grange im v10-cdb(b)
TRANSCRIPT
Information Memorandum
February 2010
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Contents
1. EXECUTIVE SUMMARY .............................................................................................................................. 11
1.1 Transaction Overview ................................................................................................................. 11
1.2 Investment Environment in Pakistan .......................................................................................... 12
1.3 Pakistan Energy Sector Overview ............................................................................................... 13
1.3.1 Power Sector............................................................................................................................... 13
1.3.2 Regulatory and Institutional Framework ................................................................................... 14
1.4 The Project .................................................................................................................................. 15
1.5 The Financials .............................................................................................................................. 16
2. TRANSACTION OVERVIEW ....................................................................................................................... 18
2.1 Introduction ................................................................................................................................ 18
2.2 Project Status .............................................................................................................................. 18
2.3 Current Status ............................................................................................................................. 19
2.4 Way Forward ............................................................................................................................... 19
2.5 Capital Structure ......................................................................................................................... 20
2.6 Communication with the Company ............................................................................................ 21
3. INVESTMENT ENVIRONMENT IN PAKISTAN ....................................................................................... 22
3.1 Introduction ................................................................................................................................ 22
3.2 Political Situation ........................................................................................................................ 22
3.3 Legal System................................................................................................................................ 23
3.4 The Economy ............................................................................................................................... 23
3.4.1 Key Highlights of FY2009 ............................................................................................................ 24
3.4.2 Exchange Rate ............................................................................................................................ 25
3.4.3 Credit Rating .............................................................................................................................. 25
3.5 Capital Markets ........................................................................................................................... 25
3.6 Policy Incentives for Foreign Investors ....................................................................................... 27
3.6.1 Investment Incentive Package ................................................................................................... 28
3.6.2 Exchange Control ....................................................................................................................... 29
3.7 Tax Regimes ................................................................................................................................ 29
3.7.1 Tax Rates .................................................................................................................................... 29
3.7.2 Withholding Tax ......................................................................................................................... 30
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3.7.3 Inter-Corporate Dividend Tax .................................................................................................... 30
3.7.4 Unilateral Relief.......................................................................................................................... 30
3.7.5 Tax Treaties ................................................................................................................................ 31
3.7.6 Capital Gains Tax ........................................................................................................................ 31
4. PAKISTAN ENERGY SECTOR .................................................................................................................... 32
4.1 Energy Sector Overview .............................................................................................................. 32
4.1.1 Oil ............................................................................................................................................... 32
4.1.2 Gas.............................................................................................................................................. 35
4.1.3 Coal ............................................................................................................................................ 36
4.2 Power Sector ............................................................................................................................... 37
4.2.1 Installed Generation Capacity .................................................................................................... 37
4.2.2 Structure of Power Sector .......................................................................................................... 38
4.2.3 National Transmission and Despatch Company ........................................................................ 39
4.3 Independent Power Producers ................................................................................................... 41
4.3.1 IPP Fast Track Initiative: ............................................................................................................. 43
4.4 RPPs ............................................................................................................................................. 43
4.5 Power Sector Demand vs Supply Dynamics ................................................................................ 44
4.5.1 Demand Patterns ....................................................................................................................... 46
4.5.2 Sector Demand ........................................................................................................................... 46
4.5.3 Regional Demand ....................................................................................................................... 46
5 POWER SECTOR REGULATION ................................................................................................................ 47
5.1 Regulatory Framework ................................................................................................................ 47
5.2 Provincial Representation at NEPRA ........................................................................................... 47
5.3 Institutional Framework.............................................................................................................. 47
5.4 NEPRA’s Role and Responsibilities .............................................................................................. 48
5.5 Licenses ...................................................................................................................................... 49
5.6 Tariffs .......................................................................................................................................... 49
5.7 Transition to Competition ........................................................................................................... 50
6. THE PROJECT ................................................................................................................................................ 51
6.1 Grange Power Limited ................................................................................................................ 51
6.2 Objective of the Company .......................................................................................................... 51
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6.3 The Project .................................................................................................................................. 52
6.4 Plant Site ..................................................................................................................................... 52
6.5 Plant Capacity ............................................................................................................................. 53
6.6 Engineering Procurement & Construction Agreement ............................................................... 54
6.6.1 Layout Plant and Buildings ......................................................................................................... 54
6.6.2 Machinery and Suppliers ............................................................................................................ 55
6.6.3 EPC Timeline............................................................................................................................... 57
6.6.4 EPC Costs .................................................................................................................................... 57
6.7 Tariff Determination ................................................................................................................... 59
6.8 Tariff Structure ............................................................................................................................ 60
6.8.1 Capacity Purchase Price ............................................................................................................. 60
6.8.2 Energy Purchase Price ................................................................................................................ 60
6.8.3 Tariff Adjustments to CPP Components .................................................................................... 60
6.8.4 Adjustments to EPP Components .............................................................................................. 61
6.9 Taxes ........................................................................................................................................... 61
6.10 Summary of Key Agreements and Contracts .............................................................................. 62
6.10.1 Power Purchase Agreement ................................................................................................... 62
6.10.2 Implementation Agreement .................................................................................................... 63
6.10.3 Fuel Supply Agreement ........................................................................................................... 65
6.10.4 Engineering & Procurement Contract and Construction Contract ......................................... 66
6.10.5 Project and Construction Management Contract ................................................................... 67
6.10.6 Operation and Maintenance Contract .................................................................................... 68
6.10.7 Local Loan Agreement ............................................................................................................. 68
7. PROJECT SPONSORS AND CONTRACTORS .......................................................................................... 70
7.1 Ownership and Control ............................................................................................................... 70
7.1.1 Shareholder Control ................................................................................................................... 70
7.1.2 Board of Directors....................................................................................................................... 70
7.2 Shareholder Profiles .................................................................................................................... 71
7.2.1 Mr. Assad Sheikh ........................................................................................................................ 71
7.2.2 Mr. Shuja Hussain ....................................................................................................................... 72
7.2.3 Mr. Amjad Faquir ........................................................................................................................ 72
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7.2.4 Grange Holdings Group .............................................................................................................. 74
7.2.5 Albario Engineering Pvt. Ltd ....................................................................................................... 78
7.2.6 China National Machinery & Equipment Import & Export Corporation .................................... 80
7.3 Contractor and Consultant Profiles............................................................................................. 82
7.3.1 Korea Plant Service and Engineering Co Ltd ............................................................................... 82
7.3.2 Scott Wilson ................................................................................................................................ 85
7.3.3 AbacusConsulting ....................................................................................................................... 87
7.3.4 Haidermota & Co. ....................................................................................................................... 89
8 FINANCIALS.................................................................................................................................................... 91
8.1 Overview ..................................................................................................................................... 91
8.2 Tariff Determination ................................................................................................................... 91
8.3 Technical and Operational Assumptions .................................................................................... 92
8.3.1 Project Cost ................................................................................................................................. 92
8.3.2 Capital Structure ......................................................................................................................... 92
8.3.3 Capital Expenditure Plan ............................................................................................................ 92
8.3.4 Project Financing ........................................................................................................................ 93
8.3.5 Operation and Maintenance Costs: ............................................................................................ 93
8.3.6 Projected Generation ................................................................................................................. 94
8.3.7 Fuel Consumption Rate .............................................................................................................. 94
8.3.8 Fuel Cost ..................................................................................................................................... 95
8.3.9 Insurance .................................................................................................................................... 95
8.3.10 Taxation ................................................................................................................................... 95
8.3.11 Customs Duties ........................................................................................................................ 95
8.3.12 PPA Letter of Credit ................................................................................................................. 96
8.3.13 Indexation ................................................................................................................................ 96
8.4 Financial Analysis ........................................................................................................................ 96
9 RISK MITIGATION ........................................................................................................................................ 98
APPENDIX A: DETAILED TARIFF SCHEDULE ............................................................................................. 102
APPENDIX B: FINANCIAL MODEL .................................................................................................................. 103
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ABBREVIATIONS AND GLOSSARY OF TERMS
Abbreviation Description
“Abacus” AbacusConsulting Technologies (Private) Limited “AEPL” Albario Engineering (Private) Limited “AHBL” Arif Habib Bank Limited “AJK” Azad Jammu and Kashmir “ARL” Attock Refinery Limited “bbl/d” Barrels per day “BOI” Board of Investment “BOP” Balance of Plant “BP” British Petroleum “bps” Basis points “Btu” British thermal unit “CAGR” Compound Annual Growth Rate “CERIECO” China East Resource Import and Export Corporation “cft” Cubic foot or cubic feet “CGT” Capital Gains Tax “CHASNUPP” Chashma Nuclear Power Plant “CMEC” China National Machinery and Equipment Import and Export Corporation “COD” Commercial Operations Date “Contractors” EPC Contractors referring to CMEC and CERIECO together as E&P Contractor
and Construction Contractor, respectively “CPI” Consumer Price Index “CPP” Capacity Purchase Price “CPPA” Central Power Purchasing Agency “CSCI” Commission of Social Care Inspection, in UK “DISCO” Government owned Distribution Company unbundled from WAPDA “DSCR” Debt Service Coverage Ratio “DSRA” Debt Service Reserve Account “E&P” Engineering and Procurement “EOI” Expression of Interest “EIA” Environmental Impact Assessment “EPC” Engineering, Procurement and Construction “EPP” Energy Purchase Price “FBR” Federal Board of Revenue “FBS” Federal Bureau of Statistics “FDI” Foreign Direct Investment “Financial Close” The execution of financing documents and equity commitments that evidence
sufficient funding to completely construct and commission the Project. “FSA” Fuel Supply Agreement “GDP” Gross Domestic Product “GENCO” Government owned Generation Companies unbundled from WAPDA “GHG” Grange Holdings Group “GoP” Government of Pakistan “GPL” Grange Power Limited “GW” Gigawatt
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Abbreviation Description
“GWh” Gigawatt hours “HHV” Higher Heat Value “HSD” High Speed Diesel “HSE” Health, Safety and Environment “HSFO” High Sulphur Fuel Oil “IA” Implementation Agreement “IDA” Initial Depreciation Allowance “IDC” Initial Dependable Capacity “IM” Information Memorandum “IMF” International Monetary Fund “Income Tax Ordinance” Income Tax Ordinance, 2001 as updated in October 2009 “IPP” Independent Power Producer “IRR” Internal Rate of Return “ISO” International Organization of Standardization, referring in the IM to standard
plant capacity under specific atmospheric conditions such as ambient temperature (150C), altitude (sea level), pressure (1 bar).
“KANUPP” Karachi Nuclear Power Plant “KESC” Karachi Electric Supply Corporation “kg” Kilogram “KIBOR” Karachi Interbank Offered Rate “KPS” Korea Plant Service and Engineering Company Limited “KSE” Karachi Stock Exchange “KSE-100” A stock index used as a benchmark to compare prices on KSE over a period of
time. “kW” Kilowatt “kWh” Kilowatt hour “LC” Letter of Credit “LHV” Lower Heating Value “LIBOR” London Interbank Offered Rate “LOI” Letter of Interest “LOS” Letter of Support “LPG” Liquefied Petroleum Gas “Ltd” Limited – used alone to indicate a public limited company in Pakistan “MGCL” Mari Gas Company Limited “MMCF” Million Cubic Feet “MW” Megawatt “MWh” Megawatt hours “NBP” National Bank of Pakistan “NEPRA” National Electric Power Regulatory Authority “NHBC” National House Building Company “NEQS” National Environmental Quality Standards “NOC” No Objection Certificate “NPCC” National Power Control Center “NPV” Net Present Value “NRL” National Refinery Limited “NTDC” National Transmission and Despatch Company
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Abbreviation Description
“O&M” Operations and Maintenance “OCAC” Oil Companies Advisory Committee “OGDC” Oil and Gas Development Company Limited “OGRA” Oil and Gas Regulatory Authority “OMC” Oil Marketing Company “PAEC” Pakistan Atomic Energy Commission “PARCO” Pak Arab Refinery Corporation “PEPCO” Pakistan Electric Power Company “PES” Pakistan Engineering Services “PKR” Pakistan Rupee “plc” Public limited company in UK “PME” Plant Machinery and Equipment “Power Purchaser” NTDC through CPPA “PPA” Power Purchase Agreement “PPIB” Private Power Infrastructure Board “PPL” Pakistan Petroleum Limited “PRL” Pakistan Refinery Limited “PSO” Pakistan State Oil Company Limited “Pvt. Ltd” Private Limited – used with a private limited company in Pakistan “PwC” Consulting PricewaterhouseCoopers Consulting “RFF” Running Finance Facility “RFO” Residual Fuel Oil also referred to as Furnace Oil “ROA” Return on Assets “ROE” Return on Equity “ROEDC” Return on Equity During Construction “RPP” Rental Power Producer “SBP” State Bank of Pakistan “Scott Wilson” Scott Wilson Group plc “SLCF” Standby Letter of Credit Facility “SNGPL” Sui Northern Gas Pipelines Limited “SSGC” Sui Southern Gas Company “Tariff Rules” NEPRA’s Tariff Standards and Procedures Rules, 1998 “Tcf” Trillion cubic feet “TFF” Term Finance Facility “TIE” Times Interest Earned “UK” United Kingdom “USA” United States of America “USD” United States Dollar “WAPDA” Water and Power Development Authority “WPI” Wholesale Price Index
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IMPORTANT NOTICE
This confidential Information Memorandum (or “IM”) has been prepared by AbacusConsulting (the
“Advisor”) solely for information purposes from materials provided to the Advisor by Grange Power Ltd
(the “Company”) and their representatives. Other sources of information are largely secondary in
nature, including published data from PPIB, WAPDA and other public sources. No surveys have been
conducted to validate the information gathered from secondary sources, and no formal due diligence
has been conducted to verify information provided by the designated representatives of the Company,
which is assumed to be correct.
This Information Memorandum may be distributed by the Company or its designated representatives
solely for the use of interested investors and financiers to determine whether they would like to
proceed with further investigation into the Project.
Use of this IM is governed by the terms of the Confidentiality Agreement executed with each potential
investor, which strictly limits the circulation and copying of the information contained in this document.
This IM may not be reproduced or used without the prior written approval of the Company or the
Advisor for any purpose other than the evaluation of the Project by the recipient.
The information contained in this Information Memorandum has been prepared in good faith to assist
the recipient in making their own evaluation of the transaction and does not purport to contain all the
information that the recipient may desire. In all cases, the recipient should conduct their own
investigation and analysis of the Project and of the data in this IM. The Advisor does not assume any
responsibility for independent verification of any of the information contained in this IM, including any
statements about the prospects of the Project contained herein. Neither the Company nor the Advisor
makes any representation or warranty (express or implied) as to the accuracy, fairness or completeness
of this IM or the information contained in, or omitted from, this document. Each expressly disclaims any
and all liability for representations or warranties (express or implied) contained in, or omitted from this
IM or any other written or oral communications transmitted or made available to the recipient in the
course of its evaluation of the transaction.
This Information Memorandum does not constitute or form part of any offer for sale of the equity
interest, nor does it constitute the basis of any contract which may be concluded for such a sale. Only
those particular representations and warranties, if any, which may be made to a party in a definitive
written agreement regarding the transaction, when, as and if executed, and subject to such limitations
and restrictions as may be specified in that agreement, will have any legal effect.
This Important Notice also applies in its entirety to any supplements issued subsequently to this IM,
whatever form those supplements might take. Without limiting the generality of the foregoing, each
potential investor agrees that neither the Company nor the Advisor has any liability in relation to use by
any person of the financial projections or other analysis based on the financial model prepared for the
transaction.
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The statements, financial estimates and projections in this Information Memorandum and other
information provided in connection with this reflect various assumptions made by the Company
concerning anticipated results and are subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the control of the Company. Accordingly, no
representations are made by the Company or the Advisor and there can be no assurance that such
statements, estimates and projections will be realized. The actual results will likely vary from the
forecast, and those variations may be material. Neither the Company nor the Advisor makes any
representations as to the accuracy or completeness of such statements, estimates and projections or
that any forecasts will be achieved.
By accepting this Information Memorandum, the recipient acknowledges and agrees to abide by the
statements made in this Important Notice with respect to the confidentiality of information in the IM
and the constraint on reproducing this IM, in whole or in part. Further, by accepting this Information
Memorandum, the recipient shall be deemed to have agreed to the disclaimers made by the Company
and the Advisor in this Important Notice, and to have waived, to the fullest extent permitted by law, any
and all claims against the Company and the Advisor or any of their directors, agents, advisers, officers or
employees, in relation to any matters covered by the disclaimers.
This Information Memorandum and any other information provided in connection with this should not
be construed as the giving of investment advice by the Company or the Advisor. All information
contained in the IM relating to the Company originates from the Company.
This Information Memorandum and the Project as a whole have been prepared in compliance with the
laws of Pakistan. Investors subject to laws of other countries must comply with such relevant laws.
Investors with operations, interests or ownership in other countries should seek their own legal advice
to ensure they remain in compliance with their respective laws in relation to this IM and the Project.
The Company and the Advisor reserve the right, without prior notice, to change the procedure and
process for the investment, or delay or terminate the same, or to terminate discussions with any
potential investor, at any time.
This Important Notice also applies in its entirety to any electronic copies or information transmitted over
the internet.
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1. EXECUTIVE SUMMARY
This Information Memorandum has been developed to assist potential investors and financiers in
making a decision towards investing in Grange Power Limited.
1.1 Transaction Overview
Grange Power Limited (“GPL”) is a public limited company based in Pakistan, established with the
objective of setting up a state-of-the-art power generation plant in Arifwala, Pakistan, with a gross ISO
capacity of 163.35 MW. The IPP is being developed under the Government’s ‘Fast Track’ initiative which
allows it to pass certain otherwise necessary procedural steps and achieve completion in a much shorter
time period.
The Project is at an advanced preconstruction stage: the land has been acquired, tariff determined by
NEPRA (at US¢ 12.4778per kWh), Generation License and other necessary approvals obtained from
NEPRA and various government departments. On the other hand, EPC agreement has been signed with
CMEC and CERIECO with contractual negotiations at the final stage; and other contracts also at advance
stages of negotiation.
The Management of GPL is currently in the process of organizing the Performance Guarantee, subject to
detailed discussions with its lenders following which the LOS shall be issued for the Project by the PPIB.
The draft PPA and IA have been provided to GPL for review and expected to be signed in June 2010,
along with the FSA which is being negotiated with PSO. Negotiations are underway with a local bank to
arrange syndicated project funding for the onshore debt component. Financial Close is expected by July
2010. Commencement of civil works is expected in June 2010 with the COD expected in August 2012.
The total project cost is estimated to be approximately USD 218 million, of which 25 percent or about
USD 54 million is planned as equity and the remaining USD 164 million shall be arranged as long term
loan. The major shareholder in GPL is Grange Holdings Group which currently holds 96 percent of the
total number of shares outstanding. The remaining 4 percent are equally held by Albario Engineering
(Pvt.) Ltd, Mr. Shuja Hussain, Mr. Assad Sheikh and Mr. Amjad Faquir.
The EPC and equipment costs together constitute about 75 percent of the total project cost or USD 164
million. Of this, USD 28 million is estimated as the onshore component and is planned to be arranged
through local banks, whereas the offshore cost of USD 136 million shall be organized through foreign
banks and financial institutions.
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1.2 Investment Environment in Pakistan
Pakistan is the sixth most populous nation in the world, with an approximately 164 million inhabitants
(2009 estimates).It is strategically located in the South Asian corridor, bordering India, China,
Afghanistan, Iran and the Arabian Sea.
The Government of Pakistan is in the process of political, economic and institutional reform, with a view
to strengthening the economy of the country, eliminating corruption from the government and
improving the investment environment in Pakistan.
The following table summarizes Pakistan’s economic performance over the past 5 years:
Table 1.1: Pakistan Economic Indicators
Economic Indicator FY05
Actual
FY06
Actual
FY07
Actual
FY08
Actual
FY09*
Provisional
Macroeconomics Real GDP Growth 9.0% 5.8% 6.8% 4.1% 2.4% Agriculture Growth 6.5% 6.3% 4.1% 1.1% 4.7% Manufacturing Growth 15.5 10.0 8.4 4.8 (3.3) Population (Million) 151 153 156 159 163 Per Capita Income( USD) 733 833 925 1,042 1,046 Financial Conditions External Debt Outstanding ( USD Billion) 34.04 35.68 37.36 46.3 50.1 Debt Servicing as % of GDP 4.7 4.8 3.8 1.1 0.8 Forex Reserves ( USD Billion) 10.9 13.1 12.9 15.8 11.4 Budget Surplus/ (Deficit) (USD Billion) (5,649) (4,556) (6,212) (11,173) (8,547) Inflation (CPI) 9.3% 7.9% 7.7% 12% 22.3% Exchange Rate (PKR : USD) 59.8 59.8 60.6 62.5 78.0 KSE-100 Index (as of yearend June 30) 7450.12 9989.41 13772.46 12289.03 7162.18 Trade Total Exports Current Price (USD Billion) 14.3 16.4 13.9 19.0 14.7 Total Imports Current Price (USD Billion ) 20.5 28.5 24.9 39.9 28.9 Export Growth 16.8% 14.3% 3.2% 12.2% -3.03% Import Growth 32.1% 38.7% 6.8% 30.8% -9.78%
* Provisional Results Source: Economic Survey of Pakistan 2008-09
A number of manufacturing and non manufacturing sectors are now open to foreign investors, and this
coupled with the resilience the country has shown in the wake of the most testing of economic times,
means that the country remains an attractive option for potential investors.
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1.3 Pakistan Energy Sector Overview
The Government of Pakistan has identified the energy sector in Pakistan as playing a pivotal role in the
development and growth of the Pakistan economy. GoP has stated the main objectives of its policy for
the Pakistan energy sector as ensuring adequate, secure and cost effective supplies; efficient utilization
of resources; and minimization of negative environmental impacts.
The key sources of primary energy in Pakistan are oil, gas and hydroelectricity. Petroleum products and
natural gas account for almost 80 percent of commercial energy, hydroelectricity for about 11 percent
and the rest is made up by coal, liquefied petroleum gas (“LPG”) and nuclear energy.
1.3.1 Power Sector
Historically, the power sector in Pakistan has consisted of two major state-owned utilities: WAPDA and
KESC which have operated largely independent of each other and servicing separate regions. In 1994,
the power sector was opened up to private investors through the formation of PPIB, and a host of policy
initiatives under the Power Sector Policies of 1994, 1998 and 2002, along with transmission and hydel
policies liberalized the power sector to a great degree. The following table details the five year trend of
installed generation capacity of Pakistan:
Table 1.2: Installed Generation Capacity
(Capacity in MW)
Year ending June 30 FY2005 FY2006 FY2007 FY2008 FY2009
Thermal Power GENCOs 4835 4900 4900 4900 4900 IPPs (connected with PEPCO system) 5570 5560 5560 5560 5725 IPPs (connected with KESC system) 262 262 262 262 262 KESC 1756 1756 1756 1756 1955 Total Thermal Capacity 12423 12785 12785 12785 12842
Hydel Power WAPDA 6464 6444 6444 6444 6444 IPPs 35 35 35 36 37 Total Hydel Capacity 6499 6474 6474 6480 6481
Nuclear Power CHASNUPP (connected with PEPCO system) 325 325 325 325 325 KANUPP (connected with KESCL system) 137 137 137 137 137 Total Nuclear Capacity 462 462 462 462 462
Total Installed Capacity of the Country
19384
19450
19420
19420
19786
Source: Pakistan Energy Yearbook 2009
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With the growing energy demand, the country is currently facing a power shortage of approximately
2500 to 3000 MW, and some analysts predict the demand will exceed supply by 5000 MW during the
summer peak of 2010. The present electricity demand-supply gap, coupled with a consistent growth in
demand clearly indicates the fundamental need for enhancing the country’s power generation
capability. The PPIB projects the demand-supply gap to be as follows:
Figure 1.1: Demand and Supply Projections (MW)
1.3.2 Regulatory and Institutional Framework
The regulatory and institutional
framework of the power sector in
Pakistan can be summarized as
shown in adjacent figure.
