Energy from Azad Kashmir Zulfiqar Abbasi
Saturday, April 07, 2012
Pakistanis have welcomed the recent decision of the Supreme Court of Pakistan to scrap the Rental Power Projects set up through non-transparent and questionable deals, providing electricity at the extremely high rates of Rs35-40/unit. These power purchase agreements were signed and executed overnight and advance payments worth billion of rupees were promptly made. The sweetheart deals were concluded on incredibly generous terms. This happened while private-sector hydel developers of Pakistan and Azad Kashmir had been standing queued up for 16 years offering hydroelectric power at less than Rs2/unit after their loan repayment period, and yet they were not given the power purchase agreement facility by the government and its subsidiary entities which enjoyed absolute monopolies.
The government of Pakistan announced it hydroelectricity policy in 1995 for private-sector developers offering a tariff per unit of 4.7 US cents, which today amounts to just Rs4.27/unit. Around 30 companies from all over the world turned up to set hydel Projects in the private sector comprising 3,000 MW. Since Wapda cash strapped, this policy was the best option for the country as all the hydel projects were to be transferred back to the government free of cost after being in the private sector for 25 years. But the policy was scornfully dumped by the then chairman of Wapda, Gen (r) Zulfiqar Ali Khan and finance minister Ishaq Dar, who found the tariff of 4.7 US cents very high.
Holding back hydel development in the private sector under this lame excuse, space for oil-based thermal projects and RPPs was created by Wapda. which argued that in the absence of political consensus on water-storage projects Wapda can’t generate hydel electricity. As an interim solution a number of thermal and rental projects were inducted into the system, and this is affecting our national economy now. As a matter of fact, 70 percent of hydel projects need no storage dams to generate cheap, affordable and renewable hydel energy at an average cost of Rs2/KW after their debt servicing.
Unfortunately, political disagreement over construction of water reservoirs in Pakistan has provided room for highly influential oil trading lobbies to push for thermal projects, landing the national power sector into crisis with no solution in sight in the foreseeable future. The shooting oil prices are swelling our circular debt, increasing electricity tariffs and closing our options for thermal generation.
In this gloomy national scenario Azad Kashmir is emerging as a saviour for Pakistan’s power sector, developing small hydel projects and mega-projects such as raising of Mangla Dam to 1,300 MW and Neelum-Jhelum to 969 MW in Public sector, Patrind 148 MW, Kohala 1,100 MW, Karot 700 MW and Azad Pattan 640 MW in the private sector. These are already under process.
The competitive advantage of Azad Kashmir over Khyber-Pakhtunkhwa and Gilgit and Baltistan (carrying the same hydel potential) is its nearby location, as rivers Jehlum, Neelum and Poonch, together with their tributaries, are located at a proximity of 50 to 150 kilometers from the national grid with the huge hydel potential of 18,000 MW.
In addition to the ongoing projects, there are many other projects including Mahl 550 MW, Dudhnyal 550 MW, Chakothi 500 MW, Ashkot 250 MW, Sehra 350 MW, Kotli and Gulpur 250 MW and Rajdhani 126 MW, with a number of smaller projects at different stages of implementation which can be developed and inducted into the system shortly.
Development of 8,000-MW hydel projects in Azad Kashmir can turn around Pakistan’s power sector and revive Pakistan’s industry and economy. The government needs to facilitate private-sector developers and set in place Transmission Ways from the valleys of Jehlum, Neelum and Poonch up to the national grid to pick the generated power into the national grid. Development of hydel industry in Azad Kashmir may also bring the much-needed investment of $20-25 billion in the country through the private sector, which may inject new blood to our sinking economy. Azad Kashmir, with a domestic demand of only 350 MW, can send the rest of the energy to the national grid in Pakistan reviving the struggling industry and sharply increasing exports as a result.
The dozens of small hydel projects below 50 MW with a cumulative capacity of 2,000 MW could have been developed and inducted in the national grid in the shorter term of two to three years but have been stalled due to smaller issues awaiting resolutions by the government of Pakistan. The issues include tariff determination, issuance of sovereign guarantee for project financing and signing of power purchase agreement which can be resolved within days and weeks but are pending since 1995 as the ministry of water and power is not showing adequate interest despite being apprised many a time.
Under the prevalent law, the government enjoys monopoly over transmission and distribution of electricity and no private project can be set up or operated unless given access to the national grid by the federal entities such as Wapda, NTDC, CPPA, DISCOS and PEPCO. The irony of the situation is that these monopolistic organisations which went running all the way to sign agreements with the RPPs to purchase electricity at Rs35 to 40/unit seem uninterested in purchasing hydel energy at Rs2/unit after their debt servicing from small hydel projects.
The time has come to undertake serious and decisive steps by the ministry of water and power to promote private-sector hydro power industry, so as to ward off serious crises by following an integrated plan in the country with focus on Azad Kashmir. The pending issues of tariff determination, sovereign guarantees for financing and PPA signing must be resolved forthwith, and all those responsible for inordinate delays on these counts must be taken to task.
The government and State Bank must ensure that local banks and DFIs make special allocations for hydel projects and advance money for this purpose, making no viable hydel project suffer for financing. Industrial units based on captive hydro projects must be given special incentives to set up sustainable industry.
The writer is the president of the Hydroelectric Power Association (HEPA).