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Pakistan

Energy Sector Overview

The power sector in Pakistan is a mix of hydel and thermal units dominated by two vertically integrated

(in generation, transmission and distribution) public sector utilities, Water and Power Development

Authority (WAPDA) and Karachi Electric Supply Corporation (KESC). In addition, there are two nuclear

power plants KANUPP and CHANUPP, and a number of independent power producers (IPPs) and

small power producers (SPPs) established since 1994. In June 2004 the total installed capacity in the

country was 19522 MW.

Installed capacity of the system as at June 2004

Fuel Total (MW) Available (MW)

Thermal 12567 10592

Hydro 6493 4727

Nuclear 462 360
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Total 19522 15679

Breakdown of capacity by operator as at June 2004

Besides these utilities, there are five central government agencies with responsibilities in the power

sector, as given below in the table.

Government agencies in the power sector

Government Agencies

Their Responsibilities

Ministry of Water and Power Take care of the sectors affairs and manage issues of energy policy.

Private Power and

Infrastructure Board (PPIB)

To facilitate private investors in the power sector; provide

guarantees on behalf of government; assists the regulatory authority

in determining and approving tariffs; and also an implementing

agency for power policy.

National Electric Power

Regulatory Authority

(NEPRA)

To ensure fair competition and consumer protection.

Alternative Energy

Development Board (AEDB)

To promote the exploitation of alternative energy resources such as

small scale hydro plants, wind power and off grid generation plants.

Privatisation Commission Deals with privatisation issues.

Post 1958


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The electricity sector in Pakistan in the post-1958 period was dominated by two vertically integrated

publicly owned utilities, WAPDA and KESC (Government being the operator as well as the regulator).

The former has a national coverage, whilst the latter serves only the Karachi division and adjacent

areas. WAPDAs power plants are a mix of hydel and thermal units, whilst KESCs are mostly thermal.

The performance of these two remained satisfactory until the early 1980s. Afterwards the situation

started deteriorating. Severe constraints in the availability of capital led to inadequate generationcapacity and transmission infrastructure. Power supply lagged behind demand resulting in excessive

shortage of electricity especially for the industrial and commercial consumers. Growth in power

generation has been very substantial with an increase in aggregate supplies of approximately 12

percent annually from 1960 to 1995. However, over the same period per capita power availability has

increased from 28 KWh to 444 KWh. The economy, in general, and the manufacturing sector in

particular, were adversely affected.

Post 1980

Like many other developing countries, Pakistan announced a policy shift towards the private sector in

early 1980s which was later enhanced by the structural adjustment programme under the supervision

of the IMF and the World Bank. Consequently, private sector investment increased from 26 percent to

51 percent of total investment during 1978-88. However, most of the privatized companies were in

manufacturing industry. Privatization in the banking, electricity, telecommunications and transport

sectors was delayed because of lack of procedural clarity, fear of unemployment among workers and

the consequential emergence of private monopolies resulting in increase in prices.

Mid & late 1990s

However, during mid and late 1990s, Pakistan expanded the scope of its privatization programme to

include infrastructure also with electric power sector at the top of the agenda. As it was realised thatpower generation and transmission capacity expansion and efficiency could only be achieved with the

involvement of the private sector. The government in 1992 prepared the strategic plan for the

privatisation of the power sector. The Policy objective was to improve efficiency by establishing a

healthy and competitive infrastructure sector. Privatization of electric power sector was expected to

spur economic growth and reduce fiscal deficits. However this has been argued in a number of

studies.

By late 1990s an autonomous regulatory agency, National Electric Power Regulatory Authority

(NEPRA) was created to introduce transparent and judicious economic regulation in the sector.

NEPRA came into existence in December 1997. However, the situation so far has barely changed.

WAPDA and KESC are still facing institutional and organisational weaknesses. The combined direct

and indirect losses incurred by these utilities during the period 1996-2007 have created large fiscal

deficits, being covered though taxpayers money and through borrowings [Kemal, et al. (2002)]. Given

the lack of funds, supply is also lagging behind demand that is increasing at the rate of 7 percent per
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year, and the gap is going to increase in the years to come, as shown in the chart below.

The increase in the demand however, is an indication of the expansion in the Pakistan economy. Both

demand projections as well as international experience have suggested that power demand is likely to

grow faster than the economy in the years to come [Parish (2006)]. Growth in demand suggests that

substantial investment will be needed to maintain continuity of supplies. Not only in generation, the

most capital intensive segment in the sector, investments are also needed in the transmission and

distribution sectors to overcome the huge losses the sector is suffering for the last couple of years.

Time line of important developments in power sector has been provided in the table below.

Time line of important development in Power sector

Year Description

1975 The Pakistan Council of Appropriate Technology (PCAT) established.

1981 National Institute of Silicon Technology (NIST) established.

1988 Private sector investment increased from 26 percent to 51 percent of total investment.

1992 Government prepared the strategic plan for the privatization of the power sector

1992National Pakistan Conservation Strategy (PNCS) was enacted, which was subsequently

into the ninth Pakistani energy plan (1993-1998).

1994Government formulated a power policy and invited independent power producers (IPPs),

time, to invest in the generation part of the power sector.

1994 Private Power and Infrastructure Board (PPIB) was established to facilitate private invest

1996 Kot Addu Power Plant (1638 MW) was the first to be privatized

December, 1997Autonomous regulatory agency, National Electric Power Regulatory Authority (NEPRA) w

created.

1998 Unbundling of WAPDAs, a vertically integrated Power Wing, into separate generation,


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transmission, and distribution companies

1998 NEPRA prescribed in Tariff Standards and Procedures Rules (1998) for determining tariff

2000 NEPRA was directly attached with the Cabinet Division.

May, 2001NIST and PCAT merged to become the Pakistan Council for Renewable Energy Technol

(PCRET).

2001Automatic Tariff Adjustment (ATA) mechanism for fuel cost variations adopted and applie

three months.

