Project on Hydropower Plant

PAKISTAN-

 

Pakistan, a progressive nation with a buoyant economy, is situated in one of the most
important economic zones of the world and offers an

excellent combination of natural and
human resources

for the prospective investors.

Spread over almost 800,000 square kilometers,

with a population of approximately 150 million,

the country is located on the crossroads of Africa,
Middle East and Central Asia.

Power Sector in Pakistan

The generation, transmission, distribution and retail supply of electricity in Pakistan is
presently undertaken by two vertically integrated public sector utilities, with significant
contribution to generation from various private Independent Power Producers ("IPPs").

These utilities are the Pakistan Water and Power Development Authority ("WAPDA") and
the Karachi Electricity Supply Corporation ("KESC"). WAPDA supplies power to all of
Pakistan, except the metropolitan city of Karachi
and some of its surrounding areas which are
supplied by KESC. Power Wing of WAPDA is

being restructured with the ultimate goal of

privatizing it to make Power Sector strong and

vibrant through enhancing efficiency to meet the

needs of the consumers.
Fig. 1: Public & Private Power Producers

 

 

 

 

 

 

Hydroelectricity in Pakistan

Hydroelectric power represents a third of Pakistan's power source, however, periodic droughts affect the availability of hydropower production. WAPDA controls the country's major hydroelectric plants; with the largest being the Tabela plant at 3,046 megawatts (MW) installed capacity. The Tabela plant was the largest hydroelectric plant in Asia until China began building the Three Gorges project, which will have 18,000 MW of installed capacity. Additional hydroelectric plants in operation include Mangla (1,000 MW), Warsak (240 MW), and Chashma (184 MW).

Although Pakistan has plans to develop additional hydroelectric generating capacity, infrastructure constraints, such as access roads in mountainous regions and resettlement costs of affected populations have stalled progress. Nevertheless, Eden Enterprises is going ahead with its Suki Kinari (655 MW) hydropower project. Eden Enterprises, along with Pakistani partners own 95 percent of S.K. Hydro, which was given a 35-50 year concession period for the power plant. Construction is expected to begin in 2009, with the plant coming online in 2011. The Private Power and Infrastructure Board (PPIB) is currently reviewing many hydropower projects for the Punjab and for also other provinces. If approved, the projects would provide several hundred MW of additional hydroelectric power capacity to the country.

PROJECT SELECTION

We have selected the HYDRO POWER PROJECT by the name of LBDC HPP which is stands for Lower Bari Doab Canal Hydro Power Project. The canal name is Lower Bari Doab Canal and the discharge of water is 5,816 cusecs. The Construction period which is required for this project is 24 months. The Installed capacity of this hydro power project is (3 x 1.6 MW) 4.8 MW and power generation is 28 Gw.

Reason for selecting this project:

The country is facing a huge electric power crisis today. This crisis appears insurmountable in the near or even long-term future, unless proper understanding and correct implementation is undertaken on priority basis. At present total power production capacity in the country is about 19,500 MW, out of which Hydel Power is only 6,500 MW, balance of 13,000 MW is thermal either using Natural Gas or Furnace Oil. Small capacity of 450 MW is Nuclear and only 150 MW is through coal.

Although gas is to be provided for 5800 MW to various thermal plants, but in actual fact much less gas is being made available, the deficiency is being filled through furnace oil. It can be inferred that in the recent past, only furnace oil was used as fuel for about 9000 MW generation.

It is very important to understand the consequence of the prevailing situation. Current price of furnace oil is about Rs 49,000 per ton, which amount up to Rs 49/- per kg. On an average one kg of furnace oil produces 3.8 kWh of electricity. Thus, the cost of furnace oil for generating one unit of electricity is about Rs 13. On top of this the fixed cost of a thermal plant works out to be about Rs 3 per unit. Therefore, one unit (kWh) of the electricity produced by all thermal plants using furnace oil is Rs 16 per unit. According to WAPDA/IPP agreement, the private power producers will charge WAPDA the actual fuel cost for which they have a direct contract with PSO. As we all know that WAPDA tariff charged from the consumers is about Rs 5 per unit (kWh).

