Pakistan has sought $20 billion in an attempt to add 17,000 megawatts (MW) to the national grid amid investors’ apprehension over payment structure and lack of infrastructural support that they say would undermine any future investment in the power sector.
In a bid to meet the burgeoning electricity demand, Pakistan made its case in a two-day international conference “Invest Pakistan” inaugurated by Prime Minister Nawaz Sharif on Monday. The government has projected that by 2020 total electricity demand will be 34,000 megawatts.
“The challenge is to add another 17,000MW to the national grid that requires $20 billion in investment”, said Younus Dagha, Secretary In-charge Ministry of Water and Power while addressing the gathering of investors. He said the country was currently facing a shortfall of 5,000MW.
The government is seeking new investment in coal and hydro power plants, as it opens hydel generation and transmission lines for the private sector for the first time. Board of Investment (BoI) Chairman Miftah Ismail gave a presentation, highlighting investment opportunities in coal and mines sector.
The figure of 34,000MW has been worked on the basis of an 8% annual increase in demand, said Minister for Water and Power Khawaja Asif.
However, the government’s model seems faulty as electricity demand is worked out on the basis of annual economic growth.
The minister admitted that the government has so far failed to address sector-specific issues, particularly the high ratio of line losses due to theft. He said wastage of electricity remained another unaddressed issue due to weak governance.
Asif said in order to address the security challenge, the armed forces have destroyed the terrorist hideouts and infrastructure during the ongoing operation Zarb-e-Azab, which would greatly address investors’ concerns. Despite the short- and medium-term challenges, the country offers best investment opportunities, said Dr Musadaq Malik, special assistant to the prime minister. He said no country in the world offers a guaranteed 17 to 20% rate of return on investment, legal protection of investment and full repatriation of profits.
“If you do not want to invest in Pakistan’s energy sector, you better take the next flight and go to Las Vegas,” said Malik, referring to the high payout gamblers get in the US city.
Work needed before investment
Meanwhile, Orient and Saba power plants Chief Executive Officer Nadeem Baber said privatisation was the only solution to problems plaguing the power sector. “Addition of electricity without controlling the leaking bucket of distribution companies will not help.”
In his presentation, Baber said fuel-supply constraints were hampering future investment as gas was provided to Independent Power Plants for only 24% of the time last year. He said imported coal logistics were also uncertain. Renewable sources like solar and wind help but do not serve base-load. Baber added that transmission lines need major additions, ports and railways need large investments to support new-coal fired power plants being planned and LNG terminals are needed for gas import. He said the sector’s financial health was another main concern.
He said high losses that erupt due to the gap in payables and receivables require significant and long-term budgetary allocations. He further said privatisation and deregulation were also lacking firm timelines. “Unless more gas is provided to the power sector, an extra Rs100 billion per year is being added to the cost of power.”
Other investors present complained about the government’s tax policies that were hurting electricity generation through renewable resources. They demanded that the government withdraw Customs duties on import of solar panels and renewable batteries.
Published in The Express Tribune, October 28th, 2014.