2002NEPRA approved a framework of multi-year tariff for KESC, for seven years from its priva

view of its expected privatization in the near future).

May, 2003 The Alternative Energy Development Board (AEDB) was established.

2004 NEPRA approved a CPI-X based MYT framework with an initial duration of five years for

2005 A majority stake (73 percent of shares) in KESC was sold to a private investor

Reforms in the Power Sector

The government in 1992 prepared a strategic plan for restructuring the electricity sector. In 1994, the

government formulated a power policy and invited for the first time, independent power producers

(IPPs) to invest in the generation part of the power sector. As a result of attractive government

incentives and generous tariff offers 19 IPPs started their operations in Pakistan. They brought over $3

billion to install about 3500 MW capacity. These IPPs were allowed to sell electricity to both WAPDA

and KESC under power purchasing agreements (PPAs). Hub Power Plant (HUBCO) was the first one

to start its operation in 1993, with a capacity of 1292 MW and a negotiated tariff based on a cost plus

approach. From 1998 onwards, Pakistan had excess capacity, as WAPDA and KESC were restricted

to purchase expensive IPPs electricity while their own plants were underutilised. Financial problems

instead of improving deteriorated even further. IPPs get involved in disputes and litigation with thegovernment over the rates set in their PPAs with WAPDA. In response to the Governments demand

for a rate reduction, IPPs demanded that prices for fuels be lowered. The government however later

resolved the IPP issues with the involvement of international donors and within the framework of

contractual agreements. The structural adjustment programme under the supervision of IMF and WB

later enhanced this policy shift.

Other steps taken as apart of the reform process included:

1. Establishment of National Electric Power Regulatory Authority (NEPRA), under NEPRA Act

1997, an autonomous regulatory agency, to ensure transparent and judicious economic

regulation in the power sector.2. Private Power and Infrastructure Board (PPIB), was established in 1994, to facilitate private

investors.

3. Unbundling of WAPDAs vertically integrated Power Wing into separate generation,

transmission, and distribution companies (as in the 1998 WAPDA Act) in 1998. WAPDA has

now been reorganised into four thermal generation companies called GENCOs, nine

distribution companies called DISCOs, and one National Transmission and Dispatch Company


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(NTDC). The hydroelectric power development and operation functions remain with WAPDA.

(Further details section 4)

Current market structure in Pakistan

1. Pakistan Electric Power Company Private Limited (PEPCO) a separate agency within WAPDA

is made responsible for the restructuring and preparation for privatisation for the generation

and distribution companies in due course through the Privatisation Commission. Private sector

participation is being encouraged to promote competition in the generation and distribution

parts of the industry, while, NTDC would remain under state control and be responsible for

national dispatch, transmission, and system planning as a single buyer.

2. Responsibility for the energy sector policy remains with the government.

The process of separating out various entities and corporatisation is in progress. While unbundling has

been completed, the various entities created from WAPDA still lack independence from WAPDA and

from one another. The distribution companies are still financially integrated with WAPDA, lack the

technical skills to operate independently, do not have notified tariffs and have managers that are

WAPDA employees [Parish (2006)]. However, in Pakistan the overall performance of the power sector

and its institutions in the last 15 years has been moderate.

Regulatory Framework

Initially, National Electric Power Regulatory Authority (NEPRA)-1997 was established as an

autonomous body without any administrative control from the government. However, for the sake ofinteraction with Federal and Provincial Governments it was initially attached to the Ministry of Water

and Power. Later it was linked with the government through the Ministry of Law and Justice. However,

in June 2000 NEPRA was directly attached with the Cabinet Division. Currently, NEPRA is working in

an extremely centralised manner. All the decisions regarding tariffs and standards need to be

approved by the government. It consists of a Chairman and four members (one from each province),

all appointed by the government.


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The initial funding of NEPRA was provided through a grant from the Federal Government amounting to

Rs 100.5 Million. In addition, NEPRA is expected to meet its expenses from licensing fees on constant

basis and filling fees for tariff applications etc. Just like any regulatory system, the most important

regulatory functions of NEPRA are grouped in the following five main categories (details in Appendix

A).

1. Determination of tariff rates and terms and conditions

2. Grant of licenses, approval of power acquisition programmes

3. Setting and enforcement of quality-of-service standards, approval of operating codes and

investment standards

4. Industry structure/privatisation including the transition towards a competitive market where

feasible

5. Consumer rights and obligations, complaint redressal

NEPRAs broad policy guidelines for power sector reforms revolve around:

1. Tariff structure to ensure sufficient resources to cover costs and investment in the short term

2. Encourage generation, transmission and distribution capacities on a non-discriminatory basis

to meet the existing needs and growing demand in the long run

3. Quality of service to the consumers as well as ensuring network efficiency including reliability

and voltage disturbances

Privatisation as such is not directly the function or responsibility of the NEPRA. But NEPRA has to

facilitate the process to bring efficiency in the power sector and helps in ensuring competition where

feasible. The privatisation process started at a slow speed. Kot Addu Power Plant (1638 MW) was the

first to be privatised in 1996. Initially 26 percent of the shares were transferred to the private owner,

and then later on 10 percent more of the shares were transferred to the private owner. In December2005 a majority stake (73 percent of shares) in KESC was sold to a private investor. It is the major

step although the process took many years to materialise. Next in line is the distribution company,

FESCO. It was intended to sell 56 percent of its shared capital by the second quarter of 2006 but so

far nothing has happened. It is because of the delay in the notification of the tariff approved by

NEPRA. A multi year tariff has already been determined for JPC. All the short listed bidders for these

companies, who had invested their time and money in carrying out the due hard work, are waiting for

the resolution of the dispute between the Government and NEPRA. This is a major setback for the

companies waiting for their privatisation.

