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KP govt to face Rs 48.5 bn annual loss due to flawed energy policy

By Arshad Aziz Malik
July 19, 2016

PESHAWAR: The Khyber Pakhtunkhwa government will have to face Rs 48.5 billion annual loss under the hydel power head due to the handing over of hydropower projects to the private sector and its flawed energy policy.

The province was to get Rs 51.19 billion income through 14 hydropower projects of 1461MW, but these projects are being given to the private sector. The private sector will give only Rs 2.69 billion annually to the province as water use charges. This will deprive the province of Rs 48.5 billion hydel profit. The private sector will need two years to complete the Lease of Support and other legal matters that will further delay the projects.

Rejecting the allegations, the KP government says it has no resources to complete hydel power projects. So the private sector is making investment and the province will get only water use charges.

The government, due to its limited resources, is working on eight projects of 270MW costing Rs 90 billion. The private sector will be bound to complete legal requirements and provide funds within the prescribed time like the government sector so that the projects could be completed on time. Establishing micro hydroelectric stations is the preference of the government and it will benefit the PTI in the general elections.

However, experts term the micro hydroelectric projects non-maintainable because flash floods often sweep away such installations. According to details, the KP government has devised an energy policy under which 14 projects of 1461MW will be completed with the cooperation of the private sector. The government will get Rs 2.69 billion annually as water use charges at the rate of Rs 0.42 per unit. On the other hand, the government can earn Rs 51.19 billion annually by establishing 1461MW projects through its own resources and selling electricity to the Wapda at the rate of Rs 8 per unit.

The PTI government policy of handing over these projects to the private sector has caused doubts. Critics, in this context, refer to the 81MW Malakand Three Project completed by the previous government. This project cost Rs 6 billion and 37 crore. The government provided Rs 2 billion and 55 crore from the Hydel Fund, whereas the remaining Rs 3 billion and 82 crore were loaned by the Bank of Khyber and other banks. The loan was taken from the banks for five years and returned in three and a half years. Interestingly, the Shydo completed the project at the cost of Rs 5 billion and 34 crore, saving Rs 1 billion and 3 crore. The Malakand Hydropower Project is producing 81MW, giving the province a profit of Rs 2.5 billion annually.

In 2010, the ANP government devised a 10-year Energy Action Plan under which 24 hydropower projects were to be completed. As much as 2,100MW electricity was estimated to be produced from these projects and Rs 350 billion were required for these projects. The ANP government put the 24 projects under the ADP. Work was started on 11 projects, whereas it was decided to prepare feasibility of 13 projects. The feasibility of the 13 projects was completed during the ANP government. The ANP government decided to complete all energy projects on its own, whereas the PTI government decided to complete these projects through the private sector. It published seven advertisements in this regard. As much as 1,461MW electricity was to be produced through 14 projects.

The ANP government made a 10-year Energy Action Plan 2010-21. It planned to complete three short-term 56MW projects in three years till 2015 and eight 625MW mid-term projects in five years. It had to complete 13 long-term 1,322MW projects in 10 years. The ANP government started work on the 17MW Ranolia Hydropower Project in 2011, costing Rs 5 billion and 24 crore. It got a loan of Rs 3 billion and 50 crore from the Asian Development Bank, whereas Rs 1 billion and 74 crore were allocated from the Annual Development Fund. This project was completed in 2015. Likewise, the 26MW Machai Hydropower Project cost Rs 1. 5 billion. For this project, Rs 87 crore and 90 lakh were taken from the Asian Development Bank and the remaining Rs 61 crore were got from the Annual Development Fund. This project was completed in June 2015. The 36MW Dral Khosar Project completed last year had also been started by the ANP government. This project cost Rs 8 billion and 45 crore and Rs 6 billion and 98 crore were taken from the Hydel Development Fund and Rs 1 billion and 42 crore from the Annual Development Fund. The remaining Rs 4 crore and 83 lakh were taken from the Asian Development Bank. All the three projects were started by the ANP government and completed in the PTI government. 

  Medium-term energy projects


Under the medium-term energy action plan, eight projects with the capacity of producing 627-megawatt electricity were also proposed during the ANP rule. Approval for construction was also given for two projects – 84-MW Matiltan hydropower project and 69-MW Lawi hydropower project, but the Energy Action Plan could not be implemented during the Pakistan Tehreek-e-Insaf government. Tenders were invited for various times, but cancelled after objections from different parties.

During the ANP government, the cost of Lawi project was estimated at Rs21.58 billion. It was planned to provide Rs19.42 billion from hydel fund and Rs2.15 billion from annual development fund.

For Matiltan project, estimated cost was Rs22 billion, and Rs19.81 were to be allocated from hydel development fund and Rs2.20 billion were to be provided from provincial government fund. However, unfortunately both projects were put on the back burner.

In district Dir Upper, a 150-MW Sharmai hydropower project was to be completed in 2017, but work could not be initiated on it. Now advertisements are being published in newspapers for completing these projects in private sector.

Another 144-MW hydropower project Shogosin in Chitral was to be completed in 2017, but its completion is still pending.

Also, 144-MW Shushai-Zhendoli project was set to complete in 2017, but no construction work was launched on it. The provincial government is contemplating their completion through private sector currently, and the main reason for it is non-provision of funds by them.