The regulation of the electricity
sector is governed by the NEPRA
Act 1997 which replaced the
provisions of the Electricity Act,
1910. NEPRA was constituted
under this Act as an independent
regulatory authority for
regulating the provision of
electric power services. It is
exclusively empowered to
regulate the generation,
distribution and transmission of
0
5
10
15
20
25
30
35
40
45
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
'00
0 M
W
Expected Available Generation (MW) Demand (Summer Peak) (MW)
Tariff advisor
Investment facilitation
Investment review
Licensing, Tariffs
Tariff advisor
Regulatory guidelines
Federal Government Provincial Governments and AJK
Ministry of Water & Power
Cabinet Division
Provincial representation NEPRA
PPIB
Provincial Private Power Cells
Policy and
legislative framework
WAPDA (and successors)
KESC
IPPs
Power Sector
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electrical power in Pakistan with respect to determining tariff rates, prescription and enforcement of
performance standards and codes of conduct, issuance of licenses and other terms and conditions to
encourage safe, efficient and reliable service.
1.4 The Project
GPL was incorporated on March 25, 2008, and received its certificate for commencement of business on
May 13, 2008. The purpose of the Company is to build, own and operate a modern power generation
plant, for onward sale and supply of electricity to NTDC.
The Project is a brand new dual-fired Combined Cycle power generation plant, having a gross capacity
(at ISO conditions) of 163.353 MW, and a dependable capacity at site of 146.5 MW. The primary fuel for
the power plant is Residual Fuel Oil with High Speed Diesel as the back-up fuel. GPL was granted a
generation license on July 8, 2009 for a period expiring on December 30, 2035.
The site for the Project is an area of 30 acres located at Kamair at 15-km Arifwala-Sahiwal Road, in Tehsil
and District Pakpattan. The allocated land was acquired and duly transferred to GPL on August 7, 2009.
Load flow studies have been carried out to ascertain the technical viability of the location and its vicinity
to a 132 kV grid station. The area has the necessary infrastructure in place and is easily accessible
through a newly constructed metal road. Environmental Impact Assessment studies, topographical
survey and considerable land development has been carried out in preparation of the civil works.
The Company signed an EPC Agreement with CMEC as the Lead E&P Contractor and its subsidiary
CERIECO, as the Construction Contractor in November 2008. A comprehensive EPC contract is expected
to be finalized and signed by April 2010, and work on engineering, procurement and civil works is
expected to commence immediately afterwards and be completed over a period of 26 months.
NEPRA determined the final tariff for GPL on December 30, 2009 at US¢ 12.4778 per kWh (levelized
basis), applicable for a period of 25 years from COD, summarized as follows:
Table 1.3: GPL Tariff Determined by NEPRA
Tariff Components Year 1-10 Year 11-25
Total Capacity Charge (PKR/ kWh) 3.0969 1.0059 Energy Charge based on RFO (PKR/ kWh) Fuel Cost Component (RFO) Variable O&M (Foreign)
5.4625 0.4691
5.4625 0.4691
Levelized Tariff (at 60% Plant Factor) US¢ 12.4778/ kWh
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The current shareholding structure of GPL is provided in the table below:
Table 1.4 : GPL Shareholding Structure
Shareholders/ Sponsors
Shareholding No. of Shares
Grange Holdings Group 96% 421,291,825 Albario Engineering (Pvt.) Ltd 1% 4,388,457 Mr Assad Sheikh 1% 4,388,457 Mr. Shuja Hussain 1% 4,388,457 Mr. Amjad Faquir 1% 4,388,457 Total 100% 438,845,651
Grange Power Ltd has engaged and/or is in the process of finalizing contracts with the following advisors
and contractors:
Table 1.5: GPL’s Advisors, Consultants and Contractors
Company Role Status
CMEC * E&P Contractor Agreement signed. Contract expected to be signed in April 2010.
CERIECO* (CMEC’s subsidiary)
Construction Contractor Agreement signed. Contract expected be signed in April 2010.
KPS O&M Contractor Terms agreed. Commercial negotiations at final stage.
Scott Wilson Project/ Construction Manager
Negotiations at advanced stage.
Arif Habib Bank Co-Lead Arranger for onshore debt component
Negotiations at advanced stage.
Haidermota & Co Legal Counsel Negotiations in final stage AbacusConsulting Project Advisor Current KPMG Taseer Haid & Co Auditors Negotiations in final stage.
* CMEC and CERIECO have signed a tripartite agreement with GPL for providing turnkey EPC services. They are
referred together as “Contractors” to GPL.
1.5 The Financials
Financial projections have been prepared based on the information provided by the Management of
GPL and the NEPRA Tariff Determination of December 30, 2009. The costs, rates, indexation and other
assumptions approved by NEPRA have been used to make the 25-year projections, the term duration
allowed for GPL based on the expected life of the Project. A summary of key findings is as follows:
The Project reflects an internal rate of return (“IRR”) of 16.24 percent, in real terms. This becomes
more attractive in view of the assured 25-year tariff and sale of capacity and generation output.
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Debt-to-Equity ratio is a maximum of 64% : 36% at the end of the first year of operations, tapering
down to 0% : 100% in the 9th year - towards the end of the ten year repayment term.
In terms of ability to meet financing obligations, the Debt Service Coverage Ratio (“DSCR”) remains
at a constant of 1.34 over the debt servicing period.
Earnings provide sufficient coverage for making interest payments, as demonstrated by the Times
Interest Earned (“TIE”) which does not drop below 1.3 at any time throughout the 25 years, with an
average of 2.02. During the first ten years, over the tenure of the loan, the average remains at 2.57.
In terms of return on equity, the tariff is built to allow GPL a ROE of 15 percent. The various
measures used in the financial model reflect these returns as: Dividend IRR of 14.88 percent, Equity
IRR of 14.53 percent and an Actual ROE of 16.61 percent.
The cumulative closing cash balances, after dividend payout and debt-servicing, remains a healthy
positive throughout the 25-year period.
The table below briefly highlights the financial results for GPL:
Table 1.6: Financial Analysis- Project Base Case
Financial Indicators
Project Results (Base Case) IRR 16.24% NPV at 15% (USD) 6,782,687 NPV at 13% (USD) 21,303,067 ROE (approx.) 15% Payback (based on Cumulative Net Cashflow) 6th Year Payback (based on Cumulative Discounted Net Cashflow) 12th Year Debt Service Coverage during loan period 1.34 Average Times Interest Earned 2.02 Average Times Interest Earned (EBITDA) 5.43 Average Net Margin 7.81% Equity Results (as per NEPRA) IRR 15.07% NPV at 15% (USD) 187,067 NPV at 13% (USD) 5,663,151
18
2. TRANSACTION OVERVIEW
2.1 Introduction
Grange Power Limited has been formed with the objective of setting up a state-of-the-art power
generation plant in Arifwala, Pakistan, with a gross ISO capacity of 163.35 MW. This independent power
project (“IPP”) is being developed under the Government’s ‘Fast Track’ initiative which allows the
Project to pass certain otherwise necessary procedural steps and achieve completion in a much shorter
time period (see section 4.3.1 for details).
2.2 Project Status
As of February 2010, the following steps have been completed by the GPL’s Management:
Table 2.1 Milestones Achieved
Milestones Dates
Expression of interest to PPIB for setting up an IPP under their recently introduced Fast Track policy initiative
December 12, 2007
Registration with PPIB under the Fast Track initiative (PPIB Registration No. 1052)
February 25, 2008
Public Limited Company ‘Grange Power Ltd’ incorporated (Certificate of Incorporation No. 0064883)
March 25, 2008
Firm of Chartered Accountants engaged as auditors for GPL: KPMG Taseer Hadi & Co.
In negotiation
Application Proposal submitted to PPIB as per policy requirements April 21, 2008
Site approval and allocation by PEPCO and NTDC May 2008
EPC Agreement signed on a turnkey basis with CMEC and CERIECO, a subsidiary of CMEC
November 7, 2008
Petition to NEPRA for tariff determination December 15, 2008
Application to NEPRA for Generation License December 16, 2008
Load-flow studies completed by NTDC/PEPCO February 2009
EIA Report submitted to Environmental Protection Department, Government of Punjab (awaiting NOC)
June 4, 2009
Tariff determination by NEPRA June 26, 2009
Review petition to NEPRA for revised tariff July 7, 2009
Generation License granted by NEPRA July 8, 2009
Acquisition of land and transfer to GPL August 7, 2009
Topographical survey conducted by Berkley Associates October 2009
O&M contract terms agreed with KPS November 2009
Law firm engaged as legal counsel to oversee the implementation process, and agreements with government and third parties. Currently Haidermota & Co.
December 2009
19
Milestones Dates
Revised tariff determined by NEPRA December 30, 2009
Layout plan developed by CMEC January 2010
In-Principle Agreement with Arif Habib Bank Ltd to arrange a syndicated loan, covering at least the onshore cost component
February 2010
Firm of Management Consultants engaged for financial and strategic advice. Currently AbacusConsulting
February 2010
Terms agreed with Scott Wilson, the proposed project and construction management firm.
In negotiation
2.3 Current Status
The PPIB, in its letter dated January 18, 2010, has requested the Management of GPL to make the
necessary payments with respect to the Processing Fee and also submit the requisite Performance
Guarantee at the rate of USD 5000 per MW. The Management is currently in the process of arranging
such guarantee, subject to detailed discussions with their bankers.
2.4 Way Forward
The next key steps and milestones in the implementation process up to the Commercial Operations Date
(“COD”) are envisaged as follows:
Table 2.2 Milestones until COD
Milestones Expected Completion Dates
Submission of Performance Guarantee (in process) April 2010
EPC Contract signed with CMEC and CERIECO (agreement signed)
April 2010
LOS Issued by PPIB April 2010
PPA signed with CPPA/NTDC June 2010
FSA signed with PSO (in negotiation) June 2010
IA signed with the Government of Pakistan June 2010
Commencement of civil works June 2010
Financial Close July 2010
Trial Run August 2012
Commercial Operations Date August 2012
20
2.5 Capital Structure
The total project cost is estimated to be approximately USD 218.20 million, of which 25 percent or about
USD 54.55 million is planned as equity and the remaining USD 163.35 shall be arranged as long term
loan.
The major shareholder in GPL is Grange Holdings Group (“GHG”) which currently holds 96 percent of the
total number of shares outstanding. The remaining 4 percent are equally held by Albario Engineering
(Pvt.) Ltd, Mr. Shuja Hussain, Mr. Assad Sheikh and Mr. Amjad Faquir.
The EPC and equipment costs together constitute more than 75 percent of the total project cost, almost
equivalent to the debt portion of total capital. Of this USD 164 million, USD 28 million is estimated as the
onshore component and is planned to be arranged through local banks, whereas the offshore cost of
USD 136 million shall be organized through foreign banks and financial institutions.
Fig 2.1. Capital Structure
25% Equity
(USD 54M)
75% Debt
(USD 164M)
83% Offshore EPC cost
(USD 136M)
17% Onshore EPC cost
(USD 28M)
GHG 96% (USD 52M)
Others 4% (USD 2M)
(Assad Sheikh, Shuja
Hussain, Amjad Faquir,
and AEPL)
21
2.6 Communication with the Company
All questions on this transaction should be directed to Mr. Shuja Hussain as key point of contact, at
either of the following addresses:
Mr. Assad Sheikh Chairman Grange Power Ltd. Unit 7, The Quadrant, Upper Culham Farm Cockpole Green Berkshire R610 8NR Tel: +44 (1) 1491 576544 Fax: +44 (1) 1491 576194 Mob: +44 (0) 7703123252 email: [email protected]
Mr. Shuja Hussain Chief Executive Grange Power Ltd. 2nd Floor, 65-Z Commercial Area, DHA Lahore Lahore Cantt., Pakistan Tel: +92(0) 42 3702 9285 Fax: +92(0) 42 3589 2743 Mobile: +92(0) 300 8436999 email: [email protected] email: [email protected]
22
3. INVESTMENT ENVIRONMENT IN PAKISTAN
3.1 Introduction
The Government of Pakistan is in the process of political, economic and institutional reform, with a view
to strengthening the economy of the country, eliminating corruption from the government and
improving the investment environment in Pakistan.
The economy of the country has been affected by the tensions on the border and the security situation,
however, the economic policies and reforms of the Government of Pakistan (“GoP”) and the support
given to the international campaign against terrorism are expected to restore political and economic
confidence in the country. Recent economic policies designed under the watchful eye of the
International Monetary Fund (“IMF”) along with some monetary support extended by the Western
powers in-lieu of the country’s role as a front line state in the global war against terrorism have started
to bear some fruit.
Investment in any country brings about growth and prosperity for the people of that country, and
Pakistan bears no exception to this fact. GoP has also actively sought to encourage foreign direct
investment in Pakistan to the extent that over 600 foreign companies have now established operations
in Pakistan in addition to the flow of hot money witnessed in the Karachi Stock Exchange in recent years.
It has adopted a policy of openness to foreign investment; it offers a range of incentives to attract
foreign investors; and it has welcomed foreign interest in its wide-ranging privatization program, which,
after a lull, is now resuming. China, UAE, Saudi Arabia, USA, UK and others remain amongst the leading
countries responsible for inward FDI flow to Pakistan. Chinese investment in Pakistan according to
analyst estimates tops USD 20 billion, and there are currently more than 120 projects initiated by China
in Pakistan. Thereby China remains at the helm of the country’s foreign investment portfolio.
The current democratically elected government has ensured continuation of the investment policies
initiated by the previous government in order to attract and retain interest of investors both from home
as well as outside Pakistan.
3.2 Political Situation
Pakistan operates under a parliamentary system of governance, with a bi-cameral legislature, including
the National Assembly and the Senate. The National Assembly is composed of directly elected
representatives of the people on adult franchise basis. The Senate is composed of members elected by
the Provincial Assemblies (and in some cases the National Assembly) with equal representation of all the
four Provinces of the federation.
As a result of the elections held on February 18, 2008, a coalition government has been formed by the
PPP which emerged as the largest party. The present Prime Minister, Mr. Yousuf Raza Gilani, was sworn
in on March 25, 2008, after earning a unanimous vote of confidence from the parliament.
23
3.3 Legal System
The current legal system in Pakistan is a mixture of codified law based on English legal principles and
common law, post-independence legislation (based on the common law system) and the relatively
recent introduction of certain laws based on Islamic principles, referred to as the “Shari’ah”.
Broadly, the Courts of Pakistan consist of city/ district courts, the Provincial High Courts, the Federal
Shariah Court and the Supreme Court of Pakistan which is the highest court in Pakistan at the Federal
level. Generally, an appeal from a decision of the High Court lies to a superior (Divisional Bench) of such
High Court and then to the Supreme Court. Most issues affecting business do not fall under the
jurisdiction of the Shariah Court. Generally, most commercial activities are regulated by codified law
based on English legal principles and common law practice and by civil courts.
3.4 The Economy
Pakistan is the sixth most populous nation in the world, with approximately 164 million people as of
2009. The major sectors of Pakistan’s economy are agriculture (6%), industry (21%) and services (73%),
with the services sector recording solid growth over the past few years. The following table illustrates
key economic indicators for Pakistan over the last five years:
Table 3.1: Pakistan Economic Indicators
Economic Indicator FY05
Actual
FY06
Actual
FY07
Actual
FY08
Actual
FY09*
Provisional
Macroeconomics Real GDP Growth 9.0% 5.8% 6.8% 4.1% 2.4% Agriculture Growth 6.5% 6.3% 4.1% 1.1% 4.7% Manufacturing Growth 15.5 10.0 8.4 4.8 (3.3) Population (Million) 151 153 156 159 163 Per Capita Income( USD) 733 833 925 1,042 1,046 Financial Conditions External Debt Outstanding ( USD Billion) 34.04 35.68 37.36 46.3 50.1 Debt Servicing as % of GDP 4.7 4.8 3.8 1.1 0.8 Forex Reserves ( USD Billion) 10.9 13.1 12.9 15.8 11.4 Budget Surplus/ (Deficit) (USD Billion) (5,649) (4,556) (6,212) (11,173) (8,547) Inflation (CPI) 9.3% 7.9% 7.7% 12% 22.3% Exchange Rate (PKR : USD) 59.8 59.8 60.6 62.5 78.0 KSE-100 Index (as of yearend June 30) 7450.12 9989.41 13772.46 12289.03 7162.18 Trade Total Exports Current Price (USD Billion) 14.3 16.4 13.9 19.0 14.7 Total Imports Current Price (USD Billion ) 20.5 28.5 24.9 39.9 28.9 Export Growth % 16.8% 14.3% 3.2% 12.2% -3.03% Import Growth % 32.1% 38.7% 6.8% 30.8% -9.78%
*Note: Provisional Results Source: Economic Survey of Pakistan 2008-09
24
The performance of economic growth of Pakistan remained outstanding from FY2002 to FY2007.
Pakistan transformed into a stable economy through good macroeconomic policies along with structural
reforms. Average real GDP growth during this period was the best of many decades. However following
global and domestic shocks, the economy came temporarily off its rails in FY2009. The economic growth
at 2 percent in FY2009 whilst stable has been severely undervalued since earlier estimates of around 4
percent. Nevertheless the positive growth figure is still reflective of the relative resilience of the
economy to global phenomenon, including the slowdown in the world economy and rapid increases in
the prices of petroleum products and other natural resources. Pakistan’s real GDP has been growing at
an average rate of approximately 5.5 percent per annum over the last five fiscal years (FY2005 to
FY2009).
Pakistan, until recently, has been considered as one of the fastest growing economies of the region
which includes heavyweights such as China, India, and Vietnam. This performance was a result of a
combination of generally good economic policies and dynamic structural reforms. The last two years
have been difficult for Pakistan and the economy has lost significant momentum. One of the prime
contributors to this is the country’s proactive role in the war on terror. Pakistan, being a frontline state,
has had to bear the brunt of the events that have unfolded after 9/11. Conservative estimates place the
cost of this war at approximately USD35 billion since 2001 with this cost intensifying in the last fiscal
year as the situation in Afghanistan deteriorated. However, GoP has initiated a host of macroeconomic
policies and Pakistan is expected to weather the storm, improve the economic outlook and come out of
this challenging phase in the near term.
3.4.1 Key Highlights of FY2009
Economic reform has, in recent years, become a priority for the GoP. The key achievements of FY2009,
despite the regional and global challenges, include:
A steady economic growth of 2 percent despite the pursuance of tight monetary policy resulting
in interest rate increases, and the global financial turmoil
Stellar overall agricultural growth at 4.7 percent. Major crops accounting for 33.4 percent of
agricultural value-added registered an impressive growth of 7.7 percent. Livestock sector grew
at 3.7 percent.
Small and medium manufacturing sector maintained a healthy growth of 7.5 percent;
The overall services sector maintained solid pace of expansion at 3.6 percent
With strong average economic growth of 6 percent during the last six years, Pakistan continues
to maintain its position as one of the fastest growing economies in the Asian region
Per capita income in current dollar terms rose to USD 1,046
Real private consumption grew by 5.2 percent as against negative growth of 1.3 percent
attained last year
Trade balance improved by 15.9 percent as the trade deficit declined from USD16.8 billion to
USD14.2 billion as compared to previous year figures;
Despite monetary policy tightening, the credit to private sector continued with a net
disbursement of PKR 26.8 billion
25
Weighted average lending rate has witnessed a decline from 15.5 percent in October 2008 to
14.3 percent in March 2009
The overall fiscal deficit is estimated to have been restricted to 4.3 percent
A sharp decline in inflation from 25 percent in FY2008 to 17 percent
A reduction in the current account deficit from as high as 8.5 percent of GDP to around 5.3
percent
Build up of foreign exchange reserves beyond USD 14 billion
Workers’ remittances totalled USD 6.4 billion in FY2009, depicting an increase of 19.5 percent
over previous year
3.4.2 Exchange Rate
Exchange rates between the Pakistan Rupee (“PKR”) and other major world currencies are under a free
exchange rate system, with the US Dollar being used as an intervention currency to determine rates with
other currencies. As of February 15, 2010, the interbank rate for USD 1.00 stood at PKR 84.97121 .
3.4.3 Credit Rating
Standard and Poor’s outlook on Pakistan’s sovereign local and foreign currency ratings are as follows:
Table 3.2: S&P Credit Ratings
Country Sovereign local
currency ratings
(LT/Outlook/ST)
Sovereign foreign
currency ratings
(LT/Outlook/ST)
Sovereign foreign
currency recovery
rating
Transfer and
convertibility
assessment
Pakistan B-/Stable/C B-/Stable/C 3 B-
Source: Standard & Poor’s (Sovereign Ratings and Country T&C Assessments as of 26th
January 20102.
3.5 Capital Markets
Pakistan has three active stock exchanges, namely the Karachi Stock Exchange, the Lahore Stock
Exchange and Islamabad Stock Exchange. Karachi Stock Exchange (“KSE”) is the country’s largest and
oldest exchange, established in 1947, with more than 85 percent of the total trading volume being
routed through it. KSE’s profile is summarized in the table below.
1 As per State Bank of Pakistan
26
Table 3.3: KSE Profile
KSE Profile FY05 FY06 FY07 FY08 FY09*
Number of Listed Companies 659 658 658 652 652 New Companies Listed 15 14 16 7 8 Fund Mobilized (PKR billion) 54 41.4 49.7 62.9 42.3 Listed Capital (PKR billion) 438.5 496 631.1 706.4 770.7 Turnover of Shares (billion) 88.3 79.5 54 63.3 17.1 Average Daily Turnover of Shares (million) 351.9 348.5 262.5 238.2 80.2 Aggregate Market Capitalization (PKR billion)
2068.2 2801.2 4019.4 3777.7 2057.1
*During FY2009, the stock market remained frozen for 110 consecutive days as a result of floor imposition on KSE-
100
Source: Economic Survey of Pakistan 2008/09
KSE remained one of the best performing stock exchanges in the global emerging markets, during the
most part of this past decade. It continues to show resilience even in the aftermath of the global
financial meltdown. This is due to the liberalized policies and reforms initiated by the previous
government, which have been continued by the current government in order to strengthen the financial
markets in Pakistan. The trend over the past one year up to January 2010 can be seen in the following
graph:
Figure 3.1: KSE-100 Index Movement - 2009
At the end of February 16, 2010 session, the KSE-100 index gained 67.87 points to close at 9769.68
points. Trading volumes whilst on the lower side at 120.588 million shares, remain amongst the highest
since the stock exchange’s recovery, indicating growing confidence among investors. The overall market
capitalization was up by PKR 23 billion as compared with the previous session and traded at PKR 2.812
Trillion.