The Pakistan Development Review 38:1 (Spring 1999) pp 69-84

Utilities


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A. WAPDA

The primary development role of WAPDA has been revived. It is now focusing only on hydel

development and water sector projects to support the national economy and poverty alleviation

through improved hydel-thermal mix of power generation, provision of electricity at affordable price and

most pertinently perspective planning and timely execution of projects to meet the water and powerdemand of the growing population, agriculture and industry of the country.

Installed Capacity of WAPDA System (as of June 2007)

Description

Capacity (MW)

Hydel 6444

GENCOs 4675

IPPs 5772 (including 30 MW Hydel)

Nuclear IPP (Chashnup) 325

Rental 150

Total 17366

WAPDA has now undertaken Vision 2025 Programme comprising a comprehensive integrated water

resources and hydro power development. Five Mega hydropower projects have been announced by

President of Pakistan which is to be completed by 2016 with generation capacity of 9,500 MW. The

total cost of these Projects will be US$ 20.3 Billion. Two projects are ready for awarding construction

works whereas three Projects are in the stage of feasibility studies and preparation of tender

documents. In addition to above, there are 14 new Projects which are under study for construction with

generation capacity of 20,770 MW with expected construction cost US$ 32.15 Billion. The Projects will

be located on river Indus and its tributaries.

Power wing of WAPDA comprising of Generation, Transmission and Distribution has been restructured

into fourteen (14) public limited companies, four power generation companies, one National power

dispatch company and nine distribution companies. Power wing is currently headed by Member

(Power). These fourteen (14) Corporate Entities are:-

1. Thermal Power Generation Companies (GENCOs)

I. Southern Generation Power Company Limited (GENCO-1) head quarter at Jamshoro districtDadu near Hyderabad Sindh.

II. Central Power Generation Company Limited (GENCO-2) head quarter at Guddu district

Jacobabad Sindh.

III. Northern Power Generation Company Limited (GENCO-3) head quarters at TPS Muzaffargarh

district Muzaffargarh Punjab.

IV. Lakhra Power Generation Company Limited (GENCO-4) Headquarter at WAPDA house

Lahore.


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2. National Transmission & Power Dispatch Company (NTDC)

3. Distribution Companies (DISCOs) as under:

I. (LESCO) - Lahore Electric Supply Company

II. (GEPCO) - Gujranwala Electric Power Company

III. (FESCO) - Faisalabad Electric Supply CompanyIV. (IESCO) - Islamabad Electric Supply Company

V. (MEPCO) - Multan Electric Power Company

VI. (PESCO) - Peshawar Electric Power Company

VII. (HESCO) - Hyderabad Electric Supply Company

VIII. (QESCO) - Quetta Electric Supply Company

IX. (TESCO) - Tribal Electric Supply Company

B. KESC

The Karachi Electric Supply Company Limited was incorporated on 13th September 1913 under the

Indian Companies Act, 1882 as amended to date vide the Companies Ordinance 1984. The Company

is listed on Karachi, Lahore and Islamabad Stock Exchanges. The Government of Pakistan took

control of the Company by acquiring majority shareholding in 1952. The Ministry of Water and Power

looks after the affairs of the Company at Federal level.

The Company is principally engaged in generation, transmission and distribution of electric energy to

industrial, commercial, agricultural and residential consumers under the Electricity Act, 1910 as

amended to date and NEPRA Act 1997, to its licensed areas. The licensed area of KESC is spread

over entire Karachi and its suburbs up to Dhabeji and Gharo in Sindh and over Hub, Uthal, Vindhar

and Bela in Baluchistan. The total area covered is around 6000 square kilometers.

The privatization of the Company has been finalized in November 2005 with the transfer of 73%

shares of Government of Pakistan along with management control to the new owner viz M/s KES

Power & others. The new management has taken over the charge of the Company, with effect from

November 29, 2005. Further, an Implementation Agreement was entered into between the

Government of Pakistan and the Company, setting out the key terms and conditions of the take over.

New investors include KES Power Limited, Hassan Associates (Private) Limited and Premier

Mercantile Services (Private) Limited who hold 71.5%, 1.00% and 0.5% shares in the capital of

Company, respectively.

The new management has employed M/s. Siemens Pakistan Engineering Limited as the Operations

and Management (O&M) Contractor for the operation and management of the Company. The objective

was to make the Company a profitable entity within next two years. In this regard M/s. Siemens

undertook the process of updating and modernizing the infrastructure and operations of the Company.


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i. Generation Expansion & Rehabilitation

Injection of efficient and economic generation in KESC system has been an integral component of the

turn around strategy pursued by the owners since privatization of the Company in disregard of its

unfavourable commercial impacts in the face of high system losses and mis-match between rising cost

of prime inputs and applicable tariff. The last addition in generating capacity of KESC was made backin 1997 when BQPS unit-6 of 220 MW was commissioned. Further, a 830 MW power plant at BQPS

was approved by the Board as early as June 2006, which contract unfortunately could not be finalized.

Contract for setting up 220 MW combined cycle power plant at KTPS was awarded in January 2007.

Gas Turbine Units-1 & 2 have already been synchronized with the system and are undergoing various

commissioning tests, whereas third and fourth GTs of identical generating capacity are likely to be

commissioned by November 2008 and Steam Turbine of 26.378 MW would be operative in July 2009.

