Legal Advice on the Power Sector of Pakistan

We also advise extensively on Water and Power laws in Pakistan and Setting Up Independent Power Projects in Pakistan

We are a Top Law Firm, which has been making positive efforts to guide foreign firms in investing in Pakistan’s Power Sector. The Pakistani Power Sector is an active player in the economic field. As of 2016 there is a positive inflow of investment in this sector due to demand and supply gap calls for immediate steps to avoid chaos in near future on account of overloading and consequently load shedding or tripping of the system.Based on this, a lawyer’s role becomes indispensable in having issues settled between power companies and the NEPRA when it comes to licensing and Tariff in the Pakistan Power Sector.

Pakistan’s Power Sector is Ready For Investments in:

Generation
Transmission through wheeling
Transmission Lines
Distribution – through Privatisation
Equipment and Materials

Our Clients are not only current power producers but also potential power producers and investors looking for a Valid Generation License Certificate(s).

As a legal team , well versed with the technicalities of acquiring power licences and appealing for fairer tariffs, we routinely advise on :

Inflated Monthly Fuel Charges Adjustment Of Discos

Claims For Partial Loading Adjustment Charges

Advise On Provision Of Power Purchase Agreement Where Plants Are Being Operated On Partial Load Due To Less Demand In The System And Transmission/Distribution Network Constraints.

Procurement of /Appeal for Certificates For Fuel Adjustment In The Consumer-End Tariff based on the Pakistan Power Policies (Hubco & Kapco Inclusive)

Due Diligence of Verifiable Documentary Evidence and or Deviation/Variation as per the NEPRA Act, and related Rules & Regulations

For incoming foreign investors in the Pakistan Power Sector, we advise on the following Types and aspects of procedures involving Power Licences in Pakistan :

Generation Licences
Small Power Producers (SPPs) Isolated Generation Companies (ICGs) Independent Power Producers (IPPs) Generation Companies
Generation License to SHYDO
Licence requirements after mergers of Power Companies,
Distribution og Licenses to SPPs
Interim Power Procurement (Procedures and Standards) Regulations-2005
Transitional Arrangement Order (TAO)

We advise on the legal aspects of problems related to the following types of Tariffs

Automatic Tariff Adjustment (ATA)
Structural Adjustment of Tariff
Defence Housing Authority Cogeneration Limited
Star Power Generation Company Limited
Orient Power Company Limited
Ex-WAPDA Generation Company(s)
Nuclear Power Plants
Benchmark for Furnace Oil Prices
Tariff Adjustment of JPCL for Variation in CPI & Exchange Rate Determinations in Respect of Power Purchase Agreements Filing of New Tariff Petitions

We also advise on the Following Aspects of the NEPRA Standards & Codes Standards:

Performance Standards
Generation
Transmission
Distribution
Environmental Standards
Procedures and Standards for Investment Programme Codes
Grid Code Distribution Code Safety Code
Aspects of Privatization
Consumer Affairs Consumer Service Manual Complaints

History of Pakistan’s Power Sector

At the time of Pakistan’s independence in 1947, the country began a power generation capacity that reached sixty megawatts. The power sector then was under the management of two integrated utilities such as the Karachi Electric Supply Company (KESCO) and the Water and Power Development Authority (WAPDA). Not until the mid-1980s when the performance of these two utilities went unsatisfactory. Certain constraints in capital availability have led to inadequacy in generation capacity and deterioration of the infrastructure of distribution and transmission.

Law in Pakistan

Moreover, there was insufficiency in the increase of electricity supply leading to its inability to catch up with increased electricity demand during that period. Consequently, this grew about nine to ten percent annually. In fact, in the earlier part of the 1990s, the supply of power has lagged behind the demand. For this reason, they have experienced shortage in electricity, particularly commercial and industrial consumers.

Reasons for Restructuring the Power Sector

Undue political interference
Limited capital resources management corruption
Bureaucratic delays and over-staffing in handling routines
Costly and inappropriate investments
Quality of services is poor
System losses are high
Collection of bills is inadequate

The Council of Common Interest and the Government of Pakistan has approved the 1992 strategic plan for the restructuring the Pakistan Power Sector. Later it was followed by the approval of the Power Policies in 1994-2002.

Initiatives in the Implementation of Competitive Power Market

Restructure and privatize the existing generation of thermal power, transmission, and distribution functions as well as assets of public sector utilities such as the KESCO and the WAPDA.
Creation of the National Electric Power Regulatory Authority (NEPRA), which is an autonomous regulatory authority.

The initiatives were intended to promote competition, as well as improve the financial, operational, and management in all of WAPDA’s tiers. This will eventually offer reasonably priced electricity for the customers.

The varying issues that concern the government of Pakistan had led to the restructuring of different policies. For this matter, there are several points that are intended for the Power Sector to be implemented.

Power Sector Power Policy

The power policy requires development in relation to the structure of the power market as mentioned in the license of the National Transmission and Dispatch Company (NTDC) by the NEPRA.
Possibility for the review or revision of the power market structure intended for the power sector. This is due when required to do so with stakeholder involvement. Nevertheless, the regulatory framework and the power policy need to be in line with one another.
Accelerate new thermal plants completion including the existing XWAPDA generation plants mentioned already.
Reviewing of the gas allocation rationalization towards the power sector so that it can provide improvement in the generations mix.

Reviewing Structure of the Power Market

Review of the structure of the power market is essential so that it can move to the following level of power sector reforms.
All additional capacity for new generation should be included in the system according to the power market structure so that it can meet the demands of the specific markets.
Review is important for all regulatory timelines together with the stakeholders in order to take necessary steps prerequisite in the implementation of advancements, interventions or power market structures.

Legal advice

If you require legal advice on any aspect of the power sector in Pakistan, you need to hire a law firm with the knowledge and competence to advise you on a comprehensive range of services including:

Corporate consultancy
Legal advice and opinions
Drafting and negotiating various agreements including power purchase agreements, water use agreement, joint bidding agreements, shareholding agreements etc.
Drafting service and employment contracts
Advice on corporate governance and its legal aspects
Advice on Legislative drafting
Legal and financial document vetting
And preparing due diligence reports.

Josh and Mak International can provide you with a successful legal partnership to guide your company through the laws and legislation governing the Pakistani Power Market. Contact our office now: +92-51-844 2922 or +92-51-844 1622, you can also email [email protected]

All you need to know about the current and previous power policies of Pakistan

Pakistan has three sources of energy namely Hydel, thermal (gas/furnace oil) and nuclear. The Water and Power Development Authority (WAPDA), KESC, KANUPP and CNPP are the four main public sector organizations, involved in power generation, transmission and/or distribution of electricity in the country. In July 1992, the GOP adopted a Strategic Plan for the Privatization of the Pakistan Power Sector. Under then new energy policy, PPIB was created to bridge the private power sector with public sector players. Prior to 1994, the major chunk of electrical generation was based on Hydel power. In 1995 to cater for the rising demand of power, an efficient and short-term strategy was evolved to pro- duce electricity through Independent Power Producers (IPP).

The electric power sector in Pakistan was primarily State owned but has gone through fundamental changes and restructuring since 1992. The main State-owned and controlled entity was WAPDA, which still holds monopoly in transmission and distribution except in generation of electric power. Its sister company, the Karachi Electric Supply Company Ltd (KESC) was incorporated on 13 September 1913 under then Indian Companies Act, 1882 and serves only the metropolitan city of Karachi. The company was nationalized in 1952 but has been re-privatized on 29 November 2005.

