Ban on imported fuel for power generation

Ban on imported fuel for power generation

Ban on imported fuel for power generation The Punjab government intends to raise the issue of a recent ban on new private investments in ‘electricity generation based on imported fuel with the water and power ministry, as it puts several proposed private projects in the province under serious threat’.

The Punjab Power Development Board Managing Director Ms Saniya Awais, confirmed this to Dawn last week, saying “Punjab has limited fuel options (for power generation)”.

A senior Punjab energy department official said the water and power ministry’s ‘sudden’ decision to cap further imported fuel-based generation has created uncertainty in the market, and that the Private Power and Infrastructure Board is no longer processing even those projects covered by the China Pakistan Economic Corridor (CPEC) already in different stages of execution.

“The Punjab government’s plans to generate 4,180MW of imported coal-based electricity (in the energy-starved province) are under serious threat owing to the decision,” said the official who requested anonymity because he is not authorised to speak publicly.

The affected projects include three projects of 660MW each in Rahim Yar Khan and Muzaffargarh planned by Kapco, Nishat Energy and China Machinery Engineering Corporation (CMEC), as well as 10 smaller plants with a combined capacity of 2,200MW.

“The larger projects are on the CPEC priority project list and are at different stages of execution,” said Ms Awais. “We will toe the national policy but we do want to know the basis of this decision.”

The government’s decision has also affected two imported coal fired projects of 660MW by Lucky Electric and 350 megawatt by Siddique Sons planned at Port Qasim.

The sponsors of imported coal-fired projects believe that the ministry’s decision also aims at ‘gradually driving private investors out of the power generation business’

It has now asked the sponsors of the both projects to either convert them to local coal or abandon them. While the sponsors of these projects are willing to use 20pc local coal, the government has rejected the proposal, a source in the water and power ministry claims.

The government has capped imported fuel based power generation owing to what officials describe as surplus capacities contracted so far — enough to meet electricity demand beyond 2022.

Therefore, the Ministry of Water and Power has issued written instructions to the PPIB not to extend expiring letters of intent (LoIs) and letters of support (LoSs) for existing proposals or issue new ones for power plants on imported fuel.

“No LoI or LoS be issued or extended by the PPIB for any power plant on imported fuel except agreed bilaterally by the governments of Pakistan and China and are part of the priority list of CPEC projects,” reads the order issued by Younas Dagha, Water and Power secretary, to the heads of the PPIB and the Central Power Purchasing Agency Guarantee Ltd in June this year.

The ministry estimates that 2,632MW of new hydropower plants and 3,960MW of local and imported coal-based power plants and other renewable energy projects already under construction will bring in 13,207MW of new generation capacity by the end of 2018.

Furthermore, power generation, already financed and at various stages of execution, will bring an additional capacity of 20,380MW by 2022, bringing the total installed capacity to 53,405MW, more than enough to meet demand.

“The decision to cap further power generation based on imported fuel is not only motivated by ‘surplus’ generation contracted, but also concerns over the pressure import of machinery will bring upon the country’s balance of payments situation and foreign exchange reserves,” Ali Khizar, a Lahore-based analyst, says.

Ali is supportive of the decision but says the sudden manner in which it is made reflects poorly on the government’s planning capacity for the future.

“Fundamentally the government is thinking in the right direction. But it will cause substantial losses to the sponsors of some of these projects — especially by Lucky Electric and Siddique Sons — who had spent quite a few million dollars and arranged foreign financing after the State Bank refused to provide foreign exchange for machinery import before the cap was imposed.”

However, the sponsors of imported coal-fired projects believe that the ministry’s decision also aims at “gradually driving private investors out of the power generation business”.

“The existing independent power producers (IPPs) are already at loggerheads with the government over the non-payment of their capacity charges of Rs16bn and its attempts to subject them to a performance audit.

Now that the government has achieved — or so it claims — the minimum generation target it has capped further imported fuel-based projects without any regard for the heavy investment already made by some of them,” a chief executive officer of an IPP said while talking to Dawn.

He said private investors are not very interested in setting up new plants based on local Thar coal because of its unproven reserves and issues of quality. Similar issues exist in Punjab.

“A Chinese company contracted for a local coal based plant in north Punjab has already abandoned plans because of these issues,” he added.

A senior executive of another IPP complained that the government isn’t meeting its obligations under the power purchase agreements with the private power producers.

He said the government’s actions smacked of a vendetta against power producers. “It is strange that the government has continuously been creating disputes with private power producers instead of honouring its commitments, making them spend heavily on litigation of one issue or the other.”


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