Money Matters

Inordinate delays

Money Matters
By Engr. Hussain Ahmad Siddiqui
Mon, 05, 21

Energy is one of the key components of the programme being implemented under the China-Pakistan Economic Corridor (CPEC) framework. In the first phase of materialisation ie from 2015 to 2020, the portfolio of power generation consists of 19 projects of cumulative installed capacity of about 12,000MW, which works out to nearly half of the size of Pakistan’s installed power generating capacity in July 2015 from all type of energy resources. These projects include 4,260MW thermal power plants based on imported coal, 3,960MW power projects utilising the indigenous Thar coal, and 3,391MW hydropower projects, besides small capacity windfarms (298MW) and solar energy (100MW).

Energy is one of the key components of the programme being implemented under the China-Pakistan Economic Corridor (CPEC) framework. In the first phase of materialisation ie from 2015 to 2020, the portfolio of power generation consists of 19 projects of cumulative installed capacity of about 12,000MW, which works out to nearly half of the size of Pakistan’s installed power generating capacity in July 2015 from all type of energy resources. These projects include 4,260MW thermal power plants based on imported coal, 3,960MW power projects utilising the indigenous Thar coal, and 3,391MW hydropower projects, besides small capacity windfarms (298MW) and solar energy (100MW).

Out of these, a number of projects have been completed, and are currently in operation across the country, whereas others are in various stages of execution. Hydropower projects under the CPEC programme are an exception, however, which have been delayed inordinately, and only one project has been effectively developed so far, now scheduled to achieve commercial operations by December next year.

Another hydropower project has achieved about 50 percent physical progress. On the other hand, there has been no physical progress realised as yet on the remaining two mega hydropower projects, listed as the CPEC-Energy Actively Promoted Projects, and remain at the project development processing stage.

Four large hydropower projects, namely Karot Hydropower, Suki Kinari Hydropower, Kohala Hydel and Azad Pattan Hydel, were identified for implementation as the Independent Power Producers (IPPs) under the short-term plan. In fact, there has been, in general, slow progress on various on-going CPEC projects in the past two years or so, as the present government reviewed and revisited the CPEC terms and conditions. Also, there were serious international and domestic challenges, including that of energy circular debt and Covid-19 situation. Fortunately, the CPEC projects are back on track, and efforts renewed by both the sides to expedite these projects.

Karot Hydropower of 720MW capacity, which was selected as the “early harvest project” or on the highest priority, has picked up the pace, reportedly having obtained over 80 percent physical progress. According to the revised timeline, it would achieve commercial operations date (COD) by December 2022. The project has been in process since long under the Power Policy 2002.

Private Power & Infrastructure Board (PPIB) had issued Letter of Interest (LOI) to the sponsors on May 9, 2007 on Build-Own-Operate-Transfer (BOOT) basis. The Letter of Support (LOS) for the project was given as early as on August 29, 2013, after approving the bankable feasibility study as per procedure. The EPC (Engineering, Procurement and Construction) contract was awarded to China Three Gorges Corporation on February 25, 2015, and the project was scheduled for completion within three years.

Nonetheless, the EPC contractor did not mobilise at site, and there was no further progress as the project was identified the same year as one of the fast-track projects under the CPEC programme. In fact, it was the pioneering CPEC project under the CPEC Framework Agreement signed between the two governments in November 2014. Subsequently, $1,650 million was earmarked for the project in 2015 under the Silk Road Fund Ltd, a consortium of the leading Chinese banks created to support CPEC projects that included the China Exim Bank and the China Development Bank. The project however remained suspended for unknown reasons, though the financial close for the project was realised on February 22, 2017. It was only after the “Agreement on the Long Term Plan for China-Pakistan Economic Corridor (2017-2030)” was signed between the two governments on November 21, 2017 that the contractor mobilised at site, in December 2017.

Meanwhile, project cost escalated from $1,420 million to over $1,698 million, and project construction period from three years to five years. The project is being developed on River Jhelum in the Punjab province, and the critical milestone of River Closure Ceremony was held on September 22, 2018. The revised COD was thus determined as December 28, 2020, which could not be achieved, and thus extended for another year. The project, originally scheduled for completion in 2018, could not be completed by 2020, and now the revised timeline for the COD is December 2022.

The 884MW Suki Kinari Hydropower project, costing $1,956 million (originally $1,800 million) is being developed by SK Hydro on River Kunhar in the Khyber Pakhtunkhwa province. The project achieved financial close on December 31, 2016. EPC contract was awarded to China’s Gezhouba Group. Construction period is six years, and the four turbo-generating sets are to be housed in an underground power station. Construction work commenced in 2016, but substantial physical progress could not be achieved. The River Closing Ceremony was held on September 29, 2019, and then construction of project started. Reportedly, about 60 percent progress has been attained, and the project is expected for completion in December 2022. Given the present slow progress, the project is not likely to meet the target timeline.

The projects in pipeline have faced long delays in achieving critical milestones. There has been no physical progress on the 1,124MW Kohala Hydel, which is termed as the largest hydropower project in Pakistan. PPIB had issued LOS on December 31, 2015, whereas the project, costing $2,364 million, achieved financial close in December 2019. China Three Gorges Corporation is the EPC contractor. Validity of the LOS was extended by the PPIB in June 2020. Implementation Agreement and Water-usage Agreement were signed only recently, on April 23, 2021. The construction period for the project, which is located on the River Jhelum in the Azad Jammu and Kashmir, is six-and-a-half years, and the COD is revised from December 2025 to December 2027, if the project takes-off now.

Azad Pattan Hydel of 701MW capacity, also to be located in Azad Jammu and Kashmir, is still at initial stages of processing as the financial close has not yet been achieved, expected by end this year. Implementation Agreement and Water-usage Agreement have been signed with the AJK government in December 2020, whereas the agreement for the Chinese financing was concluded in May 2021. The project cost has already increased from $1,350 million to $1,650 million. Construction period is estimated as less than six years, and the COD is expected in September 2027.

In conclusion, the development of the “highest priority” hydropower projects under the CPEC programme is rather a sad story. Globally, hydropower is gaining popularity as the clean and affordable energy. In the context of Pakistan, it is more so important for the reason of long-term energy sustainability and reliability, as we have over 50,000MW hydropower resources that are economically and technically viable but still remain unutilised.

The nation has thus been deprived of billions of electricity units every year as these large hydropower projects did not materialise according to the agreed timelines. The inordinate delays have also caused increase in project costs.

Undoubtedly, implementation of the CPEC projects will bring vast strategic and economic advantages to Pakistan. Nonetheless, Pakistan failed to look after its interest as, in reality, the coal-based power plants that are discouraged the world-over were accorded priority over hydropower projects, obviously to meet the vested interests.

It is ironical that China was also not asked to optimise local manufacturing of equipment in Pakistan for these hydropower projects under a phased plan, and availing related engineering services. It is worthwhile to note that numerous concessions and benefits have been offered to the Chinese developers, including comparative high capital cost, a financing package of 75 percent debt and 25 percent equity with guaranteed over 27 percent return on investment for these hydropower projects, Pakistan government’s sovereign guarantees for debt servicing as per CPEC conditions, and others under the Power Policy 2002 . In return, we get only thousands of jobs, and that too primarily for unskilled and skilled workers only, while thousands of engineers remain unemployed in the country.

The writer is retired Chairman of the State Engineering Corporation