WAPDA, which was formerly comprised of eight regional electricity boards operating in different provinces, has been converted and corporatized into eight distribution companies for their further privatization. In December 1998, the WAPDA Act 1958 was amended to permit unbundling of WAPDA and establishment of Pakistan Electric Power Company (PEPCO). Thus WAPDA was left out with the functions of management of water resources and Hydel electric power generation. Buying of electricity, transmission and supply was assigned to PEPCO.

The government plans to privatize Faisalabad Electricity Supply Company (FESCO), a regional entity under PEPCO through the sale of 56% of its shareholding in the company to a strategic investor or a group of strategic and ﬁnancial investors. The investor would be required to sell 5% shares to the employees by instituting an Employee Stock Ownership Programme within one year of taking over FESCO. The government, however, plans to hold 44% of the equity beyond privatization. Staggering growth in power generation during last years was primarily from new IPPs, some of which have been funded by foreign investors, and a few WAPDA hydroelectric dam projects. WAPDA has formulated a comprehensive national water resources and hydropower development programme, Vision 2025; That targets a long-term capacity increase of around 35,000 MW by year 2025. In the ﬁrst phase of the programme work is progressing on Gomal Zam Dam, Mirani Dam, Thal Canal, Rainy Canal, Kachi Canal, rising of Mangla Dam projects for more water to the agriculture sector and on projects for high-head hydroelectric power; dams at Bhasha-Diamir in Gilgit-Baltistan, and so forth are in progress.

Power shortage had been one of the chronic problems hampering Pakistan’s socio-economic growth since 1994. The problem had assumed such acute dimensions that power supply fell short of demand by almost 3,000 MW during peak load hours. On a routine basis, this resulted in forced interruptions in the supply of electricity to consumers during peak hours resulting in load shedding. The unreliable power supply shattered the industrial progress. There was a gap between demand and supply due to the rapid increase in electricity demand (estimated to be growing at a rate of 7%–8% per annum).

This situation called for immediate intervention by the GOP through adoption of policy measures aimed at massive resource mobilization for investment in the power or energy sector on an urgent basis. The enormous quantum of required investment for prompt power generation compared with the constrained funding potential of the national exchequer was not conducive for allocation of scarce GOP funds for energy. Therefore, the GOP took a bold step to encourage private sector investment in infrastructure development, in the power sector inviting IPPs and RPPs both in Hydel and thermal projects.

Out of the total seventeen commissioned IPPs, the two largest private power plants in Pakistan are the Hub Power Company (HUBCO) and the Kot Addu Power Company (KAPCO). HUBCO has a gross production capacity of 1,292 MW, which is 9.5% of total electricity generation. KAPCO has a gross production capacity of 1,638, which is 8.5% of total power generation. KAPCO was privatized in 1996 and is now owned by National Power (UK). Both of these plants, as well as a few other small private operators, sell power to the national grid National Transmission and Dispatch Company (NTDC) currently run by WAPDA. According to PPIB, 8,372 MW electricity will be added by new IPPs projects upto year 2017 excluding the power that will be generated through Hydel projects.

Private sector power projects are dependent upon local natural gas or alter- natively on high sulphur furnace oil (HSFO) or diesel. WAPDA projects are con- ﬁned to hydropower, including projects, such as, the 1,425 MW Ghazi Barotha projects, which takes advantage of the enormous untapped potential of the Indus River.

Pakistan during the last eight years has seen a signiﬁcant rise in individual income thus increasing use of power intensive home appliances urbanization and industrialization which have given a surge in electricity demand. During the last ten years the power demand has risen by 5.2% whereas supply has grown by only 2.2%. Thus the deﬁcit ranges between 2,500 MW–4,500 MW.

Beginning in 1987 when the country started facing load shedding due to demand-supply gap, Pakistan requested assistance from the World Bank to increase private sector participation in the energy sector. An initial framework of incentives to attract private investment in the energy sector was put in place in 1988 which addressed the issues like comprehensive policy framework concerning incentives, ﬁscal treatment, repatriation of proﬁts and capital, availability of foreign exchange and pricing. The other aspect was lacking of long-term ﬁnancing for projects with long gestation periods and deteriorated economic life. There was inadequacy of the institutional arrangements for the review, negotiation and approval of private sector projects. In July 1992, the GOP adopted a Strategic Plan for power sector privatization. Under this plan, the WAPDA, the main electric utility in the country, was unbundled into separate generation, transmission, dispatch, and distribution companies to gradually move forward for their privatization. The private sector was allowed to construct and operate new thermal generation power plants under different power policies announced by Pakistan and an independent regulator was established.

In the last decade Pakistan has experienced and endeavored to follow and implement an ambitious reforms agenda for the power sector and to help out the country to meet its present as well as future power needs. In furtherance of this aim, Pakistan has announced various power policies whereby a private investment-friendly environment for the energy sector was created both for the local as well as for foreign investors. As a result of these ﬁnancial and structural reforms, the energy sector has emerged as one of the most attractive sectors in the country. The ﬁrst major energy policy promising lucrative incentives for the IPPs was announced in 1994, followed by similar policies like Thermal Policy 1995, Hydel Policy of 1995, the Power Policy of 1998 and ﬁnally the Power Policy of 2002.

With hardly 50% of the Pakistan population connected to the electricity supply system, the huge and ever increasing population base provides an ideal opportunity for expansion of electricity generation. The growing pace of urbanization and industrialization has also put a premium on demand for electricity.

Before 1994 government owned entities like WAPDA, KESC and provincial set-ups performed all the activities in power sector. The governments were acting as investor, business manager, regulator, generator and distributor of all electric power – all-in-one structure. The Electricity Act, 1910, regulated the supply and use of electricity and the affairs of public sector entities were deteriorating and there was a need to improve their efficiency.

There was a major share of hydroelectric power (i.e., 70%) in total generated electricity and, therefore, the cost of power generation was low. The main focus of the government owned entities was the development of hydroelectric power, but the hydroelectric potential was limited. In 1994, the then existing capacity of WAPDA had decreased due to lower water levels in the rivers.

Though in 1985, the Hub Power Project, the ﬁrst private sector power project of 1,292 MW was initiated, a chaotic and undeﬁned structure for private investors was in place. Accordingly, the electricity generation capacity remained stagnant unto 1994 while there was a sharp increase in consumption of electricity culminating into forced power outages throughout Pakistan, and the supply-demand gap continued to widen. The total installed capacity was 10,800 MW and the magnitude of shortage was 2,000 MW while 40% population was using electricity with per capita consumption of 300 kWh.

Power Policy of 1994

As a short-term measure to meet its rising demand of electricity, the GOP in 1994 announced the ﬁrst electric power policy titled ‘Policy Framework and Package of Incentives for Private Sector Power Generation Projects in Pakistan’. The Power Policy 1994 to introduce private investors in generation of power which was mainly based on thermal mode using expensive furnace oil as fuel to generate power. The regulatory arrangement was not there and the government’s incapacity to manage, oversee and negotiate the terms and conditions with the new private investors made things worse in subsequent years as the upfront tariffs proved much higher and unaffordable, electricity become a bit surplus after completion of projects under the Power Policy 1994. Thus, the concept of IPPs was ﬁrst coined in Pakistan, which was followed by other nations. Extensive investment was attracted by the Power Policy 1994 under which State guarantees were furnished to the IPPs for the performance of public sector entities contractual obligations covering their payment obligations and guaranteed purchase of powers and supply of fuels by State-owned entities. Fourteen different projects have been completed in the private sector with a total installed capacity of 6,000 MW. It helped in ending load shedding and decrease demand-supply gap but the government is facing difficulties in coping with the high costs of this electricity.

