Arbeitspapier Nr.

3 Public Private Partnership im Infrastrukturbereich

Wasserkraft-Projekte in Pakistan
Verlaufsprotokoll eines RoundTable-Gesprchs zwischen Unternehmen und pakistanischen Regierungsvertretern Eschborn, 18. August 2000

Die zunehmende Zusammenarbeit von Staat und Privatwirtschaft, die meist mit dem Begriff Public Private Partnership (PPP) beschrieben wird, kann gerade im Infrastrukturbereich entwicklungspolitisch sinnvoll sein, wenn dadurch der zustzliche Transfer von Kapital und Know-how ermglicht wird. Im Rahmen der Schriftenreihe Arbeitspapiere PPP im Infrastrukturbereich sollen in loser Abfolge Beitrge verffentlicht werden, die sich theoretisch oder praktisch mit dem Thema PPP im Wasser-, Energie- und Transportbereich auseinandersetzen. Die Grundidee ist, dass mit dieser Schriftenreihe ein Diskussionsforum etabliert wird, welches den Austausch von Positionen und Erfahrungen hinsichtlich des praktischen Umgangs mit PPP im Infrastrukturbereich im Rahmen der Entwicklungszusammenarbeit ermglicht. Die Papiere geben dabei die persnliche Meinung der Autoren wieder und stellen nicht die Position der sie verffentlichenden Institutionen dar.

Impressum Herausgeber: Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ) GmbH Dag-Hammarskjld-Weg 1-5 65760 Eschborn Telefon (06196) 79-1378 Telefax (06196) 79-6320 E-mail: jochen.rudolph@gtz.de Verantwortlich: Abteilung 44 Umweltmanagement, Wasser, Energie, Transport PN 98.2003.6 PPP im Infrastrukturbereich

Redakteur: Marek Wallenfels

Nummer 3 Oktober 2000

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Content

Page 1. Context 2

2. Welcoming address of Mr Wolfgang Schmitt, Executive Director, Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ)

3.

Speech of Mr Zafar Ullah Khan, Federal Secretary of Water and Power, Government of Pakistan

4. Speech of Mr Ejaz Qureshi, Additional Chief Secretary of North-West Frontier Province (NWFP)

5.

Speech of Mr Javed Rashid, Chief Power Economist, GTZ Power Development Programme

6.

Minutes of Meeting

12

7.

List of Participants

19

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1.

Context

The Government of Pakistan must and will enhance its institutional framework to attract foreign direct investment into its energy sector. This is the key message driven from a round-table discussion between German companies and representatives from Pakistan. The meeting was initiated by the Private Participation in Infrastructure (PPI)Project of the Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ) and took place on August 18, 2000 in Eschborn/Germany. Mr. Zafar Ullah Khan, Secretary of State in the Ministry of Water and Power, Mr. Ikram Khan, Additional Chief Secretary of the North Western Province, and Mr. Javed Rashid, Chief Power Economist of the GTZ Power Development Programme, presented five potential hydropower projects in Pakistan that have been identified with the support of the GTZ Power Development Programme and which are planned to be developed under the leadership of the private sector. More than 20 participants from the German business community responded positively to the projects in general but stressed firmly that investment decisions are taken on the grounds both of the projects financial viability and the general framework conditions. Especially investment in infrastructure faces a high risk due to long amortisation periods and the huge amount of capital involved. At present international investors prefer to hold back their investment and watch the development regarding the political and legal framework in general and the solution of recent conflicts in the power sector in Pakistan in particular.

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2.

Welcoming address of Mr. Wolfgang Schmitt, Executive Director, Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ)

Pakistan is endowed with a considerable amount of hydropower potential. In 1999 more than 40 % of the national electricity generation was based on hydropower. It was after the conclusion of the Indus Water Treaty in 1960 that most of this potential was developed on main rivers. By 1978 hydropower had reached a major share in electricity production in Pakistan. In these projects hydropower was put in a broader context: Power was usually one aspect within integrated projects that simultaneously dealt with irrigation, flood-control and water-safety issues and hence concerned a broad array of social, environmental and especially political aspects. The eye-catching symbol of these projects were large dams on main rivers. An example from Pakistan is the Tarbela Dam. Due to political decisions the development of the hydropower potential stopped and thermal power increased its share in electricity-production. But this situation is not satisfying neither from an environmental nor from a commercial point of view. Nevertheless there is a wide variety of potential sites for hydropower projects in existing irrigation canal systems and in the mountainous regions. These developments do not need large dams for water storage and for irrigation purpose. They are single purpose hydropower projects. Initially there was no indigenous Pakistani institution capable of taking up such projects. This was an ideal field for GTZ to step in and support development of such institutions and to assist them to take care of this potential. This was started in 1984 and now we have reached the stage that hydropower projects could be realised. Pakistan Government intends to do so and needs private investment and know-how to realise this, independent power producers who take up such projects on base of BOOT (built own operate and transfer). As already mentioned the development of hydropower potential is complex and complicated, especially in those countries that the international financial markets consider to be relatively risky. The main task in order to enable new investments will be to share the risks and benefits of new hydropower projects in a fair way. This means that the players involved have to accept mutually the political, social, environmental and commercial constraints. An innovative approach in dealing with the complex issues involved in hydro development is the World Commission on Dams a multi-stakeholder forum that aims at developing internationally-accepted standards for decision-making in the planning, design, construction and decommissioning of dams. The World Commission on Dams (WCD) will soon present a "Code of Conduct" for implementation in future hydropower projects. If this Code of Conduct is widely accepted it will be an important step towards reducing social and political conflicts in future

