges’ component of projects’ capital cost for power projects in Pakistan?

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This component comprises bank charges, commission and fees of the lender, such as arrangement fee, commitment fee and L/C commission etc. In this regard, NEPRA has imposed limit of 3% of debt portion of total project capital cost.

 

 

What is the repayment period of debt in the tariff structure of ‘Reference Generation Tariff’?

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Customarily, for IPPs, debt is made available with re-payment period up to 10 years with quarterly installments. Grace period of the loan facility is settled by keeping in view ‘Construction Period’ of the project with capitalization of interest/mark-up during said period.

 

 

What is the ‘Financing Cost’ reckoned in the tariff structure of ‘Reference Generation Tariff’?

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Normal practice of NEPRA for our IPPs is as under:

Foreign Debt:  3 months LIBOR with spread up to 450 bps
Local Debt: 3 months KIBOR with spread up to 300 bps

 

 

Induction of IPPs has resulted in increase in consumer tariff. Is it true?

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The Bulk Power Tariff (BPT) offered by Pakistan to the IPPs inducted under the 1994 Power Policy was comparable to the IPP tariffs in other Asian countries. The increase in tariff with time is mainly due to increase in the prices of furnace oil, gas, and devaluation of the Pak Rupee. The table below depicts a 495% rise in furnace oil prices, a 208% increase in gas prices, and a 46.88% devaluation of the Pak Rupee against the US Dollar during the last eleven years.

 

2001

2012

%age Increase

RFO Price (Rs./M.ton)

11,569

68,874

495

Gas Price (Rs./MMBtu)

182

560

208

Devaluation of Pak Rupee vs. US Dollar

64

94

46.88

 

 

 

What is the average residential and industrial tariff in Pakistan?

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Average residential and industrial tariff in Pakistan has remained Rs. 9.84/kWh and Rs. 8/kWh during FY 2010-11.

 

 

Is the average residential and industrial tariff in Pakistan is higher than other Asian oil-importing countries?

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Average residential and industrial tariff in Pakistan was Rs. 5.62/kWh and Rs. 7.12/kWh during FY 2009-10 vis--vis Korea (Rs.9.94/kWh & Rs.5.38/kWh), Japan (Rs.15.05/kWh & Rs.9.32/kWh), Singapore (Rs.12.85/kWh & Rs. 9.51/kWh) Malaysia (Rs.7.46/kWh & Rs. 5.58/kWh), India (Rs.9.16/kWh % -) and Bangladesh (Rs.6.62/kWh & -).

 

 

Are IPPs in Pakistan getting their invoices settled in time from Power Purchaser (NTDC/DISCO)?

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Currently, our power sector is beset with huge circular debt; limiting further investment in the sector. Project sponsors along with debt providers are wary of the exposure that the power sector presents because of the delayed payments and cash flow issues. However, the ‘Security Documents’ (Power Purchase Agreement and Implementation Agreement) incidental to development and operation phases of an IPP inherently provides certain level of comforts to private power producers (both equity and debt participants) in the form of guaranteed payments structured in the respective ‘Reference Generation Tariff(s)’. Power Purchaser is obliged to pay ‘Late Payment Charged’ for delayed payments at the prevalent KIBOR plus four and one-half percent (4.5%) per annum, compounded semi-annually, calculated for the actual number of Days for which the relevant amount remains unpaid on the basis of a three hundred and sixty-five (365) Day year. Under this regime, despite prevalent financial crunch emanating from higher input cost of electricity generation, IPPs are getting their invoices settled from the Power Purchaser.

 

 

What type of Security Documents shall be available for Punjab based On-Grid IPPs?

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With respect to On-grid IPPs, there shall be a:

  • Power Purchase Agreement between IPP and Power Purchaser (NTDC/CPPA/DISCO)

  •  Implementation Agreement between IPP and Government of Pakistan (directly or through Government of Punjab)

  • Fuel Supply Agreement between IPP and fuel supplier (depending upon form of fuel)

  • Water Use Agreement between IPP and Government of Punjab, only in case of hydropower projects

  • Land lease Agreement between IPP and Government of Punjab, where government owned land is under use of the   Complex.

 

 

What are the problems of setting up Power Projects in Private Sector?

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Private sector has been facing multifarious problems in practical terms in setting up power generation plants in the country. Among others, few of them have been enumerated as follows:

Lack of Local Manufacturing Facilities and Capabilities: Presently most of the equipment and machinery required for the power generation is being imported from foreign countries. The local manufacturing capability is very limited.