The key features and prominent aspects of the Power Policy 1994 are as follows:

The investors were free to propose the site for plants, opt for the technology and type of fuel;
Investors could propose power projects based on hydro, or other renewable and/ or non-conventional sources of energy;
The power was to be purchased by WAPDA/KESC under the long-term contracts covering the concession period;
The policy offered an upfront bulk power purchase tariff;
Thermal projects were to be implemented on Build-Own-Operate (BOO) model;
Draft (model) Implementation Agreement, Power Purchase Agreement, Fuel Supply Agreement and Security Agreement, were made available to avoid protracted negotiations;
There was assurance for convertibility of rupees and availability of foreign exchange to cover necessary expenses of the projects;
Private Sector Energy Development Fund (PSEDF) can provide up to 40% of the capital cost of the project as a long-term loan facility;
The removal/reform of section 13 of the 1947 Foreign Exchange Regulation Act;
Exemption from corporate income tax on income earned from sale of electricity;
Exemption from sales tax, Iqra surcharge, ﬂood relief tax and other surcharges. However, this exemption was later withdrawn in 2000;
Exemption from custom duties on the import of plants and equipment;
Exemption from income tax in Pakistan for foreign lenders to such companies;
Payment of tariff comprised of two components that is, Capacity Price and Energy Price. Capacity price is paid monthly towards investment made and expenses incurred by the IPP while Energy Price keeps the investor’s proﬁt protected against the variations in the quantity of energy purchased by WAPDA;
Procedure of processing unsolicited proposals for power generation in private sector was also introduced; and
Under one-window system a Private Power Board was created to facilitate the investors.

The world-renowned players in the power sector such as AES, El Paso, General Electric, Tenaga, SIEMENS, Midland and so forth responded to the 1994 energy policy of the government. Critics viewed this as a failure as it did not attract investment in Hydel projects that adversely affected the Hydel/thermal generation ratio and thus electricity prices skyrocketed beyond the purchasing capacity of an average consumer. By the time IPPs started producing electricity, some surplus power became available for various reasons, principally the non-availability of distribution systems to unconnected consumers. The purchase of thermal generated power by the government on a higher price from the ﬁrst-ever IPPs emerged as a political issue against the then government which had taken the initiative to divert the focus from expensive generation of power to conservative cheaper hydroelectric power generation.

Hydel Power Policy of 1995

In order to encourage proposals for power generation based on indigenous resources namely its Hydel resources, a separate proposal known as Policy Frame- work and Package of Incentives for Private Sector Hydel Power Generation Projects in Pakistan, May 1995 (Hydel Power Policy 1995) was made to tap the Hydel potential of Pakistan which is the cheapest way of generating electricity that will surely provide tariff relief to the consumers.

The salient features of Policy Framework and Package of Incentives for Private Sector Hydel Power Generation Projects in Pakistan – 1995 were:

Run-of-river hydroelectric projects (preferably) up to 300 MW;
Build–Own–Operate–Transfer (BOOT) model;
Upfront tariff that was later changed to negotiated tariff;
PSEDF could provide up to 30% of the capital costs of the project – as a long- term loan facility on cheaper mark-up;
Exemption from corporate income tax on income earned from sale of electricity;
Exemption from sales tax, Iqra surcharge, ﬂood relief and other surcharges;
Nominal 2% custom duties on imported plant and equipment;
The ownership of the complex to be transferred to the government; and
in case of non-dispatch by WAPDA, 95% of the energy price that could be generated by the hydropower plant based on average historic hydrology for the month, to be paid to the IPP by WAPDA now NTDC.

The Hydel Policy 1995 could not attract much investment in hydroelectric projects as it involves conducting of feasibility studies, exposition to seasonal varia tions, longer gestation periods and huge capital investments vis-à-vis the less profitability as bulk power tariff of US Cents 6.0/Kwh for Hydel projects of 20 MW to 300 MW capacity was offered to be paid in Pak Rupees, as an average for the ﬁrst ten years for sale of electricity to WAPDA. Thus, no signiﬁcant achievement has been witnessed under this policy to attract private investors in Hydel power generation.

For exploiting additional power generated by IPPs, it was essential to upgrade and modernize the national transmission system and distribution network, so as to receive and efficiently deliver the additional power to the distribution companies. Accordingly, work was initiated and a policy was drafted in 1995 on similar lines to those for power generation policies’ incentives to the private sector.

The salient features of the transmission line policy 1995 are:

Transmission lines to be identiﬁed by the government and constructed and maintained by private sector sponsors;
Implementation of projects on Build–Own–Maintain (BOM) model. The policy was to cover transmission lines and grid stations above 220 KV;
Right of way to be provided by the power utility;
Term of agreements thirty years;
Selection of sponsors through international competitive bidding;
Transmission companies to be paid a service charge in USD/month/km;
Availability of PSEDF up to 40% of the project capital cost;
Exemption from corporate income tax and custom duties.

Apparently, the transmission policy was prepared in a hurried manner as certain prerequisites were not met, for example, non-existence of grid codes and so forth; no draft security package was released with the policy; bidders were given only eight to ten days to submit their bids; experienced transmission line professionals were not available and nor was the feasibility of the offered project (500 KV Lahore–Jamshoro transmission line).

Power Policy of 1998

In 1998 the ‘Policy for New Private Independent Power Projects’ – Power Policy 1998 was announced for private investors for meeting the energy demand of the country through the exploitation of indigenous resources. This burdened the potential investors to conduct proper feasibility study for a particular site-speciﬁc Hydel or indigenous coal-based project. It was expected that the new policy shall generate interest of the private investors in erection of power plants, but unfortunately the policy could not entice the investors and only a single project was initiated for 450 MW which was coal based. There was a major departure from Power Policy 1994. The major shift was from upfront tariff announced by the government to a competitive leveled tariff to be offered by the lowest bidder as per kWh for delivering energy. The earlier arrangement for generation of power was mainly based on thermal that is, oil or gas based fuel whereas the use of indigenous coal and hydroelectric resources in power generation under this new power policy was emphasized. The blanket ﬁscal and ﬁnancial exemptions afforded in previous polices were also done away with. Exchange rate variation and escalation in USD price components was no more provided in the new policy.

The prominent features of the Power Policy 1998 were:

Feasibility studies for projects to be prepared before bids were invited;
Hydel projects on BOOT model (transfer of the assets to the province) and thermal projects on a BOO basis;
The GOP guaranteed the terms of executed agreements, including payment terms;
Implementation of projects through both solicited and unsolicited proposals;
Permission to issue shares at discounted rate and corporate bonds;
Uniform tax facilities for private sector instruments;
LTCF facility to provide a portion of the capital cost of the project;
Removal/reform of section 13 of 1947 Foreign Exchange Regulation Act;
90% First Year Allowance (FYA), for Hydel and indigenous coal based projects, the cost of plant, machinery and equipment;
No respite in customs duties, sales tax, Iqra surcharge, ﬂood relief tax and other surcharges as well as import license fees;
Permission to raise local and foreign ﬁnance;
Hydel projects to be transferred to the province in which it is situated at the end of concession period; and
The GOP to bear the hydrological risk.