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projects for hydro and power development. This WCD "Code of Conduct" will this is at least what private companies, international financial institutions and NGOs contributing towards this process expect - decrease investment risks by means of both increasing transparency and the involvement of stakeholders into the planing process. We strongly support the view that commercial, environmental and social goals can not only be attained simultaneously but even reinforce each other. The high-head hydropower projects that will be presented today are in a way much easier to handle than large dam projects, as many typical social and political conflicts can be avoided. At the same time the financial burden is comparatively lower. In the case of high-head hydropower, neither high dams nor large reservoirs are required. This means less works on the surface than for traditional dam projects with large reservoirs thereby minimising the necessity for both displacement of persons and submerging of valuable land. All in all we can say that from an environmental and commercial point of view the projects that will be presented have a high potential. But since public funds are short all over the world, so in Pakistan, private investment is required. And private capital will only be invested if there is confidence between the partners. Confidence in the planning design, the project assessment and the overall framework. We certainly have learnt from experience and I understand that policies have now been set by the Government of Pakistan and the Provincial Governments to create transparent procedures that all players will trust. To set and maintain such policies carefully is a not an easy task for any Government. However, it will pay off dearly to the national economy. It is part and parcel of good governance, that we all desire so much. This is why we can rightfully say that the projects presented today have potential, yet the conducive conditions for their realisation of this potential need to be created and maintained. I am happy that with the attendance of high-ranking representatives from Pakistan and from the German business community a new dialogue can be started. And I am sure that if both sides will accept each others goals the common goal to develop the hydropower potential in Pakistan can be reached. This is all the more important, since hydropower is both a financially viable, renewable and emission free source of energy that can provide Pakistan with the energy needed for her future economic and social development.

Wasserkraftprojekte in Pakistan

3.

Speech of Mr Zafar Ullah Khan, Federal Secretary of Water and Power, Government of Pakistan

First of all, I would like to thank you for coming here to attend this meeting and to share with us some information which certainly must be of interest to you and every person who is interested in development of clean energy. And allow me to tell you something: Pakistan has potential to contribute to combat global warming. But we cannot do it alone we need investment. On behalf of my Government, I invite you to participate in our efforts. Briefly, I shall present to you the Power Sector Policy of Government of Pakistan. Pakistan, as you know, is a developing country and the provision of electric power is an important element in the strategy to develop the nation. The power sector in Pakistan started in 1947 from almost nothing, when we had small generation feeding some urban centers. From then if developed and now we have an integrated system with the 500 kV as the main primary voltage and an extensive secondary transmission and distribution network serving more than 5 million customers. In spite of this manifold expansion of the system we do have a number of objectives still to achieve. We have connected less than half the population in Pakistan and this figure is less than 25 % in rural areas. This means that in the coming years the system has to expand at over 8 % per annum to be able to connect the remaining population in a reasonable time frame. This also means that there are attractive investment opportunities towards new power plants, transmission lines and distribution network. The GoP, for a number of reasons, is firmly committed towards privatization of the power sector. In this regard, we have developed a privatization concept that envisages private sector involvement in the power generation and distribution sectors. An independent regulatory body NEPRA (National Electric Power Regulatory Authority) has already been established. This institution is functioning and its institutional capability is being enhanced by means of technical assistance from the World Bank and Asian Development Bank. The corporatization of WAPDA, the main utility, is at an advanced stage and the disinvestments of the distribution companies is also being actively pursued. Besides this our country has made efforts to induct private capital into new generation capacities. However, here - due to a severe crisis in power supply in the country we had to act under time pressure. You imagine what it means when even in urban areas and supply to industrial units has to be cut off for many hours every day over several months a year. The economic loss is tremendous and although we have come over the immediate crisis, our economy still has not recovered from this. And there are reasons for this. As I said, we had to act fast and may be too fast in some way or the other. On the one hand, we went for thermal generation exclusively for hydropower we simply did not have the time. Then we were not experienced enough to negotiate favourable or even reasonable commercial conditions for purchase of power in these plants and the amount we contracted probably also more than we need at that moment.

