Energy Sector in Pakistan

Pakistan Peak Power Demand & Supply Forecast – 2020

Demand Supply gap likely to continue despite optimistic capacity addition scenario

• A balanced supply demand situation to prevail even if peak electricity demand remains by 3% only

Pakistan’s Energy Options

Import Power from Iran or Tajikistan Gas Pipeline Gas Stranded Gas Fields LNG

RFO Coal Indigenous Imported

Renewables Hydel (Run of the River) Wind Others

Power Import Options

Existing Power Imports from Iran to Pakistan : 0.3% (269 GWh out of 94,653 GWh) of total electricity supply in 2010 near Pak- Iran border

WAPDA and TAVANIR (Iranian power utility) signed a contract in 2007 for supply of 100 MW Power from TAVANIR Grid to Gawadar

Tariff : Base rate of US cents 6.1 / kWh with effect from commissioning of 220kV interconnection for a 30 year period

Future Possibilities : Iran- Supply of 1000 MW electricity

Iran’s offer to supply 1000 MW supply is still in initial stages

Central Asia South Asia (CASA 1000) Transmission Line from Tajikistan 650 km long transmission line from Tajikistan to Pakistan via Kabul/Jalalabad has been

proposed by ADB & WB. Approx 70% of the transmission line to be laid within Afghanistan. Includes 50 km distance within Pakistan only

MOU signed in 2007 between Pakistan, Afghanistan and Tajikistan for supply of a total 1000 MW

Electricity availability for 4 months only as power generation source will be hydel No progress in feasibility study, however, expected tariff will be in the range of US cents 8-

9/kwh delivered in Pakistan

Little likelihood of 1000 MW each supply from Iran and Tajikistan in the near foreseeable future

Gas

Pipeline Gas : Non availability of gas to new power projects due to increasing supply deficit (2 Bcf)

6FA based plants gas supply agreements (GSA) lapsed in June 11 and limited supply was provided till Nov 11 and no supply at the moment

Government is not fulfilling its commitment under long term Gas Supply Agreements

Industries are facing 3 to 4 days load shedding in a week.

Fertilizer sector has not received gas during winter season

Only those power plants are getting gas which are on low Btu dedicated fields

Government has signed the 750 MMSCFD gas supply agreement with Iran but is struggling to arrange US$ 1.5 billion financing to construct the 780 km pipeline inside Pakistan

Chinese bank who agreed to finance the Iran Pakistan pipeline project has backed out due to US pressure

1735 km long TAPI gas pipeline to supply 1.2 BSCFD is also doubtful due to Afghanistan war

Stranded Gas Fields : Limited power generation potential from the identified gas fields ( Zarghun South, Sara West) due to

insufficient quantity of low Btu gas

Gas companies can off-take gas quickly at competitive prices from sites producing medium heating value gas

LNG Global LNG trade ( 298 billion m3 ) in 2010 is 30.5% of total gas trade around the world, 9.4% of

total gas consumed in the world and 2.2% of world’s total energy demand

23% growth in LNG consumption in 2010

LNG C&F price will be around USD 19/ MMBtu @ USD 110/barrel FOB crude oil parity. Power generation tariff US cents 16/kwh

LNG based power project is in the best interest of the country due to higher efficiency and clean fuel. However, long term supply agreements are essential to pursue LNG based projects but so far, neither government nor any private company has been able to secure such agreements

LNG is the best option to fill the energy gap. There are constrains in RFO supplies & also question marks in long term availability

Japan is the largest importer of LNG and after their closure of nuclear plants, LNG demand has further increased which absorbed the surplus LNG available in the market

Australian LNG trains will be completed in couple of years which will ease the situation

Six reputable LNG Suppliers has shown their interest by submitting LOI for supply of gas to KAPCO

Port Qasim Authority also allocated a provisional Site at Khiprianwala Island for KAPCO’s LNG terminal

LNG Terminal Project Cost:

Estimated project cost of studies, construction management, dredging & terminal construction is around US$ 350-400 million

Leasing cost of FSRU would be around US$ 100,000 per day

LNG Pricing Mechanism

The LNG purchase price is highly dependant on contract structure Spot market trade Long-term supply agreement

There is no fixed pricing formula for the spot market trade, its market value is determined by supply availability, demand and prices of competing fossil fuels

The LNG price is generally linked with Henry Hub & Liquid fuels in Atlantic basin, with Japan Customs Cleared (JCC) in Pacific basin, with NBP, TTF & Brent Crude (BC) in Europe and with Brent Crude (BC) in Asia

The generic pricing formula for long term LNG supply contracts is as follows:

LNG Price = ß x Oil Price + K

ß – Percentage (determined through negotiations) which is applied to indexed Crude Oil price

Oil Price – BC or JCC

K – Fixed negotiated charge levied by supplier to cover for his investment in liquefaction, LNG tankers etc.