0
2000
4000
6000
8000
10000
12000
KSE
-10
0 In
dex
27
Figure 3.2: KSE-100 Index Volume as of February 16, 2010
Source: Market Watch
3.6 Policy Incentives for Foreign Investors
Government of Pakistan’s industrial policy is designed to encourage foreign and local investment in the private sector. Full safeguards are provided to protect lawful investment. The government’s role in the management of industry is to rapidly shift to a regulatory role in order to encourage private investment. Emphasis will be on expanding competition and creating new opportunities for the private sector by an encouraging government to phase out controls over prices and investment decisions, reduce subsidies and other special incentives which prevent competition from spurring efficiency and innovation. A key step in this regard has been the establishment of the Board of Investment (“BOI”), which is headed by the Prime Minister and constitutes of members from both the government and the private sector in order to boost foreign investor interest in the nation’s economy.
Analysing the investment policies of the GoP it is found that foreign investment is permitted in all sectors of the economy without prior approval of the BOI except in those industries involving arms and ammunition, security, printing currency and mint, high explosives, and radioactive substances. State Bank of Pakistan’s (“SBP”) permission is no longer required for the issuance of shares in a service company. The foreign investment is however required to be registered with the SBP to facilitate the payment of dividend, if any. Multinational joint ventures are encouraged to improve foreign investment. Establishment of export-oriented industries is given preference.
Pakistan's policy trends have been consistent with liberalization, deregulation, privatization and facilitation with incentives specifically designed to fulfil the needs of investors. Previously only the manufacturing sector was open to foreign investment. Now, the Policy Regime is more liberal with most other economic sectors open for foreign involvement and with significant efforts towards mobilizing domestic financial resources towards long term investment.
Key features of Pakistan’s foreign investment policy instrument for most manufacturing, non-manufacturing, infrastructure and social sectors are:
28
Liberal investment policy
Equal treatment to local and foreign investors
Sectors open for Foreign Direct Investment
100 percent foreign equity allowed in the manufacturing and non manufacturing sectors
No Government sanction required
Attractive incentives package
Remittance of royalty, technical and franchise fee; capital, profits and dividends allowed
Foreign investment fully protected under:
Foreign Private Investment (Promotion & Protection) Act, 1976
Protection of Economic Reforms Act, 1992
Foreign Currency Accounts (Protection) Ordinance, 2001
Bilateral Agreements:
Investment Protection to 48 countries
Avoidance of Double Taxation to 51 Countries
3.6.1 Investment Incentive Package
According to the BOI, the Government has provided an attractive incentive package for investors, as
highlighted below:
Table 3.4: Investment Incentive Package
Policy Parameters Manufacturing Sector Non-Manufacturing Sectors
Agriculture Infrastructure
Social
Services incl. IT and Telecom
Services
Govt. Permission Not required except for specified industries
Not required except specific licenses from concerned agencies
Remittance of capital, profits, dividends, etc.
Allowed Allowed Allowed Allowed
Upper Limit of foreign equity allowed
100% 100% 100% 100%
Minimum Investment Amount (USD)
No 0.3 0.3 0.15
Customs duty on import of PME
5% 0% 5% 0-5%
Tax relief (IDA*, % of PME cost*)
50% 50% 50% 50%
Royalty & Technical Fee
No restriction for payment of royalty & technical fee
Allowed as per guidelines – Initial lump sum up to USD100,000 – Max Rate 5% of net sales – Initial
period 5 years
* PME: Plant Machinery and Equipment; IDA: Initial Depreciation Allowance Source: Board of Investment
29
3.6.2 Exchange Control
Repatriation of capital, capital gains, dividends and profits, is allowed.
The facility for contracting foreign private loans (which does not involve any guarantee by the Government of Pakistan) is available to all those foreign investors, who make investment in sectors open to foreign investment, for financing the cost of imported plant and machinery required for setting up the project. However, loan agreements should be registered/ cleared by the State Bank of Pakistan.
Foreign controlled manufacturing concerns are allowed unlimited domestic borrowing according to their requirements for working capital.
For foreign controlled semi-manufacturing concerns, the borrowing entitlement is 75 percent of paid-up capital including reserves and for foreign controlled non-manufacturing concerns (trade/services) it is 50 percent.
3.7 Tax Regimes
The Federal Board of Revenue (“FBR”) is the tax administrative authority in Pakistan, which carries out
taxation policies and administers all taxes (income tax, sales tax, central excise duty and customs duty).
Pakistan’s tax system is irregular, with a narrow tax base covering a relatively small section of income
earners.
3.7.1 Tax Rates
Corporate Income Tax:
According to the Income Tax Ordinance 2001 (updated October 2009), the rate of tax imposed on the
taxable income of a company shall be 35 percent.
Personal Income Tax:
Personal income tax rates applicable for FY2010 are given in the following table:
30
Table 3.5: Personal Income Tax:
Income Range Tax Rate* Where taxable income does not exceed PKR 100,000 0% Where the taxable income exceeds PKR 100,000 but does not exceed PKR 110,000 0.50% Where the taxable income exceeds PKR 110,000 but does not exceed PKR 125,000 1.00% Where the taxable income exceeds PKR 125,000 but does not exceed PKR 150,000 2.00% Where the taxable income exceeds PKR 150,000 but does not exceed PKR 175,000 3.00% Where the taxable income exceeds PKR 175,000 but does not exceed PKR 200,000 4.00% Where the taxable income exceeds PKR 200,000 but does not exceed PKR 300,000 5.00% Where the taxable income exceeds PKR 300,000 but does not exceed PKR 400,000 7.50% Where the taxable income exceeds PKR 400,000 but does not exceed PKR 500,000 10.00% Where the taxable income exceeds PKR 500,000 but does not exceed PKR 600,000 12.50% Where the taxable income exceeds PKR 600,000 but does not exceed PKR 800,000 15.00% Where the taxable income exceeds PKR 800,000 but does not exceed PKR 1,000,000 17.50% Where the taxable income exceeds PKR 1,000,000 but does not exceed PKR 1,300,000 21.00% Where the taxable income exceeds PKR 1,300,000 25.00%
* Provided that the salary is less than 50% of total annual taxable income A second bracket for individuals with salaries constituting more than 50% has also been added as an update to the Income Tax Act 2001.
Source: Federal Board of Revenue
3.7.2 Withholding Tax
The following withholding tax rates are prescribed for every resident assessee:
Table 3.6: Withholding Tax
Description Tax Rate Execution of contract 6.0% of gross amount payable Payment on account of supplies 3.5% of gross amount payable
Source: Federal Board of Revenue
3.7.3 Inter-Corporate Dividend Tax
In general, dividends paid by a company resident in Pakistan are taxed at 10 percent of the gross
amount of the dividend. Furthermore, the tax rate on dividends paid by the purchaser of a power
project privatised by WAPDA is reduced to 7.5 percent. Also the taxation rate shall be reduced to 7.5
percent in case of dividends declared or distributed, on shares of a company set-up for power
generation.
3.7.4 Unilateral Relief
A person resident in Pakistan is entitled to tax relief on any income earned abroad, if such income has
already been subjected to tax outside Pakistan. Proportionate relief is allowed on such income at an
average rate of tax in Pakistan or abroad, whichever is lower.
31
3.7.5 Tax Treaties
The Government has an agreement with fifty-seven countries to avoid double taxation and also lays
down basic principles of taxation, which cannot be modified unilaterally. These countries include among
others, China, France, Korea, UAE, UK and USA.
3.7.6 Capital Gains Tax
The current exemptions from capital gains tax (“CGT”) are on any dealings in shares, investment in
redeemable capital listed on a registered stock exchange in Pakistan and Pakistan Telecommunication
Corporation Vouchers issued by the Government of Pakistan. These exemptions have been extended
further up to June, 2010. Gain on sale of shares of companies located in the export processing zones is
exempt from CGT unconditionally.
32
4. PAKISTAN ENERGY SECTOR
4.1 Energy Sector Overview
The Government of Pakistan has identified the energy sector in Pakistan as playing a pivotal role in the
development and growth of the Pakistan economy. GoP has stated the main objectives of its policy for
the Pakistan energy sector as ensuring:
Adequate, secure and cost effective supplies
Efficient utilization of resources
Minimization of negative environmental impacts
The key primary sources of energy in Pakistan are oil, gas and hydroelectricity. Petroleum products and
natural gas account for almost 80 percent of commercial energy, hydroelectricity for about 11 percent
and the rest is made up by coal, liquefied petroleum gas (“LPG”) and nuclear energy. Major energy
sources are discussed in more detail in later sections.
The Government’s actions have focused on promoting private investments in all the sub-sectors of the
energy sector, establishing regulatory agencies, and facilitating gradual movement towards competition
and free market mechanism. The GoP asserts its long term goal as creating a competitive, efficiently run,
financially viable, and largely privatised energy sector maximizing service outreach to the population.
4.1.1 Oil
About 30 percent of commercial energy consumption in Pakistan comes from oil. Pakistan produces
60,000 to 70,000 barrels per day (“bbl/d”) of crude oil annually. However, Pakistan’s annual
consumption of petroleum products (petroleum energy and non energy products combined) is in excess
of 370,000 bbl/d requiring net annual oil imports of over 300,000 bbl/d. GoP has encouraged the
development of domestic production and refining capacity by the private sector.
According to records, 11 companies are currently active in oil and gas exploration and production in
Pakistan including global giants such as BP (British Petroleum) and Malaysia’s Petronas. This number is
expected to increase as more and more local and foreign companies are showing interest in the sector.
Pakistan's net oil imports are projected to rise substantially also in the coming years as demand growth
exceeds increases in production. Demand for refined petroleum products also significantly exceeds
domestic refining capacity, so nearly half of all imports are refined products.
A summary of crude oil production in Pakistan is set out in the following graph:
33
Figure 4.1: Crude Oil Production (bbl/d)
Source: Pakistan Energy Yearbook 2009
Pakistan has a total refining capacity of 12.95 million tonnes per year. Nearly 82 percent of this capacity
is utilized to meet the consumption while the rest of the processed crude oil is imported. This refining
process results in a total of about 10.7 million tonnes of various petroleum products - meeting around
60 percent of the local consumption. There are seven oil refineries in the country with the latest
addition being Bosicor Refinery which commenced production in FY 2004. Other major ones include Pak
Arab Refinery Corporation (“PARCO”), National Refinery Ltd (“NRL”), Pakistan Refinery Limited (“PRL”)
and Attock Refinery Limited (“ARL”). The refineries produce a full range of products, however only 30
percent of their energy products production is furnace oil (also referred to as fuel oil or residual fuel oil)
which means that to satisfy national demand nearly 55.5 percent has to be imported.
Residual Furnace Oil (“RFO”) and High Speed Diesel (“HSD”) are amongst the most dominant sources of
energy production in the country, and account for an average of 36 percent and 49 percent respectively
of the aggregate petroleum energy products consumed in the country3. The demand for RFO has seen
average growth of around 17 percent over the five years spanning FY2004 to FY2009. Much of the
demand has come from the power sector, which is the primary user of the RFO fuel. With the supply of
natural gas becoming increasingly unreliable, and the ever increasing prices of the HSD (the primary
alternative), focus has been on installing RFO based plants in order to ensure a smoother flow of electric
power to the national grid. The graph below shows the consumption trends over recent years for RFO
and HSD against total national consumption of petroleum products.
3 Pakistan Energy Yearbook 2008 and OCAC 2010.
-
10
20
30
40
50
60
70
80
FY04 FY05 FY06 FY07 FY08 FY09
'00
0 b
bl/
d
Years
PPL
Dewan Petroleum
BP
Petronas
OMV
OPII
OGDC
MOL
ENI
POL
BHP
34
Figure 4.2: Consumption of Furnace Oil and HSD (Million Tonnes)
Source: Pakistan Energy Yearbook 2008, OCAC Province Wise Fuel Consumption 2009
Until 1999, the government tightly controlled the oil and gas industries of Pakistan. Since then, however,
an ambitious pro-market reform program has been initiated. This includes setting up of the Regulatory
body (Oil and Gas Regulatory Authority or “OGRA”), deregulation of furnace oil price and a move
towards transparency and proposed sector reforms including privatization in order to promote
competition.
Furnace oil prices have been completely deregulated since July 2000, while the HSD market was partially
deregulated in 2002. Altogether, these two products constitute about 86 percent of the petroleum
products market). Prices are adjusted every fortnight in accordance with changes in international
market prices. The fortnightly petroleum products price revision is carried out by the Oil Companies
Advisory Committee (“OCAC”), in accordance with a government approved framework. OCAC is an
industry group with membership of five refineries, ten oil marketing companies and one pipeline
distribution company.
Sale price information for furnace oil for the period spanning from July 2007 to June 2009 is provided
below. The current price with effect from February 1st 2010 stands at 41,634 Rupees/Tonne4.
4 Sourced from: Pakistan Refinery Limited at http://www.prl.com.pk/products/
-
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
FY03 FY04 FY05 FY06 FY07 FY08 FY09
Mill
ion
To
nn
es
HSD Furnace Oil Total
35
Figure 4.3: Deregulated Furnace Oil Sale Price (PKR/Tonne)
Source: Pakistan Energy Yearbook 2009
Pakistan has ten5 oil marketing companies (“OMC”s), with two largest being Pakistan State Oil and Shell
Pakistan, holding approximately 85 percent of the white oil market share. The others constitute
primarily of Admore Gas (Pvt.) Ltd, Askar Oil Services (Pvt.) Ltd, Attock Petroleum Ltd, Chevron Pakistan
Ltd and Total Parco Pakistan Ltd.
4.1.2 Gas
Natural gas meets about 50 percent of the country’s current demand for commercial energy, which at
present rate of sectoral penetration, is likely to exceed in the next five years. Pakistan has 28.90 trillion
cubic feet (“Tcf”) of proven gas reserves, and currently produces around one Tcf of natural gas per year,
all of which is consumed domestically. Natural gas producers include Pakistani companies Pakistan
Petroleum Limited (“PPL”), Oil and Gas Development Company Ltd (“OGDC”), Mari Gas Company
Limited (“MGCL”) and Dewan Petroleum among others, as well as international companies such as
Petronas, Tullow, ENI,, British Petroleum and BHP Billiton. The largest currently productive fields are Sui
with largest original recoverable reserves of 12.62 Tcf, whereas Mari and Kandanwari (with a combined
8.68 Tcf) are also among the country’s major natural gas fields.
A summary of natural gas production in Pakistan is set out in the graph below:
5 Sourced from: http://www.ocac.org.pk/members.html
0
10000
20000
30000
40000
50000
60000
70000
Jul-
07
Au
g-0
7
Sep
-07
Oct
-07
No
v-0
7
Dec
-07
Jan
-08
Feb
-08
Mar
-08
Ap
r-0
8
May
-08
Jun
-08
Jul-
08
Au
g-0
8
Sep
-08
Oct
-08
No
v-0
8
Dec
-08
Jan
-09
Feb
-09
Mar
-09
Ap
r-0
9
May
-09
Jun
-09
Ru
pe
es/
Ton
ne
Total Price
36
Figure 4.4: Natural Gas Production (MMCF)
Source: Pakistan Energy Yearbook 2009
Distribution and retail supply services are provided by the predominately government owned businesses
of Sui Southern Gas Company (“SSGC”) and Sui Northern Gas Pipelines Limited (“SNGPL”). The two
companies own 3200 km and 7347 km of transmission system, respectively and there is one major
interconnected network providing gas, owned and operated by the two Suis. Both organisations
transport gas to and distribute gas within, separate geographic regions and hence there is no
competition between the two Suis. In addition, the Mari Gas Company also provides a limited system.
Given the huge pressure on demand for natural gas, estimates indicate demand to rise substantially in
the next few years. An estimated 53 percent demand growth is expected to be recorded over the period
spanning from 2009-2019, which would require imports from regional natural gas giants such as Central
Asian States, Iran and Gulf states. We understand that SNGPL and SSGC have refused to commit gas
supplies beyond five years in view of the non-availability of gas. In order to preempt a potential crisis
the government has decided to temporarily suspend accepting raw-site proposals for power plants
based on pipeline quality gas. The Private Power Infrastructure Board has so far received about 24
unsolicited proposals for gas-based power plants with a total capacity of 3,548 MW and it is expected
that only a small proportion of these July be eligible for serious government consideration.
4.1.3 Coal
Coal currently plays a minor role (7.6 percent) in Pakistan's energy mix, but with compounded growth of
about 15 percent per annum, it is expected to gain significance in the sector, quite rapidly. Estimated
reserves of coal in Pakistan are around 187 billion tonnes, with 175 billion tonnes of these reserves
being low-ash, low-sulphur lignite in Thar Desert of the Sindh province.
The majority of coal production is used in the manufacture of coal bricks, with only about 1 percent used
for power production.
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
FY05 FY06 FY07 FY08 FY09
Mill
ion
CFt
Years
BP
Tullow
PPL
POL
Petronas
PEL
OPII
OMV
OGDC
MOL
MGCL
ENI
Dewan Petroleum
BHP
37
4.2 Power Sector
Historically, the power sector in Pakistan has consisted of two major state-owned utilities: Water &
Power Development Authority (“WAPDA”) powering the entire country except for the metropolitan city
of Karachi and adjacent southern areas, which are powered by Karachi Electric Supply Corporation
(“KESC”). These two utilities have operated independently of each other, except for a 220 kV double
circuit and two 132 kV links.
Following the power crisis of the 1980s and 1990s, the GoP announced certain measures to encourage
private sector participation in the power sector in anticipation of a demand supply gap. A host of policy
initiatives under the Power Sector Policies of 1994, 1998 and 2002, along with transmission and hydel
policies, liberalized the power sector to a great degree. In 1994, the power sector was opened up to
private investors through the formation of Private Power and Infrastructure Board (“PPIB”). So far PPIB
has been able to successfully commission more than 15 power plants responsible for generating 5,987
MW of electricity. These policy initiatives also allowed foreign investors greater market access and
autonomy in operations, resulting in the power sector becoming a front runner for securing FDI for
Pakistan.
4.2.1 Installed Generation Capacity
Pakistan has over 19,786 MW of installed generation capacity as of end FY2009. Thermal plants
comprise about 64 percent of this capacity, with the rest made up of hydroelectricity (about 32%) and
nuclear power (about 2%). In terms of ownership, 11,344 MW (56%) is owned by WAPDA: 1,955 MW
(9%) by KESC; 6,024 MW (30%) by IPPs and 462 MW (2%) by the Pakistan Atomic Energy Commission
(“PAEC”). Approximately 95 percent of the grid system is operated by WAPDA through NTDC, and the
balance by KESC.
Largely due to foreign investments, Pakistan's total generation capacity has increased rapidly in recent
years (more than doubling since 1990). Total transmission and distribution system losses, however,
continue to be high also (around 25 percent according to some estimates), with a significant level of
power theft. Seasonal reductions affect the availability of Pakistan’s hydropower capacity.
With much of the country’s rural area lacking electrification, and less than half of the population
connected to the national grid, a significant power demand growth is expected in the long term. The
growth of power generation in recent years has come primarily from new independent power
producers, many of which have been funded by foreign investors, as well as from a few WAPDA
hydroelectric dam projects.
Reform of the power sector through restructuring and deregulation is high on the Government’s
agenda. The Government is committed to the pursuit of a far-reaching reform program to help meet the
country's future power needs.
An analysis of installed generation capacity is summarized in the following table:
38
Table 4.1: Installed Generation Capacity in Pakistan
(Capacity in MW)
Year ending June 30 FY2005 FY2006 FY2007 FY2008 FY2009
Thermal Power GENCOs 4,835 4,900 4,900 4,900 4,900 IPPs (connected with PEPCO system) 5,570 5,560 5,560 5,560 5,725 IPPs (connected with KESC system) 262 262 262 262 262 KESC 1,756 1,756 1,756 1,756 1,955 Total Thermal Capacity 12,423 12,785 12,785 12,785 12,842
Hydel Power WAPDA 6,464 6,444 6,444 6,444 6,444 IPPs 35 35 35 36 37 Total Hydel Capacity 6,499 6,474 6,474 6,480 6,481
Nuclear Power CHASNUPP (connected with PEPCO system) 325 325 325 325 325 KANUPP (connected with KESCL system) 137 137 137 137 137 Total Nuclear Capacity 462 462 462 462 462
Total Installed Capacity of the Country
19,384
19,450
19,420
19,420
19,786
Source: Pakistan Energy Yearbook 2009
4.2.2 Structure of Power Sector
Following the government’s pro-privatization stance initiated in the Power Sector Policies, WAPDA has
been restructured into four thermal generation companies, nine regional distribution companies, and a
national transmission and dispatch company. Pakistan Electric Power Company (Pvt.) Ltd (“PEPCO”) has
been created as a distinct entity within WAPDA as a holding/ managing company for the fourteen new
unbundled companies. As per policy, the Water Wing and therefore the hydroelectric capacity remains
unbundled and with WAPDA. The following table illustrates the unbundling of WAPDA into specialized
entities:
39
Table 4.2: Unbundled Entities of WAPDA
Power Sub-Sectors Unbundled Power Entities
Generation Unbundled WAPDA generation companies (“GENCO”s):
1. Southern/ Jamshoro Power Generation Company (GENCO-1) 2. Central Power Generation Company Ltd. (GENCO-2) 3. Northern Power Generation Company Ltd. (GENCO-3) 4. Lakhra Power Generation Company Ltd. (GENCO-4)
Distribution Unbundled WAPDA distribution companies (“DISCO”s):
1. Lahore Electric Supply Company (LESCO) 2. Gujranwala Electric Power Company (GEPCO) 3. Faisalabad Electric Supply Company (FESCO) 4. Islamabad Electric Supply Company (IESCO) 5. Multan Electric Power Company (MEPCO) 6. Peshawar Electric Supply Company (PESCO) 7. Hyderabad Electric Supply Company (HESCO) 8. Quetta Electric Supply Company (QESCO) 9. Tribal Electric Supply Company (TESCO)
Transmission 1. National Transmission and Despatch Company Ltd (“NTDC”)
4.2.3 National Transmission and Despatch Company
Incorporated in November 1998, the National
Transmission and Despatch Company (“NTDC”) was
licensed in 2002 to engage in the exclusive transmission
of electricity to the national grid for a period of 30 years.
The NTDC links the power generating units and load
centers across the entire country, as shown in the
adjacent figure. NTDC is responsible for the transmission
and interconnection facilities and for the economic
dispatch of all generation facilities connected either
directly or indirectly. NTDC system consists of a large
network of transmission lines and grid stations of voltage
capacities from 220 kV to 500 kV. The NTDC operates and
maintains nine 500 kV grid station, 4,160 km of 500 kV
transmission line and 4,000 km of 220 kV transmission
line in Pakistan. This national grid connects hydel stations
located in the North and thermal units installed mostly in
40
the Central and Southern region with the load centers. Under NTDC, dispatch functions and co-
ordination of supply and operation of the system are undertaken by the National Power Control Center
(“NPCC”).