Contract for setting up new power plant phase-II BQPS extension of 560 MW combined cycle project

has been awarded in June 2008. The project comprises of three-GTs of 128.90 MW each (ISO

capacity) and one (1) Steam Turbine of approximately 185 MW and the project is likely to be

commissioned in the year 2010-11. De-rating of the existing generating capacity spanning over last

couple of decades has been arrested through a systematic maintenance and rehabilitation plan as a

result of which generating capacity has been enhanced by approximately 190 MW.

ii. Transmission and Distribution Network Expansion & Rehabilitation

An outdated and dilapidated transmission and distribution infrastructure was inherited by the owners

and overloading of the twin networks was also responsible for high technical energy losses in the

transmission & distribution system in addition to administrative losses. Strategic Plan with

implementation mechanism was prepared for rehabilitation of transmission and distribution networkwhich has been under execution in a phased and prioritized manner. A number of critically important

projects have been commissioned or are in the final stage of completion which have relatively

improved network reliability and increased transmission & distribution capacity and reduced technical

losses. During the year under review the following four (4) GIS grid stations were completed and

commissioned:

1. 220 KV Baldia Grid Station (Extension)

2. 132 KV West Wharf Grid Station (New)

3. 132 KV Old Town Grid Station (New)

4. 220 / 132 KV KDA Scheme 33 Grid Station (Extension)

Whereas nine (9) 132 KV GIS Hybrid Grid Stations are in various stages of completion and shall be

commissioned in a phased manner by 17 November 2008 which would further improve network

reliability and capacity of the transmission network. However, considering the degree of fragile and

dilapidated T&D infrastructure inherited by the new management, the improved results in tangible form

such as improvement in system stability and voltage profile, enhanced transmission capacity &

flexibility, reduction in overloading of power transformers & 11KV feeders and load-shedding would be


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more visible in the near future. 61 KM of 132 KV underground cables have been laid and energized

during the year under review, whereas another 117 KM is under execution which would further

augment and improve the transmission network. Establishment of computerized system for

management of generation, transmission and distribution known as SCADA had been planned and is

being executed as one of the prioritized projects, fifty percent (50%) progress has been achieved and

provisional taking over of the project is scheduled by 31 March 2009. The commissioning of thiscritically important project would significantly improve efficiency of power system control & monitoring,

facilitate timely operational decisions & economic dispatch of power and would minimize outages and

technical losses. During the FY 2008 review, distribution system has been augmented & expanded

through addition of 151,443 KM 11KV overhead & 334,972 KM underground lines and 889,101 KM

400V overhead & 85,790 KM underground lines and 2204 11KV distribution substations / PMTs. The

11KV distribution capacity has been increased by 127,375 MVA (3%) from 4,310,515 MVA to

4,437,890 MVA.

Demand and Supply

With the induction of IPPs, although Pakistan have been able to meet the electricity demands of the

country and getting rid of the load shedding, yet high tariff compelled the industry to install their own

captive power projects. This resulted in surplus power of approximately 2000 MW (1000 MW in peak

hours and 2000 MW in non-peak hours) during 1999-2000.

However, the surplus power disappeared during 2004-2005. There will be an additional demand of

5500 MW upto the year 2010, for which the power policy of 1998 is being reviewed to make it more

attractive sector investment.

Projection for Demand and Supply

S. No YearFirm Supply

(MW)

Peak Demand

(MW)Surplus/(Deficit) (MW)

1 1999-2000 13445 11296 2149

2 2000-2001 13716 11852 1864

2 2000-2001 13716 11852 1864

3 2001-2002 13693 12443 1250

4 2002-2003 14336 13071 1265

5 2003-2004 15046 13831 1215

6 2004-2005 15082 14642 440

7 2005-2006 15072 15483 (441)

8 2006-2007 15091 16548 (1457)

9 2007-2008 15055 17689 (2634)

10 2008-2009 15055 19080 (4025)

11 2009-2010 15055 20584 (5529)


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Source: Ministry of Water and Power, Pakistan

Future Projects, following two major projects are under process for approval.

Following prospective hydel power potential can be implemented in future:

S.No. Projects Capacity Status

1 21-Projects 6035 MW Feasibility completed.

2 08-Projects 7569 MW Feasibility under completion

3 10-Projects 13114 MW Identified Projects

4 Total 39-Projects 26718 MW

Tariff Analysis

Tariffs or electricity pricing is an important regulatory component. NEPRA determines tariffs as

prescribed in Tariff Standards and Procedures Rules (1998), keeping in view the principle to cover

costs and reward investments as applicable on a case to case basis (for details see Appendix B). The

current tariff structure is based on rate of return or cost of service. It determines prices charged so as

to achieve revenues that cover all legitimate operating and capital costs while providing the firm with a

fair rate of return on its capital employed. This fair rate of return is related to the cost of capital and is

similar to delivering the economists normal profit.

Since March 2001, an Automatic Tariff Adjustment (ATA) mechanism for fuel cost variations has been

adopted, and applied every three months, i.e., adjusting consumer end tariff of the distribution

companies in order to account for variations in the price of fuel. The idea is to capture the volatility of

fuel price variations. NEPRA has decided the generation tariff for SPPs. Generation tariff to the three

generation companies unbundled from WAPDA has been granted after approval from the government.

NEPRA also granted NTDC with their use of system charge tariff and approved a list of generation

companies selling electricity to the Central Power Purchase Agency (CPPA) for onward sale to the

DISCOs according to their respective demands (same has been provided in the table below). Hydel

tariff for WAPDAs hydel generation plants has also been approved.

Merit order by NTDC

Based on the Present Net Heat Rate at 100% Plant Factor (as per June 22, 2005)

Sr No. Plant Groups Fuel TypeFuel Cost

Rs/kWh

O&M Cost

Rs/kWh

Specific Cost

Rs/kWh

1 Uch (Upto 152.375 GWh) GAS ( * ) 0.2948 0.10748 0.44088

2 Liberty (Upto 61.904 GWh) GAS 0.40577 0.14941 0.55518

3 Lakhra COAL 0.75798 0.09498 0.85296

4 AEL GAS 1.03124 0.30912 1.34036


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5 Uch(+152.375 GWh) GAS ( * ) 1.3051 0.10748 1.45118

