Coal-fired electricity: HUBCO evinces interest in setting up 3,600MW plants

Pakistan, China to set up revolving fund to avoid payment hurdles.

ISLAMABAD: Hub Power Company (Hubco) sees the potential of setting up 3,600-megawatt power plants based on coal in Hub, which will ease crippling shortages and provide cheaper electricity to consumers.

“We can develop 3,600MW coal-run power projects in Hub whereas plants based on liquefied natural gas (LNG) should be set up in Punjab following a dip in prices,” said Khalid Mansoor, Chief Executive Officer of Hubco, at a press conference on Monday.

Hubco’s board of directors has given its management the mandate to establish two coal-run power plants with generation capacity of 660MW each and later four more plants of almost the same capacity.

Initially, it will bring imported coal to run the plants as well as set up a coal jetty for handling supplies. Later, the company will switch to Thar coal. Mansoor revealed that the government of Pakistan and Chinese banks had agreed to set up a revolving fund to keep money in circulation equal to the value of invoice for a month.

This fund will help avert payment issues due to circular debt in the power sector and make available loans for the Thar coal extraction project. Chinese banks have also accepted government guarantees.

The National Electric Power Regulatory Authority (Nepra) had capped upfront fee for Sinosure, an export credit insurance company of China, at 7%, but because of the presence of circular debt, the company asked for 9% for credit risk insurance. “Now, the issue has been resolved and China has agreed to cap the fee at 7%,” Mansoor said.

Tariff

According to Mansoor, tariff for coal-based power plants is estimated to be reduced by 10 cents per unit from the existing 22 cents.

“Prices of LNG have come down to $8 to $9 per unit from over $16 and the time is ripe to set up 3,000MW LNG-based power plants near load centres in Punjab where the transportation of coal will not be feasible.”



He pointed out that they were also interested in taking part in the privatisation of state-owned power generation companies through competitive bidding.

Major causes of debt

Listing the root causes of circular debt, Mansoor put the blame on an inappropriate energy mix, lack of governance and slow response from the regulatory framework.

“Despite clearing around $5 billion of circular debt in June 2013, it has again reached similar levels within a year,” he said, suggesting in order to achieve better energy mix, coal-based independent power plants should be established immediately.

No project would reach the financial close unless the debt was controlled, he declared.

“There is no solution to the circular debt other than enhancing the subsidy to meet (price differential claims), increasing consumer tariff and improving governance in power companies,” he said, pointing out Pakistan spent around $15 billion per year on oil imports, which was unsustainable.

Thar mining projects

Mansoor said the government would provide sovereign guarantees of $700 million for the Thar mining project. Thar projects feature in the priority list of schemes that are part of the Pakistan-China Economic Corridor and both mining and power generation have been categorised as the Early Harvest Programme.

He considered the existing energy mix neither sustainable nor affordable as over 40% of power production depended on imported residual fuel oil.

Oil imports make about 33% of the country’s total imports, which leads to a higher cost of power generation, runaway circular debt and a high import bill, draining foreign currency reserves.

“It is imperative to curb our dependence on foreign oil and look towards investments in domestic resources like coal and water that can help build our energy economy.”

Globally, energy production through coal had a share of around 41% in the total energy mix, but for Pakistan its contribution was extremely low at 0.1% – a fact which was both alarming and comforting, Mansoor remarked.

Elaborating, he said it was alarming because of its low contribution and comforting meant that still judicious investments could be made, which would help overcome the threat.

Published in The Express Tribune, January 20^th,  2015.

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