ISLAMABAD: The development of a 660MW unit at the Jamshoro Coal Power Limited (JCPL) is facing serious technical, legal, and commercial challenges as the federal government tries to iron out a deal with K-Electric for use of the unit.
In a recent meeting of a technical committee constituted by the power division of the energy ministry, the government told K-Electric point blank that it would help them arrange meetings from financers to put money into the projects, but it could not provide any guarantees.
JPCL was incorporated in August 1998 under companies Ordinance 1984 and has been a WAPDA owned entity since 1999. A while back, KE had expressed interest in developing a second unit of the project to bolster its provision of electricity in Karachi. The government had asked the power company to go to Jamshoro for a site visit and prepare a proposal accordingly.
In a meeting of the earlier mentioned technical committee on the 15th of March, which was attended by all major stakeholders, KE’s proposal and site visit report was discussed in detail. A big issue was over financing and where it would come from, since development requires a large sum of money, while KE also shared other roadblocks that they were facing in the development.
Documents available with Profit reveal that some headway was made as the committee decided that JPCL will immediately initiate the process for transfer of title of land from WAPDA to JPCL. Similarly, the meeting will be arranged for finalisation of the transaction structure of the proposed transaction between a smaller more focused group, with representation of PPIB and KE and NTDC to prepare an initial study on the demand supply analysis, in the case KE opts to offtake power from both units (2x660MW) of Jamshoro Coal Power Project.
Despite this, there still seems to be some doubt over financing. It was decided that the power division would facilitate KE’s team in arranging meetings with potential lenders such as the Asian Development Bank (ADB), the Saudi Fund for Development (SFD) and the Kuwait Fund for Arab Economic Development (KFAED). However, the power division made it clear during the course of this meeting that the government will not provide any guarantees or engage directly with SFD and KFAED to arrange finances/funds for KE, for the development of Unit-II.
It is worth noting that the government is already worried about tough ongoing negotiations with the IMF. A lot depends on reaching a staff level agreement since that will release other funds from lenders to pakistan.
Technical challenges
As per documents, a major challenge KE faces is separating common facilities for development of the unit on 100 percent Thar coal. During the meeting of the committee, the chair remarked that the original design of Unit-II was based on the 80:20 blend of imported and local coal. However, the government has recently decided that only local coal is to be used for power generation. This means that KE will have to initiate design changes in both the storage and handling of the coal.
The cooling water intake and retention systems, ash handling system, demineralization system, air compression system, and unit dedicated auxiliaries all have to be appropriately changed. Apart from modification/upgrades in aforementioned systems, redesigning of boiler and flue gas treatment system will also be required. As a result of this, the chair asked KE to conduct a feasibility study. The committee also discussed the option for development of Unit-II on blending with a ratio of 60:40 or 70:30 in the feasibility study.
The chair stated that as per the directive of GoP, we are exploring possibilities to develop Unit-II on 100% Thar coal, hence this should be considered as a first option. Regarding power evacuation of Unit-II from either 220kV or 500kV grid, it was decided that KE will conduct load flow studies, short circuit, and stability study, to evaluate all the probable options, said available documents.
Commercial and Regulatory Challenges
KE also informed the committee meeting that due to the current embargo on coal financing by Western and Chinese lenders, it is vital for the government to retain Saudi Fund for Development (SFD) and Kuwait Fund for Arab Economic Development (KFAED). Furthermore, consent of existing lenders will also be required for development of projects in private mode. However, the Power Division’s Additional Secretary made it clear that GoP will not provide any guarantees or engage directly with SFD and KFAED to arrange finances/funds for KE, for the development of Unit-II.
In response, KE said that they are not looking for guarantees from the government and will arrange financing themselves. However, a meeting with SFD and KFAED needs to be arranged for which the government has agreed to facilitate KE. KE representatives also pointed out that the title of the land for the project still resides with WAPDA; therefore, the change in land title will be required to facilitate this transaction. Upon this the Chair (MD PPIB) requested the CEO of GHCL to confirm the status of land and initiate the process for transfer of title of land from WAPDA to JPC, said documents.
Legal and Transaction Structuring
According to available documents, KE further informed that the possible options available under the constituted framework of Pakistan are Public Private Partnership (PPP) under P3A Act 2017, Privatization under Privatisation Ordinance 2000, to transaction under the inter-governmental commercial transaction Act 2022. KE stated that development and off-take of Unit-II in private mode, separate ownership structure will be required for both units of JPCL. If that is the case then the common utilities, which were developed to provide redundancy for both units of JPCL, may require to be carved out into a separate entity.
The ownership of this entity will be shared between JPCL, and the private owner(s) selected for the development of Unit-II, according to their respective equity investment. This new entity will then be extending services to both the units. Therefore, it was highlighted that the implementation of such structuring for carving out one unit only will require extensive legal and regulatory manoeuvring, however, it is broadly workable, as also highlighted by PPIB’s DG (Law) and KE’s legal counsel. Regarding the G2G option, KE‘s legal counsel informed that the federal government on behalf of KE will engage with foreign governments or its entities to process this transaction. KE along with the federal government shall explore various entities who are willing to finance the project.
The chair stated that for the G2G option if KE is putting back the onus on GoP to find and engage the foreign investors, then this may not be a feasible option. Additional Secretary, Power Division added that G2G act only permits transactions with those entities who are nominated by foreign governments having direct shareholding or owned by respective foreign governments; whereas, KE is not a designated entity of any foreign government.
The chair also stated that GoP may not be willing to extend any kind of concession for the project such as providing its guarantees, or even reaching out to any foreign states for inviting the investors to invest in the project on G2G basis. However, if KE is able to secure any foreign state interest in the project on its own, then the GoP will be willing to look into this option. In addition, DG (Law), PPIB was of the view that if PPP option is to be adopted for transaction, then PPP mode of Power Policy 2015 will be applicable instead of P3A act, however, rules are not formulated for PPP mode in Power Policy. The chair desired law team of PPIB and Legal Counsel, KE may hold a meeting to discuss different options to attain clarity on the best available route for structuring of the transaction.
