N. A. Zuberi

English

Research Papers in Economics

The Pakistan Development Review 
47 : 4 Part II (Winter 2008) pp. 1019–1027    
Private Power Generation—Opportunities  
and Challenges  
N. A. ZUBERI
*  
POWER INDUSTRY DYNAMICS 
The concept of modern world is imperfect without electricity. The development of 
modern gadgets in past two decades has made human living as reflection of a science fiction 
movie. The fiction like living’s axis in fact is electricity and without electricity every thing 
comes to a grinding halt. Though this picture is portrait of the developed world, yet everyone 
would agree that wherever electricity has reached, it has transformed everything into power 
reliant. Whether it is Pakistan or any third world country, the industry; the commerce; the 
banking system; the methods of teaching in educational institutions; hospitals; control systems 
of civil aviation and civic traffic systems; and the domestic living, everything revolves around 
electricity. Whenever there is any break in electricity supply, output of every segment of 
society drops down to its lowest ebb. Many segments such as process industry and hospitals 
require highly reliable power supply systems. Truly, electricity is no more a luxury available 
to rich only; it has now become a basic need.  
However, scientists have not yet fully succeed in overcoming the challenges posed 
by the dynamics of electricity. First of all their failure to store electricity on commercial 
scale  has  made  it  necessary  to  keep  generating  electricity  all  the  time.  However, 
managing  the generation  quantum to  meet  the varying  intra-day and  inter-day power 
demand at places which are hundreds of miles apart require dedicated and sophisticated 
transmission and distribution infrastructure. The problem accentuated in countries like 
Pakistan where the generation capacity reduces in winter due to lower availability of its 
hydro power plants and lower availability of gas for thermal generation plants.  
The  transmission  cum  distribution  infrastructure  as  well  as  installation  cum 
operations of power generating plants is very capital intensive. Hence it is very difficult 
for the governments and / or power utilities to develop the generation capacity and the 
transmission cum distribution network all by itself.   
PRESENT POWER SCENARIO 
Although  Pakistan  is  an  energy  rich  country  but  unfortunately  the  rich  energy 
sources i.e. vast hydel potential, Thar coal resources, etc. have not been successfully 
exploited and only about 70 percent population has access to electricity. Due to increase 
in  consumers,  non  realistic  augmentation  and  lesser  maintenance,  high  losses  and 
constraints  have  become  integral  part  of  the  national  grid.  Unreliable  service  and 
irrational  tariff  are  the  two  hallmarks  of  our  system.  Sluggish  pace  of  power  sector  
N. A. Zuberi is Executive Director, Private Power and Infrastructure Board, Government of Pakistan, 
Islamabad.  N. A. Zuberi  1020
 
reforms and undue wait for privatisation of different distribution companies have halted 
the improvement processes therein. The staff has lost its motivation and many of the 
distribution companies are on the verge of bankruptcy. The NTDC has taken over the role 
of  power  purchaser  replacing  the  vertically  integrated  WAPDA.  Financially  and 
otherwise NTDC appears a dwarf in comparison to gigantic WAPDA.   
PLAYERS OF PAKISTAN’S POWER SECTOR 
Before the advent of IPPs (commissioning started from 1997) power business in 
Pakistan used to rest in two vertically integrated public sector entities i.e. Pakistan Water 
and  Power  Development  Authority  (“WAPDA”)  and  the  Karachi  Electricity  Supply 
Corporation (“KESC”). WAPDA used to supply power to all of Pakistan, except the 
metropolitan city of Karachi and some of its surrounding areas which are still being 
supplied by KESC (though it has now been privatised). WAPDA was also supported by 
Atomic  Energy  Commission  through  two  nuclear  power  plants  in  the  country.  Now 
WAPDA has been unbundled and today WAPDA is in entity in existence for looking 
after the public sector dams and power generated by those dams. The rest of the carved 
out portion of WAPDA has been converted into following corporatised entities; 
 
Four (4) thermal power Generation Companies (GENCOs);  
 