The production cost of furnace oil electricity is Rs 16 per unit, add to it the transmission, distribution cost (including loses), "the total cost of such electricity works out to approximately Rs 22 per kWh. The difference between WAPDA tariff and the furnace oil electricity is Rs17 per kWh." It is estimated that the country consumes at least 25 billion units of electricity produced annually through furnace oil, which amounts to the total deficit of Rs 425 Billion. If WAPDA has to balance its books it would require a subsidy of Rs 425 Billion. This deficit is somewhat reduced due to cheap power produced through hydel energy and natural gas, but the deficit cannot change substantially, unless bulk of electricity is produced through hydel energy. Obviously, a deficit of Rs 300-350 Billion cannot be sustained, the government does not have resources to pay such a huge subsidy, it is also not feasible to increase the power tariff very much. Therefore the power crisis is far greater than what is being perceived. In the absence of extremely heavy subsidy, WAPDA is delaying payments to IPPs and also to the oil companies. The result is that IPPs are now producing much less electricity than their capacity.

To any planner, it should be obvious that the country cannot afford electricity produced through oil. Indigenous fuels like coal, gas, atomic will have to be developed and developed quickly. The final solution however lies in depending on the hydroelectric renewable energy, but unfortunately the narrow minded bickering on construction of dams has persuaded the planners to find an easy solution, which we cannot afford any more. Since the shortage or high price of electricity has severe detrimental effect on all sectors of economy, the situation calls for concerted short-term, medium-term and long-term actions to overcome the problem of energy shortage.

Currently the country loses 29 billion units of electricity annually due to heavy losses in the system. All efforts must be genuinely applied to reduce the losses. If losses are reduced by even 5 percent, the saving will be over 7 Billion rupees.

There are a number of other attractive runs of the river hydel projects which are being offered to the Private Sector. None of these projects have yet started, because the tariff is still not finalized. With the huge losses being accumulated in thermal plants, again it is strange that the hydel projects in the private sector are not being encouraged. Under the present circumstances, a rational and market oriented policy has to be adopted, hopefully the present government will immediately look into this.

Justification with facts and figure:

The current power crisis is grossly due to very high oil prices, and the country has to prepare itself at least for the next several years to somehow cope with it, since no immediate cheaper alternate solutions are available. We have water resources to generate additional electricity, at lower cost, even less than a rupee per kWh It has been a big set back that new Hydel Projects have not been undertaken, neither the indigenous coal mining has started, investments in the existing as well as new gas field have been lacking. The policy orientation needs a drastic modification and indigenous resource like hydel energy production as well as development of coal mining and new gas fields should be the top priority because Power demand and supply in Pakistan is expected to create a considerable deficit by 2010.

Primary Activity:

Our primary activity is to produce electricity through hydro power plants.

Why Is It Different From Other Such Projects?

• Reliable electricity source
  Hydro produces a continuous supply of electrical energy in comparison to other small-scale renewable technologies. The peak energy season is during the winter months when large quantities of electricity are required.
  
• Efficient energy source It only takes a small amount of flow (as little as two gallons per minute) or a drop as low as two feet to generate electricity with micro hydro. Electricity can be delivered as far as a mile away to the location where it is being used.
  
• Cost effective energy solution
  Building a small-scale hydro-power system can cost very low by considering its benefits in future and it long life.
  

Government Incentives:

Tax Exemption:

All items related to RE are exempted from tax and duty: Central Board of Revenue, Government of Pakistan, Statutory Regulatory Order (SRO) No. 500(I)/2004 dated 12th June 2004 exempts all imported plant, machinery and equipment for Renewable Energy Power Generation Projects from Sales Tax; (SRO) No. 441(I)/2004 from Income Tax; (SRO) No. 454(I)/2004 from Customs Duty.

Fiscal Concession:

• Customs Duty at the rate of 5% on the import of plant and equipment    
  
• No sales tax on such imports
  
• Exemption from corporate Income Tax
  

 

Target Market:

Our target market is WAPDA because the electricity produced by our power plants is distributed to consumers by WAPDA.