NTDC has been given the task of market and system Operator. On December 31, 2002, NTDC was
granted the transmission license by NEPRA whereby NTDC became the sole buyer of bulk power being
produced in Pakistan for a period of 30 years – for onward transmission/sale to the distribution
companies. Under the regime set out in the license, the NTDC is entrusted to act as:-
Central Power Purchasing Agency, to procure electric power in bulk from GENCOs, IPPs and other power stations on behalf of DISCOs
System Operator, to provide a secure, safe and reliable operation of distribution facilities, and control and dispatch of generation facilities
Transmission Network Operator, to conduct operation and maintenance, planning, design and expansion of the 500kV and 220kV transmission network
Contract Registrar and Power Exchange Administrator, to record and monitor contracts relating to the bilateral trading system
As per policy governing IPPs, CPPA/NTDC shall be GPL’s sole purchaser of power generated by the plant.
Figure 4.5: Structure of CPPA as Part of NTDC
Source: NTDC
Board of
Directors
Consultant CPPA Board Finance Dir. TNO/ TECH
Dir
Other Admin.
HODs
CE Coord. &
Monitoring.
Internal
Audit
GM (Sys. Op.)
NPCC
GM Services
Div.
Operational
Officer
GM P Purchase
(WPPO)
GM Power
Sale
Dy. GM
Finance
41
4.3 Independent Power Producers
The burgeoning electricity demand coupled with generation capacity issues has resulted in the need for
greater private sector involvement in the country’s power sector. Around 30 percent of the cumulative
power generation of the country equating to 5,987 MW is sourced from the IPPs. Successive
governments have highlighted the importance of IPPs in the nation’s economy and through various
policy initiatives tried to attract private and foreign investors into power generation.
Resultantly there are more than 15 active IPPs currently operating in the previously largely public sector
dominated power sector. These include:
Table 4.3: Installed IPPs
Project Name Gross Capacity (MW)
1 AES Lalpir Limited 362 2 AES Pak Gen (Pvt.) Limited 365 3 Attock Gen 165 4 KAPCO 1,466 5 Fauji Kabirwala Power Company 157 6 Gul Ahmed Energy Ltd. (GAEL) 136.17 7 Habibullah Coastal Power (Pvt) Limited 129 8 Japan Power Generation (Pvt) Limited 136 9 Kohinoor Energy Limited 131.44
10 Rousch (Pakistan) Power Limited 450 11 Saba Power Company Limited 134 12 Southern Electric Power Company Limited 117 13 Tapal Energy Limited 126 14 TNB Liberty Power 235 15 Uch Power Limited 586 16 HUBCO 1,292
Total 5,987
Source: Pakistan Energy Yearbook 2009
Furthermore, there are about 37 IPPs in the pipeline according to the PPIB, expected to come on line by
December 2017 with an additional capacity of 10,242MW. These include a host of thermal IPPs as well
hydel and alternate energy IPPs (see table on next page).
42
Table 4.4: IPPs in the pipeline
Project Location Capacity (MW) Expected COD
1 AttockGen Power Morgah, Rawalpindi 156 COD (Mar 2009)
2 Atlas Power Sheikhupura 213.6 COD (Aug2009)
3 Nishat Power Lahore 195.26 COD (November 2009
4 Saif Power Sahiwal 209 Jan 2010 (NYC)*
5 Orient Power Balloki 212.7 Jan 2010 (NYC)*
6 Fauji Mari Power Daharki 176.66 Jan 2010 (NYC)*
7 Engro Power Qadirpur 216.8 Jan 2010 (NYC)*
8 Sapphire Power Muridke 209 Feb 2010 (NYC)*
9 Nishat Chunian Lahore 195.26 Mar 2010
10 HUBCO-Narowal Narowal 213.6 Mar 2010
11 Bhikki (Halmore) Power Bhikki 209 Decr 2010
12 Liberty Power Tech Faisalabad 195 Dec 2010
13 Grange Power Limited Arifwala 146.5 Dec 2011
14 Radian Power Pasrur 150 Jun 2012
15 Engro ICB Power Near Bhikki 527 Dec2012
16 Star Thermal Power Daharki 125.84 Dec 2012
17 Uch II Power Dera Murad Jamali, 375.2 Dec 2012
18 Green Power Dadu 170.95 Dec2012
19 Kandra Power Kandra near Sukkur 120 Dec 2013
20 New Bong Escape Hydel Jehlum River, Near Mangla 84 Dec 2013
21 Rajdhani Hydro Power Poonch River, Near Mangla 132 Dec 2014
22 Gulpur Hydro Power Poonch, River/Gulpur 100 Dec 2014
23 Patrind Hydropower Kunhar River 150 Dec 2014
24 Kotli Hydel Poonch River 100 Dec 2014
25 Sehra Hydel Poonch River 130 Dec 2014
26 AES Imported Coal Gadani, Karachi 1200 Jun 2015
27 Karot Hydel Jehlum River 720 Aug 2015
28 Madian Hydropower Swat River 157 Dec 2015
29 Asrit-Kedam Hydel NearKalam/SwatRiver 215 Dec2015
30 Azad Pattan Hydel Jehlum River/Sudhnoti 222 Aug 2016
31 Kalam-Asrit Hydel Swat River 197 Dec 2016
32 Shogosin Hyderopower Luthko River/Chitral 127 Dec 2016
33 Shushgai Zhendoli Hydel Turkho River/Chitral 102 Dec 2016
34 Gabral-Kalam Hydropower Gabral/Swat River 101 Dec 2016
35 Suki Kinari Hydropower Kunhar River/ Mansehra 840 Jun 2017
36 Kohala Hydropower Jehlum River/Kohala 1100 Dec 2017
37 Kaigah Hydel Kaigah/Indus River 548 Dec 2017
Total 10,242.37
* NYC-Not Yet Commissioned
Source: PPIB
43
4.3.1 IPP Fast Track Initiative:
The Fast Track initiative is a policy introduced by PPIB in 2007, in view of the urgent need for generation
capacity to be installed. Under this initiative, a generation capacity of 2,225 MW is to be developed on a
fast track basis through new private sector power generation projects, on a first-come-first-serve
principle. These IPPs shall be facilitated and processed at speed by PPIB with no requirement for the
sponsors to obtain a Letter of Interest (“LOI”) or carry out the feasibility study for the proposed project.
These IPPs were initially to be completed with a COD no later than December 2010, however this
deadline has now been revised to 2012.
To be able to register under the Fast Track policy and benefit from the initiative, a potential IPP is required to observe the following guidelines:
Register under the Fast Track initiative, by depositing USD 100 with the PPIB
Submit an application containing the following details:
Proposed plant capacity with endorsement of power purchaser
Exact site finalization of the plan after endorsement of the power purchaser
Unconditional acceptance of Upfront Tariff devised by NEPRA for reciprocating engines available at NEPRA website, in case of not applying for a fresh tariff determination by NEPRA
Contact details of the contact/ focal person (address, telephone, fax, email etc)
Confirmation of availability of equipment from the proposed supplier
Consortium details (main sponsors and equity percentage of each member)
Audited Financial Statements of the sponsor(s) for the previous three (3) years
Experience of successfully commissioned power projects (either by the sponsors or by any of the Consortium members) with no less than 50 percent of the proposed project’s capacity
Technical and Financial Evaluation and approval by PPIB
PPIB’s advice to the Sponsors to approach NEPRA for tariff determination and issuance of Generation License
Submission of Application by the Sponsors to NEPRA for tariff determination and General License
NEPRA’s tariff determination and issuance of Generation License
PPIB’s letter to Sponsors for submitting Performance Guarantee at USD 5,000 per MW, and processing fee of USD 100,000
Submission of Performance Guarantee and processing fee by the Sponsors to PPIB
Issuance of Letter of Support by PPIB
Signing of PPA, FSA and IA
Financial Close by the Sponsors within nine (9) months after issuance of LOS
4.4 RPPs
The Rental Power Producer (“RPP”) initiative has also been recently launched by the PPIB for the
implementation of 1,200 MW of additional power generating capacity on a high speed basis. The intent
of this initiative has been to address the immediate shortfall of electric energy in the national grid,
which has threatened economic growth of the country. RPPs by design require around four (4) to six (6)
months of setting-up time as compared to an average of four (4) to five (5) years for IPPs, as the entire
plant (already commissioned elsewhere) is sourced directly and its power plugged onto the grid. Under
44
the RPP policy instrument, government owned power generation companies or GENCOs buy the power
generated by the RPPs, who are signatories of the Rental Services Agreement on behalf of the
government. As of 2009 there exist 19 such projects, at various stages of completion, with a combined
capacity of 2,734 MW. Of these, eight (8) projects with an aggregate capacity of 1,156 MW are in a more
advanced stage of contractual commitment by the Buyer. In view of the incentives provided by GoP to
RPP sponsors, they have become controversial and their ‘fast track’ objective has been lost considerably.
4.5 Power Sector Demand vs Supply Dynamics
The exponential growth in demand for electricity due to rapid electrification of rural, urban and
industrial sectors, coupled with improving standards of living has pushed the surplus in 2004 to a major
deficit today. Over the past five years, using electricity generation as surrogate for supply, we can
estimate increase in supply at a compounded annual growth rate (“CAGR”) of 1.7 percent, as can be
seen in the graph below.
Figure 4.6: Gross Generation of Electricity by Source (GWh)
Source: Pakistan Energy Yearbook 2009
Similarly, taking electricity consumption as surrogate for Demand, we can see it growing at a CAGR of
3.5 percent over the same five year period.(see figure below)
Figure 4.7: Electricity Consumption by Province (GWh)
-
20
40
60
80
100
120
FY05 FY06 FY07 FY08 FY09
'00
0 G
Wh
Hydel (WAPDA) WAPDA KESC IPPs Nuclear
0
20
40
60
80
FY05 FY06 FY07 FY08 FY09
'00
0 G
Wh
Punjab Sindh NWFP Balochistan AJK
45
Electricity balances for the past five years area provided below:
Figure 4.8: Electricity Balances (Public Utilities only) (GWh)
Note: The difference between Total Generation and Net Supply is auxiliary consumption
Source: Pakistan Energy Yearbook 2009
Adequate power supply is the key to achieving sustainable economic growth. Presently, the government
is committed to providing power to the entire population in the least amount of time possible. With the
growing energy demand, the country is currently facing a power shortage of approximately 2,500 to
3,000 MW. The present electricity demand-supply gap, coupled with a consistent growth in demand
clearly indicates the fundamental need for enhancing the country’s power generation capability. The
PPIB predicts that the peak demand shall outstrip expected available capacity by around 33 percent
towards the end of the projected period.
Figure 4.9: Demand and Supply Projections (MW)
Source: PPIB
-
20
40
60
80
100
120
FY2005 FY2006 FY2007 FY2008 FY2009
'00
0 G
Wh
Total Generation Net Supply Consumption T&D Losses
0
10
20
30
40
50
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
'00
0 M
W
Expected Available Generation (MW) Demand (Summer Peak) (MW)
46
4.5.1 Demand Patterns
Seasonality and Time-of-Day
The electric load varies in Pakistan during summer and winter seasons (as may also be seen in the graph
above). During the summer, inductive load increases due to air conditioning and other motor operated
appliances such as fans, while in the winter, the resistive load increases due to electric heaters. The peak
load hours in Pakistan are generally between 4pm and 9pm. This load decreases to its minimum
between midnight and 5am. Load shedding has been a consistent feature of the demand supply
scenario. This is expected to continue to be a control mechanism as generation continues to lag behind
demand.
4.5.2 Sector Demand
Domestic sector is the most significant in terms of electricity consumption with a 45 percent share,
followed by industrial (27%) and agriculture (12%). The consumption composition has only slightly
changed over the past five years, with domestic sector’s share increasing at the expense of agriculture.
Figure 4.10: Electricity Consumption by Sector and Region
Source: Energy Yearbook 2009
4.5.3 Regional Demand
In terms of regional share, the province of Punjab is by far the largest consumer of electric power with
about 60 percent, followed by Sindh at 20 percent and the rest shared among NWFP, Balochistan and
Azad Jammu and Kashmir (“AJK”). In FY2008, 45,040 GWh of power were consumed by Punjab
accounting for about 61 percent of the total consumption of electricity distributed through WAPDA.
Domestic46%
Commercial7%
Industrial27%
Agriculture13%
Street Light1%
Bulk Supplies
6%
Punjab62%
Sindh20%
NWFP11%
Balochistan 6%
AJK1%
47
5 POWER SECTOR REGULATION
5.1 Regulatory Framework
The regulation of the electricity sector is governed by the NEPRA Act 1997 which replaced the provisions
of the Electricity Act, 1910 relating to regulation of the electricity sector.
National Electric Power Regulatory Authority (“NEPRA”) was constituted under the NEPRA Act as an
independent regulatory authority for regulating the provision of electric power services. It is exclusively
empowered to regulate the generation, distribution and transmission of electrical power in Pakistan and
to determine the tariff, rates, charges and other terms and conditions for provision of electrical power
services.
The NEPRA Act and related Rules provide for the issuance of separate generation, transmission and
distribution licenses and set out procedures for the establishment of tariffs. However, as an exception,
NEPRA is specifically empowered to grant licenses for the generation, distribution and transmission of
electrical power to the same licensee for the territory served by KESC at the time of enactment of the
NEPRA Act.
NEPRA is currently in the process of defining and implementing a framework for regulation and a plan
for transition to greater market liberalisation of the sector.
5.2 Provincial Representation at NEPRA
NEPRA consists of a Chairman and four members who are appointed by GoP. The members are
recommended by and represent the four provinces of Pakistan. The Authority is supported by both
professional and administrative staff.
The provincial representation, inter alia, addresses the rights granted under the Constitution for the
Governments of the four Provinces to determine the tariffs for distribution of electricity within that
Province, a right which has not otherwise been exercised. Further to this, the Supreme Court has held
that provincial governments can only set distribution tariffs, if they purchase power in bulk or construct
power houses or grid stations or lay down transmission lines for use within the province.
5.3 Institutional Framework
The following diagram summarizes the interrelationship between the power sector, GoP, NEPRA and
other entities involved in establishing and executing power sector policy in Pakistan.
48
Figure 5.1: Power Sector Institutional Framework
5.4 NEPRA’s Role and Responsibilities
NEPRA has exclusive responsibility for regulating the provision of electric power services in Pakistan. It is
required to prescribe performance standards for generation, transmission and distribution companies in
order to encourage safe, efficient and reliable service. NEPRA’s has a number of roles including:
Granting licenses for the generation, transmission and distribution of electric power;
Determination of tariffs, rates, charges and other terms and conditions for the supply of electric power services by generation, transmission and distribution companies;
Encouraging uniform industry standards and codes of conduct for generation, transmission and distribution companies;
Prescription of procedures and standards for investment programmes by generation, transmission and distribution companies;
Prescription and enforcement of performance standards for generation, transmission and distribution companies;
Review of the organisational affairs of generation, transmission and distribution companies to avoid any adverse effect on the operation of electric power services and for the continuous and efficient supply of these services;
Investment facilitation
Investment review
Licensing, Tariffs
Tariff advisory
Regulatory guidelines
Federal Government Provincial Governments and AJK
Ministry of Water & Power
Cabinet Division
Provincial representatio
n
NEPRA PPIB
Provincial Private Power Cells
Policy and legislative
framework
WAPDA (and successors)
KESC
IPPs
Power Sector
Tariff Advisor
49
Establishment of a uniform system of accounts for generation, transmission and distribution companies;
Prescription of fees including those for the granting and renewal of licenses;
Prescription of fines for contravention of the NEPRA Act;
Submission of reports to GoP in respect of the activities of the generation, transmission and distribution companies;
Provision of advice to public sector projects; and
Performance of any other function which is incidental or consequential to any of the aforementioned functions.
5.5 Licenses
Under the NEPRA Act, NEPRA is responsible for the granting of generation, distribution and transmission
licenses. The term of a generation license is determined by reference to the expected useful life of the
Sets comprising the plant in question.
In the event of a licensee’s consistent failure to comply with license conditions of its license, NEPRA
may, with due notice, suspend or revoke the license. Rule 8 of the NEPRA Licensing (Generation) Rules –
2000, specifies events which can lead to the revocation of a license. Where NEPRA has revoked a license
it may:
Permit the licensee to continue operating, subject to terms and conditions specified by NEPRA;
Contract with a third party to take over operation of the facilities; or
Appoint an administrator to take over operation of the facilities.
GPC was granted a Generation License on July 8, 2009 by NEPRA to engage in the generation business
for a term expiring on December 30, 2035.
5.6 Tariffs
Under the NEPRA Act, NEPRA is responsible for the determination of tariffs. Changes to tariffs are
notified by GoP, based on determinations by NEPRA.
NEPRA’s Tariff Standards and Procedures Rules, 1998 (the “Tariff Rules”) specify the standards by which
tariffs should generally be determined and the procedures for the submission and adjudication of tariff
petitions.
The procedure set out in the Tariff Rules requires the submission of a petition to NEPRA for
determination of a new or revised tariff by, or on behalf of, the relevant utility. After the filing of
pleadings, NEPRA examines these and determines whether a hearing is required to arrive at a just and
informed decision. Where a hearing is to be held, NEPRA adjudicates upon the tariff petition after
50
hearing all parties interested or affected by the petition, which have been permitted by NEPRA to take
part in the proceedings.
NEPRA is required to decide a petition within six months of it being filed. NEPRA is required to intimate
its final order (on the tariff, charges and other terms and conditions) to the Federal Government for
notification in the Official Gazette no later than three days from the date of such order.
A tariff determined by NEPRA does not become effective until such time as it is notified in the Official
Gazette by the Federal Government. Under the NEPRA Act, the Federal Government may within fifteen
days of receipt of such intimation from NEPRA require it to reconsider its determination of the tariff,
charges or other terms and conditions. NEPRA then has a further fifteen days to reconsider and, as
appropriate, revise its determination and to intimate its new determination to the Federal Government.
Once the tariff, charges or other terms and conditions have been determined by NEPRA and notified by
the Federal Government, these can be reviewed by NEPRA either on its own motion or pursuant to a
petition of any licensee, consumer or person interested in the tariff.
5.7 Transition to Competition
NEPRA is currently refining the plan for transition of the power sector to a competitive national power
market. As an initial phase, the ‘single buyer plus’ model has been established whereby NTDC functions
as the sole purchaser of all electricity generated by the power producers, and meets the power sector’s
dispatch, system security and supply balance needs. Large, bulk consumers (with peak demands
exceeding 1 MW) have the ability to contract directly with generators. The introduction of a wholesale
market is envisaged for mid-2012.
51
6. THE PROJECT
The following diagram summarizes the Project and its various commercial dimensions.
Figure 6.1: The Project
6.1 Grange Power Limited
Grange Power Limited (“GPL” or the “Company”) was incorporated in Pakistan as a public limited
company under the Companies Ordinance 1984, on March 25, 2008 (Certificate of Incorporation No.
0064883.) The certificate for commencement of business was issued on May 13, 2008.
GPL applied to NEPRA for a generation license on December 16, 2008 and was granted one after due
process on July 8, 2009 for a period expiring on December 30, 2035.
6.2 Objective of the Company
The purpose of the Company is to build, own and operate a modern power generation plant, for onward
sale and supply of electricity to the National Transmission & Despatch Company. This includes all acts
directly or indirectly related or incidental to running the affairs of the Company.
NTDC (CPPA)
Single Buyer
75% Debt 25% Equity
Foreign Banks and Institutions
Local Banks (Arif Habib Syndicate)
GHG (96%)
Other Shareholders (4%)
Scott Wilson
EPC Project Managers
CMEC (with CERIECO)
EPC Contractors
KPS
O&M Contractors
PSO
Fuel Supplier
GoP Guarantee
under IA
Electric Power
Grange Power Ltd
52
6.3 The Project
The Project is a brand new dual-fired Combined Cycle
power generation plant, having a gross capacity (at ISO
conditions) of 163.353 MW. The primary fuel for the
power plant is Residual Fuel Oil with High Speed Diesel
as the back-up fuel.
6.4 Plant Site
The Project is based in Arifwala, in the Punjab province
of Pakistan. The site for the power plant is spread over a
vast area of 30 acres located at Kamair at 15-km
Arifwala-Sahiwal Road, in Tehsil and District Pakpattan.
The site was allocated by NTDC to GPL in May 2008 after
ensuring the suitability of the site for the proposed IPP.
Joint visits have been carried out by PPIB and NTDC teams and load flow studies carried out to ascertain
the technical viability of the location and its vicinity to a 132 kV grid station, as per system requirements.
The area has the necessary infrastructure in place and is easily accessible through a newly constructed
metal road. Environmental Impact Assessment (“EIA”) studies have also been conducted by Pakistan
Engineering Services and the Project has been found to be in compliance with the National
Environmental Quality Standards (“NEQS”). The report has been filed with the Environmental Protection
Department, Government of Punjab, and an NOC expected shortly.
The allocated land was acquired by GPL at the cost of PKR 675,000 per acre, or a total of PKR 20.25
million (equivalent to approximately USD 247 million), and was duly transferred to GPL on August 7,
2009. Topographical survey of the area has been carried out by Berkeley Associates, a well known
consulting engineering firm based in Lahore providing geotechnical, and site evaluation services. A
geotechnical investigation, site clearing and preliminary grading have also been carried out.
53
Figure 6.2: GPL’s Topography
6.5 Plant Capacity
The gross capacity of the plant under ISO conditions is 163.353 MW, whereas under mean conditions at
site it is estimated at 152 MW. Dependable net capacity under site conditions is estimated at 146.5 MW,
as explained in the table below. Total gross generation at 60 percent plant factor is determined to be
about 799 GWh per annum, with net annual dispatch of 770 GWh.
Table 6.1: Plant Capacity and Generation
Capacity Gas Turbine at ISO conditions 109.00 MW Steam Turbine at ISO conditions 54.353 MW Estimated Name Plate Capacity at ISO conditions 163.353 MW Percentage Auxiliary Consumption 3.62% Unit Auxiliary Consumption 5.50 Capacity/ Plant Factor 60% De-rating Due to Site Conditions (atmospheric correction) 6.95%
Power Generation Gross Capacity After Aging at Site 152.00 MW Dependable / Net Sent Out Capacity 146.50 MW Gross Annual Generation at 60% Plant Factor 798.91 GWh Net Annual Dispatch 770.00 GWh
It is possible to increase the capacity of the plant up to 180 MW if run on gas. The project was initially
envisioned to be gas-fired but had to be changed to RFO due to gas shortage. In such future instance if
gas becomes available for the Project, the plant may be switched over to gas at no major cost.
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6.6 Engineering Procurement & Construction Agreement
In November 2008, the Company signed a turnkey Engineering Procurement & Construction (“EPC”)
Agreement with China National Machinery & Equipment Import & Export Corporation (“CMEC”) as the
Lead Engineering and Procurement (“E&P”) Contractor, and its subsidiary China East Resource Import &
Export Corporation (“CERIECO”) as the Construction Contractor (both collectively, the “Contractors”). A
comprehensive EPC contract is expected to be finalized and signed by April 2010.
This tripartite agreement is based on a turnkey arrangement whereby the entire design, procurement,
engineering, manufacturing, transportation to site, erection, construction, installation, commissioning
and performance testing of all plant and equipment shall be the responsibility of the two contractors,
according to the scope of work agreed in the EPC Agreement and further elaborated in the E&P Contract
and Construction Contract to be signed by the Company with CMEC and CERIECO, respectively.
6.6.1 Layout Plant and Buildings
A layout plan for the Project has been prepared by CMEC as provided below, with the list of buildings
and structures planned to be constructed at site, in Table 6.2.
