reliable power supply is a key to achieving sustainable
economic growth. Presently, out of a population exceeding
176 million, only around 70% have access to electricity and
the government is committed to provide electricity access to
the entire population in the minimum possible time.
Strong and Increasing Demand for Electricity
Demand has outstripped supply of
electricity and the country is presently facing power
shortages of approximately 5,000 MW during peak demand time.
The present electricity demand-supply gap, coupled with
consistent growth in demand, clearly indicates the
fundamental need and market for enhancing the country's
current power generation capability.
Companies Already Operating in Pakistan
Presently, 29 Independent Power
Producers (IPPs) are operating in the country. Thus, leading
international / local
companies are already present in the market, e.g. Siemens,
General Electric, AES, International Power, El Paso,
Tenaska, Nishat Group, Engro, Atlas, Sapphire, Fauji
One-Window Facilitator and Investor-Friendly Policy
PPIB, with a successful track-record of attracting foreign
and local investments of about (US$ 9.4 Billion), acts as a
one-window facilitator for the processing of private power
generation projects in the country. In this regard, GOP has
recently announced a new Power Generation Policy 2015
offering enhanced incentives and simplified processing to
bridge the demand supply gap in the minimum time through
generation of affordable electricity for socio-economic
uplift of the country.
A number of IPPs (both thermal and
hydropower) are under construction after getting approval of
tariff from NEPRA through a well-defined process of tariff
determination that includes public hearing. These IPPs are
sponsored by consortia of local and foreign investors.
GOP's Policy Commitment to Increase Private Sector
Presently, approximately 50% of the
generation capacity of the country is in the Private sector. The
successive governments in the country, since the early 90s, have
reiterated the commitment to increase private sector
participation. Consequently, major divestments of public sector
entities have been made in various sectors.
Transparent Regulatory Environment
The National Electric Power Regulatory
Authority (NEPRA) has been setup for the regulation of power
sector in Pakistan. The Authority endeavors to balance the
interests of consumers and power sector companies. NEPRA has
made considerable progress towards the development of the
regulatory regime and future market design for the power sector.
All generation, transmission, and distribution companies are now
licensees of NEPRA, and abide by the rules and regulations laid
down by the regulator for reliable and efficient operation of
the power sector.
Availability of GOP Guarantee and Protection
Under the Power Generation Policy, 2015, PPIB issue the GOP
Guarantee backing up the payment obligation of the Power
Purchaser and/or Provincial/AJK/GB governments where tariff is
determined by NEPRA and Power Purchaser is a federal entity. In
case of provincial power purchaser where tariff is determined by
the NEPRA the GOP guarantee is issued where it is fully backed
by the respective provincial government as a change against its
share in the divisible pool as per NFC award subject to a
cumulative limit of 20% of the share of the respective Province
in a given year or as may be decided between the Federal and the
respective provincial government.
Multi-Year & Long-Term Tariff
Typically, a long-term tariff of
twenty-five (25) to thirty (30) years, determined by the
regulator, is contracted with the Power Purchaser. The IPPs,
thus, are not subjected to market risk for their output. The
projects are expected to earn an attractive, competitive, and
stable return on investment.
Standardized Security Package
Standardized and bankable project
agreements i.e. the Implementation Agreement (IA), the Power
Purchase Agreement (PPA), the Water Use Agreement (WUA),
are available upfront.
Pass-through of Fuel Cost
Variation in the price of fuel is to be
passed on to the Power Purchaser.
Risk Coverage for Exchange Rate Variation
To cover exchange rate variation risk,
various components of the Tariff are indexed for any variation
in the Pak Rupee and US$ exchange rates.
Protection against Change in Duties & Taxes
Any additional taxes and duties, over and
above the Tariff determined by NEPRA, are liable to be passed on
to the Power Purchaser.
Protection against Specified Force Majeure Events
GOP provides protection against events
(triggered by either a change in law or a political force
majeure) that are beyond the reasonable control of the Sponsors
and adversely affect the performance of their obligations.
Exemption from income tax,
turnover rate tax and withholding tax on
import, is available to power generation projects.
Debt Financing & EPC Contracts in Four Currencies
Debt Financing and EPC contracts based on
US Dollar, Euro, Pound Sterling and Japanese Yen have been
allowed under the Policy. At Commercial Operation Date (COD),
Capital Cost will be fixed in US Dollars by NEPRA based on
actual currencies of the EPC contract accepted at the time of
tariff determination, sources of financing, payments, and actual
exchange rates against Pak Rupee for the aforementioned four
Abundant Hydropower / Coal Potential
There is an identified hydropower
potential of over 60,000 MW and confirmed availability of
abundant indigenous coal resources (around 186 billion tons) in
Power Purchaser to bear Hydrological Risk
For hydropower projects, the investors
are completely protected from any variation in water flows over
the years, as Hydrological Risk
is to be borne entirely by the Power Purchaser.
The hydropower comes under economic dispatch criteria and hence
gets priority of dispatch.
Availability of Skilled Manpower
Good quality and cost-effective technical
manpower is available in Pakistan, as IPPs have been operating
in the country for more than a decade now.
Set of Incentives, Concessions and Protections for
Development of Indigenous Resources
The Coalfield be declared as Special Economic Zone, and the
projects of development of Thar (also including coal mining
and power generation) be declared as 'Projects of National
20% ($based) IRR to firms which achieve Financial Close
before 31st December 2015 for Mining &Power Projects based
on indigenous coal and additional half a percentage IRR i.e.
20.5% IRR for firms which achieve Financial Close by or
before 31st December 2014.
Zero percent customs duties on import of coal mining
equipment and machinery including vehicles for site use.
Exemption on withholding tax to shareholders on dividend for
initial 30 years.
Exemption on withholding tax on
procurement of goods and services during project
construction and operations.
Exemption for 30 years on other
levies including special excise duty, federal excise duty,
WPPF and WWF.
In addition to the aforesaid
incentives, Coal Based Power Projects and Coal Mining
Projects in Sindh shall have the same incentives,
concessions, protections and security package as that
available to IPPs developed pursuant to Power Generation
Policy 2002 (as amended from time to time).
TCEB to also function as the Coal
COAL POWER PROJECTS - WAIVER FROM FIRM
EPC CONTRACT REQUIREMENT
The Economic Coordination Committee (ECC) of the
Cabinet has granted waiver for coal based power projects and co-generation
projects utilizing coal (along with bagasse) by sugar mills from the requirement
of having firm Engineering Procurement Construction (EPC) contract for tariff
determination as in relaxation of earlier ECC decision dated 23rd