 

Supply Demand Gap:

Supply and Demand (MW)
SUPPLY & DEMAND POSITION: 2008-2020
(Committed Generation upto 2016 only)
UPDATED ON 19.9.2008
	Fiscal Years	2008	2009	2010	2011	2012	2014	2016	2018	2020
A.	Existing Generation
(i)	Hydel	6444	6444	6444	6444	6444	6444	6444	6444	6444
(ii)	GENCOs	3580	3580	3580	3580	3580	3580	3580	3580	3580
(iii)	IPPs	5599	5599	5599	5599	5599	5599	5599	5599	5599
(iv)	Rental	264	264	264	264	264	264	264	264	264
(v)	SPPs	70	70	70	70	70	70	70	70	70
	Total (A)	15957	15957	15957	15957	15957	15957	15957	15957	15957
B.	Committed/Under Process Generation
(i)	Hydel*	0	209	453	453	536	536	7345	7345	7345
(ii)	GENCOs	60	300	300	1250	2000	2000	2000	2000	2000
(iii)	IPPs (Thermal + hydel)	0	1265	2919	5268	6002	9259	12021	12021	12021
(iv)	Rental	0	1702	1702	1702	1702	1702	1702	1702	1702
(v)	SPPs	74	347	347	347	347	347	347	347	347
	Total (B)	134	3823	5721	9020	10587	13844	23415	23415	23415
C.	Total Existing/Committed Generation (A+B)	16091	19780	21678	24977	26544	29801	39372	39372	39372
D.	Expected Available Generation (0.85x C)	13677	16813	18426	21230	22562	25331	33466	33466	31498
E.	Demand (Summer Peak)	16484	17868	19352	20874	22460	25919	28029	34918	41132
F.	Surplus/Deficit Generation	-2807	-1055	-926	356	102	-588	5437	-1452	-9634
G.	Allowance for Spinning  Reserve* (5% of Demand)	824	893	968	1044	1123	1296	1401	1746	2057
H.	Addl. Generation Required	-3631	-1948	-1894	-688	-1021	-1884	4036	-3198	-11691
To cater for system frequency excursion and variance / uncertainity in demand projections.
Note: Demand and Supply Position by PEPCO System

 

 

 

Stage of Product Life Cycle:

 

The stage of the hydroelectricity in Pakistan is at the GROWTH stage in the product life cycle.

 

Growth Rate per Year:

Energy demand in Pakistan is accelerating rapidly and the power generation sector requires massive investments of private sector capital to meet this demand. With the economy experiencing high rates of growth -- 6.3 percent and 8.4 percent respectively in the last two years -- Pakistan's energy requirements have expanded at a rate of between 7 and 8 percent annually.

Future Growth Potential:

 

 

SWOT Analysis:

 

Strength:

• Relatively low operations and maintenance costs
  
• The technology is reliable and proven over time
  
• Fuel is not burned so there is minimal pollution
  

 

Weaknesses:

• High investment costs
  
• In many locations stream size will fluctuate seasonally.
  
• In some cases, loss or modification of fish habitat
  

 

Opportunities:

• There are major resources of water in Pakistan.
  
• There is a very big demand and supply gap
  
• Water to run the power plant is provided free by nature
  
• Hydropower plays a major role in reducing greenhouse gas emissions
  

 

Threats:

• Rate are fixed by NEPRA
  
• Delayed payment by WAPDA
  

 

FINANCIAL Analysis:

 

Assumptions With Logics

 

• Annual production is depend upon the flow of water which is assumed to be 28.74 Gw according to water flow analysis. While the installed units having a capacity to produce 48 Gw annually.
  
• The Growth Rate of this project is assumed to be only 2% because the revenue growth rate depends on WAPDA and NEPRA which increases the purchasing rate rarely.
  
• Annual Growth in the salaries of the employees is 7% as per historical analysis of Govt Organizations.
  
• Utility Expenses Growth Rate is 13% which is the average of last five years
  
• Depreciation rate are calculated by using straight-line method as per the policies of other independent power projects
  
• As the WAPDA made payments within three to four months the Receivable period is taken 90 days.
  
• Cost of Debt is assumed to be 15% which is the average of current interest rates charged by the banks.
  
• Cost of Equity is assumed to be 18% a little bit more than the cost of debt because of relatively high risk demands high return.
  
• Loan payback period is assumed to be 10 years because we analyzing the first ten years of the project.
  

 

SALIENT FEATURES OF PROJECT

 

• Location and Name of canal        Lower Bari Doab Canal (LBDC)
  
• Discharge of Water             5,816 cusecs
  
• Construction period                 24 months
  
• Installed capacity                (3 x 1.6 MW) = 4.8 MW
  
• Annual energy                28.74 GWh
  

 

FINANCIAL SUMMARY:

 

• Initial Investment = 650,000,000
  
• NPV= 252,759,638
  
• IRR = 28.29%
  
• PAYBCK PERIOD = 3.72 Years
  
• DISCOUNTED PAYBACK PERIOD = 6.12 Years