Figure 6.3: GPL Plant Layout
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Table 6.2: List of Buildings and Structures for the Power Project
1 Heat Recovery Steam Generator 15 Oily Waste Water Treatment House 2 Gas Turbine 16 Auxiliary Boiler 3 Steam Turbine Hall 17 General Water Pump House 4 Auxiliary Building 18 General Water Basin 5 Cooling Basin 19 Industry Waste Water Treatment Station 6 Main Transformer for Gas Turbine 20 Domestic Waste Water Treatment Station 7 Main Transformer for Steam Turbine 21 Domestic Water Pump House 8 Auxiliary Transformer 22 Drainage Water Pump House 9 Station Transformer 23 Acid and Alkaline Storage Area 10 132kv Switch Yard 24 Chemical Tank 11 132kv Substation Control Building 25 Chemical Water Treatment Building 12 Emergency Oil Pit for Transformer 26 Cooling Tower 13 Oil Tank 27 Work Shop 14 Fuel Oil Treatment Plant 28 Ware House
* GPL has acquired sufficient land for the Project to accommodate capacity expansion up to 325 MW
6.6.2 Machinery and Suppliers
As per the EPC Agreement, brand new plant and machinery for the Project shall be sourced from China
and France. Accordingly, lists of the main equipment to be used for the plant, and their agreed qualified
vendors are provided in the tables below. For each equipment listed in the two tables, the EPC
Contractor is obliged to purchase from the listed vendors. However, any other equipment not listed
therein may be procured by the Contractor as deemed appropriate.
Table 6.3: Sourcing of the Main Equipment
Machinery
Qualified Vendors
Gas Turbine GE France Gas Turbine Generator Qualified GE vendors (Elin, Alstom or Brush) Steam Turbine and Generator Nanjing Steam Turbine Co. Ltd
Harbin Steam Turbine Co. Ltd
Shangai Steam Turbine Co. Ltd
Heat Recovery Steam Generator Hangzhou Boiler Group Co. Ltd
No. 703 Design Institute of CSIC
56
List of the agreed qualified vendors for the balance of plant (“BOP”) equipment is provided below:
Table 6.4: Sourcing of BOP Equipment
Machinery
Qualified Vendors
Gas Generator Circuit Breaker ABB, Siemens, Areva
132kV Circuit Breaker Xian H.V. Switchgear Co. Ltd
Pingdingshan H.V. Switchgear Co. Ltd
ABB China
Siemens China
Step-Up Transformers TBEA Hengyang (or Shenyang) Transformer Works
Liaoning EFACEC Electric Equipment Co. Ltd
Xi Dian Changzhou Transformer Co Ltd
Xi’an Transformer Co Ltd
Distributed Control System GE Xinhua China
ABB China
Yokogawa Xiyi Co China
Black Start & Emergency Diesel Generator
Cummins China
Guangzhou Diesel Engine Co. Ltd
Jinan Diesel Engine Co. Ltd
Fujian Fufa Power Generating Equipment Co. Ltd.
Boiler Feed Pumps KSB Shangai
Sulzer Dalian
China State Grid Zhengzou Power Equipment Co Ltd
Shenyang Pump Co. Ltd.
Cooling Tower Jiangsu Seagull Cooling Tower Co. Ltd.
Henan Qinling Cooling Equipment Co. Ltd
Zhejiang Lianfeng Co. Ltd
Demineralization Plant Beijing Efficiency Environmental Engineering Co. Ltd
Xi’an Chuangyuan Water Treatment Engineering Co. Ltd
Jiangsu Huaguang Water Treatment Co. Ltd
Jiangsu Bada Water Treatment Equipment Co. Ltd
Heavy Oil Treatment System Alfa Laval
West Falia
Dalian Energas
57
6.6.3 EPC Timeline
Work on engineering, procurement and civil works is expected to commence in June 2010 and be
completed over a period of 26 months, with the trial run envisaged in August 2012, followed closely by
the commencement of commercial operations. As GPL is being established under the ‘Fast Track’ policy,
it shall have to be completed within the stipulated time and achieve COD by August 2012. The
construction schedule developed by CMEC is provided in figure 6.4. It is expected to formally begin in
June 2010 though some of the initial tasks listed have already been accomplished.
6.6.4 EPC Costs
The cost of plant and machinery is estimated at USD 122.38 million, with other EPC costs of USD 41.97
million, adding up to a total of USD 164.35 million. It is envisaged that out of these, USD 28 million shall
be onshore costs and the remaining USD 136.35 million imported components.
Of the total offshore EPC cost of USD 136.35, an estimated USD 40 million worth of machinery shall be
sourced from France – essentially comprising of the GE Gas Turbine 9171E from GE France. The
remaining 70 percent of the plant and equipment shall be sourced from various top vendors in China.
58
Fig 6.4: EPC Timeline
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6.7 Tariff Determination
Grange Power Ltd submitted a petition to NEPRA on December 15, 2008 for determination of a 25-year
tariff for the Project. NEPRA determined the tariff (US¢ 12.4598 per kWh on a levelized basis) on June
26, 2008. A petition for review of this tariff was filed by GPL on July 7, 2009 with an appeal to NEPRA for
tariff revision. After a formal review, NEPRA determined the final tariff on December 30, 2009, raising it
to US¢ 12.4778 per kWh (on a 25-year levelized basis). The detailed tariff schedule is provided in
Appendix A: Detailed Tariff Schedule, to this Information Memorandum.
The tariff is designed to cover the projected fuel cost, variable operating and maintenance charges, fixed
operating and maintenance costs and insurance expenses while providing sufficient cashflows to service
debt and provide a return on equity of 15 percent over the project life.
The tariff determination permits GPL to generate bulk electricity for sale to Central Power Purchasing
Agency (“CPPA”) of the NTDC under the terms of a Power Purchase Agreement (“PPA”) which is
expected to be signed by June 2010. Pricing for electricity sold under the PPA, would be governed by this
determination, which allows GPL to charge the following tariff rates, subject to adjustment of capacity
purchase price on account of net dependable capacity and net thermal efficiency as determined by the
test jointly carried out by the NTDC at COD:
Table 6.5: GPL Tariff Determined by NEPRA*
Tariff Components Year 1-10 Year 11-25 Indexation
Capacity Charge (PKR/ kWh) O&M Foreign O&M Local Cost of Working Capital Insurance Debt service-Local Return on Equity ROE during Construction
0.1116 0.0840 0.1031 0.1391 2.0910 0.5129 0.0552
0.1116 0.0840 0.1031 0.1391
- 0.5129 0.0552
USD/PKR & US CPI
WPI KIBOR
USD/PKR KIBOR
USD/PKR USD/PKR
Total Capacity Charge 3.0969 1.0059
Energy Charge on Operation on RFO (PKR/ kWh) Fuel Cost Component Variable O&M
Foreign Local
5.4625
0.4691
-
5.4625
0.4691
-
Fuel Price
USD/PKR & US CPI
Levelized Tariff (at 60% Plant Factor) US¢ 12.4778/ kWh
*Tariff based on: Net Capacity 146.5 MW Reference Exchange Rate PKR 80.45/USD Reference Fuel Price (inclusive of Freight) 27,770 PKR/MT
60
6.8 Tariff Structure
The tariff structure comprises of the following key components:
6.8.1 Capacity Purchase Price
The Capacity Purchase Price (“CPP”) consists of two parts:
An Escalable component, covering fixed Operating and Maintenance (“O&M”) costs (both foreign and local), insurance, equity returns and interest on working capital. The Escalable costs are indexed for inflation and foreign exchange variation, through a mechanism which seeks to provide GPL with a measure of protection against domestic and international prices due to inflation and foreign exchange movements.
A Non-Escalable component which covers costs not indexed to inflation. It is split into debt servicing of loans denominated in Pakistan Rupees as well as foreign currency, and withholding taxes.
6.8.2 Energy Purchase Price
The Energy Purchase Price (“EPP”) consists of the following:
Fuel cost which is effectively a pass through item.
Variable O&M cost which covers repairs and maintenance, oil, grease, chemicals, major overhaul costs and other miscellaneous costs. This is largely foreign currency denominated and adjusted accordingly.
The tariff also contains provisions for indexation for inflation and exchange rate adjustments which are
discussed in detail below.
6.8.3 Tariff Adjustments to CPP Components
Dependable Capacity
Both the escalable and non-escalable components of the CPP are dependent on a one-time adjustment
to reflect the difference between the dependable capacity initially set by NEPRA using a set of default
values, and the actual capacity to be determined through a dependable capacity test at commissioning.
Fixed O&M Costs
The local part of the fixed O&M component shall be adjusted by inflation (Wholesale Price Index or
“WPI”) whereas the foreign component of fixed O&M will be adjusted on account of variation in US
Consumer Price Index (“CPI”) and Dollar- Pak Rupee exchange rate. The adjustment will be quarterly and
made on July 1, October 1, January 1 and April 1, based on the latest available information with respect
to WPI notified by the Federal Bureau of Statistics (“FBS”), US CPI issued by US Bureau of Labor Statistics
and revised TT/ OD selling rates of US Dollar notified by the National Bank of Pakistan (“NBP”).
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Insurance
The insurance component will be adjusted as per actual on yearly basis. The insurance component of
tariff is capped at 1.35% of the EPC cost and shall be treated as pass through.
Returns on Equity
Return on equity (“ROE”) and return on equity during construction (“ROEDC”) will be adjusted quarterly
on the basis of variation in the PKR/USD parity.
Non-Escalable CPP components
The Non-Escalable components of the CPP include local debt servicing and cost of working capital. These
are generally linked to KIBOR and not directly indexed to inflation or foreign exchange movement.
6.8.4 Adjustments to EPP Components
Fuel Cost
The Fuel cost component has been structured such that fluctuations due to changes in set fuel prices
and fuel mix are effectively passed through. In determining the rate for the fuel component, a set of
default heat rates were assumed by NEPRA. Again, to reflect the difference between these default heat
rates and the actual heat rates, the fuel component for each unit is subject to a one-off adjustment
following a heat rate test at COD. The first adjustment in the fuel component will be made after heat
rate tests at commissioning. The revision in RFO prices shall also be made at the time.
Variable O&M Costs
This component is a foreign currency denominated charge and like the fixed O&M component adjusted
on the basis of reference US CPI as of December 2008, revised US CPI and the revised TT/ OD selling rate
of US Dollar as notified by NBP.
6.9 Taxes
GPL shall not be subject to taxation in Pakistan on its profits and gains derived from the electric power
generation, during the term of the PPA. Accordingly, there is no provision for income taxes in the tariff.
If GPC is obligated to pay any tax on the income purely generated from its operations, the exact amount
should be reimbursed by CPPA on production of original receipts.
Withholding tax on dividend is also a pass-through item just like other taxes as indicated in GoP’s
guidelines for tariff determination for new IPPs.
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6.10 Summary of Key Agreements and Contracts
6.10.1 Power Purchase Agreement
An approved standard Power Purchase Agreement draft has been provided to GPL by the PPIB. The PPA
is expected to be negotiated and signed by June 2010, between Grange Power Ltd and National
Transmission & Despatch Company Ltd (or the “Power Purchaser”), the sole purchaser of electricity
generated by GPL. One of the most important elements of the PPA is the tariff which has already been
determined by NEPRA, as discussed in detail in section 6.7. The 25-year tariff (US¢ 12.4776 per kWh,
levelized) forms the base of the PPA and allows the necessary revenue predictability and consistency
that is key to any investment.
Key features of the intended PPA are as follows:
The term of the PPA shall be in line with the tariff term determined by NEPRA, therefore 25 years.
The Company shall not, without prior written approval of the Power Purchaser, sell or deliver
electric energy produced at the plant or make available its capacity to any person other than the
Power Purchaser
From and after the COD, GPL shall make available the agreed declared available capacity, deliver and
sell the dispatched net electrical output at the interconnection points, and provide ancillary services
to the Power Purchaser.
From and after the COD, the Power Purchaser shall pay GPL for the declared available capacity, take
delivery and pay for the dispatched and delivered net electrical output
The Company will design, engineer, construct, insure, commission, operate and maintain the GPL
facility to be located on the site.
The total contract capacity is expected to be approximately 146.5 MW (equivalent to the net
generation of the plant) which would be contracted to be purchased by NTDC for the entire term of
the PPA.
The Date on which notice from the PPIB of the occurrence of financial closing is received by the
Power Purchaser, the PPA shall become effective in its entirety.
At any time after the financial close but prior to the occurrence of commercial operations date, the
company may elect to reduce the contract capacity by an amount not to exceed ten percent (10%)
in aggregate of the contract capacity, upon payment of damages.
On the Effective Date, the Company shall have delivered to the Power Purchaser the letter of credit,
and the Power Purchaser shall notify PPIB of this receipt and request PPIB to return the
performance guarantee to the Company.
If the Company’s letter of credit is not received by NTDC in the agreed time and form as reasonably
acceptable to it, the Power Purchaser may deliver written notice to the Company terminating the
PPA.
An operating committee shall be formed comprising of six (6) members and each party shall
designate three (3) members for the said committee. The committee shall develop procedures for
holding of meetings, keeping minutes of meetings and appointment and operation of sub-
63
committees. The chairmanship of the committee shall rotate each six (6) months between the
parties.
GPL shall commence and proceed with the EPC works as soon as reasonably practicable following
the financial closing. The Company shall ensure that the design of EPC works shall be carried out
with all proper skill and care and in all material respects in accordance with the PPA, including the
technical specifications, the laws of Pakistan, prudent utility practices and prudent electrical
practices, so that the Project is reasonably expected to provide useful life of not less than the PPA
term.
The Company may undertake scheduled outages only according to the schedule which has been
proposed by the Company.
On or before the financial closing, the Company shall provide reasonable evidence to NTDC that the
Company has procured from a reliable supplier and transporter, through one or more commercially
reasonable fuel supply agreements, supplies of fuel and the capacity to process, transport, store and
handle fuel for use at the plant.
The company shall on the site maintain an inventory RFO of thirty (30) days at full load.
NTDC shall be responsible for the design, construction, financing, completion and commissioning of
the Power Purchaser interconnection facilities whereas GPL shall carry out the Company’s
interconnection works with proper skill and care in all material respects.
The Company shall at its own expense install the metering system and back up metering system for
determining net electrical output for the plant.
Prior to synchronization of the plant with the grid system, the independent engineer shall deliver to
the Company and the Power Purchaser the certificate of readiness for synchronization.
From and after the commercial operations date, the Power Purchaser shall pay the Company the
capacity payments for the available capacity for each month (or part-month) and energy payments
for dispatched and delivered net electrical output for the relevant month (or part-month).
If the Company is in breach of its obligations to achieve the COD by the required time, then for each
month thereafter until the COD is actually achieved, the Company shall pay the Power Purchaser as
liquidated damages an amount equal to USD 3.0 per kW of the contract capacity per month.
6.10.2 Implementation Agreement
An approved standard Implementation Agreement (“IA”) draft has been provided to GPL by the PPIB.
The IA shall be negotiated and signed between Grange Power Ltd and the President of the Islamic
Republic of Pakistan on behalf of the Government of Pakistan. The timing of the signing of the IA is
planned to coincide with the signing of the PPA, as they are both intrinsically linked. The Management
of GPL expects to sign the IA and the PPA together by June 2010.
The key features of the IA are as follows:
The term of the IA shall most likely be 25 years, in line with the tariff term determined by NEPRA
which would also be the basis for the PPA.
Within five business days of receiving the notice in writing by GPL that the financing documents
have been executed and all conditions precedent for initial availability of funds under financing
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documents have been satisfied and the delivery of the Company letter of credit in accordance with
the terms of PPA has been made, the GoP shall execute and deliver to the Company the Guarantee.
If the financial closing does not occur in accordance with the requirement of the LoS, then upon
termination of the LoS, the IA shall also terminate in its entirety.
The Company shall be responsible to design, insure, finance, acquire, construct, complete and
commission the Project, and shall own, operate and maintain the Project in accordance with all
applicable laws of Pakistan, the Company consents, the IA and the PPA
GPL shall obtain adequate water supplies for the Project at the site acquired by the Company
GPL shall make arrangements for the delivery to and receipt at port facilities in Pakistan of
equipment and materials necessary for the construction of the plant and shall make arrangements
for the transport to the site of all such equipments and materials from the port
Upon timely request of the Company, GoP shall support and use all reasonable efforts to expedite
consideration of GPL’s applications for consents and approvals to ensure smooth and efficient
operations of the Project
The Company shall provide sufficient security for the protection of the plant. The GoP may be
requested by the Company to provide additional security if required at a reasonable cost to the
Company.
The Company shall obtain and maintain insurance from financially strong and internationally
reputable insurance companies.
During the term, the Company shall not be subject to taxation in Pakistan on its profits and gains
derived from the electric power generation under the PPA.
Local investors will be taxed according to the applicable laws of Pakistan while foreign investors will
be governed by the bilateral tax treaties, if any. Where no such treaty exists with the respective
countries, foreign investor shall be taxed in accordance with the applicable laws of Pakistan.
The GoP encourages the Company to incorporate as much locally produced material, equipment and
supplies as possible for the design, construction, completion, operation and maintenance of the
Project.
GPL shall be entitled to import any plant, equipment and machinery for the Project, not locally
manufactured, prior to the COD without restriction and is exempt from sales tax but subject to
payment of applicable customs duty not to exceed 5 percent on value.
All plant and machinery imported for the complex will be cleared for release from customs and
available for removal by GPL or its agents within thirty (30) business days, following GPL’S written
notice to PPIB of a delay by the Customs in the release of such plant and machinery.
GPL shall be entitled to export any items of plant and machinery for the purpose of repair outside
Pakistan and to re-import the same upon payment of applicable Customs duties.
The exchange and transfer abroad of all foreign currency related to the Project shall be governed by
the laws of Pakistan.
Neither the GoP nor any public sector entity shall take any discriminatory action which materially
and adversely affects the Project or performance of the Company’s obligations.
The GoP ensures that neither it nor the Power Purchaser or any public sector entity will expropriate,
compulsorily acquire, nationalize, or otherwise compulsorily procure any ordinary share capital or
material assets of the Company.
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6.10.3 Fuel Supply Agreement
The Company is currently in negotiation with Pakistan State Oil Company Ltd (“PSO”), the largest state-
owned oil marketing company in Pakistan. GPL has held several discussions with various major suppliers
towards establishing a long term fuel supply contract for the power plant. The fuel is readily available
both locally as well as through importers. However, significant progress has been made in negotiations
with PSO who have submitted their final draft Fuel Supply Agreement (“FSA”) to GPL for further
discussions. The FSA is planned to be finalized and signed by June 2010, between Pakistan State Oil
Company Ltd and Grange Power Ltd.
Key features of the intended FSA are as follows:
The FSA shall cover a long term and may be valid up to thirteen (13) years after COD. The FSA may
be terminated before the expiry date or extended beyond the expiry date, as per the terms defined
therein.
GPL shall purchase all its requirements of RFO and/or HSD for the plant from PSO and PSO shall sell
to the Company all its requirements of the said fuels
Upon placement of firm order by the Company, the fuel supplier shall be obliged to deliver at site
the entire quantity of fuel subject to maximum daily quantities.
The Company shall agree to uplift a minimum quantity of fuel per year that is equivalent to 25
percent of the fuel quantity required to operate the plant at full contract capacity. Otherwise, PSO
shall be recompensed for the amount of gross margin for such fuel, based on the average margin
calculated for the year.
Fuel delivered to the Company shall meet the relevant specification as defined in the FSA. Upon
acceptance of delivery of fuel or diesel oil by GPL not meeting the relevant standards, the delivered
fuel shall be considered as meeting the relevant specifications.
The Company shall at its own cost and expense design, construct, install and maintain such facilities
as are necessary for the purpose of receiving, storing, and using fuel to be supplied by PSO. This shall
include fuel storage tanks having at least thirty (30) day capacity, a tank lorry decanting facility and
other receipt facilities capable of decanting a minimum of 2000 tonnes per day
The fuel supplier shall arrange to design, construct, install and maintain all such facilities,
equipments or arrangements as the fuel supplier deems necessary in order to be able to effect fuel
deliveries at the delivery point.
The Company shall provide at least sixty (60) days’ notice to PSO of the Initial Delivery Date. And for
future deliveries, the Company shall provide monthly and weekly requirement plans to the fuel
supplier. Parties shall consult from time to time to develop and refine requirement estimates for
subsequent months.
The Company may amend its firm order up to 20 percent of the quantities of the applicable month,
15 days before the applicable month.
The price payable by the Company for fuel shall be that set out in the High Sulphur Fuel Oil (“HSFO”)
price notification applicable on the date of the relevant invoice. Any taxes or levies payable on the
supply shall be added to the price.
The fuel supplier may increase the gross margin on the basis of a directive from the GoP or OGRA
and subject to NEPRA’s approval.
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In case of failure by the fuel supplier prior or following the COD, the fuel supplier shall indemnify the
company for any costs, damages, losses or penalties.
6.10.4 Engineering & Procurement Contract and Construction Contract
The E&P Contract with CMEC and the Construction Contract with CERIECO shall be based on the existing
tripartite agreement between GPL and the two associate companies or Contractors detailed above in
sections 6.6. The Company expects to sign these two contracts simultaneously in April 2010.
The broad scope of work agreed in the current EPC Agreement is provided below:
Owner’s Scope of Work
Site Survey
Site improvements and foundation treatment
Design and construction of non-industrial buildings and structures
The supply and erection of ventilation, air-conditioners, lighting, water supply and drainage system,
earthing for buildings and furniture
Contractors’ Scope of Work
Engineering Services: The complete design and engineering services shall be provided for supply,
construction, erection, installation and commissioning of the complete specified plant.
Civil Works: These services would include construction of building and structures, foundations for
buildings and plant, as well as building services for various structures as appropriate
Power Generating Equipments:
The GE Gas Turbine Generator Unit PG 9171E will be supplied by the Contractors. The complete
gas turbine generator package will comprise of all the required main sub systems with all
standard auxiliaries.
Steam Turbine Generator (Nanjing Steam Turbine Co Ltd, Harbin Steam Turbine Co Ltd or
Shanghai Steam Turbine Co Ltd)
Heat Recovery Steam Generator (Hangzhou Boiler Group Co Ltd or No. 703 Design Institute of
CSIC)
Cooling water system
Mechanical Systems:
Liquid Heavy Fuel Oil System
Water Supply Systems
Chemical Water Treatment System
Fire Detection and Protection Systems
Balance of Mechanical Equipment and Auxiliary Systems
Electrical Equipments:
132 kV switch yard
Black Start Diesel Generator
MV Power Distribution
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LV Power Distribution and Services
Cable Systems
Miscellaneous
Control and Instrumentation
Training: On-site training of O&M staff shall be for one month for theoretical and practical training
on all systems and plant operations (mechanical, electrical, control & instrumentation systems and
components, and Control Room.)
Tools and Spares: Complete set of special tools necessary for erection and maintenance of various
plants and equipments to be installed shall be provided by the Contractors, along with special lifting
and handling appliances and one set of commissioning spare parts
Documentation: All necessary documentation shall be provided, including six sets of O&M manuals
for all main and auxiliary equipments, complete set of hard and soft copies of As-Built Drawings and
DCS loop drawings, detailed vendor lists for major equipments, other drawings and calculations
(inputs and results), progress reports, inspection and commissioning records, and quality control
documentation.