In 2002, ‘Policy for Power Generation Projects Year 2002’ was announced by the government after considering the concerns and inputs of all the stakeholders in framing the policy. The policy is still the existing power policy of the country in 2010 with some improvements brought about in it after 2002. The previous power policy of 1998 failed to attract the private power investors and it was necessary to create an environment and draft a new set of incentives to attract investors and keep the consumer prices within affordable limits. The scope of the power policy was broadened to include private-public sector partnership in power generation.

The salient features of the policy are as under:

The scope of the policy covered private, public-private and public sector projects;
Invitation of bids on tariff through International Competitive Bidding (ICB);
Encouragement of exploitation of indigenous resources including Hydel, coal, gas and renewable resources through active involvement of the local engineering, design and manufacturing capabilities;
A customs duty at the rate of 5% on the import of plant and equipment not manufactured locally;
To enhance the share of renewable energy sources, Hydel and fuels other than oil-based fuels, a full levy of income tax on oil-ﬁred power projects;
For projects above 50 MW, ‘one-window’ supports to be provided at the federal level. For projects below and up to 50 MW, ‘one-window’ support to be provided at the provincial/AJK level;
The Ministry of Water and Power (through PPIB) to remain the focal point at federal level;
To develop raw sites where feasibility studies were not available, unsolicited bids would be welcomed. The sponsors of feasibility studies on raw sites would have ﬁrst right of refusal;
A two-part tariff structure consisting of ﬁxed capacity and variable energy component was recommended with the proviso that ﬁxed capacity payment for Hydel projects would fall between 60% to 66% and of the total tariff;
The hydrological risk was to be borne by power purchaser.

The power policy 2002 is broader in scope and more investor-friendly than the 1995 and 1998 power policies for the following reasons:

Policy 2002 is applicable to projects in the private sector, public sector and public- private partnership;

Projects developed by the public sector are to be divested;
PPIB is to provide a one-window facility for projects above 50 MW;
The province/AJK to provide a one-window facility for projects up to 50 MW;
Special incentives for coal/gas and Hydel projects;
Concessionary duties and taxes for power projects.

Subsequent to its promulgation in 2002, the following additional concessions and amendments were made in power policy 2002.

Income tax exemptions for duel-fuel power plants including turnover rate tax and withholding tax on imports. Indexation of foreign O&M cost (variable and ﬁxed) with US CPI, if the inﬂation indexation is not already covered in the O&M contract.

Term of concession period for hydro projects in the private sector will be upto ﬁfty years. The guarantee being extended to projects above 50 MW will also be provided to projects upto 50 MW provided the Power Purchaser is a federal entity and the tariff is approved by NEPRA.

Solicitation of Hydel/coal proposals through advertisement in the Press and the sponsors who submit best proposal will be accepted for issuance for LOI for feasibility study.

No further gas or oil-based thermal power proposal will be entertained without the approval of GOP.

Award of gas, oil, dual fuel based thermal projects only through ICB method.

Improved procedure for tariff negotiation, if an IPP wishes to submit an unsolicited bid and wants to settle tariff through negotiations, NEPRA will determine tariff in consultation with IPP and the power purchaser, instead of IPP ﬁrst negotiating tariff with the power purchaser.

New Electricity Development : Elimination of Secretary’s Committee, bids can now be submitted directly to PPIB:-

Currency exchange rate was reformed; the IPPs should not be exposed to exchange rate variations.
Debt ﬁnancing broadened, debt can be obtained by IPP in US Dollar, Pound Sterling, Euro or Yen and performance guarantee and letter of credits to be accepted by PPIB in such currency as well.
Return on equity should be allowed in one currency, that is, US Dollars.
The present policy of not guaranteeing payment obligation of Fuel Supplier should continue. However, the nation wide shortage of fuel to be recognized as Pakistan Political Force Majeure in the Security Package.
As per ECC decision of 8April 2008, the exemption from income tax under clause 132 of Part-I of Second Schedule to the Income Tax Ordinance, 2001 shall also be available to the expansion projects of existing IPPs already in operation, and
Fee structure has been revised downward for registration and processing of proposals.

Power Policy 2008 for Co-generation by Sugar Industry

In 2008 the federal government announced the ‘National Policy for Power Co-Generation by Sugar Industry’ (Co-Gen Policy) under power security plan. Pakistan has a potential of generating 3,000 MW power through co-generation from the existing sugar industry. The salient features of the Co-Gen Policy are as under:

The tariff will be leveled for thirty years and will be available for 60 MW or above capacity based on 28% net thermal efficiency.
For power and steam used in process by sugar mills, the contract capacity of 51.75 MW has been calculated based on weighted average gross output during season and off season less auxiliary power. By this calculation power utilized by sugar mills is not chargeable to Power Purchasers. During crushing season, the power delivered will be lower than the contract capacity for with liquidated damages shall not apply and the capacity payment will be made on the basis of available capacity. However, if the power producer fails to deliver the declared available capacity then liquidated damages shall apply.
The co-generation power projects will be developed on fast track basis and there will be no requirement of prequaliﬁcation, feasibility study and Letter of Interest (LOI) by PPIB. The sugar industry will be issued Letter of Support by PPIB after tariff has been determined by NEPRA.
Based on the above parameters, the Pakistan Sugar Mills Association (PSMA) will submit a feasibility report to NEPRA for determination of tariff, which NEPRA will decide within forty-ﬁve days.
The existing standard Power Purchase Agreement (PPA) and Implementation Agreement (IA) will be modiﬁed to provide for co-generation speciﬁc projects.
The incentives available to the IPPs under Power Policy 2002 would be available to the power co-generation units of sugar mills.
NTDC or Electricity Distribution Company (DISCO) will purchase the power generated by the sugar industry on an agreed or negotiated competitive rate as approved by NEPRA.
Bagasse and imported/local coal will be consumed as per requirement of the plant without any limitation of inter-changeability.
The sponsors will have to set-up the project within thirty-six months after issuance of LOS.
Except as otherwise stated, the provisions of Power Policy 2002 as amended will be followed.
Bagasse based co-generation power projects shall be developed on fast track basis.

The government in 2008 has also issued the Guidelines for Processing of Co-Generation Power Projects Proposals from Sugar Industry. The Co-Gen Policy is a stand-alone policy, however, the incentives available to private IPPs under Power Policy 2002 will also be available to Co-Generation power projects by sugar industry. The co-generation power projects may be registered as a separate legal entity and the equity requirement of 20% of the total outlay of the projects shall apply.

No projects have so far been kicked-off in spite of interests shown by sugar industry through PSMA. The process of co-generation projects has been stalled due to disagreements on tariff between NEPRA and PSMA.

How is the Pakistani Power Sector Structured ?