Nine (9) Distribution Companies (DISCOs);  and 
 
One (1) National Transmission & Power Dispatch Company (NTDC);  
These corporatised entities will ultimately be privatised (except NTDC) and at 
present  are  being  managed  by  Government  of  Pakistan  exercised  through  Pakistan 
Electric Power Company (PEPCO).  
For facilitation of IPPs there exist two organisations namely (a) Private Power and 
Infrastructure Board (PPIB)  (who has the honor of bringing all commissioned IPPs in the 
country), and (b) Alternate Energy Development Board (which will facilitate renewable 
energy  based  IPPs)  Besides,  a  power  regulator—National  Electric  Power  Regulatory 
Authority (NEPRA) is also operating in the country since 1997.  Pakistan’s power sector 
is very complex and has a number of stakeholders as shown in the diagram below:   
MINISTRY OF  
WATER & POWER 
WAPDA
 
PEPCO  PPIB
 
GOVERNMENT OF PAKISTAN
 
Mega 
Dams 
Water  
Projects 
4 GENCOs
 
Generation 
 
Companies 
9 DISCOs 
Distribution
 
Companies
 
NTDC 
National Transmission  
& Dispatch Company
 
CHASHNUPP
 
KANUPP 
NEPRA
 
Pakistan  
Atomic 
Energy 
Commission 
 
AEDB  IPPs 
PRIVATE 
SECTOR  
KESC
 
 
 1. Private Power & Infrastructure Board 
 
1
 Private Power Generation  1021
 
Besides,  provinces/AJK  also  have  some  organisations  working  under  their 
administrative control for developing power generating units. One such organisation is 
Thar Coal and Energy Board which has been established solely to help develop power 
generation based on vast Thar coal resources.  
OVERVIEW OF PAKISTAN’S POWER SECTOR— 
GENERATION PATTERN 
Pakistan’s total installed power generation capacity is around 19886 MW. Out of 
which  8116  MW  is  from  private  sector  and  the  rest  is  through  hydel  facilities  of 
WAPDA, thermal generation units of GENCOs in PEPCO system and the two nuclear 
units.    
MW  % 
Public Sector 
  PEPCO   4,834   24 
  WAPDA Hydel  6,474  33 
  NUCLEAR  462  2 
Sub Total  11,770  59 
Private Sector 
  IPPs   6,005   30 
  KESC  1,756  9 
  Rental and SPP  355  2 
Sub Total  8,116  41 
Grand Total  19,886  100 
 
 
Dependable Capacity Summer  17,897 MW 
Dependable Capacity Winter  13,215 MW 
 
 
 
 
 
 
 
 
 
 
 
 
 
In year 2007-08, 95860 GWh of electricity was generated primarily through 
thermal fuels i.e. gas 34.3 percent and oil 32.1 percent. Hydel percentage in total 
fuel was 29.9 percent. Unfortunately coal’s percentage remained  very low at 0.1 
percent. 
Private 
Sector 
8116 MW 
(38.99%) 
Public Sector 
Thermal 
4834 MW 
(24.31%) 
Public Sector Hydel
 
6474 MW (32.56%)
 
Nuclear 
462 MW 
(2.32%) N. A. Zuberi  1022
 
Coal, 0.1%
Oil, 32.1%
Nuclear & Imported 
from Iran  
3.4%
Gas, 34.3%
Hydel , 29.9%  
Transmission System 
In Pakistan hydropower potential is in the North and coal/gas resources in the 
south so high voltage transmission lines run from North to South there are about 4000 
Km  of  500  KV  Transmission  Line,  in  addition  there  are  220  KV  and  132  KV 
transmission lines.   
MARDA
WARSA
BANN
DAUDKHE
BURHA NEW 
I.S.P.
MANGL
TARBEL
GAKHA
SAHOWAL
K.S.KAK
RAV
JAPA
KE N.ABA
SAB
YOUSAF 
VEHAR
KAPC
ROUSC
UC
AE
N.G.P. M.GAR
GUDD
LIBERT
DADU 
HALAR
LAKHR
JAMSHOR
KOTR
HUBC
KDA-
(KESC
 