LNG Pros & Cons

Pros: Cleaner fuel compared to Oil and Coal Higher efficiency Convenient to operate and easily manageable with existing gas infrastructure More output and lesser washing outages. Additional 100 MW equivalent generation from

KAPCO Lower variable O&M cost on LNG compared to oil Much cheaper compared to HSD. KAPCO’s Block 3 (250 MW) utilization will increase on

LNG as it will be higher on merit order compared to thermal plants on Furnace oil

Cons: Higher price compared to local gas No terminal available for immediate import Power sector is the potential buyer as it is cheaper than HSD & LSFO but power purchaser

is not in a position to provide cash payment guarantees for LNG long term agreements

Gas import either from cross border pipeline or LNG would be required to bridge the demand supply gap of energy and power

MERIT ORDER @ Brent Crude Price of USD 120/Barrel and LNG with 0.152*BC+0.5USD

Plant & Fuel type Fuel Component (Cents/kwh)

Gas based project Fauji, Engro, Uch, Rosche etc(47 % η) 3.84

GE 6FA based projects on LNG 15.21

KAPCO Block 1 (47.6 % η) on LNG 16.35

KAPCO Block 2 (43.4 % η) on LNG 17.93

KAPCO Block 1 on LSFO 18.45

KAPCO Block 3 (42 % η) on LNG 18.55

RFO based projects with 44 % η 19.15

KAPCO Block 2 on LSFO 20.25

GE 6FA based projects on HSD 20.35

Hubco & AES with 38 % η on RFO 22.17

KAPCO Block 3 on HSD 24.49

GENCO’s & Rental (i.e. 32% η plant) on RFO 26.33

Furnace Oil

Long term availability of furnace oil is reducing as production is decreasing due up gradation of

refineries in Middle East

Global demand for RFO is also expected to decline gradually due to environmental concerns

and rising price trend of RFO

Demand for RFO in Pakistan has increased in last couple of years due to capacity expansion in

the power sector. 1200 MW RFO reciprocating engine based plants have been commissioned

Another factor for increase in furnace oil consumption is the non availability of gas to power

sector and industry.

90% of furnace oil has been consumed in power sector

Furnace oil share in total petroleum products’ consumption is 45.2%

Major cause of circular debt is the costly generation on furnace oil and main reason

behind forced load shedding is the non availability of oil due to financial crunch &

infrastructure constrains.

No further projects should be considered on Oil

Coal ScenarioGLOBAL World’s proven coal reserves – over 861 billion tons About 18% of total coal produced is traded internationally Coal has 30% share in the global energy and 41% in the global power production Most of the coal traded is used for power generation & steel manufacturing 27,644 MW of coal based power plants are under development & construction in the USA China’s total installed generation capacity is over 900 GW and 75% is based on Coal

PAKISTAN

There are 17 coal fields in Pakistan having a total of 188 billion tons of coal reserves. Thar coal field is the biggest with an estimated reserves of 175 billion tons

Total coal production in Pakistan was 3.5 Mt through small scale mining whereas total coal consumption was 7.7 Mt in 2011

The biggest coal consuming industries are cement (54%) and brick kilns (39%) Coal contributed only 0.1% of total power generated in 2011 Lakhra is the only operational coal based power plant with capacity of 150 MW (Currently

operating at 40 MW). It was constructed by WAPDA in 1996 and acquired by Associate Group in 2007

Thar Coal Field

Thar is the 7th largest coal reserve having 175 Bt of Sub-bituminous coal which is equivalent to 51Bt of oil (more than Iran & Saudi Arabia’s combined Oil reserves

It is spread over an area of 9000 km2 It is located 410 KM from Karachi, 65 KM from the Mithi City & 25 KM from Islamkot The highest elevation of sand dune is 125m Semi-arid desert with scarce water resources The Coal seams are of variable thickness ranging from 0.2 to 22.8 meters with upto 20 Seams at one location The shallowest coal seam in the field lies at a depth of 123 meters & the deepest coal seam (depth of 1st coal

bed) is at 245 meters Six blocks have been allocated to different companies to develop coal mines. 3 Main Aquifers are :