6 KAPCO-1 GAS 1.56596 0.1196 1.68556

7 Guddu CC 3 R. GAS 1.65871 0.05509 1.7138

8 Rousch Gas 1.65133 0.12623 1.77756

9 Guddu CC 1 & 2 R. GAS 1.7316 0.05509 1.7866910 HCPC GAS 1.60597 0.18984 1.79581

11 KAPCO-II GAS 1.7176 0.1399 1.8575

12 Muzaffargarh-4 GAS 1.93003 0.01747 1.9475

13 GTPS Kotri CC GAS 1.9333 0.03319 1.96649

14 Muzaffargarh 1 3 GAS 1.954 0.01747 1.97147

15 GTPS Faisalabad CC GAS 1.93944 0.03813 1.97757

16 Guddu-3 Steam R. GAS 1.98274 0.04246 2.0252

17 Guddu-4 Steam R. GAS 1.99794 0.04246 2.04041

18 KAPCO-III GAS 1.77642 0.26965 2.04607

19 Muzaffargarh 39604 GAS 2.05094 0.01747 2.06841

20 Jamshoro 39540 GAS 2.09069 0.04915 2.13984

21 Guddu CC -3 (OC) R. GAS 2.11078 0.05329 2.16406

22 Liberty (+ 61.904 GWh) GAS 2.02887 0.14941 2.17828

23 Guddu 39479 Steam R. GAS 2.17139 0.04246 2.21385

24 FKPCL GAS 1.88565 0.33797 2.22362

25 Guddu CC 1&2 OC R. GAS 2.19355 0.05329 2.24684

26 SPS Faisalabad GAS 2.53486 0.02989 2.56475

27 NGPS Multan 39541 GAS 2.63472 0.05219 2.68691

28 NGPS Multan 1 GAS 2.65999 0.05219 2.7121829 Guddu-3 Steam MIX.(**) 2.74466 0.04246 2.78712

30 GTPS Kotri 39541 OC GAS 2.76334 0.03262 2.79596

31 GTPS Kotri 39604 OC GAS 2.77229 0.03262 2.80491

32 Guddu-4 Steam MIX.(**) 2.76571 0.04246 2.80818

33 GTPS Faisalabad OC GAS 2.79688 0.03757 2.83446

34 Muzaffargarh-4 MIX.(**) 3.03747 0.01747 3.05493

35 Muzaffargarh-1-3 MIX.(**) 3.07519 0.01747 3.09266

36 GTPS Kotri 39479 OC GAS 3.18404 0.03278 3.21682

37 Muzaffargarh 39604 MIX.(**) 3.22775 0.01747 3.2452238 Jamshoro 39540 MIX.(**) 3.20919 0.04915 3.25834

39 Guddu-3 Steam FO 3.50659 0.04246 3.54905

40 Guddu-4 Steam FO 3.53348 0.04246 3.57595

41 KAPCO-1 FO 3.52175 0.20746 3.72921

42 NGPS Multan 39541 MIX.(**) 3.67767 0.05219 3.72986

43 NGPS Multan 1 MIX.(**) 3.71295 0.05219 3.76514


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44 SPS Faisalabad MIX.(**) 4.05016 0.02989 4.08005

45 Jamshoro -1 FO 4.03751 0.04915 4.08667

46 AES Pak-Gen FO 4.07875 0.07703 4.15578

47 KAPCO-II FO 3.86518 0.29203 4.15721

48 Muzaffargarh-4 FO 4.1449 0.01747 4.1623749 Japan Power FO 3.95255 0.25633 4.20888

50 Muzaffargarh-1-3 FO 4.19638 0.01747 4.21385

51 HUBCO FO 4.15224 0.0786 4.23084

52 AES Lal-Pir FO (***) 4.07875 0.07703 4.30578

53 SEPCOL FO 3.91698 0.39234 4.30932

54 Saba Power FO 4.2457 0.0773 4.323

55 Kel FO (***) 3.88668 0.30432 4.341

56 Jamshoro 39540 FO 4.32769 0.04915 4.37684

57 Muzaffargarh 39604 FO 4.40457 0.01747 4.42203

58 NGPS Multan 39541 FO 4.72062 0.05219 4.77281

59 NGPS Multan 1 FO 4.7659 0.05219 4.81809

60 KAPCO-I HSD 5.05903 0.12026 5.17929

61 SPS Faisalabad FO 5.56547 0.02989 5.59536

62 KAPCO-II HSD 5.55235 0.16169 5.71404

63 KAPCO-III HSD 5.74231 0.40831 6.15062

* EXCISE DUTY (**) 50% FO 50 % GAS *** PREMIUM VALUE

# Cost of Ex-WAPDA Thermal Plants is based on 100% Plant Factor & cost of IPPs is as per PPA

Source: National Power Control Centre agency of NTDC

Merit Order Criteria Based on the Present Net Heat Rate for KESC

(As per June, 2005)

Sr No. Plant Groups Fuel TypeFuel Cost

Rs/kWh

O&M Cost

Rs/kWh

Specific

Cost

Rs/kWh

Thermal

1 Bin Qasim Thermal Power Station Gas/F. Oil 2.381 0.236 2.617

2 Korangi Thermal Power Station Gas/F. Oil 2.799 0.202 3.001

Gas Turbines

3 Site Gas Turbines Gas/HSDO 2.97 0.967 3.937

4 Korangi Gas Turbines Gas/HSDO 2.862 0.211 3.073

Total 2.481 0.223 2.705

Source: KESC


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The average end user tariff in Pakistan for fiscal year 2005 is estimated to be around 3.93 Rs/KWh. It

involves significant cross subsidies, from industrial and commercial consumers to agricultural and

small (under 50 kWh per month) domestic consumers. Tariff structure is consistent throughout the

country but is (besides cross subsidies) divided by consumption levels (tariff slabs); and for industrial

consumers, it is divided into peak and off-peak charges.