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Certainly, there have been some misgivings in the aftermath of conclusions of these contracts. However, we have largely settled the issue with most IPPs and advanced negotiations are going on for the settlement of issues with the two remaining IPPs, this I believe is likely to happen in the near future. Now for some time we have capacity and energy available more than sufficient. But too expensive to sell it to the public. The industrialists have even started producing themselves cheaper than they can buy from the system and let us alone with our expensive energy. So we have learnt our lessons the hard way you may say. However, even on the latest revised demand forecast far lower than previous ones , we need additional power again on system by mid of the year 2005. Sufficient time for implementation of some hydropower plants provided we start soon. Soon means to take serious action now. And this is what we are here for to prepare for such action. We are ready now and under consideration of previous experience. We have revised our previous policies and passed a new policy the Policy For New Private Independent Power Projects of July 1998, you find in your papers here. The salient points of this policy are that: there should be competitive bidding; and priority be given to utilization of indigenous resources. This translates into priority to hydroelectric power plants and coal-fired power plants. Hydropower potential, as single purpose projects for power production and not as part of multi-purpose projects on big dams on Indus for instance, is mainly located in the Northern Mountainous Areas of the country. And the sites ready for implementation are mainly in the North-West Frontier Province (NWFP). GTZ has assisted us at provincial and also at federal level to build up institutions to investigate this potential in a systematic manner, to select priority projects, starting with medium-sized projects in the range up to about 150 MW and has supervised the work, thus carried out as a sort of training on-the-job so that we are today in a position to present to five such projects, where we feel sure that they will find your interest and that they will be economic and financially attractive both to the investors and to the clients. For all these five projects there are ready feasibility studies available, which are of international standard and bankable. Executive summaries of these five studies are in the document before you. More details will be elaborated by the representatives of the Provincial Government who are here and at your disposal for any further question you may have.

Wasserkraftprojekte in Pakistan

Speech of Mr Ejaz Qureshi, Additional Chief Secretary of North-West Frontier Province (NWFP)

I on behalf of the Government of North West Frontier Province of Pakistan welcome you to this distinguished gathering. It is a great pleasure and privilege for me to speak to you on the vast development potentials of hydel power generation available in NWFP. The Federal Secretary Ministry of Water and Power has already given you an overview of the Pakistan Governments perspective on the power sector development in Pakistan since 1947 and the firm commitment of the government towards privatization of the power sector under the 1998 Power Policy of Pakistan that emphasizes on generation of power from hydel resources which I fully share. We are concerned about the costly thermal power generated from imported fuel which is a great burden on the economy of Pakistan despite having large hydro power resources. So far Pakistan is depending increasingly on costly oil imports for meeting its growing electricity requirements. Indigenous resources alone can be our salvation. This private hydel sponsors will receive comprehensive hydrological and site risk cover. The foreign investment will bring more jobs to Pakistan and facilitate transfer of technology for its manufacturing industry and thus help increase the national GDP. The indigenization through hydel power exploitation will result in comparatively cheaper and environmentally friendly power generation. NWFP offers ample opportunity for exploiting the potential of hydel power on run of the river flows, large irrigation canals and small size storages. A hydro power plant is the best investment for future and we are well equipped now with a progressive policy which aims at utilization of indigenous resources and is based on competitive bidding. Pakistan is one of those countries which possess a renewable energy resource of hydro power potential estimate at over 40,000 MW that can be developed along major rivers and tributaries. Most of the hydel resources are located in NWFP. Of the total generation capacity in Pakistan 77 % is being generated in NWFP. The notable power stations are Malakand Hydro Electric System at Jabban (20 MW) installed in 1930s, Dargai (20 MW) in 1950s, Warsak (240 MW) in late 1950s and 1960s and Tarbela (3 478 MW) in 1960s until 1970s which is a fraction of total potential of over 40 000 MW). In 1993 GoNWFP established Sarhad Hydel Development Organization (SHYDO) as a body corporate to carry out hydro power prospecting, hydro power development and to act as utility company for isolated rural communities. German Technical Assistance was obtained to assist SHYDO in developing plans including rural electrification plan in the northern areas of NWFP collectively called Master Plan for hydropower development in NWFP. Accordingly, Regional Power Development Plan were completed with considerable data and studies giving technical and economical aspects of each scheme. A medium/high head potential of approximately 10 000 MW in capacities above 5 MW was identified by SHYDO/GTZ. Almost all the medium/high head schemes are run of the river type with a no storage or in some cases a daily storage capacity. These aspects make these type of projects environmentally friendly; since no resettlement of population or relocation of

