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Privately energizing the power sector-II

(This is the SECOND and CONCLUDING article of the series).

Economic recession looms like a Sword of Damocles over Third World countries because of increased fuel prices due to the Iraq-Kuwait situation. Successive governments have taken up the expansion of our electricity sector on a priority basis. Private sector was invited, in a sea change of heart, to invest in the sacred cow domain of power projects, then Junejo government hoping to bring in financial equity and expertise, foreign and local, to develop the country’s energy potential. The projects envisaged being (1) outside the ambit of public utilities e.g being too small (2) co-generation, combined generation electricity and thermal resources and (3) use of cheaper indigenous sources like low heating value gas, household garbage, low grade coal, etc. According to Syed Shaban Alam (THE NATION, Aug 19, 1990), our electricity consumption is extremely meagre, 300 kw per year per capita in comparison to 12,000 kw in the US and 6,000 kw in Europe and Japan. Intended to attract investment, the US AID-funded Private Power Cell (PPC) functions as a one-window operation to assist potential investors in modulating their proposals to fit in with the requirements of the country, e.g costs may be widely different in installation of the same project in USA or Europe. Attempted over-invoicing can be given a short shrift by competitive bidding in material procurement stage, stipulated mandatory by all international finance institutions working through the energy window in the NDFC, manned by very credible financial and engineering personnel. Credible foreign companies will hardly come forward with half-serious proposals. Numerous officials roam the world to invite foreign investment, seminars are held in London and New York, an FPCCI delegation is on its way to Tokyo shortly, a very rosy picture being painted about prospects in Pakistan. When the potential investors come to Pakistan, they are wined and dined, led through the official channels and invited to risk their money in Pakistan but once the entrepreneurs take that decision, bureaucracy goes into the second stage of its Dr Jekyl and Mr Hyde-act, officials are usually found travelling (1) abroad (2) to Karachi and/or (3) elsewhere in the country, if available in Islamabad, then they are “too” busy for a meeting. Investors from as far away as New York are left kicking their heels in sheer frustration. When a meeting is arranged with the intercession of the Embassy of the investor concerned, the bureaucracy is a study in sheer obduracy. Punctuated by lip-service exhortations of welcoming investment, the fear of God is driven into the potential investors by the raising of numerous inane Catch-22 objections. Documentation is scornfully sneered at, local sponsor/representatives are either studiously ignored or looked down upon as if they are the scum of the earth. The situation is turned on its head, the entrepreneurs who were invited to come, even enticed to come, now become the supplicants to a “monarch”. They persist with fading hope, drawn deeper into the web of the bureaucrats. This drama is usually staged to set them up to part with money and favours, sometimes it is just sheer cussedness to satisfy their egos without corrupt expectations. And we expect Pakistan to be a haven for foreign investment? The potential entrepreneur has to have a thick hide and no self-respect.

The PPC presently functions with intermittent effectiveness, mostly due to lack of manpower. As a technical stage preceding the Board of Investment (BoI), it must be better manned. Headed by a WAPDA official (on deputation), Mr G.M. Ilias, the only Pakistani executive employed presently, the PPC is interviewing prospective Pakistani applicants for senior executive positions (between 10-15) in engineering and financial disciplines. Other than their qualifications (and manners), their health should be examined in detail, heart patients are hardly likely to cope with the high pressure of work, either the work will suffer or they will, fatally. Mr Ronald H. Leasburg is the Chief of Party, International Resources Group Ltd, a private US company contracted by US AID to support the PPC. The four US experts attached with PPC are experienced personnel from the private sector having many “on hand” years with international energy projects. Four US Consultant companies are qualified to review the detailed feasibility studies, some Pakistani companies may be considered in the future. PPC represents the leading edge in the campaign to increase energy output, Pakistan must place our best (and plenty of) human resources there, people having no ego problems, or for that matter, inferiority complexes. To the great credit of NDFC, their Private Energy Division has come up very well. The procedure for applications for projects must be suitably amended. Private entrepreneurs should fill a detailed questionnaire (to be formulated by the PPC) and submitted along with a short Project Summary. If found economically feasible by the Consultants, the PPC should write a “Letter of Support” for the sponsors in lieu of a Bank Guarantee of 0.1% of estimated value of the project thereby putting one’s money where one’s mouth is, e.g for Hub River Xenel Project (estimated value US$ 1,200 million), the value of the Guarantee would be US$ 1.2 million. This will bind the Sponsors to submit a detailed feasibility to be prepared by recognized Consultants within the parameters agreed upon to within a stipulated period (of maximum maybe 12 calendar months). The Draft contract to be negotiated by the PPC should have the usual safeguards. It is utter nonsense to issue a Letter of Intent (LoI) with an agreed tariff before a detailed feasibility establishes the real costs, there is no earthly way to arrive at an accurate tariff rate earlier. This is a bureaucratic rigmarole (and roadblock) that must be done away with immediately. Once the detailed feasibility is in, negotiations may lead to a final contract. The aforementioned procedure may not be completely suitable, the idea is to have a workable mechanism and effective mutual commitment. At the same time the PPC should prepare proforma Pre-Feasibilities of potential projects for the information of private investors.

