FACILITATING ENTREPRENEURSHIP IN POWER SECTOR

By Aurangzeb Soharwardi

Adequate power supply is a key to achieving sustainable economic growth. Presently, out of around 180 million population  70– 80% has access to electricity and the Government is committed to provide electricity access to total population in the minimum possible time. With the growing Demand  ,the country is currently facing power shortages of approximately 2500 – 3,000 MW. Demand estimation graph suggests that demand will exceed supply by about 5,500 MW in the year 2010. The present electricity demand-supply gap, coupled with consistent growth in demand (more than 6-7% per annum), clearly indicates the fundamental need for enhancing the country’s current power generation capability. The successive governments in the country have reiterated the commitment to increase private sector participation. Our total installed capacity   is  19460 MW,Thermal   12478 MW,64.12%  –  hydel    6480  MW    33.30%, Nuclear    462 MW  2.37%     renewable     40 MW     0.21%  .Under Ministry of Water and Power ,PEPCO has been fully empowered and is responsible for the management of all the affairs of nine Distribution Companies (DISCOs), four Generation Companies (GENCOs) and a National Transmission Dispatch Company (NTDC) for providing electricity to over 18 million consumers.. The rising share of private sector in electricity generation and presence of some of the leading foreign and local companies in this business, are evidence of Pakistan being an ideal investment destination. It is the need of the hour that entrepreneurship opportunities must be patronized in Pakistan to encourage investments by the budding entrepreneurs in power sector for electricity generation from small hydel plants, neuclear, wind, solar energy projects. Talking about Entrepreneurship ,it is the act of being an entrepreneur, which is a French word meaning “one who undertakes an endeavor”. Entrepreneurs assemble resources including innovations, finance and business acumen in an effort to transform innovations into economic goods. This may result in new organizations or may be part of revitalizing mature organizations in response to a perceived opportunity. The most obvious form of entrepreneurship is that of starting new businesses; however, in recent years, the term has been extended to include social and political forms of entrepreneurial activity. When entrepreneurship is describing activities within a firm or large organization it is referred to as intra-preneurship and may include corporate venturing, when large entities start spin-off organizations. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many “high value” entrepreneurial ventures seek venture capital or angel funding in order to raise capital to build the business. Angel investors generally seek returns of 20-30% and more extensive involvement in the business..  It is imperative  to promote entrepreneurship in power sector of Pakistan to meet the energy needs.Pakistan is blessed with inexhaustible Renewable Energy (RE) resources, which if tapped effectively can play a considerable role in contributing towards energy security and energy independence of the country. Given the current global energy scenario in general and Pakistan’s energy scenario in particular, the adoption and deployment of ARE technologies makes perfect sense as it inherently favors indigenous energy resources which also happen to be efficient options by default. This is also in line with the objective of the Government of Pakistan to develop RE technologies in the country so that RE has a share of at least 5% of the overall energy mix by the year 2030. These technologies can be easily deployed in areas where conventional grid electricity cannot have access and entry due to technical and / or economic reasons. The lowest strata of the society can thus benefit from ARE technologies thereby improving the livelihood and quality of life; through employment generation. There is an identified hydropower potential of over 50,000 MW, and availability of abundant indigenous coal resources in the country. The Thar lignite reserves in the Province of Sindh are estimated to be around 175 billion tonnes. ,Wind: 0. 346 Million MW,Solar: 2.9 Million MW, Biogas  1800 MW, Waste to Power: 500 MW, Mini & Small Hydel: 2,000 MW. Identified potential of 50,000 MW for wind in Gharo-Keti Bandar wind corridor alone. Over 30 Million hectares of land potentially available for energy plantations.  