KARACHI: K-Electric Limited’s (KEL) board of directors (BoD) has approved setting up of a 900 megawatt combined cycle re-gasified liquid natural gas (RLNG) fired power plant, a notice lodged with Pakistan Stock Exchange (PSX) said on Thursday.
The plant, expected to cost $1 billion and to be built at Qasim Power Station Complex (BQPS-III), includes simultaneous upgrades to associated transmission infrastructure. Once completed, it will represent one of the largest private sector investments of its kind in the country's power sector.
Nevertheless, the fate of this project hinges on the pending Multi-Year Tariff (MYT) decision to be made by the national electric power regulatory authority (NEPRA). The project is expected to start commercial operations by fiscal year 2018-19.
Mehwish Zafar, an analyst at JS Global Capital, said the company management in its MYT review petition claimed that the new cost plus based tariff structure was financially not viable and would result in a net negative cash generation of Rs300 billion over next seven years, reducing its ability to finance any future investments.
“The management has requested the continuity of previous performance based structure, which would better reflect the costs and encourage the utility to improve efficiencies and generation capacity,” she said.
The acquisition of K-Electric Limited’s majority stakes by the China based Shanghai Electric also depends upon the favorable Multi-Year Tariff review petition decision by the national electric power regulatory authority.
“The 900 MW BQPS-III is a big investment for K-Electric but our conviction is that this is essential in meeting Karachi's immediate energy demands. We aim to bring it online as soon as the summer of 2018,” said Tayyab Tareen, CEO K-Electric in an earlier statement.
The Dubai-based Abraaj Group had earlier locked a deal to sell its majority stake i.e. 66.4 percent in KEL to Shanghai Electric at a price of $1.77 billion late last year. Execution of the business deal, however, hit a roadblock after the Chinese acquirer was apparently put off by a significant cut in consumer tariff by the power regulator.
It must be noted that the investment for the 900MW plant and associated transmission upgrades is in addition to over $1.4 billion already invested by K-Electric since 2009 onward. Moreover, the development work on TP-1000 (Transmission Enhancement Plan), a $450 million project, was also progressing at a fast pace.