  Long-term energy projects

Under the energy action plan, 13 long-term (10 years) projects were proposed. In district Mansehra, 190-MW Balakot hydropower project was to be completed in 2020; 2010-MW Naran hydropower project was to be completed in 2021; Barikot Patrak 34-MW project in Dir was to be completed in 2018, Patrak Sharingal 21-MW in district Dir was to be done in 2018, Shigo Kach HPP 26-MW in district Dir was to be completed in 2018, Ghor Band Shangla 14-MW project in 2018, 10-MW Nandihar Khwar (Batagram) in 2018, Arkai Gol hydropower Chitral 24 MW, Istaru-Buni hydropower Chitral 52-MW were to be completed in 2020, etc. The total production capacity of all these projects was 1322 megawatts. Work was not initiated on a single project, though feasibility studies of all these projects were completed during the previous government.  

PTI govt energy projects

After resuming power, Pakistan Tehreek-e-Insaf government had decided to continue the energy projects launched by the previous government. These projects include: 40.8-MW HPP in district Lower Dir (Rs 14.25 billion), 10.2-MW HPP in district Mansehra (Rs3.79 billion), and 11.6-MW HPP in district Shangla (Rs 4.62 billion). Besides the above mentioned projects, the PTI government is working on 356 mini micro hydropower projects in 12 most underdeveloped districts of the province, which would collectively produce 35 megawatts of electricity. The total cost of these projects is Rs6 billion, and the provincial government would complete them through its own resources.

ANP leader and ex-chief minister Ameer Haider Khan Hoti has said the PTI government has put the future of the province at stake. He alleged that the PTI government was planning completion of energy projects through private sector to benefit its favourites. He said the ANP would not allow the PTI to play with the future of the KP. He also criticised the provincial government for focusing on mini hydropower projects instead of working on big projects.

The former head of Pesco and Shydo, Younus Marwat, who is currently Pedo member, says the government should execute hydro power projects through public-private partnership. The province is being deprived of billions of rupees in income by private sector projects, as Nepra would by electricity at a rate of Rs 8 per unit, but the province’s share to be Rs 0.42 only.

Marwat says the government can construct hydro power projects using hydro funds, annual development fund and foreign aid. Even if the PTI’s stance is accepted, getting Rs 0.42 AS Water Value Charge is unjustified, as the government can enter into better deal with private sector for more profit.

He further says why the government is going for an agreement with Rs 0.42 per unit income when the Nepra has fixed the rate at Rs 8.

Marwat recalled that the 81 megawatt Malakand-III project was completed in Rs 5.34 billion during his tenure in 2006 against an estimated cost of Rs 6.37 billion. An amount of Rs 3.82 billion was obtained as bank loan for the project which had so far earned a profit of Rs 18 billion with tariff of Rs 1.19 per unit, he added.

According to Marwat, the government has Rs 35 billion in Hydel Development Fund which should be used to launch power projects and could also acquire loan. The provincial government’s policy is not understandable.

Former chairman of Pedo Board of Governors Shakil Durrani says his basic difference with the management was that the Pedo should launch projects itself because involvement of private sector would cause a loss of billions to the province. The 100 megawatt private power projects would give Rs 180 million annually to the government. On the other hand, the same projects, if executed by the government, would generate Rs 400 million as Net Hydel Profit at the rate of Rs 1.10 per unit and Rs 800 million as equity a year.

Durrani says Malakand-III is giving a profit of Rs 2 to Rs 2.5 billion annually. The argument of paucity of funds is baseless as two Chinese companies had offered to invest $3 billion. The government can execute projects by obtaining loan but the Pedo management is going to hand over the energy – province’s most important income source – to the private sector.

On the other hand, Khyber Pakhtunkhwa Energy and Power Minister Atif Khan says the province lacks resources and they could only construct 300 to 400 MW projects, while projects generating 668 MW of electricity are to be executed with the assistance of private sector.

He says the total cost on one megawatt ranges from Rs 200 to Rs 300 million; therefore, the provincial government has published advertisement in international newspapers to seek private investment. The PTI making efforts for investment in the province and an amount of up to Rs 200 billion is expected to be invested in the hydro projects.

According to Atif, 56 local and foreign companies have expressed interest in seven projects and details would be finalised in two to three months. There is a limit on loans for hydro projects and thus more money cannot be obtained from banks. However, Atif did not give details of these loans.

The minister said at time when water was being wasted, how they could stop investors from investment when the provincial government lacked resources. He added that the government was also making efforts for public-private partnership.

Atif rejected the allegations levelled by some political parties which said the Hydel Development Fund would be used on Billion Tree Tsunami. Funds worth Rs 30 billion would only used for hydel power projects, he added.

Pedo CEO Akbar Yousaf said the government had decided to launch 29 hydel power projects that would generate 3,900 MW of electricity. Due to lack of resources, he added, the government would start eight of these projects (270 MW) with an estimated cost of Rs 90 billion.

He said the government had advertised seven projects with a capacity of 668 MW, which would cost around Rs 700 billion. The Asian Development Bank had agreed to provide a loan of Rs 200 billion for two projects (300 MW and 100 MW), he added.

Despite this, Akbar said, there was no funding for 12 projects for which domestic banks would be approached. But Akbar was unable to provide solid figures on this.

He rejected the impression that the private sector’s investment would cause loss to the province and said they would get less profit, if there was no investment. He admitted that the private sector needed time for fulfilling legal requirements and getting ‘Letter of Support’; however, the government would ensure early start of development work, with the private sector obliged to providing funds and completion within the stipulated period.

Akbar said they were formulating policy for public-private partnership for hydel power projects. He rejected the reservations about mini micro hydel projects which, he said, were rub by the locals, while the Pedo provided technical assistance.

Akbar said they also select the people for the maintenance and repair of mini micro power plants. He added that the mini micro projects would be completed soon, providing electricity to the people of far-flung areas.