Overpayments on Account of Inappropriate IPP Tariffs
Pakistan has regionally highest power tariffs which have consequently raised the cost of manufacturing. This has been one of the prime reasons for the loss of competitiveness of our industry and the stagnation of our exports.
The high tariffs hurt industrial production, commercial activities and even the common man as these tariffs are correlated to income levels of the ordinary Pakistani electricity consumers.
These rates are a direct result of corruption and inefficiency which have plagued the system.
This document deals with the main causes of the exorbitant tariffs allowed to IPP’s with complete disregard to the agreed rates of return as a result of corrupt practices.
The IPP’s under scrutiny fall in the following categories:
1. Coal Power Projects 2640 MW’s
This report only deals with the CPEC sponsored 2 x 1320 MW plants.
Section A of the Report
2. Oil & Gas based Thermal Plants 1200 MW’s
Only those under the 2002 policy
Section B of the Report
3. Wind Power Plants 1350 MW’s
Section C of the Report
Other IPP’s categories that also require to be scrutinized and revisited are:
4. Solar IPP’s: 4 projects 400 MW’s A Tariff of US cents 18/Kwh for the first 10 years, whereas, the internationally competitive tariffs currently are well under 4 cents and at the time of award of these projects was about 7 cents per kWh.
Section D of the report
5. Hydel IPP’s Approx 3000 MW’s underdevelopment (List attached)
Hydroelectric power used to be the cheapest source of electricity. It is no more as it is now costing 8 to 10 cents as opposed to 5 cents or even lower for solar and wind energy. Even hydroelectric power is not priced more than 4 cents in most jurisdictions in the world.
The rationale for scrutinizing the bidding for Dasu, a public sector project under World Bank, auspices reveals that bids were lower by 50% or even more compared to those for similar projects.
A comparison of different projects shows that unit costs vary widely. Karot has 2.03 times the reference cost for Dasu, Kohala 3.31 times, Azad Pattan 3.97 times, Suki Kinari 2.38 times and Mahl 2.50 times.
Attached is the PDF document regarding the overpayments of the IPPs.
COMBINE FILE OF OVERPAYMENTS-min_compressed (2)
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Part 2 of The Solution to the Pakistani Power Imbroglio
The Sugar-Power Paradox
Pakistan sugar mills,make sugar,at say,a Total Cost,of Rs 60/kg,sell it,at Rs 65/kg,when the import price (duty free) would be,say Rs 30/kg.In addition,the stocks of sugar,liened to the banks,are liquidated by exports,by selling the sugar,in the export markets,at Rs 30/kg. Hence, the sugar mills are paid Rs 30/kg,as subsidy.dindooohindoo
However,it must be noted that subsidy of Rs 30/kg,or the higher sugar price,paid by Pakistanis, HAS BEEN PAID,IN A SIGNIFICANT PART,BY THE SUGAR MILLS,to the farmers,the state (as taxes),and to the bank (as interest).The nation has received stocks of sugar, produced a strategic input,and kept millions employed and nutritious – in lieu of the subsidy,and import proection.
Therefore,the SUBISDY ON SUGAR,is not the same,as the CAPACITY CHARGE,paid to IPP/ RPPs.The State receives nothing,in lieu of the capacity charge,as,in theory, no power is produced by the IPP/RPP,at all.
Doom No.1 – Capacity Charges,in a No-Power scenario
The Capacity Charge paid to IPP/RPPs – which is a dead loss,to the state – as the IPP/RPP,will repatriate the money,to the overseas principals.The Capacity Charge is paid,irrespective of power demand, evacuation issues and Force Majeure events,and also,new power corridors and West and Central Asia.The capacity charge,is also paid,notwithstanding,peak and base load power plants.
Solution No.1 to Doom No.1
The State has to terminate the capacity charge agreements,due to the COVID Force Majeure,as this event will destroy power demand for ever,as also change the power corridors in West and Central Asia.COVID was planned to ensure financial forfeitures and preclosures. There is no DESTRUCTION OF INDUSTRY – DUE to fire,or an accicent – and so,there is no loss to insurers.The Millions,who will die of COVID,would have died in any case,it is,thus a timing loss – and there is no investment loss,to the insurers,as the claims will be paid, from the sharp rise,in new premiums (by new scared and panicked and hapless sentients).There is no “Loss of Business” Insurance Policy,in vogue – as it is expensive,and a compendium of sophistry.