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basic infrastructure is involved. These projects are located on early rising tributaries and would in the period mid-April to mid-June, generate maximum power at a time when WAPDA hydel are de-rated due to shortage of inflow in the reservoirs. As we all know that the electric power is to be harnessed from water by making use of the mass of available water and the natural head of the site which are available in abundance. A comparative study of sites in Austria with those of similar characteristics in Pakistan indicates that the sites in Pakistan are about 4 times more favourable in terms of the head and about 9 times more favourable with regard to catchment area. These factors make the hydropower sites in NWFP very attractive with wide choice of sites and alternative locations. GoNWFP intends to offer a number of studies to private sector for preparing implementation proposals based on levelized tariff and open bidding to ensure transparency and fair deal. This will be in the best interest of the government, IPPs and above all the customers. The GoNWFP will assist the IPPs in land acquisition, implementation of environmental mitigation plan and security. I am confident that the above facts would go a long way in encouraging investment in the hydro power projects in N.W.F.P. The partnership with GTZ and government of Germany would get further strengthened and together we would reap the benefits of development. In the end, I thank you, ladies and gentlemen for your consideration and the GTZ which provided this wonderful opportunity for us to come, explain and interact for this productive sector.

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5.

Speech of Mr Javed Rashid, Chief Power Economist, GTZ Power Development Programm

The objective of my presentation is to bring out some aspects of the investment opportunities in hydropower in Pakistan. Firstly, I would briefly present to you the economics of the hydropower plants being offered to the private sector. The economic analysis of High Head Hydroelectric Power Plants has been carried out by means of: Thermal Equivalence Basis and Benefits Quantified on Basis of LRMC

Economic analysis methodology assigns benefits to the hydro on basis or equivalent avoided thermal plant. The development of this equivalent thermal plant has, however, to be done with care. The hydro output can be stated to be: A capacity contribution designated by the capacity available for 4 hrs a day throughout the year or for 365 days. An energy contribution designated by the energy generated by the hydel power plant. It needs to be mentioned that most hydro plants have the capacity available to be less than the installed capacity. In case of run of river plant the firm capacity is say about 25 % of the installed capacity. Only where investments are made to construct daily storages does this ratio improve to say about 90 %. Thus the equivalent thermal avoided is not equal to the installed capacity of the hydro but is in fact equal to the firm capacity available 4 hrs a day for 365 days. This benefit is about: 4 c/kWh for energy supplied during the 4 peak hours 3 c/kWh for capacity available for 4 hrs/day for 365 days

The energy contributions off peak do not result in any avoided thermal capacity and therefore in fact only results in avoided fuel and O&M cost of the thermal power plant. This benefit is about 3.0 c/kWh. The benefits of the hydel are therefore: Capacity Off-peak energy : about 600 $/kW ($ 64.8/kW/a or $ 5.4/kW/m) : 4 c/kWh energy (peak) : 3 c/kWh energy

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But the capacity benefit is usually less than the installed capacity. The other and rigorous method of economic analysis is by quantifying the benefits on basis of the voltage level at which the hydro is to be connected. These are defined by the Long Run Marginal Cost (LRMC) of the system at the relevant voltage level. These for the WAPDA system are: Capacity $/kW Generation 220 kV 132 kV 66 kV 11 kV Level Level Level Level Level 435.0 563.0 649.0 683.0 786.0 Peak Energy c/kWh 3.49 3.58 3.67 3.81 4.87 Off-peak Energy c/kWh 2.98 3.08 3.17 3.26 3.99

The LRMC approach captures the system impact of adding new hydro facility and it also captures the impact of the geographic location i.e. distance of proposed hydro from the grid or load system. It also captures the variation in system costs by months. (The LRMC is calculated on a monthly basis). Economic analysis of above projects is summarized: LRMC Basis IRR % Khan Khwar Golen Gol Daral Khwar Summar Gah Batal Khwar Duber Khwar 17.39 17.11 14.68 12.17 13.08 19.78 NPV M.Rs
1/

Thermal Equivalent Basis IRR % 17.06 18.70 11.15 14.20 15.40 29.47 NPV M.Rs
1/

1,424.0 2,192.0 13.21 90.0 70.0 4,545.0

1,110.0 1,200.0 3.21 125.0 115.0 73.07

Analysis based upon different base year of cost I would also like to mention that all of the six hydro plants being discussed were picked up by WASP, the system expansion optimization program. All plants were picked on the earliest commissioning date possible. The purpose of this part of my presentation was to assure you of the economic viability of the hydropower plants being offered to the private sector. The next part of my presentation aims to bring out the transparent and open mechanism wide which the private sector can participate in the power generation expansion activities in Pakistan.