The ATA for ex-WAPDA distribution companies was stopped from December 2003 as all distribution

companies have applied separately for their tariffs. Detailed determinations of tariff review motions

filed by the 8 DISCOs were issued in November 2004. As per the requirements in the determinations a

mid year review of the tariff was conducted and tariff adjustments were made in February 2005. The

increase in tariffs for IESCO, FESCO, LESCO, MEPCO, GEPCO, PESCO, HESCO and QESCO in

Ps/kWh was 13.25, 12.22, 8.98, 10.32, 15.15, 11.81, 5.95, and 12.99 respectively. However, this is still

waiting for government notification.

NEPRA has the credit to establish for the first time in South Asia a CPI-X based multi-year tariff (MYT)

regulatory framework. In 2002, NEPRA approved a framework of multi-year tariff for KESC, for seven

years from its privatisation (in view of its expected privatisation in the near future). Secondly, in June

2004, NEPRA approved a CPI-X based MYT framework with an initial duration of five years for

FSECO, in view of its expected privatisation. A multi year tariff has also been determined for JPC. This

new framework is a radical shift from the rate of return regulation regime to performance based

regulation in the power sector of Pakistan [Raza (2003, 2004)].

Some of the amendments made in the tariff rate structure are: cross subsidies have been reduced by

increasing the rates of subsidised classes; flat rates have been abolished; consumer bills have been

simplified to include all the surcharges and additional surcharges in the overall rates in such a manner

that only fixed and energy charges are reflected in consumer bills; consumers have been protected

from frequent price variation by allowing only quarterly adjustment for fuel price adjustment; andunjustified demands of the utility such as charging on the basis of connected load and increase of

rates to cover for inefficiencies has not been allowed.

Another issue is current tariff levels and structures involving significant cross subsidies, from industrial

and commercial consumers to agricultural and small (under 50 kWh per month) domestic consumers.

Although tariff increase for domestic and agriculture consumers exceeded that for the CPI (consumer

price index), and other consumer categories in the period from 1991 to 2005, limited progress has

been made in reducing cross-subsidies. The largest percentage increase in the revenue collected per

kWh occurred in the agriculture sector, followed by the domestic sector. The revenues collected in

these two sectors are still considerably lower than for other consumers, and less than one half of those

for commercial users. In this period from 1991 to 2005, the rate of power tariff increase outstripped

inflation (as shown in table below). While tariff charged to the domestic consumers is cross-subsidised

from industrial and commercial consumers, the share of electricity sold to domestic consumers has

increased from 31.6 percent in 1988-89 to 43.6 percent in 2004-05. This subsidised category has

created an additional burden on the financial position of public utilities. These will continue to be

necessary so long as the tariff structure is not developed to cover costs.


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Nominal Tariff in Paisas per KWh

Consumer

Category

1991 1996 2000 2005 Growth (%)Domestic 63 136 233 319 11.4

Commercial 217 537 703 724 8.4

Industry 106 336 416 445 10.04

Bulk Supply 148 295 406 523 8.8

Agriculture 43 131 231 311 14.1

Average 115 287 398 393 8.5

Source: Kojma (2006), Malhotra, et al.(1994), FESCO Report (2006) and International Financial

Statistics (Various Issues)

WAPDA generates about 60 percent of the countrys electricity, while KESC provides about 12

percent; the rest comes from IPPs and other sources. The losses of these companies are so huge that

subsidising them each year is an enormous burden on the federal budget.

Other update on Tariff:-

1. NEPRA on January 11, 2008 arrived at a levelized indicative tariff of 7.8055 cents/kWh or

4.7613 Rs./kWh for Coal based power plants. This Indicative Tariff for Coal based power plant

was in compliance with the directions of Economic Coordination Committee of Cabinet in its

decision No. ECC-187/2007 dated 12.12.2007

1. NEPRA on May 15, 2008 arrived at a revised upfront tariff of 9.5000 cents/kWh or 5.7000

Rs./kWh for Wind Energy Generation. This Revised Upfront Tariff for Wind Energy Generation

was in compliance with the directions of Economic Coordination Committee of Cabinet in its

decision No. ECC-187/2007 dated 12.12.2007

Renewable Energy

Pakistans first promotion measures for renewable energy sources were implemented in the early

1980s. The sixth Pakistani energy plan (19831988) devoted approximately 14 million to the areas of

renewable energy crops, biogas and a feasibility study for the commercial exploitation of solar energy.The Pakistan Council of Appropriate Technology (PCAT, established in 1975) and the National

Institute of Silicon Technology (NIST, established 1981) were jointly responsible for implementing the

measures. While PCAT focused its attention primarily on the areas of mini-hydropower, biogas plants,

solar cookers and small wind energy conversion systems for driving water pumps, NIST was more

involved in the research, development and commercialisation of solar energy with focus on

photovoltaic. For lack of precise promotion instruments, the output of all solar and wind energy

systems plus mini-hydropower plants together amounted to less than 5 MW at the end of the 1980s.


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The 1990s also saw some isolated instances of promotion measures for renewable energy sources in

Pakistan, but they were all very limited in their financial scope. In this connection, mention could be

made of the 1992 National Pakistan Conservation Strategy (PNCS) which was subsequently

integrated into the ninth Pakistani energy plan (1993-1998). Altogether, PNCS spent some 63 million

rupees ( 900,000) on introducing biogas, wind power and mini hydropower facilities.

A. Pakistan Council for Renewable Energy Technology (PCRET)

The latest alternative energy promotion activities in Pakistan again encompass institutional measures

and define target objectives. In May 2001, the two separate research institutions NIST and PCAT

merged to become the Pakistan Council for Renewable Energy Technology (PCRET), the main goal

being to better coordinate research activities and avoid overlaps.

B. National Environment Action Plan Support Programme (NEAP-SP)

The Support Programme (NEAP-SP) for implementing the National Environment Action

Plan (NEAP) of 1997 was signed by the Government of Pakistan and UNDP in October

2001. The NEAP-SP includes six different sub programmes, one of which concerns the field of energy

conservation and renewable energy sources, and concrete projects are to be implemented over the

next five years.