  • High Cost of Imported Equipments: Since the power project involves multifarious type of imported heavy equipments and machinery, therefore, the cost of the same is substantially high.

  • Much Higher Project Capital Cost: Power projects are considered very large projects. A number of components/variables formulate the total cost of project. They inter-alia encompass project development cost, cost of land and land development, civil works, plant and equipment, spare parts, soil testing, engineering, consultancy, erection and supervision, importation charges, working capital and financial charges. Private investors face problem how to match the cost of project with means of financing.

  • Long Implementation and Completion Period: Power projects in private sector normally involve long period for project implementation and completion. Due to substantial completion time many costs are escalated/enhanced, ultimately total cost is also increased.

  • Difficulty in Finding Foreign Equity and Joint Venture Partners: Local private investors who desire to establish power generation projects are also facing difficulties in searching foreign equity or joint venture partners for the projects.

  • Difficulties in Arrangement of Finances: Sponsors of private power projects are facing problems in obtaining local and foreign currency loans for their projects. The negotiations with local and foreign loan giving agencies involve much time due to which it is difficult to achieve financial close in time. On the other hand many foreign loan giving agencies require various types of guarantees. It is also difficult to obtain Supplier's Credit facilities in view of prevailing situation in the country.

  • Most Projects are Based on Imported Fuel: Most of the power projects are based on imported oil; this in fact is a major component of the ultimate tariff.

  • Lengthy and Complicated Procedures: Presently there exist a number of lengthy time and money consuming complicated procedures due to which private investors are facing problems. These include the provision of bank guarantees, finalization of many Project Agreement(s) with a number of Agencies etc.

 

 

What type of efforts is being made by Government of the Punjab in providing financial assistance for speedy development of power projects in private sector?

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Development of power projects requires heavy funding. Difficulty of accessing long-term international finance is proving to be a serious obstacle in raising debt for establishment of power projects. This necessitates efforts to be made by government in order to encourage private sector to come forward for investment in power generation. Consequently, in order to gain confidence of private power producers, Government of the Punjab has approved creation of following two funds:                            

 

Punjab Power Development Fund: Fund will be dedicated for ‘Equity Participation’ with the ‘Private Sector’ Equity Partners’ towards capital cost of the power projects. Initially, Government of the Punjab will inject an amount of Rs. 6 billion in to the Fund with the hope that the Fund Manager will be able to attract an equal amount in to the Fund from international investors. The Fund will be supervised and monitored through a General Partnership (the “Fund Manager”), which will act as a Management Team as well as an Investment Committee, with investments being injected in Rupees from Government of the Punjab (Onshore Partner) and in US Dollar from international investors (Offshore Partner) through respective mutual Subscription Agreement(s). The Fund Manager will be responsible for all investment and divestment decisions and operations of investees during the investment period in accordance with the pre-defined terms and conditions. Besides, the Fund Manager may also be assigned the responsibility to facilitate Independent Power Producers in arrangement of Debt Component from local and international lending agencies / institutions.

 

Punjab Power Guarantee Fund: This Fund is being created with the objective to give assurance by Government of the Punjab to the developers of Off-Grid power projects for payment defaults, if any, by the ultimate Power Purchasers (Industrial Estate/Individual Industrial Units etc). Provision of money into this Fund will be the sole responsibility of Government of the Punjab. The afore-mentioned Fund Manager may also be assigned the responsibility to administer this Fund as well through pre-defined terms and conditions under a bilateral contract with Government of the Punjab.

 

 

 

Who determines generation tariffs for IPPs?

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In order to promote fair competition in the electricity industry and to protect the interests of consumers, producers and sellers of electric power, the GOP has enacted the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997. Under this Act, the National Electric Power Regulatory Authority (NEPRA) has been created to introduce transparent and judicious economic regulation, based on sound commercial principles, to the power sector of Pakistan. One primary responsibility of the regulator is determination of tariff for the various generation, transmission, and distribution companies including the IPPs. NEPRA follows a standard and transparent procedure for tariff determination, which includes public hearing and views from all stakeholders.

 

 

 

What are the basic principles of structuring generation tariff?

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Tariff structure for different electricity generating companies is different. Accordingly, selection of tariff structure depends on the power sector requirements and on the capacities (which can include generation of electric energy, ensuring availability of capacity, operation under synchronous compensator mode, frequency regulation and etc.) to render necessary services by the given company for meeting those requirements.