When insurers do not LOSE,due to a disaster – they gain exponentially – as everyone will insure,for the unknown – especially,”loss of business” policies – which are LOP (Loss of Profit Policies – and very expensive).This is a sure sign,of a man made virus – with a financial, economic,military and political objective.
This is the right time,to 1st kick out the RPPs – as they can physically exit,at will – with a few contingencies.Then the IPPs,have to forfeit the capacity charges – for those projects,where APM in USD,has already recouped the EQUITY,of the project cost.The IPP/RPPs have to partake in the realties of the energy paradign,in light of the Force Majeuere world.Even the Hague will accept this logic – as the continued operations – will be a prime case,of
rapacious profiteering.Capacity charges have to be forfieted,by all the IPPs,with USD-APM,and,for others,the capacity charges have to be drastically cut down,AND,if needed,the liquid fuelpower sector,can be nationalised.
Nationalisation will have no impact on FDI etc.,as the prime investor is PRC – which will,thus, not bother about the implications of PPA termination,or Power plants takeover. In a world of economic ruin,the PRC is sitting on 3-4 Trilion USD,of US-DEBT and Gold.
Solution No.2 to Doom No.1
The Capacity charges have to be re-negotiated – on purely technical reasons.The engineering and maintenance supply chain,of power plants,will be destroyed – as the suppliers will be busted,and those in operation,will have shortages of staff and inputs.Thus,the IPPs will ultimately default,on their capacity commitments.If the IPP can claim Force Majeure,w.r.t their engineering supply chain,the State,can also invoke Force Majeure,on their commitments,to profiteering clauses,in the PPA.
Besides,with the crash in power demand, the technical life of the power plants will increase, as there will be,less usage,and depreciation and damage.Due to the disaster in the power sector,there will be less R&D,and so,lesser risk of technical or technology obsolescence.
In view of the above,the capacity charges have to be drastically reduced,and/or forfeited
Solution No.3 to Doom No.1
In the COVID scenario, and in view of the above, the high marginal cost IPP/RPP and SOE,and also,old power plants – whose engineering supply chain will collapse – can be shut down,and kicked out – and the resultant cost saved – even on,revised power demand estimates,can be shared with the residual IPPs,in terms of higher power tarriffs (in lieu of elimination of capacity charges,PPA restructuring and eradication of high cost power plants)
It might also be noted that,with the crash in power demand,and possibly agri activities, the hydel power plants of Pakistan,might be able to take over the peak load power demand – and so,gas-combined cycle-liquid fuel-naptha based plants – MIGHT not be required – and,if required,will need to be negotiated,in light,of the new environment.
Thus,in addition, there can be no basis,for payment of capacity charges,for peak load IPP/RPPs,as,in the new power demand matrix – there may be no peak demand, and the peak demand,may be met,by hydro power plants.In any case,in a free market,for peak load power,or a supplier’s market, there is no case for capacity charges,in a nation,like Pakistah – as there was,in the past,enough residential and industrial peak demand,and grid disasters – with ample scope for the IPP,to make exorbitant profits
The Solution to the Pakistani Power Imbroglio – Part 4
Doom No.1 – Pakistan has failed to avail of the perks of the doom of the IPP/RPP scam
Solution No.1 to Doom No.1 – The doom of the IPP/RPP,have not been encashed by the Pakistani state.The COVID is a divine opportunity.Besides the case for a debt Waiver, seizure of power assets,making IPP/RPPs forfeit clauses of the PPA ,setting up Saudia refineries and power plants – the key opportunity, is to justify the thrust,into N-Power.
This is the best time to strike a deal for N-Power – with the disaster in the world economy,on account of COVID.The benefits are strategic – besides the obvious
financial and economic advantages to the state.dindooohindoo
The Solution to the Pakistani Power Imbroglio – Part 5
Doom No.1 – Liquid fuel and coal based power plants,for base and peak load power – instead of N-Power
Solution No.1 to Doom No.1 – Pakistan has to sift to N-Power,as it is the cheapeast and low to Nil risk option,from all angles.The only contingency,is the “water quotient”,as in Fukushima – the water from the sea,and the need of the water,as a coolant,moderator and conductor.Unless Afghanistan is partitioned,no energy corridor passing through it,will be bankable or insurable,or risk free. Similarly, no energy corridor through Iran,will be unviable (from the point of UN Sanctions/ Trade sanctions/geo and financial risk).