6.10.5 Project and Construction Management Contract
GPL is in negotiation with Scott Wilson Group plc (“Scott Wilson”), the global design and engineering
consultancy firm based in UK, for providing project management services during construction. The terms
and scope of work being discussed with Scott Wilson include:
Scott Wilson, as the Project Manager, will review the EPC Contractor’s design submittals against
agreed terms of reference based on the EPC contract specifications, PPA specifications and the FSA.
The design shall be evaluated in line with international best practices.
Review and approval of the EPC Contractor’s Inspection and Test Plan will be undertaken as part of
the design submittal review.
The EPC Contractor’s commissioning plan and performance test proposals will be reviewed to assess
the effect of the commissioning and performance test plans on the plant design and construction
planning.
The project and construction management will address the following main elements:
Mobilization and commencement of the EPC contract
Contract administration including payment certification, change order review and approval,
cost management, contract close out
Progress and schedule review, monitoring and reporting
Review and monitoring of Contractor’s permit application and third party liaison
Review and monitoring of Contractor’s works quality
Review and monitoring of Contractor’s HSE procedures and compliance
Site testing and inspection witnessing and approval
Maintenance and management of punch lists and expediting close-out
Commissioning coordination, monitoring and witnessing, including mechanical completion
checks, pre-commissioning checks and commission in checks
Management and review of O&M manuals and as-built documentation development
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Monitoring and review of operator training by the Contractor
Management of plant takeover processes
6.10.6 Operation and Maintenance Contract
GPL is currently in negotiations with Korea Plant Services & Engineering Co Ltd (“KPS”) to provide
operation and maintenance services for the proposed IPP. The arrangement being discussed envisions
two contractual phases:
Phase 1 covering a pre-commencement and mobilization period of 6 months before COD. This
phase to include the setting up of the Operator on base, recruitment and training of manpower,
preparation and submission of standard operating procedures, preparing the plant for
commercial operations and ensuring a seamless transition from construction phase to
commercial operations.
Phase 2 covering the post-COD period until a mutually agreed termination date, possibly after
25 years. The Operator to provide the regular commercial operating and maintenance services
for the plant and the Owner to provide all spare parts, chemicals, fuels, lubricants and other
consumables.
6.10.7 Local Loan Agreement
GPL is at an advanced stage of negotiations with Arif Habib Bank Ltd (“AHBL”) to act as the Co-Lead
Arranger for syndicated project financing for the Company. AHBL, along with a group of other banks has
agreed in principle to act as Senior Lenders to extend the following facilities to GPL:
a syndicated Term Finance Facility (“TFF”) to arrange funding for the local component of the EPC
cost i.e. USD 28 million
a syndicated working capital facility or Running Finance Facility (“RFF”)
Standby Letter of Credit Facility (“SLCF”) for issuance of the standby letter of credit to be
provided to the Power Purchaser, under the PPA
Key features of the indicative term sheet are provided below:
The currency to be Pakistani Rupees in case of TFF and RFF; and either PKR or US Dollars in case of
SLCF.
AHBL to act as the Financial Advisor, Co-Lead Arranger, Agent Bank and Security Trustee under this
loan arrangement
The Availability Period for the TFF shall be 24 months or such other date as may be agreed in the
facility documents
Drawdown of the TFF shall be in bullets or tranches during the Availability Period, linked with EPC
payments where applicable
The tenor of the TFF shall be up to a maximum of 12 years or such other tenor as agreed in facility
documents
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Markup rate for the TFF shall be the Base Rate plus 300 basis points (“bps”) per annum; and for the
RFF it shall be Base Rate plus 200 bps per annum. The Base Rate is defined as three months Karachi
Interbank Offered Rate (“KIBOR”) which is to be reset on a quarterly basis
Principal repayment in respect of TFF to be made over up to 40 consecutive quarterly installments
with the first such installment to fall due at the end of the 27th month of the effective date or three
(3) months after COD, or as agreed in the facility documents.
Markup payments in respect of the TFF to be made on a quarterly basis, with the first payment
coinciding with the repayment of principal
Final security structure shall be finalized after due diligence.
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7. PROJECT SPONSORS AND CONTRACTORS
7.1 Ownership and Control
The total project cost for setting up the plant is estimated at USD 218.2 million, with a 75:25 debt-equity
structure. Total equity in the structure, amounting to USD 54.5 million, is held 96 percent by GHG and
the remaining four (4) percent are equally held by Albario Engineering (Pvt.) Ltd, Mr. Assad Sheikh, Mr.
Shuja Hussain and Mr. Amjad Faquir. The current equity structure of the Company is given below:
Table 7.1: Current GPL Shareholding Structure
Shareholders/ Sponsors
Shareholding No. of Shares
Grange Holdings Group 96% 421,291,825 Albario Engineering (Pvt.) Ltd 1% 4,388,457 Mr Assad Sheikh 1% 4,388,457 Mr. Shuja Hussain 1% 4,388,457 Mr. Amjad Faquir 1% 4,388,457 Total 100% 438,845,651
Profiles of these Sponsors and shareholders are provided later in this section.
7.1.1 Shareholder Control
Under Pakistan law, the level of control that can be exercised by a shareholder varies as follows:
Table 7.2: Shareholder Control
Percent of total share capital Level of Control
Greater than 25% and up to 50% Negative control: ability to block special resolutions
Greater than 50% and up to 75% Negative control + control over ordinary resolutions
Greater than 75% Control over both ordinary and special resolutions
7.1.2 Board of Directors
The general direction and administration of the affairs of GPL shall be vested in the Board of Directors,
which has the overall responsibility for the organization. The Board currently includes three (3) First
Directors of the Company as per the Company’s Memorandum of Association, namely Mr. Assad Sheikh,
Mr. Shuja Hussain and Mr. Amjad Faquir. These Directors shall hold office till the first Annual General
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Meeting. The structure, procedure for membership and terms of office of members of the Board are set
out in the Memorandum and Articles of Association of the Company.
The Directors elect one of their members as the Chairman of the Board for a period of three years.
Currently, the Chairman of the Board is Mr. Assad Sheikh. The first Chief Executive of the Company,
appointed as per the rules, is Mr. Shuja Hussain who shall hold office till the first Annual General
Meeting.
7.2 Shareholder Profiles
7.2.1 Mr. Assad Sheikh
Mr. Assad Sheikh is the Chairman of the Board of Directors of GPL, and a direct holder of 1 percent of
the total equity in the Project.
Mr. Sheikh has around 30 years of professional experience in a diverse portfolio of sectors. He
completed his education at Leicester University to accountancy foundation level in 1979, and then
served his articles with PAH Bromwich & Co. a Chartered Accounts firm in Leicester until 1984. He joined
Halal Meat Co Ltd in 1984 where he was appointed as the Financial Director of the company. He proved
to be a valuable member of the team, responsible for a 400 percent growth of the company during the
period 1984 to 87. In 1987, he founded a property development company registered with the National
House Building Company (“NHBC”), which by 1992 had grown into a large British company with an
impressive project portfolio of hotels, residences and commercial properties. In 1992, he relocated to
Pakistan. During the same time he also set up Rocklander Shoe Corporation.
More recently, Mr. Assad Sheikh has been involved at the founder level in establishing a group of
nursing homes and Psychiatric hospitals for the elderly – including Learning Disability Homes and
independent hospitals in UK). In the year 2000, he co-founded the Beacon Care Group of companies
responsible for providing care for people with learning disabilities.
In 2004, he became the founder Director of Mosaique Hotel SAS in 2004. Mosaique has completed the
development of a 275-room Holiday Inn in Paris, France. In April of 2005, Assad acquired Glancestyles
Holdings Ltd, a company operating in the psychiatric care sector. In 2007, a further acquisition in the
hospital sector was made whereby the Inmind Healthcare Group of companies was acquired. The
company now owns and operates 6 units and is expanding its existing facilities by way of development
substantially.
Currently, Mr. Sheikh and his family are the beneficiaries of GHG which holds these diverse investment
projects spread over UK, France, Spain, UAE and Pakistan. The GHG group was founded in 1996 by
making investments in the UK healthcare sector, after which sporadic investments followed resulting in
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a more comprehensive investment portfolio spanning five countries. He is responsible for overseeing
the financial and operational control of the businesses.
7.2.2 Mr. Shuja Hussain
Mr. Shuja Hussain is the Chief Executive of GPL, and a Director shareholder of 1 percent of the total
equity in the Project.
Mr. Shuja Hussain has 28 years of professional experience under his belt, and has held strategic
positions at various trade and manufacturing organizations. He completed his graduation from Pakistan,
before obtaining a diploma in Business Management, from IMI Cornilious Group, Anoka, USA. From
1980 to 1982, he served as the Commercial Director of Trade and Traders (Pvt.) Ltd, a large carpet
exporting company based in Pakistan. In 1982, he joined Big Mac Foods (Pvt.) Ltd, a franchise of Coca
Cola International, as Director Marketing, until 1986.
In 1986, Mr. Hussain founded a 200 MT per day Chishtian Flour Mills (Pvt.) Ltd, and remained at its helm
as the CEO, up till 1999, after which he left for UK. He established a chain of supermarkets in UK from
1999 to 2007 when his commitments back home forced him back to Pakistan, and the supermarket
chain had to be leased out.
Mr. Shuja Hussain established Arsh Gas Ltd In 2007, LPG storage and filling business with 240 tons of
LPG storage capacity, located at Mustafabad Tehsil District, Okara, Punjab. Arsh Gas has the capacity to
undertake own operations as well as be available as a common user facility for other LPG marketing
companies. As of 2008, he is in the process of setting up a 163 MW Combined Cycle power plant, as its
Chief Executive.
7.2.3 Mr. Amjad Faquir
Mr Amjad Faquir is a director of GPL and a 1 per cent shareholder in the company.
Mr Amjad Faquir completed his Business studies Diploma at Loughborough College in 1985 and then
went on to complete his Commercial Pilots Licence in 1987 in California USA. He started his professional
business career in 1988 with the development of a property healthcare portfolio located in the midlands
further developing to spread across the UK.
In 1997 Mr Faquir was Co-Founder and shareholder of Beacon care PLC, operating twenty registered
homes with the Commission for Social Care Inspection (“CSCI”).
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In 1999 Mr Faquir ventured into the hospitality sector establishing a branded hotel in the Midlands and
in 2004 Co-founded the Mosaique Hotels SAS. Mosaique has completed the development of a 275 room
Holiday Inn Hotel in Paris, France.
In April 2005 Mr Faquir acquired Glancestyles Holding Ltd, a company operating in the Independent
Hospital Sector. In 2006 Mr Faquir went on to create the Inmind brand, in which its principle activity is
to operate in secure forensic hospitals, with the acquisitions of Anwick Ltd and Inmind Ltd expanding the
hospital portfolio. In 2009 Mr Faquir secured planning to further increase the Inmind revenue by 100%.
Additional to these responsibilities Mr Faquir acts as a Healthcare Consultant proving strategic
development to a number of independent healthcare providers.
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7.2.4 Grange Holdings Group
GHG is the largest shareholder and lead sponsor of Grange Power Ltd. It currently holds 96 percent of
the total equity. A brief business profile is provided hereunder. For further details reference may be
drawn to GHG’s website (www.grangeholdings.com).
1. Business Profile
The Grange Holdings Group is an offshore company established in
2002, having investments in a diverse portfolio of sectors and
markets including property and real estate development, tourism
and hospitality, healthcare (physical and psychiatric), and social
sectors. Projects have wide geographical spread, spanning United
Kingdom, France, Spain, UAE and Pakistan.
United Kingdom
GHG has expanded its portfolio of Healthcare Assets in the UK since 1996. Its entry into the sector was through the provision of Elderly Care in the South East of England. This was followed in 2000, by investments in the niche market of Learning Disabilities for Adults. The strategy for the Group has been to be both an operator and provider of property assets. The Division has grown to own and operate 20 sites across London and the South East of England. In 2005 the Glancestyle Group of companies was acquired to further consolidate GHG’s presence in the sector. Glancestyle specializes in the provision of Psychiatric medical care and provided GHG with the opportunity of participating in this highly lucrative segment of the healthcare market. The portfolio was further enhanced in 2006 by the acquisition of the Inmind Group. This Division now owns and operates four (4) hospitals with four (4) others under development, and ongoing expansion of existing sites by adding further facilities and bedroom stock. France
In 2004, GHG added Mosaique Hotels SAS to its portfolio of Investments. Mosaique acquired and developed the first hotel in Paris, a 275 room Holiday Inn, which opened for business in 2006. The second project is the Crown Plaza with 185 rooms, which is underway on River Sein in Paris. Spain
Marbella in Spain was the location for two prestigious developments of 38 town houses in a village setting. The developments were completed in 2005.
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UAE
The Group is currently developing prestigious villas on the Emirates Hill Golf Course in Emirates Hills, the highly sought after location in Dubai for villas. Pakistan
Arsh Gas Limited in Okara is a fully integrated LPG facility providing storage and marketing operations for own as well as client LPG companies. Arsh gas has a 240 tonnes storage capacity, as well as a 2000 tonnes/day filling capacity.
GHG invested in the sugar sector in 2007 by acquiring a sugar mill in
Sindh, Kiran Sugar Mill, with a crushing capacity of 10,000 MT per
day. GHG is in the process of divesting this mill, however it still owns
80% of the company’s shares.
A 163.35 MW Combined Cycle power generation project at Arifwala,
in the province of Punjab, is also in the pipeline.
2. Financials
(based on audited
accounts as of
February 28, 2008)
Authorized Capital: USD 50,000
Paid-up Capital: USD 1
Total Asset Base: USD 95,214,208
Total Liabilities: USD 4,158,729
Net Asset Value: USD 91,055,479
Net Profit (after taxes): USD 559,080
3. Major Investments Grange Holdings Group holds investments in the following major
companies:
Note: All Market Values given have been independently evaluated by
the Cleland & Co Ltd (Chartered Accountant Group)
Eastleigh Holdings plc (100% shareholding) Eastleigh Holdings owns properties in Dubai, UAE and Marbella, Spain. It is responsible for the development of 38 town houses in Spain, and is presently involved in a villas project in the Emirates Hill Golf Course, in Dubai. *Market Value (est.): GBP 7,000,000-
10,000,000
*Note: Market Value estimates provided by Better Homes Ltd. (UAE-
Independent Realtor)
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Allegony Limited (20% shareholding) Allegony Ltd is an investment company holding shares in the hotel industry. Brompton and Mosiac Investments SAS which individually own Chazey Court, as well as the Holiday Inn Paris along with an upcoming Crown Plaza Hotel Paris are part of the Allegony Limited umbrella. *Market Value (est.): GBP 4,784,329
*Note: This market value has been sourced from Savills estate
agents.
Glancestyle Holdings Ltd (50% shareholding) Glancestyle Group of companies specializes in the provision of psychiatric hospitals. The Inmind Group is a provider of adult mental health facilities, and owns and operates two (2) open rehabilitation units, a community housing facility and an elderly nursing home. Gross Asset Valuation: GBP 65,000,000
Debt: GBP 14,000,000
Net Asset Value: GBP 51,000,000
Cayes Limited (50% shareholding) Cayes Ltd owns properties rented out to UK trading companies. These UK companies operate the properties to provide a range of adult mental health services under the brand name of Inmind. The Cayes Limited portfolio was enhanced with the inclusion of the Inmind Group in 2006. Gross Asset Valution: GBP 50,000,000
Debt: GBP 25,000,000
Net Asset Value*: GBP 25,000,000
* Following development of existing facilities expected to be
completed by 2011, the Net Asset Value will increase to GBP 35
million.
Penbridge Properties Ltd (50% shareholding)
Penbridge Properties owns a property known as the Pickeridge Estate (132 acres), was conservatively valued in the latest accounts of GHG at the value of the share capital at the time. Since the acquisition, a two-phased development of the property has commenced to provide care facilities for adults with mental health issues. *Market Value (current est.): GBP 4,000,000
*Note: This market value shall be updated to GBP 20,000,000 upon
the completion of a building complex on this piece of land.
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Beacon Care Holdings plc (37.5% shareholding)
Beacon Care Holding is a trading company and a lessee to Kerdale
and Allensbury (Kerdale and Allensbury are 50% subsidiaries of
GHG), which each own properties rented out to Beacon Care
Holdings. These properties were operated as care homes. In May
2008, almost the entire (90%) portfolio of properties was sold to the
Caretech Group, a UK plc operating in the same industry for a figure
in excess of GBP 37 million cash which is held with the firm’s legal
counsel and partly available for investment in GPL.
Gross Asset Valution: GBP 38,000,000
Debt: GBP 5,000,000
Net Asset Value: GBP 33,000,000
4. Contact Details Current business address (UK):
Ground Floor Management Training Centre
Badgemore Park Golf Club Badgemore
Henley-on-Thames, Oxfordshire RG9 4NR
Tel: +44 (0) 1491 576544
Fax: +44 (0) 1491 576194
Current business address (Pakistan):
2nd Floor 65-Z Commercial Area D.H.A, Lahore
Tel: +92 42 7029283, 7025282, 8320823
Fax: +92 42 5892743
Website:
www.grangeholdings.com
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7.2.5 Albario Engineering Pvt. Ltd
Albario Engineering (Pvt.) Ltd (“AEPL”) is a 1 percent shareholder in Grange Power Ltd. A brief business
profile is provided hereunder, for further details reference may be drawn to AEPL’s website
(www.aepl.com.pk).
1. Business profile AEPL is a leading engineering company based in Pakistan, and has been in operation since 1954. It specializes in:
Electromechanical Contracting
Engineering
Sourcing
Project Management
Operations & Maintenance
Services Business (to support installed base) AEPL is an award winning General Electric preferred sales representative for new unit sales as well as spare parts. The company also extends after sales support to GE’s local clientele. AEPL has executed projects and provided services in the following areas:
Power Generation
Transmission and Distribution
Electro/Mechanical Contracting
Operations and Maintenance Services
Project Sales
Engineering Consultancy Services
Sponsor/Developer
Spares and Services
2. Key projects and
achievements
Key projects undertaken by AEPL include:
Mechanical Erection, Tank Fabrication, Electrical and Instrumental Works with Commissioning of Balloki Power Project
O&M subcontractor for GEII for managing Operation and Maintenance of the 126 MW CC Habibullah Coastal Power Plant
Consultancy Services provided to AES, Tractabel, EDF, Marubeni and Hitachi
Supply of 220kV Substations at Jaranwala, Faisalabad, Gakkhar, Multan and Mardan
Supply and Installation Support of 500kV Substations at Dadu, Jamshoro and Hala Road
Supply and Installation of 2 × 110MW Units-Guddu Thermal Power Station
Supply, 2×25MW GTs - FJFC, Karachi
Supply of Power Island, 586MW Uch Power Project, Uch Sharif
Supply and Installation of 225 MW Balloki Power Project (Orient Power)
Supply and Installation of 225 MW Muridke Combined Cycle power
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plant (Saphire Power)
Erection, Installation and testing of 6×40MW Hydro Power Station at Warsak
Supply and Installation Support of 4×100MW Hydro Power Station at Mangla
Installation, Testing and Commissioning of 132kV Substation at Balloki and Muridke PS
Installation of 25 Power Transformers – 1000 kVA to 20MVA
Erection of Steel Radial Gates – Marala Barrage
Laying of H.T. Cables – Qadirabad Barrage
Upgradation of 600 MW Guddu Combined Cycle Project
Supply and Installation of 60 and 100MW Khulna Power Station-East Pakistan
Supply and Installation of 60 and 100MW Chittagong PS-East Pakistan
3. Contact details Corporate Head Office: P.O. Box 114, Rasul Building 60-Shahrah-e-Qauid-e-Azam, Lahore, Pakistan Tel: (92-42) 111-00-1954 Fax: (92-42) 6369756, 6361142 Corporate website: www.aepl.com.pk/
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7.2.6 China National Machinery & Equipment Import & Export Corporation
CMEC, along with its subsidiary company CERIECO, has an EPC Agreement with Grange Power Ltd, as
detailed in section 6.10.4. A brief profile of CMEC is provided below, for further details reference may be
drawn to CMEC’s website (www.cmec.com).
1. Business profile
Established in 1978 as the first Chinese national corporation integrating
foreign trade with industry, CMEC deals principally with contracting
international engineering projects, exporting complete plants and
equipment, importing and exporting mechanical and electrical products,
and engaging in external economic and technical cooperation.
CMEC has a client network spanning 120 countries in multiple regions of
the globe, with a comprehensive distribution and services network. CMEC
has been selected as one of the top 225 International Contractors by the
renowned Engineering News Record of USA since 1996, ranking from the
106th place in 1996 to the 64th in 2003.
The company has exported complete plants and equipment to over 60
countries and regions involving projects in such diverse fields as energy,
electrical engineering, heavy duty mining equipment, general machinery,
light industry, textile industry, building materials, traffic and
transportation, communication, broadcast and television etc.
CMEC has grown and developed into a comprehensive enterprise group
having a diversified portfolio spanning into property ownerships, foreign
trade, engineering industry, and technology services.
2. Key projects CMEC has undertaken 64 power related projects (including hydro and
thermal power) involving a total of over 20,000 MW, in multiple regions
around the globe since the early 1980s. Key projects undertaken include:
1983 Guddu Thermal Power Station Unit No.4 (210MW, Oil-Fired)
1987 Jamshoro Thermal Power Station Unit No.2 & No.3 (210MW, Oil/Gas-Fired)
1987 Jamshoro Thermal Power Station Unit No.4 (210MW, Oil/Gas-Fired)
1991 Muzzaffargarh Thermal Power Station Unit No.5 & No.6 (210 MW, Oil/Gas-Fired)
1993 Muzzaffargarh Thermal Power Station Unit No.4 (320 MW, Oil/Gas-Fired)
2000 Salah-Aldeen 4×300MW (Oil/Gas Fired) Units (Iraq)
2001 Kuching Thermal Power Station Unit No.3 & No.4, Phase II (2×55MW, Coal-Fired)
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2002 Gas Turbine Power Plant (335MW) at Omotoscho, Ondo State (Nigeria)
2002 3×150MVA 132/330KV Power Substation at Omotosho, Ondo State (Nigeria)
2002 Tamil Nadu 2×200KW Hydropower Equipment (India)
2003 AL-Hiswa 1×60MW Thermal Power Station Extension Project (Turbin Island) (Yemen)
2003 Labuhan Angin 2×115MW Coal-Fired Power Station Project (CFB Boiler) (Indonesia)
2004 Garri 4#2×50MW Sponge Coke Plant Project (Sudan)
2004 Power Plant (1×135MW) (CFB Boiler), Silopi (Turkey)
2004 600KM. Roseries-Khartoum Third Transmission Line Project (Sudan)
2004 Vedanta 3×30MW Co-Generation Power Plant Construction Project (India)
2004 Priyadarshani Jurala Hydro Electric Project (6×39MW) (India)
2004 300KW Hydropower Plant (Pakistan)
2005 Vikram Cement 2×23MW Thermal Power Plant Project (India)
2005 Cujarat Cement Works 4×23MW Thermal Power Plant Project (India)
2006 Ban Coc. Hydropower Equipment (3×6MW) (Vietnam)
2009 Imboulou 4×30MW Hydropower Station (Congo)
3. Contact details Corporate Head Office:
CMEC Building,
No.178 Guang’anmenwai Street,
Xuanwu District, Beijing 100055, China
Tel: (86-10) 63474525, 63479268
Fax: (86-10) 63268192
Corporate website:
www.cmec.com
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7.3 Contractor and Consultant Profiles
7.3.1 Korea Plant Service and Engineering Co Ltd
KPS is the potential O&M Contractor with whom GPL is currently in negotiation with. A brief profile is
provided below. For further details reference may be drawn to KPS’ website (www.kps.co.kr)
1. Business profile
KPS is a Korean company specializing in operations and maintenance of electrical facilities. It has successfully executed a number of projects in more than 20 countries for over thirty years. KPS has over 4000 well trained professionals and maintenance experts Primary business areas include:
Power Plant Maintenance Service
Transmission and Substation Maintenance Service
Operations and Maintenance
Gas Turbine Component and Rotor Repair Service
Industrial Facilities Maintenance Service
2. Key projects Overseas Power Projects
O&M Projects
KPS has undertaken several O&M projects in the region with eight major
projects in Pakistan, India, Indonesia and Malaysia:
Maintenance & Overhauling Projects
KPS has carried out 17 major maintenance and overhauling projects in
Australia, Philippines, Lebanon, Indonesia, South Africa, Pakistan, Nigeria,
Sudan, Vietnam, and Thailand.