1st - Above the Coal Zone (Depth : 53 – 93 M from Surface) – Recharge from rain

2nd - Within the Coal Zone (Depth : 120 M from Surface) – No recharge

3rd - Below the Coal Zone (Depth : 200 M from Surface) – Recharge from India

3rd one is the source of water for most of the tube wells installed in Thar area

Infrastructure already developed by the Government of Sindh for Thar Coal Field :

Metal roads available in Blocks I, II & IV Water Supply :

150,000 Gallons per day (through Reverse Osmosis)

100,000 Gallons per day (Pipeline from Naukot to Islamkot)

Fiber Optics, Rescue Centre adjacent to Block II (Under Construction) & Thar Lodge – 20 Suites (Under Construction)

Challenges Project financing Project size would be quite big and under prevailing circular debt issue, it would be very risky to

undertake this project Emissions Compliance & EIA approval Aquifer Management. Mud formation by upper & intermediate aquifer during mining Solid and liquid waste disposal Overburden dumping Skilled workforce for mining operation Spontaneous combustion due to oxidation on exposed or stockpiled drying lignite Washing & drying of coal Supply chain & logistics of limestone

6.5Mt/annum mine project cost will be around one billion dollar and additional 10 MT/annum mine will cost only USD 600 million

Power tariff would be less than 10 US cents

There are many challenges to pursue this project but it is in the best interest of the country and as the tariff would be half compared to oil based projects which will provide some relief to power purchaser also

Thar Project Challenges & Conclusion

Hydro Power Sector Overview

Hydro Potential and Opportunities :

Current estimate - over 50,000 MW of identified projects at more than 600 sites (including operational capacity)

125 sites with a total capacity of approximately 6,600 MW, are already in operation in the public sector

17 medium sized (100 MW – 1000 MW) Run-of-the-River raw sites identified in the GTZ Study have not been allocated yet

Status of Projects under Development : 18 LOIs issued to various IPPs with a total capacity of 5,800 MW

(300MW under 1995 Policy, 5500MW under 2002 Policy) Only Laraib (84MW) has started execution of the project. Hubco

has acquired 75% stake in the project Patrind 126 MW is also in advance dtage of development Most sponsors lack financial and technical capabilities required to

develop the projects but are demanding huge premiums to sell the majority stake.

Feasibilities being conducted by most sponsors are not upto mark

Hydro Power- Screening Study

8 out of 17 unallocated projects detail is as follows

KEY FEATURES OF THE PROJECTS

Most sites are situated in remote, inaccessible areas requiring infrastructure development Population resettlement issues likely to be low because projects lie in narrow valleys where population

density is very low

Project River/Location Capacity

(MW)Dam Length

(m)Dam Height

(m)Tunnel Length

(km)

Estimated Project Cost*

(MUS$)

CostMUS$/MW

Tariff Usc/kWh

Laspur Chitral, NWFP 133 130 12 33.5 441 3.3 15.2

Korag Parait Chitral, NWFP 247 100 32 22 1046 4.2 17.7

Gahriat Chitral, NWFP 355 90 37 19 1,327 3.7 14.9

Altit Indus, NWFP 249 N/A 20 13 733 2.9 10.8

Karang Indus, NWFP 474 300 60 21 850 1.8 9.9

Naran Kunhar, NWFP 225 350 140 10.6 1037 4.6 20.9

Balakot Kunhar, NWFP 204 150 140 4.5 671 3.3 12.8

Mahl Jhelum, AJK 590 350 80 3 x 0.7 km 1,325 2.2 8.1

* Includes transmission line cost

Hydro Power - RecommendationFinancing Availability : Easier financing availability from international lenders for Run of the River projects ADB & IDB are major lenders of Laraib Project in AJK

Pros : Expected Equity IRR of 17% with upward potential in case carbon credits become available Renewable source of power generation Tariff adjustment facility provided by NEPRA due to cost escalation during project

implementation Reduce dependence on imported oil and reduce the Country’s import bill