When Oil prices are at 20 USD – there is demand destruction, and so,power availability and fuel availability,is not an issue,as there is no power demand – and the state has to pay the capacity charges to IPP/RPPs.At high oil prices,IPP/RPP power costs are high,even if the power demand is muted (as the oil price,prices in political/geo/logistics risks – and not an uptick in demand or economic activity),and even,if the power demand is high – there is no international competitiveness,w.r.t the exports,as other nations,have lower power costs and export sops.
Further,in the event of any Conflict in the Persian Gulf,which is certain,in a block of,say 3-5 years,there is a supply risk,w.r.t fuel logistics,to Pakistani ports, and especially,the liquid fuel cargos – besides the risk premium,in the fuel prices,and the sea freight and insurance.1 disaster in the Persian Gulf,will wipe out the economic activity,of a few decades in Pakistan.
Hence,the Pakistan state should use N-power,and there are several nations,which will supply the tech and reactors,at ultra low costs,with 40-50 year repayment tenors, and will also,in some cases,supply the N-plant free of cost,and operate the same – to earn profits,from sales to Grid.Several nations are exiting N-power,and so, their technologies and reactors,are useless – as is,their stockpile of LEU and DU.They will be glad,to sell their LEU and DU.
Some of the Pakistani enrichment facilities and the NFC,are already under IAEA inspection – but if they are to kept secret,enriched uranium or the fuel rods,can be obtained from PRC,or France or Russia etc..Ideally,the yellow cake should be processed into UF6, and enriched in Pakistan – as that provides the basis,for the dramatic upgrading,of the entire nuclear fuel supply chain,in Pakistan.In such cases,some ore suppliers require the return of DU – as per a set norm.Return of some of the DU,is good,as it obviates the storage risk.
Power is a fungible commodity – but the uranium ore,is not.So the uranium can be,within limits,diverted to the HEU program.From the DU stock of a batch,it is possible,via scientific testing,to trace the COO of the ore – but even,this minutae in uranium accounting,can be navigated.
As a matter of N-Fuel supply risk,in the current scenario,it would not be unreasonable, to ask for several years of LEU – which insulates the nation,from fuel supply risks (of price, quality and quantity) – which is the only risk – and so,you have have a fixed price fuel supply,with a viable commercial use,of the DU – in the military – and a covert generation of HEU – which makes the fuel cost – nil to negative.
It is irrelevant,that Pakistan has uranium reserves -as it is in the strategic interest of the state,to understate the quality and quantity,of the ore, and generate as large, a stockpile as possible.Further any mining,is the extraction of poison,from the earth’s core,and bringing it onto the earth’s surface,or into contact with water acquifiers and bodies.It is best that that this poison,is dumped,in 3 rd countries.
There is also no DU disposal risk,as nations like USA/France/Russia and PRC,need to worry about it,far more.Sooner or later,these nations will need to make DU dump farns,in some nation (with exceptional security) – and the excess DU in Pakistan,can be dumped there – if the Pakistani ordinance factories,cannot use the DU (which is extremely unlikely).
Lastly,there is no security risk,to the N-Power plants – as a gas,naptha/liquid fuel power plant,can be blown to smithreens,at the fuel dumps or the plant or the pipelines – by just a elemenary ED, and not even a IED or a Grenade.On the other hand,all these toys,have no impact on a N-Power plant.The reactor core,can survive a tactical N-Strike.
Even if there is human sabotage,it will have no impact (although a liquid fuel plant,can be blown to bits) – so long as the coolants,moderators and condutors,are working.Fuku occurred,because the pumping system which evacuated the heat,from the reactor – just collapsed.Chernobyl also blew up,as the core temperature in the reactor core kept rising,as the control rods failed,and the reactor could not be cooled (for whatever reason) – so it just blew up.Simple !
It is said that the sound of the enriching centrifuges,capture the recitation of “some specific ayats of the Quran”,strung and recited at a certain speed and frequency.It is the divine calling.