Until the year 2001, Pakistan had two vertically integrated public sector power utilities – WAPDA and KESC. WAPDA used to supply power to the whole of Pakistan, except for the metropolitan city of Karachi, which is supplied by KESC. The systems of WAPDA and KESC are interconnected through a 220 KV double circuit transmission line. However, pursuant to the Regulation of Generation, Trans- mission and Distribution of Electric Power Act, 1997, except for KESC, WAPDA’s activities in generation, transmission and distribution were segregated and put under the umbrella of PEPCO that led to the creation of nine distribution companies and four thermal generation companies, one Hydel Company and one sole transmission company in the country. WAPDA was left with only function of water management and its development. PEPCO was created as a successor of WAPDA for the overall management of all the distribution companies and buyer of the electricity from generation companies. PEPCO was mandated to corporatize and restructure the newly created distribution companies, bring about autonomy and independence in the commercial and ﬁnancial matters and infuse efficiency in technical operations of the public sector entities which shall further improve their performance and ﬁnally pre- pare them for privatization.

Regulatory Environment

The GOP in 1992 prepared a strategic plan for the privatization of the power sector. It also approved the creation of an autonomous regulatory agency, NEPRA to introduce transparent and judicious economic regulation in the power sector. NEPRA came into existence in December 1997. Establishment of an autonomous regulatory agency that is, NEPRA was created under the NEPRA Act 1997 to ensure fair competition and protection of interests of consumer, producer and seller.

PPIB was also established in 1994 to facilitate private investors. Unbundling of WAPDA’s vertically integrated Power Wing into separate generation, trans- mission and distribution companies was done in 1997. WAPDA has now been reorganized into four thermal generation companies called GENCOs, nine distribution companies called DISCOs, and one NTDC. The hydroelectric power development and operation functions still remain with WAPDA.

PEPCO a separate agency within WAPDA is made responsible for the restructuring and preparation for privatization of the generation and distribution companies in due course of time through the Privatization Commission of Pakistan. Private sector participation is being encouraged to promote competition in the generation and distribution parts of the industry, while NTDC would remain under State control and shall be responsible for national dispatch, transmission and system planning as a ‘single buyer’. However, the overall responsibility for the energy sector policy remains with the GOP.

Pursuant to section 7 of the NEPRA Act, the mandate given to NEPRA includes:

To develop and pursue a regulatory framework, which ensures provision of safe, reliable, efficient and affordable electric power to the electricity consumers of Pakistan.
To facilitate transition from a protected monopoly service structure to a competitive environment.
To maintain a balance between the interests of the consumers and investors.

As per section 7(1) and (2) of NEPRA Act, the Authority shall be exclusively responsible for:

Grant of licenses for generation, transmission and distribution of electric power;
Prescribe procedure and standards for investment programmes by generation, transmission and distribution companies;
Prescribe and enforce performance standards for generation, transmission and distribution companies;
Establish a uniform system of accounts by generation, transmission and distribution companies;
Prescribe fee including fees for grant of licenses and renewal;
Prescribe ﬁnes for contravention of the provisions of NESPA Act;
Perform any other function, which is incidental or consequential to any of the aforesaid functions.

As per section 7(3) of NEPRA Act, the Authority shall:

Determine tariff, rates, charges and other terms and conditions for supply of electric power services by the generation, transmission and distribution companies and recommend to the federal government for notiﬁcation;
Review organizational affairs of generation, transmission and distribution companies to avoid any adverse effect on the operation of electric power services and for continuous and efficient supply of such services;
Encourage uniform industry standards and code of conduct for generation, transmission and distribution companies;
Give advice to public sector projects;
Submit report to the federal government in respect of activities of generation, transmission and distribution companies; and
Perform any other function that is incidental or function consequential to any of the aforesaid functions.

The salient regulatory instruments in the power sector are enumerated below:

Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997) is the cardinal law to regulate generation, transmission and distribution of electric power in Pakistan.
Application Modiﬁcation Procedure Regulations, 1999 – to standardize the manner for submitting applications and ﬁling petitions to NEPRA.
Licensing Generation Rules, 2000 – to streamline the process for becoming a licensee under NEPRA Act.
Tariff Standards Procedure Rules, 1998 and Fees Pertaining to Tariff Standards & Procedure Regulations, 2002 – to highlight the procedure of tariff determination and standards to be adopted.
National Electric Power Regulatory Authority Licensing (Distribution) Rules, 1999 and Eligibility Criteria for Consumers of (Distribution) Companies, 2003
To regulate the process of acquiring licenses by distribution companies.
Interim Power Procurement (Procedures and Standards) Regulation, 2005 – to streamline the manner for acquiring permission for sale of power to transmission and distribution companies.
Performance Standards (Distribution) Rules, 2005 – to provide standards of performance for distribution companies.
Performance Standards (Transmission) Rules, 2005 – to provide the standards of Performance for transmission companies.
NEPRA Uniform System of Accounts Rules 2009 Rules.

Under section 7(2)(a) of the Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997) NEPRA is exclusively responsible to grant licenses for generation, transmission and distribution of electric power. NEPRA while discharging its responsibilities under NEPRA Act has issued various licenses to generation, transmission and distribution companies.

Transition Period

The electricity sector is in a transitional phase that aims to transform the power sector into a privatized, dynamic and competitive electricity industry. Impressive progress has been made in the liberalization of the electricity market, particularly unbundling the government controlled WAPDA and the creation of nine-electricity supply/distribution companies, four thermal electricity generation companies, a Hydel generation company and a national transmission and distribution company. Nevertheless there is a long way to go until a competition-oriented power market is created and the consumers have the choice of a supplier whose service is better and tariff is cheaper and affordable.

After the planned abolishment of PEPCO and under the power sector reform plan, during ﬁrst phase, four distribution companies including Lahore Electric Supply Company (LESCO), FESCO, Islamabad Electric Supply Company (IESCO) and Multan Electric Supply Company (MEPCO) would be made autonomous entities operating on self-ﬁnance basis. Improved fuel mix mechanism to generate more electricity, minimizing transmission and distribution losses with low cost is also on the anvil.

Reforming and restructuring is a mammoth task and causes slow progress, but one should keep in mind that responsibility looks enormous and transition is a long drawn process.

Some of the projects in progress are:

Bhikki Power Project in Sheikhupura (oil and gas based), capacity 209 MW;
Khan Khwar Hydropower Scheme, capacity 72 MW;
Rental Plant on Satiana Road, capacity 200 MW;
Hubco Narowal Power Project (oil-based), capacity 214 MW;
Liberty Power Tech Project, near Faisalabad (oil & gas based) capacity 195 MW;
Tapal Rental Power Project, in Kamoki (oil-based) capacity 70 MW;
Jinnah Hydropower Project, in Kalabagh Town, Mianwali, capacity 96 MW;
Duber Khwar Hydropower Project, capacity 130 MW;
Guddu Rehabilitation-I Project (gas based), capacity 198 MW;
Zorlu Energy Wing Project-I, capacity 44 MW;
Nandipur Power Project, capacity 425 MW;
Bin Qasim Power Station-II (oil-based) in partnership with a Chinese ﬁrm, Harbin, capacity 116 MW.