C. Alternative Energy Development Board (AEDB)

The Alternative Energy Development Board (AEDB) was founded in May 2003 for supplying wind-

solar and mini/small hydropower generated electricity in remote regions of Pakistan. AEDB is also

responsible for developing the countrys medium- and long-term promotion policy for renewable energy

sources. In addition, its functions include the coordination of joint ventures with the aim of havingforeign technologies in the field of alternative energies fabricated in Pakistan. The AEDB is located in

Prime Minister Secretariat and answers directly to the cabinet division and the Prime Minister. The

AEDB has a mandate of 10% of the total installed capacity in the country from Renewable Energy

sources by 2015.

D. Status of Renewable Energy Sources

i. Hydropower

Pakistans total hydropower potential has been estimated over 40,000 MW, some 24,000 MW of which

could be easily harnessed, and approximately 6400 MW of which is actually being exploited. Morethan 1000 MW micro/mini hydropower potential is available in northern mountainous region of the

country, of which less than 1% is being developed. Due to anticipated growth in demand and of the

fact that only about 20% of the available hydropower potential is being utilised, the Vision 2025

development plan provides first and foremost for the vigorous, multi-stage development of

hydroelectric power.


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a. Run-of-river Ghazi-Barotha power plant

Ghazi-Barotha Power Plant, a run-of-river plant that is presently being commissioned in successive

stages, constitutes an initial large-scale project in this sector. Located on the upper reaches of the

Indus and built for a total output of 1,450 MW, its first stage (290 MW) went into service last July. The

power station was fully commissioned in mid-2004. The project is being implemented under theauspices of state-owned WAPDA. The total cost of the project stands at roughly US$ 2.1 billion. The

project is being financed by the World Bank, the Asian Development Bank and the Japan Bank for

International Cooperation (JBIC), the European Investment Bank, the Islamic Development Bank, and

resources from German Financial Cooperation (KfW). WAPDA is contributing approximately US$ 1

billion, or nearly half of the overall cost. Fully utilised, the power plant is supposed to lower CO2

emissions by approximately 5.5 million tons annually.

b. GTZ assistance for medium-size hydropower projects

In addition to the aforementioned large-scale project, three additional hydroelectric power plants of

medium size the high-pressure plants Allai Khwar (121 MW), Khan Khwar (72 MW) and Duber

Khwar (130 MW) have been prepared with GTZ assistance in recent years. The GTZ conducted the

feasibility studies and generated the tendering documents for all three projects. The Abu Dhabi

Development Fund is providing credit to the amount of US$ 150 million for implementing the projects.

Pakistan itself is raised additional funds and all the projects are under construction.

ii. Micro hydropower potential

In northern Pakistan alone there is an estimated potential of 300 MW for micro hydropower plants with

installed capacities below 100 kW each. As of today, only about 10 MW of that potential had been

tapped by a total of some more than 300 projects co-financed by Aga Khan Rural Supprt Programme(AKRSP) PCRET, European Union (EU) and private developers. Now, with the assistance of the Asian

Development Bank and within the scope of Malakand Rural Development Project, 100 micro

hydropower plants with ratings ranging from 5 to 50 kW are under implementation with in and around

Malakand Division of the North-West Frontier province (NWFP).

iii. Wind Energy

By the end of 2003 not a single wind energy conversion system with a generating capacity above 500

W had been installed in Pakistan. There are only a small number of micro-plants (300500 W) for

generating electricity, and roughly 30 wind power installations are in use for pumping water in the

coastal regions of Balochistan and Sindh provinces. Most notably along its 900 km coastline and in a

number of North-West Frontier valleys, Pakistan possesses about 50,000 MW of economically

exploitable wind-power potential. On commercial grid connected electricity generation programme, the

Government of Pakistan has decided to install 100 MW wind power farm during the year 2005. This

programme initiated by the AEDB involves financing through private sector, land from Government of

Sindh and power purchase by NTDC for HESCO/KESC. The Government of Pakistan guarantees are

backed through NEPRA. The Board has issued LOIs to 22 national and international companies for


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generation of 1100 MW power through wind energy. With the help of AEDB Pakistan also plans to

install an additional 300 micro-wind turbines with a high domestic content by 2003/2004.

iv. Biomass

In Pakistan, where, according to the last census from 1998, approximately two out of three people livein rural areas, the rural residents in particular rely almost exclusively on biomass in the form of fuel

wood or charcoal for cooking and heating. Indeed, the majority of Pakistans urban population (58%)

also takes recourse to those traditional sources of energy. According to official data, the countrys total

wooded area expanded from 34,600 km2 to 38,100 km2 (i.e. by about 10%) between 1990/91 and

2001/02, but each year local residents remove some 1.2 million m2 of wood from the countrys forests

for use as fuel. In Balochistan, this practice has reduced the total area of standing forest by 70%.

v. Solar Energy

Pakistan has a very good overall solar-energy potential. The average daily insolation rate amounts to

approximately 5.3 kWh/m2. Especially the south-western province of Balochistan offers excellent

conditions for harnessing solar energy. There, the sun shines between 8 and 8.5 hours daily, or

approximately 3,000 hours per annum. Despite these favourable prerequisites, the use of solar energy

for generating electricity or for heating is still in its beginnings. Photovoltaic systems are used primarily

for producing electricity in rural areas. As far back as the early 1980s, the Government of Pakistan had

18 PV systems with a composite output of 440 kW installed in various parts of the country. Due to the

lack of technical know-how about their operation and maintenance, though, no further systems were

installed. For the same reason, seven other PV systems with a total output of 234 kW, which were

installed in the Pakistani part of the Hindu Kush in the late 1980s, are no longer in operation. However,

with the establishment of AEDB, this time round will ensure sustainability of such projects by providing

a workable model on commercial lines.

vi. Geothermal Energy

Although there are numerous hot springs with temperatures ranging from 30C to 170C to be found in

various parts of Pakistan, for example in the vicinity of Karachi and in the Pakistani part of the

Himalayas, there has been no attempt to make use of geothermal energy in Pakistan yet.