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The Government of Pakistan has embarked upon a policy that will in time privatize and liberalize the power sector. The first step towards implementation of this policy is the establishment of NEPRA, the National Electric Power Regulatory Authority. NEPRA has been set up to ensure the development of competitive power markets in Pakistan. WAPDA and KESC. The main power utilities are to be restructured, this will require the breaking up of the vertically inter-grated utilities and privatizing major parts of the utilities. GoP has also formulated the 1998 Private Power Policy. This aims to provide the framework within which the private sector can be inducted into the power generation aspect of the power sector. The main features of this policy are: Allocation of sites based upon international competitive bidding, Prequalification of intending bidders, Bidding and evaluation against predetermined criteria, Only sites for which bankable and internationally acceptable studies are available will be offered for competitive bidding, BOOT basis.

The competitive tariff will be three part which will include a capacity price and a peak and off-peak energy price. GoP will provide guarantees to provide comfort to winning bidders. Prequalification of bidders will be as per criteria presentation in the pre-qualification documents. The requirements are: that one of the sponsors to have at least 20 % taken equity; the IPP to be able to finance the project; have good reputation; have experienced professionals. The detailed evaluation criteria for prequalification will be given in each RfP. The total tariff will comprise an energy price for peak and off-peak periods; a capacity price in Rs./kW/months; the energy price will naturally be in Rs./kWh. The capacity price is related to the firm capacity available 4 hrs/day for 90 % of time or for about 330 days/year. GoP will guarantee the repatriation of equity & dividends model agreements will be prepared and presented in the RfP. The GoP will also guarantee the contractual obligation of agencies involved including the power purchaser. GoP will protection against specified political risks and protect against changes in tax and custom duty structures. GoP will also ensure the convertibility of Rupees into US Dollars at the prevailing rate and ensure remitability. GoP will ensure dispatch priority to hydroelectric power plants and bear the hydrological risk.

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Programme for National Hydro-Electric Power Development Pakistan, Hydropower for IPPs PPP Round Table, GTZ, Room 1104/1105 on 18 August 2000 Minutes of Meeting
1 Discussion round related to: S Pakistan Water Sector Development Lessons learned and Way Forward by Mr Zafar Ullah Khan, Federal Secretary, Ministry of Water and Power, Government of Pakistan, Islamabad. Role of Hydropower for Development in the North West Frontier Province. By Mr Ejaz Ahmad Qureshi, Additional Chief Secretary, Government of NWFP, Peshawar. Question / Answer Q. Government of Pakistan has announced election of Councils on local level. Elsewhere Local Councils have say on electricity sector issues. In Pakistan will these Councils have power to participate or even decide about the topics we are discussing today? Mr Zafar Ullah Khan / A. MoW&P In the Constitution of Pakistan, Hydropower is a concurrent subject i.e. relevant to federal and provincial government. The district self government will not take away powers of the provincial governments. The use of water will be an issue where the district councils may be of assistance to the provincial authorities. This will have no impact upon the interest of investors. Mr Alexiev / Dresdner Q. Dresdner Bank is involved in financing some of the Kleinwort Benson thermal IPPs in Pakistan. Our experience is not entirely a happy one and this we believe is a result of the excess capacity in the system. The projects you will present today, have they a reasonable chance at being dispatched? What is the time frame for the settlement of the ongoing disputes related to the thermal IPPs?
st

Name of Participant / Organization

Dr Nienhaus / GTZ

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Mr Zafar Ullah Khan / A. MoW&P

The signed thermal PPAs are based on a 60 % plant factor guarantee, that means WAPDA will pay at least 60 % usage even it the dispatch is less. The hydropower plant, will always be dispatched on priority basis and thus not endanger the cash flow of the investors. Peak demand is projected to exceed the available capacity by 2005, if no generation additions are made. WAPDA has held detailed discussions with the thermal IPPs on Tariff Issues. This was possible because the thermal IPPs were not in full compliance with the signed agreements. WAPDA and IPPs mutually agreed to reduction of tariffs. The three or four IPPs who fulfilled all their contractual obligations did not undergo any renegotiations at all. Actually the only one outstanding settlement is Hubco WAPDA is paying about 30 - 40 % higher tariffs to them compared to other IPPs. There is a lot of misinformation circulating. We are convinced that the ongoing negotiations will be successfully concluded before the first anniversary of the new government that is 12 October.

Mr Herberg / GTZ

Q. The Secretary in his speech mentioned the recommendation of IFC to bundle all projects into one, what is the reason for this? Financing cost of the projects are high and get unproportional if the project size is too small in the view of these big agencies as World Bank, IFC and MIGA. Answer to the question raised by Dr Nienhaus. The devolution of power will enable local bodies officers to have say in power sector issues. The original mandate of the Area Distribution Boards was to have local political control over the distribution companies, this was never implemented. If this now occurs it will be a benefit. Answer to the question raised by Mr Alexiev. The load forecast on which the 2005 capacity shortage is based, has been developed on low GDP growth rate at 3 % only. This rate is only slightly above the population growth rate. On a more realistic GDP growth, power shortage will occur earlier (2002).