Pakistan has been blessed with an enormous potential of Wind Energy. AEDB has attracted several national and international investors for setting up of wind farms. The investment potential for the RE sector of the country from short to medium term is over USD 16 Billion Dollars. Government has given  Incentives for Wind Farm Investors in the form of Attractive cost of land for wind energy projects ($ 8 per acre per year)Pre-Feasibility has been done by AEDB Wind data measured, analyzed and Wind Risk for the first few projects taken by the Government .Wind data validated by RisØ National Laboratory of Denmark 30% ~ 32% Capacity factor estimated in Gharo – Keti-Bandar area. Policy Guidelines for Tariff Determination approved by the Federal Cabinet.15% Return on Equity (ROE) guaranteed as per NEPRA guidelines  as regards Mega Wind Power Projects . Currently 24 wind power projects are in the pipeline / at various stages of development with a cumulative capacity of 1200 MW. AEDB has also initiated biofuels projects in Pakistan. Pilot project for production plant of biodiesel has been implemented. PSO has been successfully engaged and is producing Biodiesel on a limited scale. PSO has also set up a Jatropha Nursery and a Jatropha Model Farm at its installations in Karachi. Several other Jatropha nurseries have also been set up by the private sector. Based on this initiative, Policy for use of Biodiesel as an Alternative Fuel was developed by AEDB and approved by ECC on 15th February 2008. Subsequent to this, an Inter-Ministerial Biodiesel Advisory Committee has also been constituted to oversee the National Biodiesel Program.AEDB has facilitated installation of 35 MW through Biomass / Waste to Energy. M/s Almoiz Industires have set up a 27 MW Biomass facility and has signed a PPA with PESCO for sale of 15 MW to the grid. Similarly M/s Shakarganj Sugar Mills are providing 8 MW of electricity to FESCO using spent spirit technology. Both these PPAs were signed in 2008. In addition, AEDB has also facilitated the Landhi Cattle Colony Biogas project, which upon its completion, will be one of the largest waste to energy projects in the world, generating up to 50 MW of electricity. The pilot phase of 250 kW has been successfully initiated. This project is being implemented by Empower of New Zealand and will utilize waste of 400,000 cattle in the area to produce electricity.Various small hydel projects in the provinces of NWFP and Punjab have been initiated by AEDB with Asian Development Bank funding, with a cumulative capacity of 80 MW. These projects are being implemented through the provincial governments and are expected to reach completion in 2011. Asian Development Bank (ADB) has recommended two small hydro power projects to be included in the multi tranche financing facility. PC-Is for both projects are in the process of approval. 26 MW Hydro Power Plant at Shegherthang in Skardu,  4 MW Hydro Power Plant at Chilas. Presently, sixteen Independent Power Producers (IPPs) are operating in the country. Thus, world-renowned power sector players are already present in the market, e.g. Siemens, General Electric, AES, International Power, El Paso, Tenaska.Twelve IPPs with a capacity of 2,539 MW have achieved Financial Close and started project construction. These IPPs are sponsored by local as well foreign investors. Presently, approximately 40% of generation capacity of the country is in private sector. An additional 6,000 MW are planned to be added to this installed electricity generation capacity by the year 2010 through the IPPs, including Wind Power. AEDB has been successful in developing quality products through the private sector such as Solar Geysers, Solar Based LED Lights for Public Lighting Applications, Solar Lanterns, Paddle and Hand Generators etc. Entrepreneurs have shown substantial interest in rental power plants to be installed in Pakistan. More  private sector entrepreneurs must come forward to join hand with the government for power sector investments and projects.. NEPRA has made considerable progress towards the development of the regulatory regime and future market design for the power sector. PPIB – with a successful track-record of attracting FDI of over US$ 4.5 Billion in the last one decade or so – provides a one-window facility for the processing of private power generation projects above 50 MW. The Policy for Power Generation Projects, 2002 is an investor-friendly policy that offers an attractive set of fiscal and financial incentives to the private sector. The Policy provides a balanced risk profile for the investors, lenders, and government agencies. GOP guarantees the performance obligations of its entities such as the power purchaser, and the provinces. GOP also provides protection to sponsors and lenders in case of termination of the project. Typically, a long-term tariff of 25 – 30 years is contracted with the power purchaser. The IPPs, thus, are not subjected to market risk for their output. The projects are expected to earn an attractive / competitive and stable return on investment. Standardized and tested agreements – namely, the Implementation Agreement (IA), the Power Purchase Agreement (PPA), the Fuel Supply Agreement (FSA), etc. – are   available upfront..  To cover the exchange rate variations risk, the various tariff components are indexed for variation in the Pak Rupee and US$ exchange rates. GOP guarantees protection against any change in duties and taxes, and against specified “political risks”. Exemption from income tax, including turnover rate tax and withholding tax on import, is available to private power generation projects.

