Some of these projects may need re-evaluation
The governments’ efforts to reduce load shedding by adding additional imported coal and LNG fired power plants is laudable but will come at a cost. According to the regulatory agency NEPRA, in March 2016 the cost of power generation from gas (imported LNG and local SNGPL supplied) stood at Rs 5.86 / kWh compared with a cost of 5.13/kWh for oil fired electricity. Unfortunately the higher efficiencies of modern combined cycle gas turbines was negated by the expensive LNG fuel, as per Mr Mubashir Iqbal, Re-gasified Liquid Natural Gas (RLNG) currently costs 8.6 cents/MMBTU, or almost three times what Iranian or Turkmenistan gas would cost – approx. $ 3 / MMBTU.
So the Government’s decision to build another 220 MW gas fired power plant in Shiekhapura came as a surprise especially as the already contracted LNG volume of 3.75 mpta would barely cover the fuel for three under construction gas fired power plants at Bhikki, Baloki and Haveli Bahadur Shah. The Shiekhapura plant would therefore require LNG over and above the already contracted amount. It appears that the PML-N investment horizon area for infrastructure projects seems to be limited mainly to a geographic area bounded in the north by Attock and by Sahiwal in the South, with the port of Bin Qasim thrown in as a good measure.
The entire country must be shoehorned into accepting this, while the projects themselves are bereft of economic feasibility. In terms of competiveness for power generation the northern areas of Pakistan are most suitable for hydropower, for solar power southern Punjab, Upper Sindh and Balochistan, while for wind and coal power again it is Sindh.
Yes, gas fired plants can be economical but only if Iranian or Turkmenistan gas is used, but as the pipelines for conveyance of this gas are yet to be built, the power plants themselves must be located near the border. So today the best location of any gas fired plant would be Gwadar which is only 50 km from the Iranian border and the town itself is on dire need for power.
A 220 MW power station consumes approximately 30 Mcft/day an amount this can easily be transported by an 18 inch pipeline. All that is needed in addition to the pipeline is a compressor station to take the gas pressure to required 60 bars. Both are well within the capabilities of Sui Northern or Sui Southern gas companies who have laid hundreds of kilometers of similar pipes. The cost can be capitalized as part of the new PowerStation costs and so there would be no burden on the state. This would be a workable interim solution until the Iran Pakistan India Gas Pipeline (IPI) is finally built.
But the benefits would be enormous, almost $ 650 million over the life of the project. The cost of power purchase from purely RLNG projects such as Bhikki has been fixed by NEPRA as 6.58 cents/ unit. If the price of gas drops to $3 / MMBTU then this price can be reduced to less than 4 cents/unit, which for a 220 MW PowerStation operating at 70 % capacity may lead to savings of over $ 25 million per year.
If the city is indeed to be developed as a local hub and entry port for goods destined to China and Pakistan then Gwadar needs affordable power and water. For that it needs a PowerStation and a reliable source of water, other than Mirani Dam that relies on seasonal rainfall, rainfall in Balochistan’s coastal areas can be erratic and the government will probably need to invest in a Reverse Osmosis (RO) plant to supplement water from the Akara River and for that it needs affordable power. Providing power at affordable rates would also be an incentive for investors who might be interested in setting up manufacturing facilities in the Gwadar area. This is a vital ingredient if Pakistan is serious about providing employment opportunities for residents of the Makran coast by turning Gwadar into a proper free zone, as no one will invest there unless there are cognizable incentives, particularly competitive utility rates.
Despite the government’s specious claims, utilizing expensive imported fuel is not a solution for Pakistan’s energy crisis. The Benazir government installed 7,000 MW of expensive oil fired power stations this has resulted in a $ 5 billion circular debt that refuses to go away despite increases in electricity price and a fall in oil prices, this new strategy appears to be no different.
The government seems to be treading down a dangerous path, increasingly relying on expensive imported fuel (which is linked to the price of oil) at a time of declining exports and foreign remittances. This could potentially lead to a cash crunch, and maybe even structural insolvency. Using cheap indigenous fuel and Rupee power priced in is the only solution. It is unwise to think that adding another 7,000 MW, of expensive RLNG will ease this burden. But unfortunately we are blessed with a government appears to be willing to mortgage the country’s long term financial stability for short term gains – namely winning the 2018 elections. This just like the IPP debacle of the nineties may scar Pakistan’s economic landscape for a long time.