500 kV Grid Station 
220 kV Grid Station 
500/220 kV Grid Station 
Hydel Power Station 
Thermal Power Station 
IPPs at 220, 500 kV 
IPPs at 132 kV 
500 kV T/LINE 
220 kV T/LINE  
(240
(3408
(1000
(107
(120
(195
(1350
(310
CHE
(184
(355
)
 
(1348
(695
HCP
(126
(548
(1655
(212
(150
(850
(174
(1200
GAZI 
(1450
CHASNUP
GATT
BUND 
M.GAR GUDD
JAMSHOR
TAPA
G.AHMA
Hydel,  29.9%  Nuclear and Imported 
from Iran 
3.4% 
 
  Gas, 34.3% 
Oil,  32.1% 
Coal,  0.1% Private Power Generation  1023
 
Challenges in Attracting Private Sector Investments in Power Generation 
As  earlier  mentioned  developing  new  power  generation  plants  is  very  capital 
intensive. For simple gas based 5000 MW thermal based capacity, roughly US$ 5 billion 
are required. As gas availability after year 2012 is very bleak (as per current projections), 
Pakistan will have to rely on hydel and Thar coal based power generation. The estimates 
for hydel is too high subject their location, topography and soil conditions. For Thar-coal-
based thermal generation say 5000 MW we need to develop an open cast mine of 30 
million ton / annum production capacity. Developing such huge mine per se is a big 
project requiring additional US$ 4 to 5 billions. These estimates do not include the huge 
investments required to improve infrastructure (such as roads, communication channels 
etc.) in areas where hydel potential and Thar exist. Arranging such funds by public sector 
utilities (corporatised GENCOs) is difficult due to their poor financial health which is 
turning worse from bad due to less revenue recovery resulted from low purchasing power 
of consumers (besides other factors such as  high losses etc.). Therefore instead of public 
sector projects reliance again has to be made on private sector. However, private sectors’ 
investment is very difficult—if not impossible – for local investors. Hence there is need 
to  attract  foreign  investors  as  well.  The unavailability  of  trained  human  resources  in 
sufficient  numbers  is  also  a  barrier  when  investors  start  to  think  for  investing  in 
Pakistan’s power generation sector.   
Private Power and Infrastructure Board 
In  1993,  the  then  Government  constituted  an  Energy  Task  Force  to  formulate 
comprehensive policy recommendations for the energy/power sector. In March 1994, the 
Government announced its Private Power Policy (the ‘1994 Policy’). The 1994 Policy 
was aimed at large-scale induction of the private sector in power development. In this 
policy framework, an internationally competitive package of incentives was devised to 
attract  foreign  and  domestic  entrepreneurs  to  invest  in  power  generation  projects. 
Procedures were simplified; steps were taken to eliminate delays in dealings between the 
Government and the investors; local currency investment requirements were reduced; and 
measures  were  adopted  to  create  and  encourage  a  domestic  corporate  debt  security 
market.  
As  part  of  the  Government’s  efforts  to  introduce  major  policy  reforms  and 
structural  changes  in  the  power  development  sector,  the  Private  Power  and 
Infrastructure  Board  (PPIB)  was  created  in  1994.  PPIB  provides  “One-Window” 
facility to investors in the private power sector by acting as a one stop organisation 
on behalf of all ministries, departments and agencies of the GOP in matters relating 
to  the  setting  up  of  power  projects  in  private  sector.  These  matters  include 
negotiation of Implementation Agreement (IA), Power Purchase Agreement (PPA), 
Fuel  Supply  Agreement  (FSA),  other  related  agreements,  and  liaison  with  the 
concerned  local  and  international  agencies  for  facilitating  and  expediting  the 
progress of private sector projects. PPIB is a purpose built institution to cater for the 
specific  needs  of  IPPs  and  has  to  interact  with  various  stakeholders  for  timely 
development of various private power projects. N. A. Zuberi  1024
 
 
 
