ISLAMABAD: The government has decided to give up more than 1,000 megawatts of imported coal-fired power projects to contain reliance on imported fuels and reduce foreign exchange loss.

Under two separate but related decisions, the government has shunned a 660MW imported coal-based power project of the Hub Power Company (Hubco) under the “actively promoted projects” of the China-Pakistan Economic Corridor (CPEC).

Also, Karachi-based Siddiqsons Energy has been asked to set up its 350MW plant on domestic coal from Thar instead of imported coal.

A senior government official told Dawn on Friday the two decisions were taken by the board of directors of the Private Power and Infrastructure Board (PPIB) — a one-window arrangement for private investments in the power sector — led by Minister for Water and Power Khawaja Mohammad Asif.

In November 2014, the PPIB approved processing of 1,320MW imported coal-based power project at Hub, Balochistan, by Hubco. That decision led to formation of a joint venture between Hubco and China Power International Holding Company. In June 2015, the PPIB issued a letter of intent (LoI) to the joint venture.

The move aims to contain reliance on imported fuels and cut foreign exchange loss

Based on that letter, the National Electric Power Regulatory Authority (Nepra) approved the upfront tariff for the power project in February this year. The joint cooperation committee of the CPEC included a 660MW unit of the project in the list of ‘priority projects’ and the remaining 660MW in actively promoted projects under CPEC framework agreement of Nov 8, 2014.

The PPIB also issued letter of support (LoS) to the project in April this year on the basis of Nepra tariff and performance bond of $6.6 million at the rate of $5,000 per megawatt with the financial close deadline of Jan 12, 2017.

The LoS required the project company to negotiate and sign implementation agreement with the PPIB and power purchase agreement (PPA) with the Central Power Purchasing Agency (CPPA) by Oct 11, 2016 to enable signing of the agreement by the January 2017 deadline.

The existing 1,292MW Hubco project was also required under an agreement with the government signed at the time of clearance of circular debt in May-July 2014 to convert its thermal machines to coal-based generation. This did not materialise as planned.

The failure of the China Power Hub Generation Company to execute these projects within the stipulated time was to become “a default” and require the PPIB to encash performance guarantee. The negotiations for implementation and power purchase agreements continued until the end of August 2016 and the company demanded signing of the implementation agreement to avoid default.

In the meanwhile, the PPIB board decided in June this year to stop processing of power generation based on imported fuels because of substantial capacity already contracted that was enough to meet power demand until 2022 and to remain watchful of considerable foreign exchange erosion. This led to the decision of signing implementation and power purchase agreements with China Power Hub Generation Company for only 660MW instead of 1,320MW.

Likewise, Siddiqsons Energy Ltd (SEL) has been asked to set up its 350MW project proposed at Port Qasim on Thar-based coal or else its LoS for the project on the originally envisaged project based on imported fuel would not be allowed to continue.

Originally, the SEL was required to achieve financial close by Aug 31, 2016. But the State Bank of Pakistan disallowed the company to sign Rs45 billion financing agreement with the United Bank Ltd to avoid foreign exchange erosion and instead bring foreign financing. As a result, the SEL declined to achieve financial close and demanded one-year extension.

Consequently, the SEL was compelled to convert to local coal if it wanted to continue with the power project and bring foreign financing. The negotiations led to agreement on extension in financial close deadline until August 2017 without doubling the performance bond and issuance of a letter of consent by the CPPA and National Transmission And Despatch Company Ltd and modification in tariff accordingly.

Interestingly, after delaying one project and giving up another for being imported fuel based, the PPIB in a recent meeting floated a 1,200MW project on imported liquefied natural gas. An official said that with a tight schedule for the proposed LNG based project, only a contractor that already has the plant available could meet deadline, unlike original manufacturers.

Published in Dawn November 5th, 2016