Projects in the private sector presently are more than 36 months away from coming on-stream, maybe even more, whereas we need electricity today. Anything based on imported fuels (Hub River Xenel Project) is doomed to uncontrollable cost escalation, even before the project has gone into the construction stage, the “openers” for increased tariff are being applied. According to available data, natural gas finds have recently been discovered in Punjab near Multan at Nandipur and Panjpir, at Zin and Uch near Sui in Balochistan and in Sindh near Khairpur and the Badin Block fields (Union Texas). Uch has reserves of about 2.5 million cubic feet, the others lesser in volume and of low heating value, not good enough (except Badin) for normal commercial or residential use but adequate for Combined Cycle Gas Turbine units. A 100 MW Combined Cycle Gas Turbine power project was sanctioned for Kabirwala (near Multan) in the private sector on July 28, 1990, many more can be put on line in less than a year, dependant upon indigenous fuel rather than on escalating imported fuel oil (Xenel Project). The stumbling block seems that the Oil and Gas Development Corporation (OGDC) and its parent Ministry, the Ministry of Petroleum, are holding out to obtain the same unit price for low heating value gas (BTU per cubic feet), Zin (484 BTU), Uch (305 BTU), Khairpur (310 BTU) as compared to Sui (933 to 985 BTU). This is sheer nonsense, leading to delay in implementation, this obduracy costing Pakistan in both direct and indirect foreign exchange and revenue losses. Energy to the national grid is to be given at Rs 1.03/kw hr according to the Xenel Project Benchmark, Syed Shaban Alam says that loadshedding costs the economy Rs 12 per kw hr, twelve times the amount if you do not have a Unit of electricity. The concerned OGDC and PPC officials should be locked up in a room till we see the white smoke coming out confirming that they have come to an agreement about the unit price of gas, better still, let someone with authority lay down a reasonable price. There has to be a price for extracting gas, etc, which must be reflected in the unit price but the present situation borders on the ridiculous. Instead of letting our PPC officials go gallivanting, traipsing around the world and within the country the PPC should be made into a 24 hours effort to solve energy shortages, anyone not coming in line should be summarily sacked. Immense harm to the economy of the nation has been done by plain stupidity and endless filibustering by certain mindless individuals. Given that the sincere political will of the Benazir Government was present to alleviate power shortage, the failure of their appointees to be effective must be ruthlessly punished.

Two or even three Combined Cycle Gas Turbine projects of 300-500 MW size must be set up immediately, the long-term solution lies in the effectiveness of the PPC to encourage and motivate private investment, to carry out quick evaluation and implementation thereof so that the debt burden is not solely borne by the public sector. To ensure that foreign credit is available for these projects, the Hub River Xenel Project, economically not feasible anymore because of high imported fuel prices, should be held in abeyance or even scrapped.

As is usual with us, the time for action was really yesterday, if we do it in the light of today, our children may still have a bright tomorrow.

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