 
Pursuant to the 1994 Policy, PPIB issued thirty four (34) Letters of Support (LOS) 
totaling 8,430 MW of net capacity. Ultimately, with the active support of PPIB, nineteen 
(19) IPPs totaling 3,158 MW of net capacity achieved Financial Close. Out of these 19 
projects, fourteen (14) reached to the successful commissioning. Besides these fourteen 
IPPs HUBCO and KAPCO are the other two private sector power generation plants in the 
country.  
Punjab 
Altern Energy Ltd., Attock  29  Jun 2001 
Japan Power Generation, Lahore  126  Jan  2000 
Kohinoor Energy Ltd., Lahore  131  Jun 1997 
Southern Electric Co., Lahore  135  Jul 1999 
Saba Power Company, Lahore  134  Dec 1999 
AES Lalpir Ltd., Multan  362  Nov 1997 
AES Pak Gen,  Multan  365  Feb 1998 
Fauji Kabirwala Co., Multan  157  Oct 1999 
Rousch Power, Multan  450  Dec 1999 
KAPCO, Muzaffargarh (privatised from public sector)  1638  Jun 1996 
 
Balochistan 
Hub Power Project, Hub  1292  Mar 1997 
Uch Power Ltd., Uch  586  Oct 2000 
Habibullah Coastal, Quetta  140  Sep 1999 
 
Sindh 
TNB Liberty Power Ltd., Dharki  235  Jun 2001 
Tapal Energy Ltd., Karachi  135  Jun 1997 
Gul Ahmed Energy Ltd., Karachi  136  Nov 1996 
Lenders 
PPIB 
Purchaser 
(NTDC) 
Investors  Consultants 
Sindh Coal  
Authority/others 
GOP 
(Ministries/Divisions) 
Fuel Supplier 
Provinces/ 
AJK Private Power Generation  1025
 
Given below is a summary of PPIB’s multiple achievements made thus far: 
 
Successfully  implemented  the  1994  Power  Policy  resulting  in  foreign  direct 
investment of about US$ 4 billion within three years.  
 
Helped in overcoming load shedding in the country. 
 
Provided an effective and efficient interface between IPPs and GOP. 
 
Resolved various contentious IPP issues such as those pertaining to withholding 
tax, foreign exchange availability, sales tax, duties and taxes on spare parts, etc. 
 
Successfully negotiated, executed, and administered agreements with IPPs.  
 
PPIB being repository of IPP knowledge provides full support to Ministry of 
Water and Power on matters relating to power sector. 
 
Successfully  handled  arbitration  and  litigation  cases  with  a  number  of 
companies non-seriously handling the projects.  
Power Generation Policy 2002 
In  late 2002  the Government of  Pakistan launched  a Power Generation  Policy 
embodying  an  attractive  set  of  incentives  for  the  investors.  The  Policy  provided  a 
balanced regime spanning from concessionary duty of 5 percent on import of plant and 
equipment  not  locally  made,  to  payment  Guarantee  in  case  of  default  by  the  power 
purchaser. Some other features of the Policy 2002 are given below: 
 
Exemption from corporate income tax, turn over tax  and sales tax. 
 
Protection against Force Majeure, change in law, and change in duties and taxes 
 
Compensation in case of termination. 
 
Tariff adjustments for variation in currency exchange and fuel prices. 
 
Remitability of foreign exchange. 
 
Protection against hydrological Risk.   
Tariff Structure for IPPs 
The Policy provided a well defined mechanism of two part tariff i.e. Energy Purchase 
Price (in Rs / kWh and linked with dispatch of the plant) and Capacity Purchase Price (in Rs. 
/kW/ hour linked with hourly availability of plant). NEPRA—the power regulator—also 
clarified some aspects of tariff during the initial tariff determinations under Policy 2002.  
 N. A. Zuberi  1026
 