APPENDIX A

NEPRA`s main functions and responsibilities

1. Issuing of licensing for generation, transmission and distribution of electric power.

2. Enforcement of quality standards and ensuring of safety in the operation and supply of

electricity to consumers.

3. Determine tariffs for generation, transmission and distribution of electric power.

4. Approving the investment and power acquisition programmes of the utility companies.

5. Setting fees for licenses and its renewal, fines for breaking the rules.


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6. Setting a uniform system of accounts for generation, transmission and distribution companies.

7. Setting and reviewing the performance standards of all companies.

8. Inform government about the activities of power companies.

9. Encourage uniform industry standards and code of conduct for generation, transmission and

distribution companies.

10. Tender advice to public sector projects.11. Report to the federal government on all activities relating to generation, transmission and

distribution.

12. Perform any other function incidental or consequential of the abovementioned responsibilities.

APPENDIX B

STANDARDS AND GUIDELINES FOR TARIFF DETERMINATIONS

According to Section 17, NEPRA Tariff Standards and Procedures Rules 1998, tariffs will be

determined in accordance with the following standards:

1. Tariffs should allow licensee the recovery of all costs. It may not require assessing the licensee

where tariffs are set on other than cost of service basis, such as formula based tariffs that are

designed to be in place for mo re than one year

2. Tariffs should generally be calculated by including a depreciation charge and rate of return on

the capital investment of each licensee equal to that earned by other investments of

comparable risk

3. Tariff should allow a rate of return which promotes continued reasonable investment in

equipment and facilities for improved and efficient service

4. The mechanism of tariff should allow licensee a benefit as well as penalty in case of failure to

provide the service and the quality of service

5. Tariffs should reflect marginal cost principles to the extent feasible, keeping in view the

financial stability of the sector; the preference of the authority is for competition rather than

regulation therefore, tariff policies should be directed towards that end

6. The tariff regime should clearly identify interclass and inter-region subsidies and provide such

subsidies transparently if found essential, with a view to minimising if not eliminating them,

keeping in view the need for an adequate transition period

7. Tariffs may be set below the level of cost of providing the service to consumers consuming

electric power below the consumption levels determined for the purpose from time to time by

the authority, as long as such tariffs are financially sustainable


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8. Tariffs should reflect the full cost of service to consumers groups with similar service

requirements

9. Tariffs should take into account government subsidies or the need for adjustment to finance

rural electrification in accordance with the policies of the government

10. The application of the tariffs should allow reasonable transition periods for the adjustments of

tariffs to meet the standards and other requirements including the performance standards,

industry standards and the uniform codes of conduct

11. Tariffs should seek to provide stability and predict ability for customers

12. Tariff should be comprehensible, free of misinterpretation and shall state explicitly each

component.

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

About SARI/Energy Program

The South Asia Regional Initiative for Energy (SARI/Energy) program was launched in 2000 to

promote energy security through increased trade, investment and access to clean sources of power

and fuel. Since then, SARI/Energy has reached out to more than 4000 participants in the region on

clean energy trade, energy efficiency, rural energy supply, energy regulation, energy statistics, and

private sector involvement.

Countries in the region import over two-thirds of their hydrocarbon resources and are seeking ways to

diversify supply sources. Significant untapped energy resources exist within the region. Energy sharing

and cooperation could dramatically improve the regional supply-demand scenario and enhance energy

security for the individual countries of South Asia. SARI/Energy works to promote technical and

institutional frameworks for regional energy planning and infrastructure investment involving cross-

border trade in energy. Promoting regional power exchanges and developing regional power

transmission networks helps provide access to untapped energy resources, and also to assure the

reliability of energy supply and mutual support to the nations of South Asia.

The network of energy sector professionals in Afghanistan, Bangladesh, Bhutan, India, Maldives,

Nepal, Pakistan, and Sri Lanka created by SARI/Energy, has led to widespread sharing of best

practices, models of institutional reform and restructuring, and documented performance improvement.

These professionals are helping to put in place the building blocks for more robust regional trade and

sustainable economic development.

SARI/Energy-sponsored training, capacity building, and networking have contributed to the writing of

energy sector restructuring laws throughout the region. The program supports institutional and


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organizational changes that make the sector more market driven and better equipped to address the

needs of under-served consumers. In addition, the program has identified significant opportunities for

catalyzing private sector investments in regional energy infrastructure.

Build Institutional Capacity

Activities will focus on strengthening institutional capacity within governments, regulatory bodies,utilities, NGOs, and the private sector through discrete events such as training workshops, seminars,

formal courses, and study tours. These events will include participants from across the region, and be

held at multiple sites thereby encouraging the establishment of formal and informal networks among

the region's professionals.

Promote Private Sector and Civil Society Participation in Energy Policy

The program will support information-based dialogue among government, private sector, and NGOs to

assuage concerns and advocate opinions related to energy sector reform, commercialization, and

foreign investment in the energy sector. In addition, special emphasis is being focused on promoting

business coalitions that will promote energy sector reform and cross-border trade.

Create and Strengthen Regional Forums, Networks and Associations

SARI/Energy program will also work to encourage the formation of regional forums, networks,

partnerships, and associations that can influence politicians and decision-makers on energy

cooperation and development. Target groups for regional networking to exchange ideas, problems,

and best practices include: government technocrats, energy professionals, environmentalists, utility

executives, regulators, trade and industry associations and NGOs.

SARI/Energy provides pre-feasibility studies, technical assistance, advisory services, seminars and

training, peer exchanges, mapping and project development in each of our three activity areas. Over

the next several years, the SARI/Energy program will build on its accomplishments, helping to fosterregional cooperation around key energy-related issues.

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