Following are the main players of the power sector in Pakistan

Ministry of Water and Power – top federal governmental policy-making body;
Private Power and Infrastructure Board (PPIB) – government’s one-window facilitator for private investors;
National Electric Power Regulatory Authority (NEPRA) – overall regulator of power sector;
Water and Power Development Authority (WAPDA) – public sector body for hydroelectric power generation and water resource development;
Pakistan Electric Power Company (PEPCO) – transitional independent body responsible for thermal power generation, transmission, distribution and billing;
Karachi Electric Supply Corporation (KESC) – power generator and distributor in Karachi;
Private Power Cell, KPK. – Provincial one-window facilitator for private investors;
Private Power Cell, Azad Jammu and Kashmir – one-window facilitator in AJK;
Private Power Cell, Punjab – provincial one-window facilitator;
Board of Investment (BOI) – facilitator and guider for private investors in all sectors;
Privatization Commission – manager and executor of privatization programme;
Pakistan Atomic Energy Commission (PAEC) – regulator of nuclear power plants;
National Power Construction Corporation (NPCC) – federal body for power engineering;
National Transmission and Dispatch Company (NTDC) – national bulk power transmitter;
Power Generation Companies (GENCOs) – four thermal power generators in public sector;
Islamabad Electric Supply Company (IESCO) – power purchaser and end-distributor;
Lahore Electric Supply Company (LESCO) – power purchaser and end-distributor;
Faisalabad Electric Supply Company (FESCO) – power purchaser and end-distributor;
Multan Electric Supply Company (MESCO) – power purchaser and end-distributor;
Peshawar Electric Supply Company (PESCO) – power purchaser and end-distributor;
Hyderabad Electric Supply Company (HESCO) – power purchaser and end-distributor;
Quetta Electric Supply Company (QESCO) – power purchaser and end-distributor;
Gujranwala Electric Supply Company (GESCO) – power purchaser and end-distributor;
Alternative Energy Development Board (AEDB) – federal body for alternative power promotion;
Thar Coal Energy Board (TCEB) – developer of coal for power at Thar, Sindh province;
PSO, Shell, SNGPL, SSGC, OGDCL – fuel suppliers.

Water and Power Development Authority (WAPDA)

WAPDA was created in 1958 as a semi-autonomous body under the Pakistan WAPDA Act, 1958 for the purpose of coordinating and giving a uniﬁed direction to the development of schemes in the water and power sectors, which had previously been dealt with by the electricity and irrigation departments of the provinces. The charter of duties of WAPDA was to investigate, plan and execute schemes in the ﬁelds of generation, transmission and distribution of power; irrigation, water supply and drainage; prevention of water logging and reclamation of waterlogged and saline lands; ﬂood management; inland navigation.

WAPDA owns about 58% of the country’s total power generation capacity which includes 6,461 MW Hydel and 4,811 MW thermal, serves 88% of all electricity customers in Pakistan and has been until 2002, the principal power producer and owner, of transmission and supply system of the country. It has a customer base of over 10 million. WAPDA has been performing two main functions by its power wing and water wing, respectively. In 2007, WAPDA has been bifurcated into two distinct entities that is, WAPDA and PEPCO. WAPDA is now responsible for water and hydropower development while PEPCO is overall manager of power generation, transmission, distribution and billing. Previously, in 1998 WAPDA Act 1958 was amended to permit establishment of PEPCO and unbundling of WAPDA.

The power wing is currently headed by Member (Power). The power wing of WAPDA was dealing with the matters of generation, transmission and distribution of power; and the construction, maintenance and operation of powerhouses and grids. Under a reform and restructuring programme initiated in 1997 these matters has been separated from WAPDA and have been assigned to fourteen public limited companies. These fourteen corporatized independent entities include four thermal GENCOs,1 one national transmission and power dispatch company (NTDC) and nine distribution companies (DISCOs) and now all responsible to PEPCO.

These companies are: Southern Generation Power Company Limited (GENCO-1) Headquarters at Jamshoro district Dadu near Hyderabad Sindh; Central Power Generation Company Limited (GENCO-2) Headquarters at Guddu district Jacobabad Sindh; Northern Power Generation Company Limited (GENCO-3) Headquarters at TPS Muzaffargarh district Muzaffargarh Punjab; Lakhra Power Generation Company Limited (GENCO-4) Headquarter at WAPDA House Lahore, Lahore Electric Supply Company (LESCO), Gujranwala Electric Power Company (GEPCO), Faisalabad Electric Supply Company (FESCO), Islamabad Electric Supply Company (IESCO), Multan Electric Power Company (MEPCO), Peshawar Electric Power Company (PESCO), Hyderabad Electric Supply Company (HESCO), Quetta Electric Supply Company (QESCO) and Tribal Electric Supply Company (TESCO).

Presently, WAPDA deals with irrigation, water supply and drainage; and recreational use of water resources, ﬂood control, prevention of water logging and reclamation of waterlogged and salted lands; and inland navigation and so forth. The Authority was also entrusted with the work of implementing the Indus Basin Settlement Plan signed between India and Pakistan in 1960 to develop replacement works for management of river water and irrigation system. Since then it has been engaged in building water development projects, which include extensive research and investigation to augment the country’s water resources. The Authority has been acting as a licensee having all powers and obligations under Electricity Act, 1910.

The Member (Water) controls the water sector in the entire country divided into north, central, south zones, generally covering the Khyber-Pakhtunkhwa province (formerly known as North Western Frontier Province or NWFP) and the provinces of Punjab and Sindh respectively, for execution of SCARPs and surface water development projects. Chief Engineers and Project Directors implement projects falling under regions within the zone. In addition, the Water Wing of WAPDA has a Chief Engineer (Coordination and Monitoring) for construction and operation of dams and all other projects under water wing services (TS) and two separate General Managers for Ghazi Barotha Hydropower and the National Drainage Project. The Planning Division of the Water Wing, headed by a General Manager (GM), who looks after all planning activities on the water side. The activities of water resources and hydropower development and Vision 2025 plan are handled by three GMs, that is, technical, south, north, GM (P&D) and GM hydro development.

As explained above, the restructuring of WAPDA was preceded by corporatization, which has been completed. WAPDA’s power distribution network has been segregated from WAPDA and is divided into nine electric supply companies, which are successors to the former Area Electricity Boards (AEBs). The AEBs were departments within WAPDA to administer the supply, distribution, construction, expansion, maintenance and operation of the power system. The nine newly incorporated distribution companies have been restructured in line with modern management practices. WAPDA’s thermal power generation facilities have been restructured and incorporated into four-generation companies GENCOs. In addition, a NTDC has been separately incorporated to perform transmission and dis- patch functions of bulk power.

In pursuance of a strategic plan framed in 1992 by the GOP, the PEPCO was created in 1998 and entrusted the task of managing the transition of WAPDA from a bureaucratic structure to a corporate, commercially viable and productive entity. It is the successor of WAPDA substituting the role of WAPDA in the transition period. There was a major shift from a conservative approach for the development of power sector to a vibrant and conducive foreign private investment oriented policy which during the transition phase restructured the entire power sec- tor of the country by deregulation, promotion of IPPs, restructuring of WAPDA and paved way for the privatization of public sector corporate entities in power sector. The speciﬁc objectives of PEPCO were:

Oversight of power generation and power distribution companies;
Prepare public sector power companies for divestment and privatization;
Stop load shedding;
Constructing new grid stations;
Reducing line losses; minimizing tripping and theft control;
Revamping of generation units and to improve customer services; and
Development of an integrated automated power planning system for generation, transmission and distribution to ensure system stability, fault isolation and upgrade relaying, metering and tripping system at NTDC level as well as at DISCOs level.