Mr Zafar Ullah Khan / A. MoW&P Mr Javed Rashid / GTZ-Pakistan A.

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Dr Nienhaus / GTZ

Q. Is it correct, that WAPDA had tremendous difficulties to recover their bills, as usually customers and especially big government offices did not pay their bills? Is there a change after the induction at the new military government?

Mr Zafar Ullah Khan / A. MoW&P

This statement is basically correct, but overexposed in the media. WAPDA has undertaken house to house surveys to detect unbilled / unmetered consumption. This has resulted in very significant improvements. Previously the major defaulters were Government agencies. This has been discussed at highest level and Government agencies have been made to pay all arrears. The Ministry of Finance has been instructed to deduct all outstanding bills from source (from budget allocations). WAPDA was supplying highly subsidized electricity to some areas. It has been decided now, that all such subsidies will be borne by GoP or Provincial Governments. A new procedure has been implemented under which bills have to be challenged within 30 days, any bill that is not challenged in due time has to be paid. Challenged bills have to be decided by a higher government level within 30 more days and finally be deducted at source if not settled.

Mr Mecidoglu / RWE

Q. My company may be interested in other sources apart from hydropower, such as lignite or gas. Due to new gas finds, Pakistan is now able to allocate gas to power generation, GoP has decided, to gradually replace imported furnace oil with domestic gas. Even existing generation could be converted. The opportunity lies in the development of infrastructure needed to bring the gas to power stations. Pakistan also has substantial coal find, in Lakhra and Thar in Sind Province. GoP wishes to use the coal deposits under the framework of 1998 power policy i.e. through competitive bidding. Sind is not yet in a position to comply with the 1998 power policy.

Mr Schneider / Alstom Q. The PPA is to be negotiated with WAPDA, whereas Power the water use agreement has to be concluded with the province. Changes in Water Use Charges may not be recoverable through tariffs? Mr Zafar Ullah Khan / A. MoW&P Mr Gerding / KfW Q Water use charge is a pass through item and will be fixed at the very early stage of competitive bidding. We are involved in the privatization process at WAPDA. Could you tell us the status and road map of privatization of Faisalabad Area Electricity Board?

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Mr Zafar Ullah Khan / A. MoW&P

The Privatization is handled by the Privatization Commission who have drawn up a detailed road map under which Faisalabad Area Electricity Board will be privatized by the end of 2002. This however will be subject to fulfillment of a number of pre-conditions. Privatization Commission has already appointed financial analysts with the help of IFC. The schedule is to next privatize Lahore Area Electricity Board by 03/2003.

Mr Gerding / KfW

Q. What is the status of privatization of Karachi Electricity Supply Corporation (KESC) supported by ADB? Privatization Commission is preparing for privatization of KESC. There is a debate going on within GoP. Some factions believe that GoP should first improve the condition of KESC to ensure the receipt of a reasonable price.

Mr Zafar Ullah Khan / A. MoW&P

Mr Herberg / GTZ

Q. What role do you envisage the WAPDA and other institutions will play in provision of risk guarantees to IPPs? PPIB will develop documents utilizing guidelines developed by the World Bank. These documents will include model PPAs. We will develop and present a security package under collaboration of International Donor Agencies.

Mr Zafar Ullah Khan / A. MoW&P

Mr Ohls / KfW

Q. We have already made investments in Private Power Projects in Pakistan. The consumer tariff structure of WAPDA has in-built cross subsidization and is therefore not economic. Financial position of WAPDA and Pakistan is very weak. This is brought out by the stand taken by the IMF. In light of this are the proposed projects sustainable?

Mr Zafar Ullah Khan / A. MoW&P

We do understand that early resolution of Hubco dispute and satisfactory accommodation with IMF are essential for attraction of private capital to Pakistan. We are convinced that GoP will come to a satisfactory arrangement with the IMF. The projects being offered will come on line in about 5 years of time, by then the financial crisis would have been satisfactorily tackled. WAPDA financial position has been steadily improving since 3 years and WAPDA showed a profit in the last financial year.

