Why to Invest in the Power Sector in Pakistan

8/3/2019 Why to Invest in the Power Sector in Pakistan

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WHY TO INVEST IN THE POWER SECTOR IN PAKISTAN

1. Strategic ImportanceAdequate power supply is a key to

achieving sustainable economic growth.Presently, out of around 162 millionpopulation only 65 70% has access toelectricity and the Government iscommitted to provide electricity accessto total population in the minimumpossible time.

2. Strong and increasing Demand forElectricity

Demand has outstripped supply ofelectricity; the country is currentlyfacing power shortages of approximately2500 3,000 MW. It is expected that demandwill exceed supply by about 5,500 MW in theyear 2010. The present electricity demand-supply gap, coupled with consistentgrowth in demand (6-7% per annum), clearly

indicates the fundamental need forenhancing the countrys current powergeneration capability.

3. World-Renowned Companies AlreadyOperating in Pakistan

Presently, sixteen Independent PowerProducers (IPPs) are operating in thecountry. Thus, world-renowned power

sector players are already present in themarket, e.g. Siemens, General Electric, AES,International Power, El Paso, Tenaska.

4. IPPs under Construction


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At least ten IPPs with a capacity of 2,200MW have achieved Financial Close andstarted project construction aftergetting approval of tariff from NEPRA-through a well-defined process of tariff

approval that includes public hearing.These IPPs are sponsored by local as wellforeign investors.

5. GoPs Policy Commitment to IncreasePrivate Sector Participation

Presently, approximately 40% ofgeneration capacity of the country is inprivate sector, and another 2,200 MW IPPs

are under construction. The successivegovernments in the country havereiterated the commitment to increaseprivate sector participation.Consequently, major divestments ofpublic sector units have been made invarious sectors while no thermalgeneration capacity has been added in thepublic sector since the early 90s.

6. Transparent Regulatory EnvironmentThe National Electric Power

Regulatory Authority (NEPRA) has beensetup for the regulation of power sectorin Pakistan; in order to balance theinterests of consumers and power sectorcompanies. NEPRA has made considerableprogress towards the development of theregulatory regime and future market

design for the power sector. Allgeneration, transmission, anddistribution companies are now licenseesof NEPRA, and abide by the rules andregulations laid down by the regulatorfor reliable and efficient operation ofthe power sector.


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7. One-Window Facility and Investor-Friendly Policy

PPIB with a successful track-recordof attracting FDI of over US$ 4.5 Billion in

the last one decade or so provides a one-window facility for the processing ofprivate power generation projects above50 MW. The Policy for Power GenerationProjects, 2002 is an investor-friendlypolicy that offers an attractive set offiscal and financial incentives to theprivate sector. The Policy provides abalanced risk profile for the investors,lenders, and government agencies.

8. Availability of GOPs GuaranteesGOP guarantees the performance

obligations of its entities such as thepower purchaser, and the provinces. GOPalso provides protection to sponsors andlenders in case of termination of theproject.

9. Predictable Multi-Year & Long-TermTariff

Typically, a long-term tariff of 25 30years is contracted with the powerpurchaser. The IPPs, thus, are notsubjected to market risk for their output.The projects are expected to earn anattractive / competitive and stablereturn on investment.

10. Standardized Security PackageStandardized and tested agreements

namely, the Implementation Agreement (IA),the Power Purchase Agreement (PPA), theFuel Supply Agreement (FSA), etc. are available upfront.


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11. Pass-through of Fuel Cost andAdditional Taxation

Any variation in price of fuel is to bepassed on to the power purchaser.

Similarly, any additional taxation overand above the Tariff assumptions is liableto be passed on to the power purchaser.

12. Risk Coverage for Exchange RateVariation

To cover the exchange rate variationsrisk, the various tariff components areindexed for variation in the Pak Rupee and

US$ exchange rates.

13. Protection against change in Duties &Taxes and Political Risks

GOP guarantees protection against anychange in duties and taxes, and againstspecified political risks.

14. Income Tax ExemptionExemption from income tax, including

turnover rate tax and withholding tax onimport, is available to private powergeneration projects.

15. Abundant Hydel / Coal PotentialThere is an identified hydropower

potential of over 40,000 MW, andavailability of abundant indigenous coal

resources in the country. The Thar lignitereserves in the Province of Sindh areestimated to be around 175 billion tonnes.

16. Power Purchaser to bear HydrologicalRisk


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For hydropower projects,hydrological risk is to be borne by thepower purchaser.

17. Availability of Skilled ManpowerGood quality and cost-effective

technical manpower is available inPakistan.

18. Availability of FinancingBanks are keen to lend to the power

sector due to lower risk profile and GoPsguarantee for power purchaser and the

provinces.

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Why to Invest in the Power Sector in Pakistan