Setting up power plants near industrial zones

It's better choice that provides livelihood to locals, helps industries run smoothly

KARACHI:

Right from the era of 5,000-year-old Mohenjo Daro to the 21st century, the enormous terrain of this peninsula remains the cradle of Indus Valley civilisation.

The Indus or Sindhu Darya, after originating at Ladakh, flows a thousand miles to unite with the salty waters of Arabian Sea, containing erosion of the coastal area as well as supporting the ecology.

Though this oil-importing nation has been blessed with the mighty Indus, its decision-makers, instead of harvesting the dirt-cheap power via hydel plants, opted to produce costly electricity via thermal plants and make the public pay the fuel bill in dollars through the nose.

Yet, in this gloomy scenario when 90% citoyens of the Islamic republic are suffering from the curse of independent power producers (IPPs), it is relatively a better choice to set up power plants near industrial zones funded by public-private partnership.

It is preferable to provide livelihood to the locals, instead of adding to their miseries by letting industries shut down and lamenting that those at the helm of affairs failed to harness the mighty Indus.

The Nooriabad Power Plant, awarded to an investor on the basis of a levelised tariff for 25 years, is the country's first IPP that enables the stakeholders profit from the work-ethics of a private entity. This method took care of all costs involved in setting up a power plant without getting into the details of engineering, procurement and construction (EPC) costs, other costs and import of material.

In order to select the private investor, a transparent system of award was followed. Accordingly, a Request for Proposals (RFP) was published in the national press, seeking proposals from the interested parties.

A number of national and international companies showed interest by submitting the required documents and information. This was followed by a Request for Quotations (RFQ) from the shortlisted companies.

Financial proposals of the shortlisted bidders were opened in the presence of the bidders. The lowest tariff quoted by the bidder was selected for partnership with the government of Sindh.

The private investor, who had quoted the lowest levelised tariff for 25 years, was awarded the contract for designing, construction, installation, operation and maintenance of two 50-megawatt power plants at the given site in Nooriabad.

The project was sub-divided into two 50MW plants, so that the approvals remained within the scope of Sindh province, without seeking the nod of the federal government.

Through an order of the Economic Coordination Committee (ECC), 20 mmcfd of natural gas was allocated to the two plants. Subsequently, a gas supply agreement was signed with SSGC for a period of 25 years, and a dedicated pipeline of 20 km was laid.

The Sindh government allocated 50 acres of land at Nooriabad, just outside the Nooriabad SITE domain (100 km from the port city on the Karachi-Hyderabad Highway).

The Nooriabad Power Project comprises two 50MW plants, which are being operated by two separate companies, ie, the Sindh Nooriabad Power Company (Private) Limited (SNPC) and the Sindh Nooriabad Power Company Phase-II (Pvt) Ltd (SNPC-II).

The tariff quoted by the private investor was later contested and presented to Nepra for tariff determination. Nepra, after knowing the lowest EPC cost, project cost and tariff among all power projects of similar configuration, awarded a reference tariff to the project companies. Subsequent to the tariff award, a power purchase agreement was signed with K-Electric (KE).

Originally, it was conceived to supply power to Hesco for consumption in the Nooriabad Industrial Area, however, due to the unavoidable circumstances and lack of interest by Hesco, the management was forced to sign a power purchase agreement with KE.

Due to the distant location of the power plant and the evacuating grid station at the KDA Scheme 33, the Sindh government constructed a dedicated transmission line through its company STDC. The transmission line is more than 95 km long, which evacuates power from the Nooriabad plants and supplies to the KE grid station at the KDA Scheme 33.

STDC, due to its useful experience, has embarked upon laying various transmission lines in the province connecting power plants with the consumers and has been elevated to a provincial grid company. Recently, STDC has signed a project for laying a transmission line from Jhimpir to Landhi, Karachi for a large industrial group.

The Nooriabad project achieved COD (commercial operation date) in January 2018 and has to date dispatched 4,566 gigawatt hours (GWh) of electricity and revenue of Rs63.40 billion has been generated.

SNPCs were financially structured as 80% debt and 20% equity. Equity was contributed by the Sindh government and private sector investor in a ratio of 49:51%. The debt was provided by the National Bank, Sindh Bank and Government of Sindh Employees' Pension Fund.

The entire debt of Sindh Bank had been retired before time. The other debt obligations have also been duly met. Nevertheless, Nepra withheld Rs3 billion due on account of return on equity (ROE), which when available will be utilised to retire other debt.

SNPCs provide the cheapest electricity to KE, which has acknowledged that the projects repeatedly acted as Black Start power plants when there was a nationwide tripping. The projects that provide employment to technical, commercial and non-technical locals, has paid Rs7.25 billion to the exchequer.

The writer has been associated with the energy sector in Canada for the last five years and now he has returned to Pakistan and is associated with the private sector