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Tariff renegotiations became necessary because companies had not fulfilled all aspect of the signed agreements. All valid agreement were fully honored. The only outstanding dispute is with Hubco but even here, in light of the high court decision part of the payment is made to Hubco and a part kept in a escrow account. The fate this account will be decided by the court. This means that we have not gone back on any agreement to date. 2 Discussion Round Related to: S Power Policy and the Development of Hydel Potential in Pakistan by Mr M. Ikram Khan, Director General, Private Power Cell, Government of NWFP, Peshawar. Prospects for Hydro IPPs in Pakistans Power Market. By Mr Javed Rashid, Chief Power Economist, GTZ Power Development, Lahore. Question / Answer Q. During our involvement in the Allai Khwar Hydropower Project, we were given the impression, that GoP does not support the break up in peak and offpeak tariffs. A. Without going into a discussion on the Allai Khwar Project, I would like to inform you, that both GoP and WAPDA fully support the use of peak and off-peak tariffs. All projects presented earlier today, were evaluated by use of this parameters. The Long Run Marginal Cost (LRMC) have been developed from a marginal cost study, undertaken by GoP / WAPDA. Dr OLeary / Siemens Q. The projects presented are economically viable and / World Bank seem to be good projects. Have these projects been evaluated on financial terms? The publication of economic parameters may mislead possible investors into assuming these to be the acceptable financial return on the project. Mr Javed Rashid / GTZ-Pakistan A. We(GTZ)/WAPDA and other agencies of GoP have made extensive financial modeling of these projects. The economic return should not and cannot be misread to be the financial ones. The financial weighted cost of capital is about 50 % higher than the economic discount rate and on this account only the financial tariff will be 50 % higher than the economic.
nd

Name of Participant / Organization

Mr Seifried / KfW

Mr Javed Rashid / GTZ-Pakistan

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Wasserkraftprojekte in Pakistan

GoP has after long deliberations decided not to publish the acceptable tariff for the projects being offered. This was done to avoid giving a benchmark to intending bidders. I would like to mention that the 1998 policy is based on competitive bidding and published benchmarks may compromise the level of competition. Mr Ohls / KfW Q. The 3 cent or so economic tariff being mentioned may be misleading as the financial tariff resulting from equity loan ratios and cost of Capital will be significantly higher. Due to loan repayment conditions the tariff in the first few years may be as high as 9 to 10 cents has WAPDA/GOP done any financial modeling. The front loading of Hydels may create further financial problems to WAPDA. Mr Javed Rashid / GTZ-Pakistan A. Detailed and extensive financial modeling based upon realistic financial parameters had been carried out by GTZ/WAPDA . WAPDA/GOP are fully aware of the impact of front loading of tariff. Even 10 cents will not be a problem considering that we actually paid a tariff of 11 cents to Hubco in the first year. Under the 1998 Power Policy, the minimum level of equity is 20 %. WAPDAs installed capacity is over 12,000 MW and the projects actually offered will add about 400 MW only. Any financial burden on this account will be easily mitigated. Any financial effect of the front loading will be mitigated naturally by the effect of staggering i. e. all capacity will not be added in the same year. Mr Wallenfels / GTZ Q. You have been to Charlotte and to Washington, could you please elaborate an possible provision of guarantees to the investors by the World Bank Group. How will these Guarantees be structured? The PPA will be signed by WAPDA and the water use agreement by the province. PPIB on behalf of GoP will sign the implementation agreement, which will guarantee both earlier mentioned document. Model agreements are being prepared utilizing World Bank guidelines. We were told by the World Bank Officials, that they would consider with great deal of interest any request by GoP for provision of partial risk guarantees.

Mr Zafar Ullah Khan / A. MoW&P Mr Ikram Khan / NWFP Mr Hess / GTZPakistan A.

A.

Mr Zafar Ullah Khan / A. MoW&P Ikram Khan / NWFP A.

Mr Javed Rashid / GTZ-Pakistan

A.

17

PPP im Infrastrukturbereich Arbeitspapier Nr. 3

Mr R. Schneider / Alstom Power

Q. Will the GoP share the geological risk? Geological risk is to be covered by the IPP. The sharing at geological risk with the IPP could have beneficial impact to the GoP as far as project tariff is concerned. This risk sharing can be administrated through a number of instruments. The level and quality of professional manpower available makes the administration of any risk sharing arrangement very difficult.

Mr Zafar Ullah Khan / A. MoW&P Mr Javed Rashid / GTZ-Pakistan A.

Mr Rudolph / GTZ

Q. Has the possibility of utilization at Global Environmental Funds (GEF) been examined? GEF Mechanism are available only to projects which are uneconomic without the use at these funds. GEF procedures are complicated and there are limitations on the quantum of funds allocated to a project.

Mr Zafar Ullah Khan / A. MoW&P

Mr Rudolph / GTZ

Q. What was the result of the last project offering to the private sector? As a result at the public offering we received interest from Chinese and Turkish organizations. Detailed examinations revealed that these organizations had technical and financial deficiencies which made their offer unattractive. GoP therefore decided to readvertise these projects. GoP also has taken up the re-examination of some portions of the 1998 power policy. These relate to the pre-qualification criteria. We are open to suggestion from the IPP and are willing to consider any reasonable suggestion that will enhance the level of comfort of the sponsors.