Karachi Electric Supply Company (KESC)

KESC was incorporated on 13 September 1913 under the Indian Companies Act, 1882 and now its corporate business is governed under the Companies Ordinance 1984, Pakistani corporate law. The Company is listed on the Karachi, Lahore and Islamabad Stock Exchanges. The company was nationalized in 1952 but was re-privatized on 29 November 2005. KESC came under new management in September 2008.

KESC is mainly engaged in generation, transmission, and distribution of electric supply to industrial, commercial, agricultural and residential consumers in its licensed areas. The licensed area of KESC is Karachi Division, Thatta (industrial part only) and the Lasbella District.. It has a customer base of 2.1 million predominantly urban consumers while the total population in its licensed area is estimated at well over 17 million in 2010.The age and condition of the asset base varies considerably. The commissioning dates of generation plants ranges from the 1960s to the late 1990s. The transmission system has a similar age proﬁle. Although KESC has been progressively replacing the older transmission infrastructure, much of the distribution sys- tem is old and requires further investment to balance, modernization and replacement. KESC’s own generation is relatively inexpensive. However, partly because of high levels of transmission and distribution (T&D) losses including thefts, the company is dependent on importing more costly power from IPPs and the national grid.At present the company is incurring losses that have increased manifold due to expansion in its operations primarily because of various reasons including power thefts, high levels of T&D losses; higher cost of purchased power and payment defaults by consumers.

Electricity Distribution Companies in Pakistan

There are nine distribution companies distributing electricity in whole of Pakistan except the metropolitan city of Karachi where KESC is engaged in power distribution. These nine power distribution companies after their separation from WAPDA in 1998 and substituting the former Area Electricity Boards distributing or supplying the electricity in their designated service territory. The respective distribution company also manages the raising and col- lection of bills. They have been granted distribution licenses by NEPRA in 2002 after completion of their transitional phase.

Generation Companies

There are four GENCOs operating in Pakistan. They have been granted power generation license by NEPRA in 2002 for terms ranging between ﬁfteen and twenty-ﬁve years. Each GENCO was incorporated as a separate distinct legal entity in 1998 under the provision of Companies Ordinance 1984. These GENCOs are: Jamshoro Power Company Limited – GENCO-I having its head office at Jamshoro with a gross capacity of 1,024 MW; Central Power Generation Company Limited (CPGCL) – GENCO-II have its head office at Guddu district Jacobabad with a gross capacity of 1,655 MW; Northern Power Generation Company Limited (NPGCL) – GENCO-III, with its head office at WAPDA House, Lahore with a gross capacity of 1,921 MW and Lakhra Power Generation Company Limited (LPGCL) – GENCO-IV based in Lakhra, Sindh province with a gross capacity of 150 MW. The ﬁrst three GENCOs operate their plants on natural gas or furnace oil while GENCO-IV operates its plant on coal.

Transmission Companies

There is only one electric power transmission company that is, NTDC with its head office at WAPDA House, Lahore, created after the restructuring of power sector in 1998. It was incorporated as a separate legal entity in 1998 under the pro- vision of Companies Ordinance 1984. It is a monopoly company engaged in the business of transmission of electricity all over the country. It has succeeded all the distribution networks and grid system from WAPDA in 1998. NEPRA has issued a transmission license to NTDC in 2002 for a term of thirty years to exclusively engage in the transmission of electric power all over Pakistan except the service territory under KESC domain.

Power Engineering Companies

NPCC was established in 1974 by the GOP with a special objective of executing Power Engineering Projects speedily and economically not only at home but also in other friendly countries. NPCC is chartered to undertake speedy execution of power projects on turn-key basis that is, extra high voltage transmission lines, cable networks, LV distribution network, substations, power generation plants, industrial electriﬁcation, external lighting of housing complexes and so forth. The services include survey, design, procurement of material, installation or erection, testing and commissioning of the works. NPCC, is a State enterprise under the Federal Ministry of Water and Power, registered as a company under the Companies Ordinance, 1984.The corporate affairs are managed by a ﬁve member Board of Directors who are nominated by the GOP including the Chairman and the Managing Director, the later being the Chief Executive. The Secretary, Water and Power, heads the Board. To effectively oversee the affairs of NPCC and to provide meaningful guidance and assistance, the Directors are drawn from the Federal Ministries of Water and Power and Finance.

Fuel Suppliers

The are a number of public sector fuel suppliers entities obligated under contractual agreements with IPPs to supply oil, natural gas, diesel or furnace oil to power producers. Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC), both public sector utilities engaged in natural gas distribution, supply pipeline quality gas or raw gas to IPPs. E&P companies also supply natural gas to IPPs, like Oil & Gas Development Company Limited that sup- ply a committed low BTU gas to Uch Power Company – an IPP and permeate gas from its Qadirpur Gasﬁeld to Engro Energy Limited for power generation. Shell Pakistan and State-run PSOCL also supply in bulk the liquid fuel to the IPPs under the fuel supply agreements.

Pakistan Atomic Energy Commission: PAEC

PAEC is saddled with the promotion of and research work on the peaceful uses of atomic energy in the ﬁelds of agriculture, medicine and industry, as well as the execution of development projects involving nuclear power-stations and the generation of electric power and to perform such other functions relating to the peaceful uses of atomic energy as may be agreed between the Commission and the GOP. PAEC is engaged in the programmes to develop nuclear power and fuel-cycle facilities. PAEC is successfully operating two Nuclear Power Plants in Pakistan that is, KANUPP, with a gross capacity of 457 MW and Chashma Nuclear Power Plant-I (CHASNUPP-I) with a gross capacity of 325 MW. A nuclear expansion project is also near its completion to produce 325 MW additional nuclear power at Chashma known as CHASNUPP-II project, which is expected to be operational in 2011. PAEC has been assigned the task of installing 8,800 MW nuclear power capacity by the year 2030 with increasing share of indigenization. In this respect, technical facilities have already been established and human resource development institutes are being upgraded and expanded.

Alternative Energy Development Board

The Alternative Energy Development Board (AEDB <www.aedb.org>) was established in 2003 to exclusively pay attention to the generation of energy through alternative sources like wind energy, solar energy, geothermal energy, tidal energy and energy produced from the solid waste. The AEDB was dedicated to achieve its goal in mitigating Pakistan’s reliance on fossil fuel and dynamically pro- mote renewable and alternative energy. In Pakistan electricity generation from renewable energy sources contributes 33% of total power generation. A major chunk of this share is from hydropower while other renewable sources like wind, solar, biomass, geothermal, tidal and so forth have little contribution.

As per AEDB, overall wind energy potential in Pakistan is around 350,000 MW. Only one corridor in Sindh province has more than 50,000 MW potential. Solar has even more potential than wind energy and experts suggest that since Pakistan is on the solar belt, it has the potential of generation of millions of megawatts from solar energy.

At the moment there are twenty-one wind projects of 50 MW; each are at various stages of development. 200 MW is going to be on ground by middle of 2012. Two of the projects are in ﬁnancial close phase with tariffs already awarded. The positive aspect is that the ﬁnancing structure of these projects is made up of local funding, international funding and ﬁnancing from multilaterals and IFC. A few solar projects are also in the development stage.

The ministry of Water and Power has announced in the Renewable Energy Policy 2006 various incentives for private investors like guarantee to purchase electricity, bear wind variation risk, no import duty, no sales tax. In 2007 alone, over twenty IPPs had obtained LOIs (Letter of Intents) to produce 1,200 MW cumulative wind power generations. However, only fourteen companies have completed their feasibility study and to date NEPRA has issued ﬁve licenses to these companies for power generation. However, due to high cost of wind turbines and other impediments, no signiﬁcant work can be done for generation of wind electricity.