Commissioning Services and Technical Consultancy Projects
KPS has completed nine commissioning services and technical consultancy
projects in India, Brazil, Taiwan, USA, UAE, Vietnam, Indonesia, Pakistan and
Saudi Arabia.
Nuclear Power Projects
KPS has undertaken twelve nuclear power projects in Brazil, USA, China,
Belgium and Japan.
Domestic Power Projects (within Korea)
KPS has a track record of involvement in over 65,000 MW of combined
cycle, thermal, nuclear, hydroelectric, and diesel power projects across
Korea. It has provided the whole ambit of operations and maintenance
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services - including routine maintenance, overhauling, emergency
restoration, and others operational services - to an impressive list of clients
in the power sector, some of which are:
Combined Cycle Plants
Korea Western Power Company (KOWPO)
Korea Southern Power Company (KOSPO)
Korea Midland Power Company (KOMIPO)
Korea South-East Power Company (KOSEP)
Korea East-West Power Company (KEWP)
LG Power
Thermal Power Plants
Korea Midland Power Company (KOMIPO)
Korea South-East Power Company (KOSEP)
Korea East-West Power Company (KEWP)
Korea Western Power Company (KOWPO)
Korea Southern Power Company (KOSPO)
Nuclear and Hydro Power Plant
Korea Hydro & Nuclear Power Company (KHNP)
Korea Southern Power Company (KOSPO)
Korea Western Power Company (KOWPO)
Korea South-East Power Company (KOSEP)
Korea East-West Power Company (KEWP)
Korea Midland Power Company (KOMIPO)
Diesel Power Plants
Korea Midland Power Company (KOMIPO)
Korea South-East Power Company (KOSEP)
IPP O&M Services
Pohang Iron & Steel Company (POSCO)
GS Power (GS Group of Company)
GS EPS (GS Group of Companies
ECO Korea
SK Energy
Hyundai Heavy Industries (HHI)
Transmission and Substation Services
Korea Electric Power Corporation (KEPCO)
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3. Contact details Corporate Head Office: Migeum Road 1 (Geumgok-dong) Bundang-gu, Seongnam-si, Gyeonggi-do, 463-726, Korea Tel: +82 31 710 4480 9 Fax: +82 31 710 4499 Corporate Website: http://www.kps.co.kr
4. Financials
(as of 2007)
Total Asset Base: (USD 529.76 M) Total Liabilities: (USD 132.06 M) Total Shareholders’ Equity: (USD 397.70 M) Net Asset Value: (USD 230.74 M) Sales: (USD 726.28 M) Profit before taxes: (USD 93.00 M)
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7.3.2 Scott Wilson
GPL is in negotiations with Scott Wilson for the provision of project and construction management services, to ensure that the EPC services are effectively carried out and efficiently concluded. A brief company profile is provided below, for further details reference may be drawn to Scott Wilson’s website (www.scottwilson.com)
1. Business profile
Scott Wilson Group plc is a global integrated design and engineering consultancy for the built and natural environments. Headquartered in the UK, the group has a worldwide network of 80 offices with over 6000 employees. Scott Wilson offers strategic consultancy and multi-disciplinary professional services in the power, railways, buildings, infrastructure, environment and natural resources sectors.
Key operational regions include the Asian-Pacific rim, UK, Continental Europe, Pakistan, India and the Middle East, with offices located in London, Hong Kong, Warsaw, New Delhi, Bahrain and Dubai.
Scott Wilson has a track record of involvement in over 100,000 MW of thermal, hydroelectric, nuclear and renewable energy projects.
2. Key projects Scott Wilson has undertaken a number of power related projects (including
hydro and thermal power) in multiple regions around the globe. Key
relevant projects undertaken include:
Ongoing Saif Power CCGT (225MW), Pakistan
Ongoing Engro Qadirpur (200MW), Pakistan
Ongoing Fujairah IWPP (2000MW,130MIGD), UAE
Ongoing Ras Laffan C IWPP (2370MW,63MIGD), Qatar
Ongoing Green Power CCGT (2×200MW), Pakistan
Ongoing HUBCO Narowal RFO based Diesel CCPP (225MW), Pakistan
Ongoing Heron CCGT Power Plant (435MW), Greece
Ongoing Techno Power Faisalabad Diesel Power Plant (150MW), Pakistan
Ongoing Engro CCPP Power Plant (200MW), Pakistan
Ongoing Shuaiba South Emergency Power Station (400MW), Kuwait
Ongoing Papalanto Power Project (335MW), Nigeria
Ongoing Taweelah ‘B’ – IWPP (2000MW), UAE
2008 Oqyana Off-shore Diesel Power Plant (100MW), Dubai
2005 Kemerton Power Plant (300MW), Australia
2005 Laverton Power Plant (300MW), Australia
2005 Kogan Creek Power Plant HAZOP Study (800MW),Australia
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2004 Cartagena CCGT Plant (1200MW), Spain
2004 Cikarang Private Plant (350MW), Indonesia
2004 Ottana Cogeneration Plant (180MW), Sardinia
2003 Power and Desalination Plant (20MW), UAE
2002 Gas Turbine – Air Inlet Cooling (180MW), Turkey
2002 San Severo CCGT Project (400MW), Italy
2002 Portogruaro CCGT Project (400MW), Italy
2002 Phu My 3 CCGT – HAZID Study (716MW), Vietnam
2002 Baglan Power Station Single Shaft CCGT (500MW) and CHP Plant (25MW), UK
2002 Az Zour South GT Power Station (1000MW), Kuwait
2001 Paper Mill Cogeneration Plant Relocation (10MW), UK
2001 Skogn CHP/CCGT Power Plant (800MW)
2001 CCGT Plant Alagoas (140MW), Brazil
2001 CCGT – Air Cooled Condenser Extension (180MW), Turkey
2001 Croydon Energy OCGT (50MW), UK
2000 Enfield Energy Center Single Shaft CCGT (400MW), UK
2000 Seabank Power CCGT Modules 1 and 2 (1155MW), UK
2000 CHP Plant (180MW), Turkey
2000 Langage CCGT Plant (800MW),UK
2000 San Lorenzo CCGT HAZOP Study (500MW), Philippines
2000 Huntstown CCGT – HAZOP Study (342MW), Republic of Ireland
3. Contact details Corporate Head Office:
Scott Wilson Group plc
6-8 Greencoat Place,
London, Postal Code SW1P1PL, UK
Tel: +44 (0)20 7798 5000
Fax: +44 (0)20 7798 5001
Corporate website: www.scottwilson.com
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7.3.3 AbacusConsulting
AbacusConsulting (“Abacus”) is the firm of management consultants recently engaged by GPL as
Financial Advisors on the Project, replacing another firm hired previously. A brief corporate profile is
provided hereunder, for further details reference may be drawn to AbacusConsulting’s website
(www.abacus-global.com)
1. Business profile
Abacus was established in 1987 in Pakistan, and is today a leading provider
of management consulting services in the region. Abacus has been offering
cutting-edge business solutions helping organizations to transform their
visions into realities through a combination of latest business
methodologies and technological tools. The business value offered by the
Company has a deep scale, is industry focused and technology driven with
a world class delivery capability.
Abacus is the largest firm of management consultants in Pakistan, and one
of the largest in Southeast Asia. The company has a staff strength of more
than 2000, and a large dependable resource pool of on-call consulting staff
available on need basis. Their major strength, therefore, is the ability to
provide clients with specialist consultants having sound knowledge and
wide practical experience in the required fields.
The company has affiliations and strategic alliances with leading global
brands and service providers. As global partners, Abacus was
PricewaterhouseCoopers (“PwC”) Consulting up until 2003 when PwC was
restructured internationally and its consulting arm divested in compliance
with the Sarbanes-Oxley Act.
The four core business verticals, namely Corporate Finance and Strategy
Consulting, Business Transformation Solutions, Information Technology
Solutions and Human Capital Solutions have been designed to address both
industry-specific and business process needs of clients.
2. Key projects Abacus has provided strategic and financial advisory to a number of
projects in the energy sector, a few of the relevant ones are provided
below:
Restructuring and privatization of Karachi Electric Supply Company for the ADB and GoP
Restructuring and Privatization of Jamshoro Power Company Ltd for the ADB and GoP
Restructuring of Gas Sector for ADB
Privatization of Sui Northern Gas Pipelines Ltd. for the GoP and ADB
Privatization of Sui Southern Gas Corporation for the GoP and ADB
88
Buy-side advisory and valuation for the privatization of LPG businesses of SNGPL, SSGC and PSO, for Petrosin Products Pakistan
Buy-Side and Financial Advisory on S K Hydro Power Project, for Kuwait Privatization Projects Holding Company
Several Due Diligence exercises for the acquisition of local LPG marketing companies for SHV Energy NV
Feasibility Study for LPG Storage Terminal for SHV Energy NV
Due Diligence for a merger between Premier and Shell Pakistan
Economic Feasibility for a 116 00MW power generation project, Powergen Corporation Ltd.
Prefeasibility study for Multan Power, a 118 MW power generation project, for EuroKapital, Germany
Corporate Advice on USAID-WAPDA Power Distribution Program, Ebasco. Aepes. Iteco-Joint Venture
Buy-Side and financial advisory for privatized LPG business of PSO, for SHV Energy Pakistan
Investment Advice and Sectoral study for Gulf Pak Refinery
3. Contact details Corporate Head Office:
Abacus House,
4 Noon Avenue, Main Canal,
Lahore 54600, Pakistan
UAN: +92 111-ABACUS
Tel: +92 42 3588 4981 to 85
Fax: +92 (42) 3588 4987
Corporate website:
www.abacus-global.com
89
7.3.4 Haidermota & Co.
GPL is in the process of finalizing commercial terms with Haidermota & Co., the law firm to be engaged
by GPL as Legal Council to oversee the legal and contractual issues related to the Project. For further
details reference may be drawn to Haidermota & Co’s website (www.hmco.com.pk)
1. Business profile
Haidermota & Co. was established in 1959 in Pakistan, by its senior partner,
Mr. A.M. Haidermota. The Firm’s legal expertise is widely recognized,
evidenced by the wide range of domestic and international clientele the firm
represents as well as affiliations with law firms worldwide.
Haidermota & Co. has wide experience in commercial, corporate and
financial matters. Its principal areas of expertise are privatizations,
securitizations, mergers and acquisitions, and project financing. Projects
undertaken have been in the corporate, power, oil and gas, foreign
investment, and real estate sectors. It is a specialist litigator, having
expertise in statute drafting, policy advice and regulation.
2. Key projects Haidermota & Co. has undertaken several power and energy related projects
(including hydro and thermal power) in multiple regions around Pakistan
since the first power sector policy in 1994. Key relevant projects that the
company has been involved in since then, include:
Orient Power (Net 212.7 MW)
Sapphire Power (Net 209 MW)
Foundation Power Company Limited (Net 171.483)
Attock Gen Limited (Net 156 MW)
Halmore Power (225 MW)
Kapco (Expansion 450 MW)
Liberty Power Tech Limited (Net 194.65 MW)
Atlas Power Limited (Net 213.6 MW)
Kohinoor Energy Limited (Expansion Net 143 MW)
Star Power (133 MW)
Altern Energy Limited (Expansion 29 MW)
Habibullah Coastal Power
DHA Cogen Limited
Pak-Arab Pipeline Company Ltd
HUBCO
3. Contact Details Corporate Head Office
Haidermota & Co.
Barristers at Law & Corporate Counselors
D-79, Block 5, Clifton, K.D.A. Scheme No.5
Karachi-75600.
90
Tel: +92 (21) 111 520 000
+92 (21) 3587 9097 +92 (21) 3587 9373
Fax: +92 21 3586 2329
Corporate Website:
http://www.hmco.com.pk
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8 FINANCIALS
8.1 Overview
Financial projections have been prepared based on the information provided by the Management of
Grange Power Ltd and the NEPRA Tariff Determination of December 30, 2009. The costs, rates,
indexation and other assumptions approved by NEPRA have been used to make the 25-year projections,
the term duration allowed by NEPRA for GPL based on the expected life of the Project. The operational
and financial assumptions in the projections also reflect the judgment of GPL Management as well as
NEPRA standards derived from their experience of other similar generation projects in the sector.
These assumptions have been compiled into a financial model, based on a standard template generally
used by the power sector in Pakistan.
The financial projections are based on assumptions and hypotheses regarding future events; actual
results will vary from the information herein presented and the variations may be significant.
Accordingly, GPL or the Advisors express no opinion as to whether these projections will be achieved.
Prospective bidders must adopt their own opinion as to the assumptions underlying the projections, and
the reasonableness of the projections.
The projections reflect a base case scenario covering the expected life of the Project and hence the term
of the PPA of 25 years, planned to be from 2012 to 2037. Key assumptions underlying the model are
discussed below:
8.2 Tariff Determination
As mentioned above, the projections have been prepared on the basis of the revised NEPRA Tariff
Determination for GPL dated December 31, 2009. The tariff structure and its basis have been explained
in detail in section 6.8, however a summary is provided here for convenience.
According to the Tariff Determination, the Capacity Purchase Price has two components: the escalable
component (which is index linked to inflation and exchange rate parity) and a non-escalable component.
Both of these are subject to a one-off adjustment to reflect the difference between the dependable
capacity initially set by NEPRA and the actual capacity to be determined at COD.
The Energy Purchase Price for GPL also has two components: the fuel component and the variable O&M
component. Again, to reflect the difference between the default heat rates initially used by NEPRA and
the actual heat rates, the fuel component is subject to a one-off adjustment at COD.
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8.3 Technical and Operational Assumptions
The assumptions for projected capital and its expenditure plan, fuel costs, operating and maintenance
costs and indexation assumptions for GPL are detailed below:
8.3.1 Project Cost
The total Project cost of USD 218.20 million is constituted of two main components: EPC costs (about 75
percent); and miscellaneous costs:
a) Total EPC costs of USD 164.35 million include the cost of plant and machinery estimated at USD 122.38 million; and other engineering, procurement and construction costs of USD 41.97 million. EPC costs are further divisible into two parts: the content that has an offshore origin which forms almost 83 percent of the total EPC cost; and the remaining portion which is planned to be sourced locally.
b) Miscellaneous costs of USD 53.85 million include all other incidental project costs such as administrative expenses, insurance, utilities during construction, duties and taxes, service fees etc.
Project costs can be recapitulated as follows:
Table 8.1: Project Costs
Cost Component Cost (USD Million)
Percent of Total Project Cost
1a Plant and machinery 122.38 56.09 1b Other EPC costs 41.97 19.23 Total EPC Cost 164.35 75.32
Off-shore EPC component 136.35 62.49 Onshore EPC component 28 12.83
2
Miscellaneous costs
53.85
24.68
Total Project Cost
218.20
100.00
8.3.2 Capital Structure
The total project cost is estimated at USD 218.2 million, of which 25 percent or about USD 54.55 million
is planned as equity and the remaining USD 163.65 million shall be arranged as long term loan.
8.3.3 Capital Expenditure Plan
The capital expenditure plan for setting up of GPL including all EPC and other costs up to COD is
incorporated in the financial model as follows:
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Table 8.2: Capital Expenditure
PKR Million
Year ended June 30 2009 2010 2011 2012 Total
Net Investment in Project 5.083 77.414 110.195 25.503 218.195
8.3.4 Project Financing
The entire 75 percent debt portion of capital i.e. USD 163.65 million is assumed in the model to be
arranged as long-term debt, based on the following terms:
a) Tenure and Grace Period: A grace period of 3 years is assumed for the loan, after which it is
to be repaid in 40 quarterly installments, over 10 years.
b) Interest Rate: An annual interest rate of 16.23% is assumed for the loan – based on 3-
month KIBOR (13.23%) plus a spread of 3%.
c) Repayment Start: Repayment of the loan shall begin during the first year of operations.
d) Debt Service Reserve Account (“DSRA”): A DSRA has been assumed in the first year of
operations (before the end of the grace period), equivalent to an amount of one interest
and one principal payment i.e. three months of interest and the first quarterly principal
installment. This account shall be maintained for the period of the tenure of the loan.
8.3.5 Operation and Maintenance Costs:
There are two types of O&M costs: fixed O&M costs and variable O&M costs. GPL’s Management
estimates these costs as follows:
Table 8.3: Operation and Maintenance Costs
O&M Components Total
per annum
USD *
per unit
PKR*
per unit
Gross Fixed O&M –Foreign USD 1.78 million 1.0125/ kW/ month 81.46/ kW/ month Gross Fixed O&M- Local PKR 107.82 million 0.7623/ kW/ month 61.33/ kW/ month Net Fixed O&M 1.7749/ kW/ month 142.79/ kW/ month Variable O&M
USD 6.36 million
0.0058/ kWh
0.47/ kWh
* Conversion based on the reference exchange rate of PKR 80.45 per USD.
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The O&M costs are based on the estimated dependable capacity (i.e. minimum net capacity) at delivery
point under mean site conditions, of 146.5 MW. The Initial Dependable Capacity (“IDC”) tests shall be
carried out for determination of contracted capacity at the time of COD.
Variable O&M costs also take into account the availability factor assumed at 85 percent.
8.3.6 Projected Generation
The table below shows generation estimates for the plant. The gross generation estimate after
maintenance shutdowns, i.e. 727 GWh, has been used in the calculation of fuel cost.
Table 8.4: Generation Estimates
Name plate capacity at ISO conditions 163.353 MW
Derating factor based on mean site conditions 6.95% Gross capacity at site 152 MW Number of hours per year 8,760 hours Capacity/ plant factor 60% Gross annual generation before maintenance shutdown 799 GWh/ annum Lost production during annual maintenance shutdown 72 GWh/ annum Gross annual generation after maintenance shutdowns 727 GWh/ annum Auxiliary consumption 26 GWh/ annum Net billed electricity 701 GWh/ annum
8.3.7 Fuel Consumption Rate
Although GPL is a dual-fuel power plant, the primary fuel expected to be used in generation is Residual
Fuel Oil which has, therefore, been used for the financial projections. The two key factors required to
estimate the fuel consumption rate are Heat Rate of the plant and the heating value of the fuel, as
shown in the table below. The Heat Rates used are the default rates assumed by NEPRA, which shall be
adjusted at the time of COD. Whereas the standard heating value of LHV RFO is used.
Table 8.5: Fuel Consumption Rate for RFO
Estimation Heat Rate required for 1 kWh at 100% efficiency 3,413 Btu/ kWh Average plant efficiency (with RFO) 45.014% Heat Rate before degradation 7582 Btu/ kWh Degradation factor 0% Net Heat Rate 7,582 Btu/ kWh Heating value (LHV RFO) 38,555 Btu/ kg Fuel consumption rate 0.1967 kg/ kWh
Note: Btu: British thermal unit
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8.3.8 Fuel Cost
Projected fuel consumption is a function of the projected generation, the heat rates, the fuel consumed,
and the energy content of the fuel, all of which have been discussed above. The unit fuel cost is then
factored in to derive the total cost of fuel. The fuel cost is effectively a pass through item. The reference
price used in the model as cost of RFO is PKR 27,777 per kg. Cost estimates for GPL, based on the
assumptions discussed above, are provided in the following table:
Table 8.6: Fuel Cost Estimates
Total per annum
USD per unit*
PKR per unit
Fuel Cost USD 47.59 million 0.0679/ kWh 5.46/ kWh
* Conversion based on the reference exchange rate of PKR 80.45 per USD.
8.3.9 Insurance
Assumptions for insurance taken in the model are provided in the table below. Insurance cover shall
become effective date after COD. Accordingly, total sum insured amounts to USD 400 million, with an
annual insurance premium of USD 2.22 million which is 1.35 percent of the total EPC cost as per the
ceiling set by NEPRA.
8.3.10 Taxation
No income tax has been assumed in the model as GPL shall not be subject to taxation on its profits
during the term of the PPA. If GPC is obligated to pay any tax on the income purely generated from its
operations, the exact amount shall be reimbursed by the Power Purchaser. Most taxes, therefore, are
pass-through items.
Withholding tax rate assumed for the model is generally 6 percent, except for the tax on dividends
which is 7.5 percent.
8.3.11 Customs Duties
According to the IA to be signed shortly with the Government of Pakistan, GPL shall be entitled to
import plant and machinery for the Project, prior to COD, without restriction and is exempt from sales
tax but subject to payment of applicable customs duty not to exceed five percent on value. A recent
levy of an additional 1.25 percent by the Government of Sindh on imports adds to this cost. The model,
therefore, assumes a total of 6.25 percent of value as import taxes.
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8.3.12 PPA Letter of Credit
According to the PPA an unconditional, irrevocable, divisible and transferable on demand bank
guarantee in favour of the power purchaser is required to be delivered by GPL to the CPPA/NTDC. This is
referred to as the Company Letter of Credit. The rate approved by NEPRA, and used in the model, for
this Company LC is USD 27.5 per kW of the Contract Capacity. The LC is required to remain effective until
15 days after the COD, and in the model it is assumed for a period of 2.5 years, with credit commission
charges of 1.5 percent.
8.3.13 Indexation
The tariff determined by NEPRA effectively allows any significant fluctuation in input prices and/or
exchange rate variations effecting the Project’s fixed or variable costs, as pass through. So for all
practical purposes, GPL shall be compensated for variations on the cost side through its tariff. The
financial model is therefore developed on a constant cost basis, with all outcomes assumed as real. The
following table summarizes the indexation allowed by NEPRA in GPL’s tariff determination:
Table 8.7: Indexation Assumptions
Indices Rates
Reference Pak CPI/ inflation 5% Reference US CPI/ inflation 2.5375% per annum Reference Exchange Rate USD/ PKR 80.45 Reference Exchange Rate EUR/ PKR 110.00 3-month KIBOR rate 13.23% per annum 6-month KIBOR rate 13.93% per annum Premium/ spread 3% KIBOR funding for working capital 3-month KIBOR
8.4 Financial Analysis
The operating results from the financial model have been provided in Appendix B: Financial Model, of
this Information Memorandum. A summary of key findings is as follows:
The Project reflects an internal rate of return (“IRR”) of 16.24 percent, in real terms. This becomes
more attractive in view of the assured 25-year tariff and sale of capacity and generation output.