Cons : High level of expertise in civil and hydrology needed (generally not available in Pakistan) Long Gestation Period- Minimum 7 years (3 years for project development & 4 years

construction) Security problems in certain areas

Recommendations : Hydel power generation is a clean energy option but not the right time to pursue hydel

project

Rapid growth in worldwide wind power generation - 11 fold increase during last decade to approx. 200 GW

40 GW capacity addition in 2010 China, United States, Germany & Spain are the major players China has added 43.5 GW capacity in last five years and becomes the leader in

this field. United States has also added 31 GW in the same period India has around 13 GW installed capacity. Wind graveyards have been

witnessed in India as the initial wind turbines were installed with inadequate research & wind data analysis

All the major players manufacture wind turbines locally Turbine availability was a major issue in the past but after China’s entry wind

turbine availability is not an issue Wind turbines require a minimum wind speed of 10 mph (16 km/h) i.e 4.5 m/s

or greater. Ideal Speed is 12 m/s or above

Wind Power - Global Scenario

Wind Power - Pakistan Scenario

Pakistan has a considerable potential of wind energy of over 50,000 MW mainly in coastal areas Alternative Energy Development Board (AEDB) has been mandated by GOP to introduce,

promote and develop renewable energy in Pakistan Power Purchase Agreement is under development for a project life of 20 years AEDB has issued 96 LOIs of 50 MW each to date 50 MW project requires 1,000 – 1,200 acres of land Total of 33, 976 acres of land has been allocated to 22 Investors : 23, 646 acres of land (19,807 acres in Gharo and 3,839 acres in Jhimpir) have so far been allocated to 15

investors 10, 330 acres of land are being provisionally allocated to 7 more wind investors Land Allocation charges by AEDB: 1st 10 Years - @ US$ 10/year/acre. Next 10 Years: @ US$ 20/year/acre AEDB takes lease charges for first 10 years in advance i.e US$ 100k Only few investors are seriously pursuing the projects . Most investors are not even installing the

wind masts for wind data analysis (cost is around PKR 5 million/mast) Coastal and Northern areas of Pakistan have adequate wind speed to make wind power

generation feasible Reliable wind monitoring & analysis are required prior to finalizing accurate wind farm design Key issues & challenges related to wind power include lack of technical know how, high cost of

wind turbines & reluctance on part of WAPDA due to extreme variability in power dispatch

Solar Power Generation

Globally installed power generation capacity based on solar energy reached 8,500 MW in 2007 growing @ approx. 50% p. a in the last 5 years on the back of strong policy incentives such as feed in tariffs, tax cuts and subsidies

Technologies for solar power generation : Photovoltaics (PV) : Conversion of sunlight into electricity directly through solar cell. The type of

PV cells are :

Thin film technology market share is on the rise due to cost effectiveness The capital cost for a 5 MW PV power plant based on C -Si type is approx. US$ M 48

which translates into a tariff of Usc 80/kwh for a target IRR of 15%

Type Efficiency (%) Cost per module

(M US$ /MW)

Market Share (%)

Crystalline Silicon (c-Si) Upto 20 4 90 - 95

Thin Film Technologies

Amorphous Silicon (A-Si) 7 2 - 3 2 - 3

Copper Indium Gallium Selenium (CIGS)

11 1.8 - 2.5 <1

Cadmium Telluride (CdTe) 8 1.5 2 - 4

Solar Power Generation Concentrating Solar Thermal (CST) Power Generation : Sunlight is concentrated to generate

steam for turbine operation. Key technologies in CST are:

Solar Troughs are the only demonstrated CST technology Economics of Andasol power project Spain commissioned in September 2011:

Capacity - 150 MW Area – 2 Square km Project Cost - US$ 1200 M Tariff - Approx USc. 35/kwh

Areas close to Pakistan-Iran border have high solar potential above 2,400 kWh/ m2/year Mainland areas of Sindh and Punjab have moderate solar potential (1,800 - 2,000 kWh/ m2/year) Conclusion :

Capital intensive technologies that are still being developed. May become competitive in future depending upon technology improvement, global energy prices, environmental regulations and supply/demand situation

Globally, development of Solar Power is linked to Govt. incentives and subsidies In the absence of any government incentives or subsidies, solar power generation cannot be pursued

in Pakistan

Solar Troughs Solar Tower Solar Dish

Single Biggest Unit 80 MW 10 MW 25 kw

Solar To Electric Efficiency , %

14-15% 10% 17%

3 tonnes baggasse on wet basis is produced for 10 tonnes of sugar cane crushed

Around 14 million tonnes of baggasse is produced annually capable to produce over1000 MW electricity