 

Taking into consideration the type of services to be rendered to the power system by the generating companies, as well as their metering capacities and preferences, Single-Part or Two-Part tariffs may be applied to those services. Basis for the tariff rates calculation are the classified amounts: fixed and variable expenses allocated between different services. Keeping in view, power system requirements of the country, NEPRA normally structures Reference Generation Tariff based on Two-Part regime comprising following components:

  • Energy Purchase Price expressed in Rs./kWh

    o    (Annual Revenue Requirement divided by Annual Plant Generation)

  • Capacity Purchase Price expressed in Rs./kW/Month

    o    (Annual Revenue Requirement divided by Net Capacity in kW)/12

Energy Purchase Price:

 

Energy Purchase Price (the “EPP”) is the operating cost of a unit of electrical energy (kWh). It is payable for the energy generated and delivered to the power purchaser. This has been further bifurcated into following components:

  • Fuel Cost Component: This component of tariff is meant for the cost of fuel consumed for generation of electricity.

  • Variable Operation and Maintenance Cost Component: This component caters for the cost of services of the O&M operator for routine management of the power plant. It covers operating cost of lubricants, chemicals etc. as well as maintenance cost such as replacement of parts and over-hauling of the plant as and when required.

  • Water Use Charge (only for Hydropower Projects): This component is payable to the respective federating unit for each unit of energy generated by the plant and delivered to the power purchaser under ‘Water Use Agreement’ to be executed between IPP and the respective federating unit. 

Capacity Purchase Price:

 

Capacity Purchase Price (the “CPP”) is a fixed monthly payment to IPP for each kilowatt (kW) of the available capacity of the plant to cater for the fixed costs of the project. It is payable provided the plant is available for dispatch to standards defined in the Power Purchase Agreement to be executed between IPP and power purchaser. The CPP has been further segregated into following components:

  • Fixed Operation and Maintenance Cost Component: This component represents the fixed costs incidental to plant operation and maintenance. It covers management fee, remuneration to the personnel, rent, utilities, fee for maintaining consents, environmental monitoring, local taxes and cost of expatriate services to be engaged for O&M of the pant.

  •  Insurance Cost Component: This component caters for the premium in relation to insurance policies required to be maintained for the plant as specified in the PPA and as required by the lenders. The risks to be covered through insurance include machinery breakdown, natural calamities, sabotage and consequential business interruption etc

  • Return on Equity and Return on Equity during Construction: This component is meant to provide return on the equity invested by the project sponsors as well as redemption (only for projects on BOOT basis) thereof during tariff control period.

  • Debt Servicing: This component caters for repayment of principal and interest charges to the lenders of the project. It matches the loan repayment stream. Debt is proposed to be repaid in ten (10) years after achieving Commercial Operation Date of the plant.

Project Capital Cost:


Normally, capital cost of the project can be divided into following main heads:

  • Engineering, Procurement & Construction (EPC) Cost: This takes into account cost incurred by the project sponsors relating to preliminary work, civil works, electro-mechanical equipment including engineering & supervision.

  • Costs other than EPC Cost: Besides EPC Cost, project sponsor also incurs expenses relating to insurance during construction, project company costs, financing charges and interest during construction (IDC).

Based on the above premise, Reference Tariff Table is established for 20 to 30 years period (keeping in view technology involved). During tariff control period, Generation Company (WAPDA Hydroelectric, XWAPDA GENCOs and IPPs) submits invoices to NTDC with respect to Energy Purchase Price and Capacity Purchase Price on monthly basis after applying already established indexation provisions on Reference Tariff (detail follows). Besides, Generation Company is also allowed to submit supplemental charges (expenses not covered in the Reference Tariff) invoices in line with the provisions of Power Purchase Agreement.

 

Tariff Components

Tariff Indexation & Adjustment

Fuel Cost Component

Dependent on type of fuel used

Variable O&M (Foreign Currency Portion)

US$ to Pak Rupees & US CPI

Variable O&M (Local Currency Portion)

Pakistan WPI

Fixed O&M (Foreign Currency Portion)

US$ to Pak Rupees & US CPI

Fixed O&M (Local Currency Portion)

Pakistan WPI

Insurance

US$ to Pak Rupees, in case of foreign currency denominated insurance cost evidenced with documents

Water Use Charges (hydropower projects)

Pakistan WPI

Water Use Charges (hydropower projects)

Pakistan WPI

Return on Equity

US$ to Pak Rupees

Withholding Tax on Dividend

Nil

Principal Repayment (Foreign Currency Loan)

US$ / Pak Rupees

Principal Repayment (Local Currency Loan)

Nil

Interest/Mark-up Payments (Foreign Currency Loan)

Adjustments for relevant LIBOR variations

Interest /Mark-up Payments (Local Currency Loan)

Adjustments for relevant KIBOR variations

 

 

 

What are the basic principles of structuring transmission tariff?