Mr Zafar Ullah Khan / A. MoW&P

Mr Seifried / KfW

Q. Have the social and environmental impacts been examined? A detailed E.I.A has been carried out for each project. This E.I.A has been done using the World Bank Guidelines. E.I.A Mitigation Cost are included in the cost estimate. E.I.A shows that Environmental Impacts are almost negligible.

Mr Zafar Ullah Khan / A. MoW&P

Dr Victoria / GTZPakistan Mr Ikram Khan / NWFP

A. A.

18

PPP Roundtable Investment opportunities in hydropower projects in Pakistan Eschborn, August 18, 2000 Name Alexiev, Peter Baumgartner, Kurt Ejaz Ahmad Qureshi Elssser, Peter Gerding, Harald Gomm, E.O. Gorachek, Michael Herberg, Tilman C. Hess, Werner Hoffmann, Lars Khan, Ikram Khan, Zafar Ullah Kremer, Siegfried Kuntz, Herbert Institution Dresdner Bank AG Consultant Government of North West Frontier Province, Pakistan Alstom Power Generation AG KfW GTZ Simbabwe Wayss & Freytag AG GTZ GTZ Pakistan Vereinigte Wirtschaftsdienste Government of North West Frontier Province, Pakistan Ministry of Water & Power, Government of Pakistan Lahmeyer International GTZ Pakistan GWSK@LIF.de Gtzmain@paknet4.ptc.pk Secretariates Block A, Islamabad, Pakistan Friedberger Strae 173, 61118 Bad Vilbel Tilman.herberg@gtz.de hess@iname.com nfa@vwd.de peter.elsaesser@power.alstom.com harald.gerding@kfw.de doezim@harare.iafrica.com Theodor-Heuss-Allee 110, 60486 Ffm Postfach 5180, 65726 Eschborn, AL 44 Hegelstr. 45, Mainz Niederurseler Allee 8-10, 65760 Eschborn Boveristr. 22, 68309 Mannheim Palmengartenstr. 5-9, 60325 Ffm e-mail peter.alexiev@dresdner-bank.com Address Mainzer Landstrae 46, 60301 Frankfurt Hbnerwaldstrae 6, 63811 Stockstadt

PPP Roundtable Investment opportunities in hydropower projects in Pakistan Eschborn, August 18, 2000 Name Mecidoglu, Mark Merx, Ute Mller-Technau, R. Nienhaus, Dr. Michael OLeary, Dr. Donal Ohls, Uwe Rashid, Javed Rudolph, Jochen Schmitt, Wolfgang Schneider, Rolf Schulken Grossmann Seifried, Rolf Shigri, Nasir Victoria, Dr. J. J. Wallenfels, Marek Institution RWE Energie GTZ VA TECH GTZ Voith Siemens Hydropower KfW GTZ Pakistan GTZ, PPI-Sektorprojekt GTZ Alstom Power Generation AG DECON KfW PWD Northern Areas, Pakistan GTZ/HEPO Pakistan GTZ, PPI-Sektorprojekt e-mail mark.mecidoglu@energie.rwe.de Ute.merx@gtz.de mt.vatech@t-online.de Michael.nienhaus@gtz.de donal.oleary@ev.siemens.de uwe.ohls@kfw.de Gtzmain@paknet4.ptc.pk Jochen.rudolph@gtz.de Wolfgang.schmitt@gtz.de rolf.schneider@power.alstom.com decon@decon.de rolf.seifried@kfw.de Gtzmain@paknet4.ptc.pk JJVictoria@t-online.de Marek.wallenfels@gtz.de Gut Neuhof 16, 35440 Linden/Leih Postfach 5180, 65726 Eschborn, R1349 Postfach 5180, 65726 Eschborn, R1378 Postfach 5180, 65726 Eschborn, GF Boveristr. 22, 68309 Mannheim Norsk-Data-Str. 1, 61348 Bad Homburg Palmengartenstr. 5-9, 60325 Ffm Address Kruppstrae 5, 45128 Essen Postfach 5180, 65726 Eschborn, R3115 Unter den Linden 21, 10117 Berlin Postfach 5180, 65726 Eschborn, RL 201 Postfach 3220, EV H FIN, 91050 Erlangen Palmengartenstr. 5-9, 60325 Ffm

Arbeitspapiere PPP im Infrastrukturbereich

Nr. 1 Sektorpolitikberatung im Infrastrukturbereich: Ergebnisse einer Instrumenten-Evaluierung des BMZ in Sambia, Simbabwe, Jemen und Thailand (Juni 2000) Autoren: Foerster, Gocht, Lindauer, Pertz, Weiss Fallstudie: Wassersektor in Peru (September 2000) Autor: Rudolph Wasserkraftprojekte in Pakistan: Verlaufsprotokoll eines Round-TableGesprchs zwischen Unternehmen und pakistanischen Regierungsvertretern (Oktober 2000) Redakteur: Wallenfels

Nr. 2

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