Process Pursuant to Policy 2002 
Pursuant to Policy 2002 there are two distinct options for investors. One is the 
Unsolicited Proposal option and the other is Bidding Process. The initial response to 
Policy 2002 was that of the unsolicited one; which in fact was the manifestation of its 
success. The investors without being called for a specific project, kept approaching PPIB 
for investment in projects based on all sorts of fuels i.e. oil, gas, hydel, coal and bagasse. 
Recently PPIB has started relying only on projects based on bidding. 
The step wise process for unsolicited projects include pre-qualification, issuance of 
letter of interest after receipt of performance guarantee @ US$ 1000 / MW, conduct of 
feasibility study by sponsors and monitoring thereof by PPIB trough a panel of experts, 
tariff determination by NEPRA,  issuance of Letter of Support (LOS) after receipt of 
Performance Guarantee @ US$5000 / MW, signing of agreements, financial close by the 
project company duly formed the sponsors, construction, and testing and certification by 
independent engineers for commissioning.     
The bidding process on the other hand is different from the unsolicited up to the 
stage of LOS issuance. In solicited LOS issuance precedes the selection of successful 
bidder; for which the process starts by issuance of Request of Proposals, receipt and 
evaluation through a two envelope method and tariff confirmation by NEPRA.   
PPIB’s Efforts for Attracting Investors 
PPIB  disseminated  Power  Policy  by  aggressive  marketing  through  seminars, 
workshops,  personnel  visits  to  identified  prospective  investors,  arranging  road  shows 
abroad and last but not the least by publishing different reports such as Hydel Potential 
report and Coal brochures.  
PPIB’s Project Portfolio / Initiatives of PPIB 
In response to its vigorous efforts investors responded very positively and PPIB 
has  embarked  upon  new  fast  track  initiatives  besides  the  normal  track  unsolicited 
projects. PPIB’s portfolio now consists of the following projects/initiatives:  
Projects 
 
Unsolicited Projects (Oil / Gas). 
 
Fast Track Projects. 
 
Pre-Qualification 
•  Technical Strength 
•  Financial Strength   
Timeline:  
•  1-month including 
approval of Board  
 
Feasibility Study  
•  Monitoring & 
evaluation by 
POE  
•  Timeline: 
Depending on 
sponsors,  
  6-m for thermal, 
18 -36 months for 
Hydel & Coal 
projects 
LOI 
NEPRA 
 
Tariff 
Determination 
 
Agreements  
•  IA 
•  PPA 
•
 
GSA/ FSA
 
Financial
 
Close 
LOS  COD Private Power Generation  1027
 
 
Imported  / Local Coal Projects. 
 
Hydro Power Projects. 
 
International Competitive Bidding for  
– IPPs.  
– Rentals (limited period say 3–5 years projects).  
Initiatives 
 
Feasibility Studies for 
– Hydro Projects. 
– Isolated Gas Fields not connected with system of SNGPL/SSGC.  
Response / Status 
There  is  tremendous  response  from  private  sector.  In  all  PPIB  is  processing 
following forty seven projects with cumulative capacity of 12426 MW. From these PPIB 
issued LOIs to thirty six for 10 183 MW cumulative capacity. Out of these thirty-six 
projects, fourteen projects (with cumulative capacity of 2,831 MW) have advanced to the 
stage of LOS. Twelve amongst them (cumulative capacity 2539 MW) have also achieved 
financial  close  and  Attock  project  at  Morgah  Rawalpindi  has  achieved  Commercial 
Operation on 17th March 2009.  
Years  No. of Projects  Capacity (MW) 
2009  12  2479 
2010  7  1314 
2011  7  1409 
2012  4  450 
2013  5  2813 
Total  35  8465 
 
CONCLUSION 
As the power demand is continually growing and the huge quantum of investments 
required  would  continue  to  grow  into  mammoth—creating  continuous  investment 
opportunities for investors—PPIB will continue its efforts to arrange demanded power in 
the country by providing best facilitation to prospective investors through its team of 
highly trained and experienced professionals. 

Private Power Generation—Opportunities and Challenges

http://www.pide.org.pk/pdf/PDR/2008/Volume4/1019-1027.pdf

Private Power Generation—Opportunities and Challenges

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