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NTDC through transmission tariff (duly determined by NEPRA and notified by federal Government) submits invoices to each of the DISCOs formed consequent to the unbundling of WAPDA (termed as XWAPDA DISCOs) on account of ‘Transfer Charge’ for procuring power from approved generating companies (having approved generation tariff from NEPRA) and its delivery to XWAPDA DISCOs for a billing period as under (the “Transfer Price”):

Transfer Charge = Capacity Transfer Charge + Energy Transfer Charge

Where:

 

Capacity Transfer Charge comprises:

  • Summation of the Capacity Purchase Price invoices rendered to NTDC by all the generation companies during the month divided by the sum of the maximum demand of the XWAPDA DISCOs in kW recorded at all the delivery metering points at which power is received by the XWAPDA DISCOs.

  • Use of System Charge (Fixed): the fixed charge part of the Use of System Charges in Rs. /kW/Month

Energy Transfer Charge comprises:

  • Summation of the Energy Purchase Price invoices rendered to NTDC by all the generation companies during the month divided by summation of the Net Electrical Output (kWh) recorded at all the delivery metering points at which power is received by the XWAPDA DISCOs.

As evident, primarily, the Transfer Price of NTDC being charged to XWAPDA DISCOs consists of two components; firstly impact of invoices (Capacity Purchase Price and Energy Purchase Price) received from generating facilities (duly approved by NEPRA) and secondly Use of System Charge meant for recovery of cost of service/revenue requirement of NTDC for provision of transmission services to XWAPDA DISCOs.

The general revenue, which the NTDC is allowed to receive through tariff (Use of System Charge) from XWAPDA DISCOs, is called revenue requirement or cost of service. It should be sufficient to cover all costs required for reliable, safe and uninterrupted operation of the company and to receive a reasonable profit on invested capital to cater the future expansion of the transmission related facilities. As a matter of principle, revenue requirement (RR) is calculated by applying the below given formula:

 

RR = AC + D + FC + AP
 

Where

AC–   Allowed annual costs, and includes general establishment & administrative expenses
D–     Annual depreciation of fixed assets
FC–    Financial charges relating to long term loans obtained by the company
AP–    Allowed profit rate (assessed by the NEPRA) on Equity Base (Fixed Assets + Current Assets – outsiders’ liabilities) of NTDC

 

The above matrix results after applying below given formula gives Use of System Charge in terms of Rs./kW/Month.
(RR in Rs divided by XWAPDA DISCOs Demand in MW x 1000)/12

Besides Use of System Charge (Fixed), NEPRA also determines Use of System Charge (Variable) dependent upon Energy Transfer Charge component of the Transfer Price. However, it is not applicable to XWAPDA DISCOs because the Transfer Charge is inclusive of the transmission loss charge as the same is rolled in on account of the costs divided on units delivered basis to arrive at the Transfer Charge. Consequently, NEPRA determined Use of System Charge (Variable) is applicable only to Bulk Power Consumers (BPC).

 

Based on the above premise, NTDC submits monthly invoices to XWAPDA DISCOs on account of Transfer Price, which becomes Power Purchase Price (PPP) for these XWAPDA DISCOs.

 

 

 

 

What are the basic principles of structuring distribution tariff?

Top

For assessing the revenue requirement (cost of service) of a XWAPDA DISCO, NEPRA carries out due diligence process based on tariff petition submitted by the Distribution Company. In order to make the Distribution Company viable, recovery of its total revenue requirement (cost of service) is required to be assured paving the way towards rehabilitation of its system and improvement of efficiency for safe and reliable provision of electric power. Revenue requirement of a XWAPDA DISCO comprises:

  • Power Purchase Price: as discussed under head ‘Transmission Tariff’ the invoices of NTDC to XWAPDA DISCO on account of Transfer Price becomes the Power Purchase Price of the DISCO.

  • Distribution Margin: includes general establishment & administrative expenses, depreciation of fixed assets and Return on Rate Base.

Average sale rate is calculated from the above determined revenue requirement (cost of service) by applying below given formula:

Average Sale Rate = Revenue Requirement divided by Units sold by the DISCOs.

