Karachi's Power Crisis Worsens as Two Independent Power Producers Halt Electricity

---

Researched by Industrial Info Resources (Sugar Land, Texas)--Karachi's power outage woes have increased after two independent power producers (IPPs) decided to stop power production at their plants, citing non-payments of dues. The Tapal Energy and Gul Ahamed power projects have ceased supply of power to the grid, alleging that Karachi Electricity Supply Company (KESC) (Karachi, Pakistan) has defaulted on payments.

Two other power plants, the Korangi gas-powered and the Bin Qasim thermal power plants, are reportedly operating below full capacity. According to sources, five units of Bin Qasim are operating below optimal capacity, while the sixth unit has been shut down. KESC claimed that the shortfall was only about 119 MW, but many parts of the city were facing power cuts for several hours on a daily basis.

Private power producers have resorted to shutting down power supply after KESC withheld payments. The concern among the IPPs grew after one of the checks received from KESC bounced. Last week, after the IPPs decided to stop supply, KESC sought the help of Water and Power Development Authority (WAPDA) (Lahore, Pakistan) to supply 2,037 MW of power for a demand of 2,156 MW. On September 26, KESC was able to supply only 1,971 MW of the total demand of 2,160 MW, with assistance from WAPDA. On September 30, KESC supplied 1,963 MW of demand of 2,161 MW.

Several power producers have complained of non-payments and overdue payments. Despite being issued reminders, KESC still owes $156.37 million to Sui Southern Gas Company (KAR:SSGC) (Karachi), $288.69 million to Pakistan Electric Power Company (PEPCO) (Lahore), and $60.14 million to two other IPPs. Reports indicate that KESC has outstanding payments of about $721.7 million to be made to international banks and funding agencies.

Early last week, KESC announced that it was disconnecting the power supply to Karachi Water and Sewerage Board (KWSB) (Karachi) for four to six hours per day because of non-payments of dues. Sources have said that this move is part of KESC's strategy to recover pending dues and improve its financial position. KWSB officials have stated that the dues were being paid as per the earlier agreement arrived at between KWSB and KESC. KWSB hopes to convince KESC to reconsider the decision to disconnect the power supply. If KSEC decides to implement the decision, Karachi residents will have to face a water supply crisis in addition to power outages.

KSEC also disconnected electricity to five offices and units of the Defense Housing Authority (DHA) (Karachi), stating that the DHA owed $204.49 million in dues. Officials now indicate that this issue has been resolved after the DHA made partial payment of dues. KSEC also has issued final notices to Karachi Port Trust (Karachi), Pakistan Steel Mills (Karachi) and the Customs Department. According to reports, KESC is also taking action against companies involved in electricity pilferage.

Pakistan has been facing a power crisis for decades, which has severely affected the country's industrial sector and economic growth. The government is working on an Integrated Energy Policy (IEP), which is expected to help the country become energy-independent by 2020. The IEP aims to increase the share of coal, hydro and renewable sources in Pakistan's energy mix. Presently, the country relies heavily on oil and natural gas for power generation. Gas accounts for 49% of the total power generated, while hydro, oil and coal generate about 13%, 29% and 7%, respectively. Nuclear power contributes 1% to the national grid. By 2022, the IEP proposes to increase the contribution of hydropower to 22%, and that of renewable energy and coal to 14% and 13%, respectively. Nuclear power and liquefied natural gas-based power are expected to contribute 2% and 3%, respectively.

The fiscal budget for 2009-10 aims to develop 16 hydropower plants through the public-private-partnership route, adding 4,160 MW of power generating capacity. Two combined-cycle power plants of 500 MW each also have been planned in Chichoki Malian and Nandipur. About $48.1 million will be invested this fiscal year on the $10.75 billion, 4,500-MW Diamer Bhasha hydropower and dam project. The budget also has earmarked funds for developing 30 small- and mid-sized dams in the country. Investments also will be made on a 50-MW solar power project in southern Punjab and on wind parks in Baluchistan, North West Frontier Province, and Punjab.

Pakistan also has sought financial assistance from the United States. In August, Shaukat Tarin, Pakistan's Finance Minister, met with U.S. special envoy Richard Holbrooke to discuss Pakistan's energy crisis and seek private sector investment in Pakistan's power sector. As per the agreement, the U.S.-based energy firms are expected to make investments in large-scale power projects in Pakistan in the next three to five years.

View Project Report - 094700095

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.