Debt-to-Equity ratio is a maximum of 64% : 36% at the end of the first year of operations, tapering
down to 0% : 100% in the 9th year - towards the end of the ten year repayment term.
In terms of ability to meet financing obligations, the Debt Service Coverage Ratio (“DSCR”) remains
at a constant of 1.34 over the debt servicing period.
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Earnings provide sufficient coverage for making interest payments, as demonstrated by the Times
Interest Earned (“TIE”) which does not drop below 1.3 at any time throughout the 25 years, with an
average of 2.02. During the first ten years, over the tenure of the loan, the average remains at 2.57.
In terms of return on equity, the tariff is built to allow GPL a ROE of 15 percent. The various
measures used in the financial model reflect these returns as: Dividend IRR of 14.88 percent, Equity
IRR of 14.53 percent and an Actual ROE of 16.61 percent.
The cumulative closing cash balances, after dividend payout and debt-servicing, remains a healthy
positive throughout the 25-year period.
The table below briefly highlights the financial results for GPL from different perspectives and under
different scenarios:
Table 8.8: Financial Analysis- Project Base Case
Financial Indicators
Project Results (Base Case) IRR 16.24% NPV at 15% (USD) 6,782,687 NPV at 13% (USD) 21,303,067 ROE (approx.) 15% Payback (based on Cumulative Net Cashflow) 6th Year Payback (based on Cumulative Discounted Net Cashflow) 12th Year Debt Service Coverage during loan period 1.34 Average Times Interest Earned 2.02 Average Times Interest Earned (EBITDA) 5.43 Average Net Margin 7.81% Equity Results (as per NEPRA) IRR 15.07% NPV at 15% (USD) 187,067 NPV at 13% (USD) 5,663,151
The full set of financial statements produced by the model showing the profit and loss, cashflow and
balance sheet positions for the company, for the 25-year project life, are attached in Appendix B:
Financial Model.
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9 RISK MITIGATION
Outlined below is an overview of potential risks that an investor may consider before making an
investment decision, along with suggestions on available mitigation measures:
Risk Level Mitigations
9.1 Cost overruns GPL may experience cost overruns and may need additional capital to meet its needs
Low The major project costs including plant and machinery and other EPC costs shall essentially be based on fixed contracts, so overruns, if any, may not have a significant impact on the project cost. That being said, the cost estimates for the project have been calculated carefully and on the basis of actual expected costs discussed with contractors, with built in contingencies. Parameters used in cost estimations are reasonably standardized in the power sector.
9.2 Fuel price and availability
A power plant is a fuel intensive project. Variation in the fuel price or availability can affect the profitability of the project, considerably
Low Under the PPA to be signed with NTDC, and the tariff determined by NEPRA, any fluctuation in the price of the fuel shall be passed on to the Power Purchaser, with no net effect on GPL’s profits. GPL is in negotiation with PSO, the largest oil marketing local company with extensive infrastructure and capacity, for a long-term [13-year] Fuel Supply Agreement that would reasonably ensure availability of required levels of fuel at all times.
9.3 Demand and off-take
The demand for electric power may decline and the generated units may not be sold. This can be a big risk for a capital intensive project of the size of GPL.
Low GPL shall be signing a 25-year Power Purchase Agreement with NTDC under which NTDC shall have access to and pay for the full Contract Capacity (i.e. the declared available capacity expected to be about 145.5 MW), for the entire agreement term. This payment shall be made irrespective of generation or sales volume. The Power Purchaser shall also be obliged to purchase the net dispatched and delivered electrical output during the period – based on its planned schedule of demand. Given the overall supply deficit situation, high demand location of GPL plant and its relatively competitive tariff rates based on RFO rather than HSD, the sale of generated units does not appear to be a problem.
99
Risk Level Mitigations
9.4 Default of NTDC
The Power Purchaser may default on payments against Contracted Capacity or sold electric output.
Low GPL shall be signing a 25-year Implementation Agreement with the Government of Pakistan that guarantees irrevocably and unconditionally, all payment obligations of the Power Purchaser to GPL.
9.5 Slipping timelines PPIB has set specific timelines for Fast Track projects to achieve COD. There is a risk of unforeseen delays due to political factors; as well as on the Contractors’ side resulting in delays in the installation of the plant.
Low/ Medium
GPL expects to achieve COD by August 2012 which is in line with the stipulated deadlines. GPL is at the final stage of negotiations for a turn-key EPC contract with CMEC (and subsidiary CERIECO), who are well-renowned and experienced service providers, with extensive technical expertise in implementing similar projects in the region. A further project and construction management contract is being negotiated with Scott Wilson, another world renowned expert in the field, for a smooth and efficient implementation. These arrangements are being made to ensure an early rather than a delayed COD. Furthermore, the Contractors have guaranteed the COD, and if delayed they are obliged to pay a penalty which may be adjusted against any government penalties. In addition, we expect the PPIB timeframe to be extended further. It has been revised before by PPIB and is likely to be revised again – especially if the reasons are attributable to factors out of the investors’ control. Furthermore, we understand that the allocated capacity for Fast Track projects has still not been consumed and there are new potential entrants on the scene. Given the dire demand-supply deficit, we do not foresee the government declining such interest.
9.6 Change in assumptions for projections
The financial projections for the Company are based on various assumptions, which are subject to change with industrial, market, economic and political dynamics.
Low Power sector is one of the more regulated sectors of Pakistan with standard parameters available for estimation purposes. Confidence may further be drawn from the fact that most of the key estimates are either based on NEPRA’s calculations or approved by NEPRA in their tariff determination. Furthermore, GPL has used conservative assumptions in the model which allows room for negative dynamics.
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Risk Level Mitigations
9.7 Exchange rate risk Foreign exchange exposure may impact cost of plant and machinery as well as operational profitability
Low Capital and operational costs involving foreign currency exposure have been indexed for exchange rate fluctuation through a mechanism which seeks to provide GPL with a measure of protection against foreign exchange movements.
9.8 Performance risk The Company can be liable to losses under the performance guarantee/ Company LC under the PPA
Low GPL plans to procure state of the art plant and machinery, selected from the top global manufacturers, to be installed by the leading EPC Contractors, CMEC. GPL would have KPS, the leading Korean firm with extensive O&M experience in similar plants, as their O&M Contractors. It is unlikely that GPL shall not be able to deliver at the minimum performance level.
9.9 Regulatory risk NEPRA may introduce stringent rules and regulations to control the sector
Low The Regulators seem to be keenly approving and facilitating power projects on fast track, in order to minimize the electricity supply-demand gap. It seems unlikely that any discouraging regulations shall be placed on the sector, in the near future
9.10 Sponsors new to power sector The founder Sponsors/ Initial Shareholders of the Project are relatively new entrants into the power sector, and therefore not very familiar with the business
Low The founder Sponsors are making sure that the top contractors, engineers, operators, consultants and project managers are brought on for the Project. These leading experts shall be responsible for establishing as well as running the project profitably. Albario Engineering (Pvt.) Ltd, an Initial Shareholder, is also a leading engineering company who is an award-winning preferred GE representative in Pakistan.
9.11 Inflationary pressures The Project shall be exposed to inflation both within and outside Pakistan.
Low Fixed and variable operational costs have been indexed for inflation, to WPI for local content and to US CPI for foreign component, to be adjusted on a quarterly basis. This allows the expenses to be effectively hedged against inflationary pressures.
9.12 Interest rate fluctuation The Project is based on 75% debt which makes it sensitive to adverse movements in interest rates.
Medium GPL has assumed a healthy debt-service coverage ratio of 1.34 times, throughout the loan tenure. This coverage is considered sufficient to tackle any expected adverse interest rate movements.
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Risk Level Mitigations
9.13 Recession The economic downturn and recessionary pressures can result in diluting profits
Low Electricity has a largely inelastic demand and in the current deficit scenario, a recession is not likely to significantly impact sales or profitability.
Additionally, as mentioned above, the 25-year PPA shall entail full capacity payment over the term with dispatch priority expected for GPL’s generation output.
9.14 Force majeure The Project shall be exposed to force majeure and events out of GPL’s control such as natural disasters, political upheavals, security disturbances etc.
Low/ Medium
Whereas Force Majeure is a risk that all businesses are exposed to, GPL has taken measures against most of these events through insurance. An extensive insurance cover against business interruptions, third party liabilities, sabotage and terrorism, employee liability and other risks has been taken, with a total sum assured of USD 400 million. Other such events are also hedged through government guarantees
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APPENDIX A: DETAILED TARIFF SCHEDULE
103
APPENDIX B: FINANCIAL MODEL
GRANGE POWER LTD : PROJECTED BALANCE SHEET
(USD Million) 0 1 2 3 4 5 6 7 8 9 10
Financial Year Ended June 30 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Fixed Assets
Capital Work-in-Progress 217
Operating Assets - 209 200 192 183 174 166 157 148 140 131
Total 217 209 200 192 183 174 166 157 148 140 131
Current Assets
Inventory & Stores, Spares and Tools - 7 7 7 7 7 7 7 7 7 7
Advance to O&M Operator 1 - - - - - - - - - -
Accounts Receivables - 4 4 4 4 4 4 4 4 4 4
Debt Service Reserve Account - 8 8 8 8 8 8 8 8 8 8
Cash and Bank Balances - 1 1 1 1 1 1 1 1 1 0
Total 1 21 21 21 21 21 21 21 21 21 21
Total Assets 218 230 221 213 204 195 186 178 169 160 151
Current Liabilities
Current Portion of Long Term Liabilities 7 8 10 12 14 16 19 22 26 30 -
Short Term Finances (Working Capital) - 11 11 11 11 11 11 11 11 11 11
Accounts Payables - - - - - - - - - - -
Creditors and Other Liabilities - - - - - - - - - - -
Provision for Taxation - - - - - - - - - - -
Dividend Payable - - - - - - - - - - -
Total 7 19 21 22 24 27 30 33 37 41 11
Long Term Liabilities 156 148 138 126 113 97 78 56 30 0 0
Total Liabilities 164 167 159 149 137 124 108 89 67 41 11
Share Capital & Reserves
Issued, Subscribed and Paid-up Capital 55 55 55 55 55 55 55 55 55 55 55
Reserves & Unappropriated Capital - 8 8 9 12 17 24 34 48 65 86
Total 55 63 63 64 67 72 79 89 102 119 141
Total Equity and Liabilities 218 230 221 213 204 195 186 178 169 160 151
104
GRANGE POWER LTD : PROJECTED BALANCE SHEET
(USD Million) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Financial Year Ended June 30 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037
Fixed Assets
Capital Work-in-Progress
Operating Assets 122 114 105 96 88 79 70 62 53 44 36 27 18 10 1
Total 122 114 105 96 88 79 70 62 53 44 36 27 18 10 1
Current Assets
Inventory & Stores, Spares and Tools 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7
Advance to O&M Operator - - - - - - - - - - - - - - -
Accounts Receivables 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
Debt Service Reserve Account - - - - - - - - - - - - - - -
Cash and Bank Balances 2 1 1 1 1 1 1 1 2 10 18 27 36 44 53
Total 14 13 13 13 13 12 12 12 14 22 30 39 47 56 65
Total Assets 136 126 118 109 100 91 83 74 67 66 66 66 66 66 66
Current Liabilities
Current Portion of Long Term Liabilities - - - - - - - - - - - - - - -
Short Term Finances (Working Capital) 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11
Accounts Payables - - - - - - - - - - - - - - -
Creditors and Other Liabilities - - - - - - - - - - - - - - -
Provision for Taxation - - - - - - - - - - - - - - -
Dividend Payable - - - - - - - - - - - - - - -
Total 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11
Long Term Liabilities 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total Liabilities 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11
Share Capital & Reserves
Issued, Subscribed and Paid-up Capital 55 55 55 55 55 55 55 55 55 55 55 55 55 55 55
Reserves & Unappropriated Capital 71 61 52 43 35 26 17 9 1 1 0 0 0 0 0
Total 125 116 107 98 89 81 72 63 56 55 55 55 55 55 55
Total Equity and Liabilities 136 126 118 109 100 91 83 74 67 66 66 66 66 66 66
105
GRANGE POWER LTD : PROJECTED INCOME STATEMENT
(USD Million) 0 1 2 3 4 5 6 7 8 9 10
Financial Year Ended June 30 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Generation (GWh)
Gross Billable Energy (GWh) 727 727 727 727 727 727 727 727 727 727
Auxiliary Consumption (GWh) 26 26 26 26 26 26 26 26 26 26
Net Billed Energy (GWh) 701 701 701 701 701 701 701 701 701 701
Revenue (based on Calculated Tariff)
Fixed O&M - Foreign 2 2 2 2 2 2 2 2 2 2
Fixed O&M - Local 1 1 1 1 1 1 1 1 1 1
Insurance 2 2 2 2 2 2 2 2 2 2
ROE Accured During Construction Phase 1 1 1 1 1 1 1 1 1 1
ROE 8 8 8 8 8 8 8 8 8 8
Withholding Tax 1 1 1 1 1 1 1 1 1 1
Loan Repayment 7 8 10 12 14 16 19 22 26 30
Interest Payment on Project Loan 26 25 23 22 20 17 15 11 8 3
Interest Payment on Working Capital 2 2 2 2 2 2 2 2 2 2
Capacity Purchase Price 50 50 50 50 50 50 50 50 50 50
Fuel 48 48 48 48 48 48 48 48 48 48
Variable O&M 4 4 4 4 4 4 4 4 4 4
Energy Purchase Price 52 52 52 52 52 52 52 52 52 52
Total Revenue 102 102 102 102 102 102 102 102 102 102
Operations & Maintenance Expenditure
Fuel - Gas 48 48 48 48 48 48 48 48 48 48
Variable O&M 4 4 4 4 4 4 4 4 4 4
Fixed O & M 3 3 3 3 3 3 3 3 3 3
Total O&M Expenditure 55 55 55 55 55 55 55 55 55 55
Non-Operating Expenses
Insurance 2 2 2 2 2 2 2 2 2 2
Total Non-Operating Expenses 2 2 2 2 2 2 2 2 2 2
EBITDA 45 45 45 45 45 45 45 45 45 45
Depreciation 9 9 9 9 9 9 9 9 9 9
EBIT 36 36 36 36 36 36 36 36 36 36
Interest and Bank Charges 28 27 25 23 21 19 16 13 9 5
Taxation - - - - - - - - - -
Net Profit After Tax 8 10 11 13 15 17 20 23 27 31
Dividends - 10 10 10 10 10 10 10 10 10
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GRANGE POWER LTD : PROJECTED INCOME STATEMENT
(USD Million) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Financial Year Ended June 30 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037
Generation (GWh)
Gross Billable Energy (GWh) 727 727 727 727 727 727 727 727 727 727 727 727 727 727 727
Auxiliary Consumption (GWh) 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26
Net Billed Energy (GWh) 701 701 701 701 701 701 701 701 701 701 701 701 701 701 701
Revenue (based on Calculated Tariff)
Fixed O&M - Foreign 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Fixed O&M - Local 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Insurance 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
ROE Accured During Construction Phase 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
ROE 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8
Withholding Tax 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Loan Repayment - - - - - - - - - - - - - - -
Interest Payment on Project Loan - - - - - - - - - - - - - - -
Interest Payment on Working Capital 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Capacity Purchase Price 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17
Fuel 48 48 48 48 48 48 48 48 48 48 48 48 48 48 48
Variable O&M 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
Energy Purchase Price 52 52 52 52 52 52 52 52 52 52 52 52 52 52 52
Total Revenue 68 68 68 68 68 68 68 68 68 68 68 68 68 68 68
Operations & Maintenance Expenditure
Fuel - Gas 48 48 48 48 48 48 48 48 48 48 48 48 48 48 48
Variable O&M 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
Fixed O & M 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3
Total O&M Expenditure 55 55 55 55 55 55 55 55 55 55 55 55 55 55 55
Non-Operating Expenses
Insurance 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Total Non-Operating Expenses 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
EBITDA 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11
Total Depreciation 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
EBIT 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3
Interest and Bank Charges 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Taxation - - - - - - - - - - - - - - -
Net Profit After Tax 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Dividends 16 11 10 10 10 10 10 10 8 2 2 1 1 1 1
107
GRANGE POWER LTD : PROJECTED CASHFLOW STATEMENT
(USD Million) 0 1 2 3 4 5 6 7 8 9 10
Financial Year Ended June 30 2012* 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Cashflow from Operating Activities
Profit Before Tax 8 10 11 13 15 17 20 23 27 31
Adjustments for Non Cash Items
Depreciation 9 9 9 9 9 9 9 9 9 9
Cashflows before Working Capital Changes 17 18 20 21 23 26 28 32 36 40
Add Back
Financial Charges 28 27 25 23 21 19 16 13 9 5
Debt Service Reserve Account - - - - - - - - - -
Decrease/ (Increase) in Current Assets (1) (11) - - - - - - - - -
Increase/ (Decrease) in Current Liabilities - - - - - - - - - - -
Cash Generated From Operations -0.7 34 45 45 45 45 45 45 45 45 45
Payments Made
Commissioning & Testing Costs - - - - - - - - - - -
Income Tax - - - - - - - - - - -
Financial Charges - 28 27 25 23 21 19 16 13 9 5
Debt Service Reserve Account - 8 (0) - - - - - - - -
Dividends - - 10 10 10 10 10 10 10 10 10
Total 0 36 36 35 33 31 29 26 23 19 15
Net Cashflow from Operating Activities (1) (2) 8 10 12 14 16 19 22 26 30
Cashflow from Investing Activities
Fixed Capital Expenditure (217) - - - - - - - - - -
Net Cashflow from Investing Activities (217) - - - - - - - - - -
Cashflow from Financing Activities
Equity from Sponsors 55 - - - - - - - - - -
Loan from the Bank 164 - - - - - - - - - -
Working Capital/ (Repyment) - 11 - - - - - - - - -
Repayment of Loan - (7) (8) (10) (12) (14) (16) (19) (22) (26) (30)
Net Cashflow from Financing Activities 218 4 (8) (10) (12) (14) (16) (19) (22) (26) (30)
Net Changes in Cash & Cash Equivalents - 1 (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1)
Cash & Equivalents at the Beginning of Year - - 1 1 1 1 1 1 1 1 1
Cash & Equivalents at the End of Year - 1 1 1 1 1 1 1 1 1 0.5
* Pre-commissioning period upto June 30, 2012
108
GRANGE POWER LTD : PROJECTED CASHFLOW STATEMENT
(USD Million) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Financial Year Ended June 30 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037
Cashflow from Operating Activities
Profit Before Tax 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Adjustments for Non Cash Items
Depreciation 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
Cashflows before Working Capital Changes 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10
Add Back
Financial Charges 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Debt Service Reserve Account 8 - - - - - - - - - - - - - -
Decrease/ (Increase) in Current Assets - - - - - - - - - - - - - - -
Increase/ (Decrease) in Current Liabilities - - - - - - - - - - - - - - -
Cash Generated From Operations 20 11 11 11 11 11 11 11 11 11 11 11 11 11 11
Payments Made
Commissioning & Testing Costs - - - - - - - - - - - - - - -
Income Tax - - - - - - - - - - - - - - -
Financial Charges 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Debt Service Reserve Account - - - - - - - - - - - - - - -
Dividends 16 11 10 10 10 10 10 10 8 2 2 1 1 1 1
Total 18 13 11 11 11 11 11 11 10 3 3 3 3 3 3
Net Cashflow from Operating Activities 2 (1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) 2 8 8 9 9 9 9
Cashflow from Investing Activities
Fixed Capital Expenditure - - - - - - - - - - - - - - -
Net Cashflow from Investing Activities - - - - - - - - - - - - - - -
Cashflow from Financing Activities
Equity from Sponsors - - - - - - - - - - - - - - -
Loan from the Bank - - - - - - - - - - - - - - -
Working Capital/ (Repyment) - - - - - - - - - - - - - - -
Repayment of Loan - - - - - - - - - - - - - - -
Net Cashflow from Financing Activities - - - - - - - - - - - - - - -
Net Changes in Cash & Cash Equivalents 2 (1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) 2 8 8 9 9 9 9
Cash & Equivalents at the Beginning of Year 0 2 1 1 1 1 1 1 1 2 10 18 27 36 44
Cash & Equivalents at the End of Year 2 1 1 1 1 1 1 1 2 10 18 27 36 44 53
109
GRANGE POWER LTD : PROJECTED FINANCIAL RATIOS
0 1 2 3 4 5 6 7 8 9 10
Financial Year Ended June 30 2012* 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
EBITDA Margin (as percent of Sales) 44% 44% 44% 44% 44% 44% 44% 44% 44% 44%
EBIT Margin (as percent of Sales) 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%
Net Profit Margin 8% 9% 11% 12% 14% 17% 19% 23% 26% 31%
Debt Ratio 64% 62% 59% 55% 50% 42% 32% 18% 0% 0%
Debt-Equity Ratio 2.35 2.21 1.98 1.69 1.35 0.99 0.63 0.30 0.00 0.00
Debt Service Coverage 1.34 1.34 1.34 1.34 1.34 1.34 1.34 1.34 1.34 1.34
Times Interest Earned 1.30 1.36 1.44 1.54 1.69 1.90 2.22 2.77 3.91 7.56
Times Interest Earned (EBITDA) 1.61 1.69 1.78 1.92 2.10 2.35 2.75 3.44 4.85 9.38
Current Ratio 1.10 1.02 0.94 0.86 0.78 0.71 0.63 0.57 0.50 1.90
Cummulative Yearend Cash Balances (USD Million) 1.17 1.09 1.01 0.93 0.86 0.78 0.70 0.63 0.55 0.47
Net Asset Value (USD Million) 62.85 62.58 63.77 66.67 71.57 78.83 88.85 102.10 119.14 140.63
Project Results
IRR 16.24%
NPV at 13% discount rate (USD) 21,303,067
NPV at 15% discount rate (USD) 6,782,687
Payback (years) 6
Discounted Payback (years) 12
Equity Results (NEPRA)
IRR 15.07%
NPV at 13% discount rate (USD) 5,663,151
NPV at 15% discount rate (USD) 187,067
110
GRANGE POWER LTD : PROJECTED FINANCIAL RATIOS
11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Financial Year Ended June 30 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037
EBITDA Margin (as percent of Sales) 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17%
EBIT Margin (as percent of Sales) 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%
Net Profit Margin 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%
Debt Ratio 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Debt-Equity Ratio 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Debt Service Coverage N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Times Interest Earned 1.66 1.66 1.66 1.66 1.66 1.66 1.66 1.66 1.66 1.66 1.66 1.66 1.66 1.66 1.66
Times Interest Earned (EBITDA) 6.92 6.92 6.92 6.92 6.92 6.92 6.92 6.92 6.92 6.92 6.92 6.92 6.92 6.92 6.92
Current Ratio 1.29 1.18 1.17 1.17 1.16 1.15 1.15 1.14 1.28 2.03 2.78 3.59 4.39 5.19 5.99
Cummulative Yearend Cash Balances (USD Million) 2.19 1.02 0.94 0.87 0.79 0.71 0.64 0.56 2.12 10.22 18.33 26.98 35.63 44.28 52.93
Net Asset Value (USD Million) 125.35 115.52 106.78 98.05 89.31 80.57 71.83 63.09 55.99 55.44 54.88 54.87 54.86 54.85 54.84