 

The above determined revenue requirement (cost of service) in terms of ‘Average Sale Rate’ after application of below mentioned adjustment, is recovered from different categories of end-consumers through Tariff.

 

Adjustment Mechanism for Power Purchase Price:

Δ PPP   =     +   (PPP (Act) – PPP (Ref))
(I – L)
 

Where:
Δ PPP  = Variation in Power Purchase Price including fuel price variation in terms of Rs./kWh purchased occurred in a month against the reference PPP
PPP (Act) = Actual PPP (Rs. /kWh purchased) during the month for which the adjustment is required to be made
PPP (Ref)  = Reference Power Purchase Price (PPP) in terms of Rs. /kWh
L  = Target losses in percentage

The impact of change in the PPP in the bill of individual consumer will be calculated according to the following formula:
Δ PPP Adjustment = + PPP x U(c)
 

Where:

U(c) means units consumed by the consumer during the month for which adjustment is required to be made.

 

 

 

What are the main categories of electricity consumers of distribution companies?

Top

End-consumers of XWAPDA DISCOs have been divided into different categories. The main categories of end-consumers are as under:
 

A-1 General Supply Tariff – Residential
A-2 General Supply Tariff – Commercial
B Industrial Supply Tariff
C Single Point Supply for Purchase in Bulk by a Distribution Licensee and mixed load consumers not falling in any other consumer class
D Agriculture Tariff
E Temporary Supply Tariff
F Seasonal Industrial Supply Tariff
G Public Lighting
H Residential Colonies Attached to Industrial premises
I Railway Traction

 

 

 

What is the situation of power generation potential resources of Punjab Province?

Top

Punjab has limited indigenous resources for generation of electricity. It does have coal reserves that are yet to be tapped and exploited. The potential for hydro based generation exists on some barrages and canals but could only be fully harnessed if low-head technology is perfected. Biomass including agriculture waste, bagasse based co-generation at sugar mills, and municipal solid waste power projects can be installed with significant generation. Solar source is indeed practically unlimited but the cost of solar generation is still high compared to other technologies. Wind resources of the province are minimal, assessment of which for power generation is underway. The international power generation scene indicates that base load can only be met through residual furnace oil, gas, and coal fired power generation. Hydro generation has seasonal variations. Renewable power, despite the hype about environment and clean energy, still is only one percent of total power generation in the world. Punjab, therefore, has to rely on coal fired power generation with exploitation of all the hydro sites while encouraging renewable energy as it becomes more affordable and widespread.

 

 

 

What quantum of coal is required for a 50 MW coal based power project?

Top

The quantity of coal required depends upon various factors like coal specifications, thermal efficiency and plant availability. A typical 50 MW power plant on Punjab coal specifications, as reported by Punjab Minerals Company (PMC), requires around 0.2 Million Tons of coal per annum (700 Tons per day).

 

 

 

Where coal shall be imported from?

Top

More than 95% of world seaborne thermal coal exports originate from just six countries, with the remainder being supplied from half a dozen others. The six principal coal exporting countries are Indonesia, Australia, Russia, Columbia, South Africa and USA with their 2009 coal exports as;

World Top Coal Exporters (2010)

 

Country

Thermal Coal Export (million Tons)

Indonesia

200

Australia

134

Russia

105

Columbia

69

South Africa

66

USA

20

Canada

7

 

 

 

What is the coal resource potential in the country?

Top

Numerous studies have been conducted all of which have concluded that all coal reserves of Pakistan are suitable for power generation. Pakistan’s total coal reserves are 186,007 million tons. The biggest coal reserve of Thar which lies in Sindh has an estimated potential of 175,506 million tons and preliminary studies suggest that Thar is capable of generating 100,000 MW for two centuries.

 

 

 

What are the difficulties in mining coal from THAR?

Top

THAR coal has many technical issues like it has thick overburden (150 m), high stripping ratio (6.2 cu. m /ton), low heating value (calorific value 12.69 MJ/kg), high moisture content (50%), unavailability of cooling water, unavailability of basic infrastructure, brackish underground water, extremely hot climate, high ambient temperature (51 degrees C), serious clinkering property of coal and high mining cost.

 

 

 

What efforts are being made to develop power projects based on Thar Coal?

