ISLAMABAD: The government’s plan to privatise three under-construction LNG-fired power plants on a fast-track basis has met constitutional challenges, as the laid down procedures do not allow it to sell the units at least for the next one year.
The topmost option in front of the government is to privatise the plants but that will require approval of the Council of Common Interests (CCI) - a time-consuming exercise. In case it does not work, the other option is to take loan from banks to complete the remaining work aimed at creating financial space for more politically motivated projects in its last year in power, said sources in the Ministry of Finance.
Comeback: With LNG import, CNG sector hopes for revival
A high-powered committee, which Prime Minister Nawaz Sharif constituted last year to propose a workable solution, has not yet found an answer to the problem, said the sources. The committee initially deliberated on how to avoid the CCI approval but could not get an answer, added the sources.
The committee’s last meeting was held on Saturday. An official handout of the finance ministry stated that Finance Minister Ishaq Dar chaired a meeting to review progress on LNG power plants. Federal Minister for Water and Power Khwaja Asif was also present during the meeting.
At a time when the government has stopped the process of privatising the entire power sector due to opposition, pushing the case of under construction power plants for privatisation raises eyebrows.
The spokesman for the Ministry of Finance did not comment on this development.
Sources said that the government wanted to sell the plants to the private sector. According to the Constitution, the electricity subject was under the joint control of provinces and the centre. For privatisation of these power plants, the federal government needs the approval of the CCI - the highest constitutional body dealing with the issues that are under the joint control of the federation and the federating units.
The government has not yet moved a case to the provinces for putting the item on the CCI agenda, said the sources. It was keener on finding a solution that may avoid the long route of the CCI, they said. It requires almost one year after the approval of the CCI to initiate and conclude a privatisation transaction.
The sources said that the government initially thought to complete these transactions on government-to-government basis but this plan was also not feasible.
The three power plants with a cumulative capacity of about 3,600MW were being developed in the public sector at Bhikki, Balloki and Haveli Bahadur Shah in Punjab. They will consume imported LNG as fuel for power generation.
The Quaid-e-Azam Thermal Power Private Limited, a Punjab government company, is constructing the Bhikki plant. The remaining two projects at Balloki and Haveli Bahadur Shah are owned by National Power Park Management Company Limited (NPPMC), which is wholly owned and controlled by the federal government and is being financed through the Public Sector Development Programme (PSDP).
The sources said that due to huge demands on the PSDP, it was increasingly becoming difficult for the planning ministry to fund the two federal government-owned power projects. The government wanted to create a fiscal space by handing over these power projects to the private sector, said the sources. It needs financial space for other politically motivated projects in its last year in power, ahead of the 2018 general elections.
The PML-N government had started constructing the two projects with a combined cost of Rs191 billion and up till last June, had spent Rs64 billion on them.
One of the options under consideration were to get the debt financing from the banks for completing the remaining work on two federally-funded LNG plants, said the sources. This would create about Rs70 billion space in the next financial year 2017-18, said the sources.
The proposal is to devise the transaction structure on 20:80 debt equity ratios - recover the 20% equity from the prospective investors and transfer the debt to him for onwards servicing.
Govt plans to privatise LNG-based power plants
However, sources said that this option might also not work, as at approved tariffs of these power plants, it will be very difficult for the new investors to run these units.
Nepra granted RLNG tariff at Rs6.4284 per unit for 1,223MW Balloki power plant and Rs6.4202 per unit for 1,230 MW plant of Haveli Bahadur Shah. The approved tariff for HSD-based generation is Rs10.0928 per unit for Balloki and Rs10.0829 per unit for Haveli Bahadur Shah.
The special committee is meeting again this week to find a solution at the earliest, said sources.
Published in The Express Tribune, February 7th, 2017.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