Baggasse is primary source of fuel for sugar mill’s low efficiency boiler

Currently, approx. over 500 MW is being produced by sugar mills for captive use

Government has announced co-generation policy and asked sugar mills to construct high efficiency plants to be operated on baggasse during crushing season and on coal during off season

Few sugar mills are pursuing 80 to 100 MW projects

JDW conducted feasibility study but later shelved the 80 MW project

Fatima group is pursuing 100 MW co-generation project

Baggasse best utilization is to consume at sugar mill premises and transportation would be difficult if someone consider a bigger project

Electricity can also be produced from molasses, a by-product of sugar industry, through biogas technology

Baggasse based co-generation project

Jatropha curcus is a hardy oil seed bearing tree

Centre of origion is Central America and commonly used in tropical growing areas

Oil is produced by crushing jatropha seeds and then converted to biodiesel through transesterification process

Can grow anywhere, even on marginal soils and require less water compared to other crops

Jatropha can survive in marginal conditions but this also means marginal yield

Plant life is 30 to 50 years and best time for plantation is winter

One hectare yields around 1500 litres biodiesel per annum

Initial fruiting just after 7 months of plantation and maximum yield after 3 years

Seed cake (by-product) can be converted to fertilizer & animal feed or can be used as fuel in boiler

Seed price is Rs. 2000 per kg and around 1000 seeds in one kg. Sapling price is Rs. 25 each

D1 Oil, a UK based biodiesel company has cultivated 81000 hectares of jatropha in India

Crop is still in research phase and production is slightly unpredictable

The project can be considered if Government provides land without any charge as practiced in India

Jatropha - Biodiesel

Star Power was the 1st IPP under 2002 policy.

Al Ghuriar group (UAE) are Sponsor of this project and has so far invested over 5 million dollars (purchased 71 acres land & made advance payment to Siemens for ST)

They failed to implement this project due to weakness of their business development team

NEPRA determined their tariff in Dec ’05 and then re-determined in July ’08

Star project is on the same field (Mari deep) as that of Fauji Foundation Daharki project

Star team signed all the agreement by just following Fauji footsteps but failed to achieve financial close

Due to long delay in project implementation, PPIB has asked to quadruple the LOS guarantee

Iqbal Z. Ahmed signed a SPA in 2009 and paid one million dollars but not pursuing the project. Al Ghurair want to terminate the SPA if some other strong Sponsor take this project

GSA Take or Pay triggered in June ’10 which needs to be resolved with Mari

Mari gas is willing to discuss the GSA’s Take or Pay condition if serious investor will pursue this project

Project IRR will be around 15%

Acquisition Opportunity

Areas of Concern Dependence on Oil:

Due to shortage of gas, dependence on oil has increased which is impacting the bottom line

Heat Rate: Struggling to meet the target (PPA) heat rate due to low efficiency on LSFO and more

operation on LSFO

Startup on Diesel: High diesel price is impacting the profitability in the absence of gas

Availability: Availability has reduced due to shortage of gas, inability of PSO to deliver required amount

of LSFO due to infrastructure constrains and cash flow issues. It has potential to generate LDs

Utilization factor is also around 50%

Mitigation:

For smooth and reliable operation, gas availability must be pursued

Very low probability of having gas from the system

LNG would be the only option

Proposed Business Strategy Betterment Projects

Evaluate & implement projects to enhance efficiency of the plant Conduct auxiliary power audit

Monitor the Circular Debt Issue: Although, there is huge gap between demand and supply and ECC has also mandated PPIB

for 5000 MW unsolicited projects on any fuel & technology however, new project can be initiated after easing of circular debt issue

Continue to pursue PEPCO/WAPDA for cash payment guarantee Keep engagement with gas supply companies and LNG suppliers to develop workable LNG

supply model

Pakistan Power Sector: Huge gap between demand & supply of electricity. Under 2002 power policy, power

projects will be developed in private sector Power sector provides secure return on investment other than non payment by power

purchaser Opportunity Based Growth after resolution of circular debt :

LNG terminal project should be developed which will provide reliable operation of existing facility and at the same time will provide opportunity to expand

Acquisition of Star power may be evaluated Small hydel projects of 100 MW may be pursued Thar Coal mining and Power generation would be good opportunity if company decided to

launch a big project