Top

The Federal Government has announced a set of incentives for coal mining and coal based power projects. Whereas the Government of Sindh (GoS) has created a high power decision making agency i.e. Thar Coal & Energy Board (TCEB) which has high level representation from both the federal and provincial governments. GoS and TCEB have allocated Rs. 27 billion for the provision of cooling water, Rs. 4.963 billion for the improvement of road network, Rs. 0.972 billion for construction of airport, while 50 acres land has been allocated for effluent disposal. Accordingly for the development of transmission line and broad-gauge rail link feasibility studies has been completed and their PC-I has been approved. Once these facilities will be completed then Thar coal projects will move smoothly.

 

 

 

Instead of conventional mining why underground coal gasification projects are not being initiated?

Top

Underground Coal Gasification (UCG) technology is in development stage and a pilot project at Thar block-V based on UCG is being implemented. After ascertaining commercial viability of the pilot project, large scale projects would be considered.

 

 

 

How much coal is being imported into Pakistan?

Top

Port Karachi currently handles around 4 Million Tons of Coal per year. An overview of Coal handled by Karachi Port in the past five years is as below;

Year

No. of Ships

Coal handled/year (Tons)

2006-7

69

2,702,971

2007-8

90

3,556,246

2008-9

85

3,687,262

2009-10

93

3,658,368

2010-11

98

3,895,492

 

 

 

What is the prevalent Tariff for Industrial Units?

Top

Industrial Units fall under the category of ‘Tariff- C Bulk Supply’ as detailed    
hereunder:

C-3(a)      

For supply at 66 KV and & above and sanctioned load above 5000KW Fixed Charges Rs. 360/Kw/Month and Variable Charges Rs.11/kWh

C-3 (b)     

For supply at 66 KV & above and sanctioned load above 5000 KW Fixed Charges Rs. 360/Kw/Month and Variable Charges Rs. 14.50/kWh (Peak) Rs. 9.10/kWh (Off-Peak)

 

 

 

What is the Reference Tariff for different technologies?

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Nishat Power (Private) Limited-Furnace Oil based 200 MW Plant

Variable Charge Rs. 5.2173/kWh (Fuel Cost Component Rs. 4.7811)
Capacity Charge  Rs. 2.2240/kWh
Total   Rs. 7.4413/kWh (cents 12.1988/kWh)

 

Orient Power (Private) Limited-Combined Cycle based 225 MW Plant

Variable Charge  Rs. 2.2772/kWh (Fuel Cost Component Rs. 2.1782 for Gas)
Capacity Charge   Rs. 1.7644/kWh
Total    Rs. 4.0416/kWh (cents 6.7360/kWh)

 

Laraib Energy Limited-Hydro based 84 MW Plant

Variable Charge Rs. 0.1749/kWh
Capacity Charge  Rs. 6.6614/kWh
Total   Rs. 6.8362/kWh (cents 8.5453/kWh)

         Up-front Tariff for Wind Power Projects

Rs. 17.2755/kWh ((cents 20.0878/kWh) 100% local financing
Rs. 12.6100/kWh (cents 14.6628/kWh) 100% foreign financing

         NEPRA (under consideration) 50 MW Local Coal based Plant

 

Local Financing  Foreign Financing
Variable Charge  Rs. 6.1127/kWh   Rs. 6.1127/kWh
Capacity Charge   Rs. 6.5302/kWh   Rs. 5.0037/kWh
Total: Rs. 12.6429/kWh   Rs. 11.1168/kWh
Cents 13.9392/kWh  Cents12.2567/kWh

Fuel Cost Component in both cases amounts to Rs.5.9286 with 27% thermal efficiency and coal price of Rs. 5,169/M.ton

 

 

 

Where can one find data/information on status of power projects under development in Punjab?

Top

Information on the status of power projects under development in Punjab can be found from website (energy.punjab.gov.pk) of the Energy Department, Government of the Punjab.

 

 

 

What is the model of hydropower project implementation in private sector?

Top

Hydropower Projects in private sector are being implemented on Build- Own-Operate-Transfer (BOOT) basis and the project based on this model shall be transferred to the Government at the end of the concession period.

 

 

 

What is the construction time required for development of hydropower project?

Top

Due to the site specific nature and being on remote locations, construction time required for development of hydropower project is a bit longer as compared with the thermal power projects. For a medium size run of river hydropower project the development and construction time could be around 5 to 6 years whereas in case of small hydropower projects, such period could be around 3 years.

 

 

 

What is the concession period for hydropower projects?

Top

The concession period for BOOT based hydropower projects is up to 30 years.

 

 

 

Which are the major hydropower plants in Pakistan?

Top

Tarbela (3478 MW), Ghazi-Barotha (1450 MW) and Mangla (1000 MW) are the major hydropower plants in operation in Pakistan.