AEDB produces 6MW electricity in seven years’; the News dated 26 Dec. 2010.

Geothermal potential, as per studies conducted by Geological Survey of Pakistan (GSP), available in Pakistan’s selected sites located in north Balochistan, Gilgit-Baltistan and in the Indus basin is about 1,000 MW. However, so far, no geo- thermal project has ever launched in Pakistan.

Pakistan is blessed with another energy generation source that is, tidal currents. The creeks in Indus delta area extend over 170 km in the coastal line of southern Pakistan; tidal water ﬂow in these creeks with high velocity during ﬂood and ebb tides are an attractive source for generation of electricity from such tidal currents. A limited survey has been carried out by National Institute of Oceanography,

The study suggest that in capital city of Islamabad-Rawalpindi, 20 MW–30 MW electricity can be generated at a cost PKR 7 kWh–8 kWh by using waste. In Pakistan, the big cities can produce 1,000 MW electricity from solid waste. Karachi can produce over 1,500 MW from solid waste. Solid waste power generation does not need any fuel so it may be set-up to produce sufficient electricity anywhere in Pakistan.

Introduction of solar energy in pumps, heaters and heating systems can replace the conventional use of electricity and fossil fuels; however, the cost of production of solar energy in bulk is a bit high, but has a huge exploitable potential in Pakistan. Cheaper proven technologies are not available to capture these potentials so far, in Pakistan.

Thar Coal and Energy Board

The Coal and Energy Development Department works under Thar Coal and Energy Board which deals with strategic management of coal and energy sec- tor, determining policies in respect of exploration and development of coal and lignite reserves, sanctioning of important projects and deciding all related issues in Sindh province. It has four subordinate offices vis-à-vis Sindh Coal Authority, Directorate of Coal Mines Development; Directorate of Coal Energy Development and Inspectorate of Coal Mines. Its main functions includes development of coal resources; grant of licenses, permits, leases for coal mines; regulation and monitor- ing of coal mining operations, coal gasiﬁcation, coal gas extraction and collection of royalties. Negotiations of agreements, geological surveys and development of coal-based energy are also performed by it.

THE INSTITUTIONAL MECHANISMS GOVERNING THE PAKISTANI POWER SECTOR

The institutional mechanism for electricity exists at the federal as well as provincial level. The authorities forming part of power structure consist of the following:

The Federal Ministry of Water and Power;
The National Electric Power Regulatory Authority (NEPRA);
The Water and Power Development Authority;
The Private Power & Infrastructure Board;
Pakistan Electric Power Company (PEPCO);
Karachi Electric Supply Corporation (KESC);
Private Power Cell, KPK;
Private Power Cell, Azad Jammu and Kashmir;
Private Power Cell, Punjab;
Pakistan Atomic Energy Commission (PAEC);
National Power Construction Corporation (NPCC);
National Transmission and Dispatch Company (NTDC);
Power Generation Companies (GENCOs);
Islamabad Electric Supply Company (IESCO);
Lahore Electric Supply Company (LESCO);
Faisalabad Electric Supply Company (FESCO);
Multan Electric Supply Company (MESCO);
Peshawar Electric Supply Company (PESCO);
Hyderabad Electric Supply Company (HESCO);
Quetta Electric Supply Company (QESCO);
Gujranwala Electric Supply Company (GESCO);
Alternative Energy Development Board (AEDB);
Thar Coal Energy Board (TCEB).

The Federal Ministry of Water and Power

The Federal Ministry of Water and Power is primarily responsible for formulating energy policy, and issuance of rules and regulations for development of the water sources and power sectors in the country. The Ministry initiates the Sectoral reforms, restructuring and issue of power laws. However, many of Ministry’s functions have been transferred to the independent regulator, NEPRA in 1997. Interaction between world ﬁnancial institutions and other countries is steered by the Ministry acting on behalf of GOP.

National Electric Power Regulatory Authority (NEPRA)

NEPRA has been established under Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 having representation of federal government and all four provinces. NEPRA is generally saddled with the responsibility of regulating the provision of electric power services. Grant of licenses for power generation, transmission and distribution; prescription of fees and enforcement of procedures, codes of conduct, and industry standards. NEPRA also deter- mines tariffs, rates, charges and other terms and condition for electric power service companies for federal government’s approval. NEPRA is also mandated with judicial powers in case of contravention of any provision of its Act of 1997, thus protect consumers against monopolistic and oligopolistic prices and practices. The government is conceiving more power reforms and strengthening the power sector. NEPRA (Amendment) bill would be tabled before the parliament to empower NEPRA for notifying power tariff itself like OGRA.

Provincial Power and Water Irrigation Departments

There are Power and Water Irrigation departments in each province. These departments are headquartered, in respective provincial capital like Lahore, Karachi, Quetta and Peshawar. These departments have been working under the administrative control of the relevant provincial governments. Prior to the promulgation of Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (NEPRA Act), these departments were working under the then applicable law of Electricity Act 1910 through which the provincial departments by power and water irrigation departments used to regulate the supply and usage of electrical energy. In this respect, provincial power and water irrigation departments were and are still active in regulating the usage of electricity ensuring safety and resolution of disputes regarding electricity consumption, theft, metering and billing. Electricity inspectors were appointed in each province under the Electricity Act 1910 with all such powers and functions to regulate the use and supply of electricity within the provinces. However, the said functions have been transferred to the Provincial Offices of Inspection (POI) under section 38 of the NEPRA Act.

Without eliminating the role of the provincial governments to exercise their powers under the Electricity Act 1910, an effort has been made under the NEPRA Act to rationalize and streamline certain functions of the electricity inspector with a view to resolving disputes under a regulatory regime which provides more efficient and transparent dispute resolution mechanism. Until 1998, WAPDA has overriding powers to control over waters on any region of a province, over all powerhouses, grids and irrigation works under section 11 of WAPDA Act, 1958. How- ever, WAPDA has been declared a licensee for the purpose of Electricity Act, 1910 with same power and obligations except some exceptions as provided for in section 12 of the WAPDA Act.

Private Power and Infrastructure Board (PPIB)

Due to the deteriorating power generation capacity coupled with restraints of national exchequer for funding of power generation projects, the GOP in 1994 created the PPIB with a view to improving investment incentives in the Pakistani power sector. The PPIB works under the Federal Ministry of Water and Power, and is primarily dedicated to serving as a one-window facilitator to investors in Pakistan’s private power sector. Functioning in the name of the Pakistani Government, PPIB provides advice and guidance for the implementation of power projects. Its main task is to negotiate the implementation agreement and provide support in negotiating fuel supply agreements and power purchase agreements. PPIB also facilitates to provide state guarantees to private investors in the ﬁeld of electric power for the performance of government entities (like WAPDA, KESC, PEPCO). It also monitors litigation, international arbitration or other dispute resolution methods for settlement of inter-company disputes or disputes of private investors with the regulatory authorities or with government. Finally, PPIB assists the regulatory authority in determining and approving tariffs for new private power projects, and issues guidelines for all areas of power sector for inducement of private investments. All the four provinces of Pakistan and AJK provide one-window support to IPPs with an arrangement similar to PPIB.

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