Adequate power supply is a key to achieving sustainable economic growth. Presently, out of around 180 million population  70– 80% has access to electricity and the Government is committed to provide electricity access to total population in the minimum possible time. With the growing Demand  ,the country is currently facing power shortages of approximately 2500 – 3,000 MW. Demand estimation graph suggests that demand will exceed supply by about 5,500 MW in the year 2010. The present electricity demand-supply gap, coupled with consistent growth in demand (more than 6-7% per annum), clearly indicates the fundamental need for enhancing the country’s current power generation capability. The successive governments in the country have reiterated the commitment to increase private sector participation. Our total installed capacity   is  19460 MW,Thermal   12478 MW,64.12%  –  hydel    6480  MW    33.30%, Nuclear    462 MW  2.37%     renewable     40 MW     0.21%  .Under Ministry of Water and Power ,PEPCO has been fully empowered and is responsible for the management of all the affairs of corporatized nine Distribution Companies (DISCOs), four Generation Companies (GENCOs) and a National Transmission Dispatch Company (NTDC) for providing electricity to over 18 million consumers.. The rising share of private sector in electricity generation and presence of some of the leading foreign and local companies in this business, are evidence of Pakistan being an ideal investment destination. It is the need of the hour that entrepreneurship opportunities must be patronized in Pakistan to encourage investments by the budding entrepreneurs in power sector for electricity generation from small hydel plants, neuclear, wind, solar energy projects. Talking about Entrepreneurship ,it is the act of being an entrepreneur, which is a French word meaning “one who undertakes an endeavor”. Entrepreneurs assemble resources including innovations, finance and business acumen in an effort to transform innovations into economic goods. This may result in new organizations or may be part of revitalizing mature organizations in response to a perceived opportunity. The most obvious form of entrepreneurship is that of starting new businesses; however, in recent years, the term has been extended to include social and political forms of entrepreneurial activity. When entrepreneurship is describing activities within a firm or large organization it is referred to as intra-preneurship and may include corporate venturing, when large entities start spin-off organizations. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many “high value” entrepreneurial ventures seek venture capital or angel funding in order to raise capital to build the business. Angel investors generally seek returns of 20-30% and more extensive involvement in the business..  It is imperative  to promote entrepreneurship in power sector of Pakistan to meet the energy needs.Pakistan is blessed with inexhaustible Renewable Energy (RE) resources, which if tapped effectively can play a considerable role in contributing towards energy security and energy independence of the country. Given the current global energy scenario in general and Pakistan’s energy scenario in particular, the adoption and deployment of ARE technologies makes perfect sense as it inherently favors indigenous energy resources which also happen to be efficient options by default. This is also in line with the objective of the Government of Pakistan to develop RE technologies in the country so that RE has a share of at least 5% of the overall energy mix by the year 2030. These technologies can be easily deployed in areas where conventional grid electricity cannot have access and entry due to technical and / or economic reasons. The lowest strata of the society can thus benefit from ARE technologies thereby improving the livelihood and quality of life; through employment generation. There is an identified hydropower potential of over 50,000 MW, and availability of abundant indigenous coal resources in the country. The Thar lignite reserves in the Province of Sindh are estimated to be around 175 billion tonnes. ,Wind: 0. 346 Million MW,Solar: 2.9 Million MW, Biogas  1800 MW, Waste to Power: 500 MW, Mini & Small Hydel: 2,000 MW. Identified potential of 50,000 MW for wind in Gharo-Keti Bandar wind corridor alone. Over 30 Million hectares of land potentially available for energy plantations.  Pakistan has been blessed with an enormous potential of Wind Energy. AEDB has attracted several national and international investors for setting up of wind farms. The investment potential for the RE sector of the country from short to medium term is over USD 16 Billion Dollars. Government has given  Incentives for Wind Farm Investors in the form of Attractive cost of land for wind energy projects ($ 8 per acre per year)Pre-Feasibility has been done by AEDB Wind data measured, analyzed and Wind Risk for the first few projects taken by the Government .Wind data validated by RisØ National Laboratory of Denmark 30% ~ 32% Capacity factor estimated in Gharo – Keti-Bandar area. Policy Guidelines for Tariff Determination approved by the Federal Cabinet.15% Return on Equity (ROE) guaranteed as per NEPRA guidelines  as regards Mega Wind Power Projects . Currently 24 wind power projects are in the pipeline / at various stages of development with a cumulative capacity of 1200 MW. AEDB has also initiated biofuels projects in Pakistan. Pilot project for production plant of biodiesel has been implemented. PSO has been successfully engaged and is producing Biodiesel on a limited scale. PSO has also set up a Jatropha Nursery and a Jatropha Model Farm at its installations in Karachi. Several other Jatropha nurseries have also been set up by the private sector. Based on this initiative, Policy for use of Biodiesel as an Alternative Fuel was developed by AEDB and approved by ECC on 15th February 2008. Subsequent to this, an Inter-Ministerial Biodiesel Advisory Committee has also been constituted to oversee the National Biodiesel Program.AEDB has facilitated installation of 35 MW through Biomass / Waste to Energy. M/s Almoiz Industires have set up a 27 MW Biomass facility and has signed a PPA with PESCO for sale of 15 MW to the grid. Similarly M/s Shakarganj Sugar Mills are providing 8 MW of electricity to FESCO using spent spirit technology. Both these PPAs were signed in 2008. In addition, AEDB has also facilitated the Landhi Cattle Colony Biogas project, which upon its completion, will be one of the largest waste to energy projects in the world, generating up to 50 MW of electricity. The pilot phase of 250 kW has been successfully initiated. This project is being implemented by Empower of New Zealand and will utilize waste of 400,000 cattle in the area to produce electricity.Various small hydel projects in the provinces of NWFP and Punjab have been initiated by AEDB with Asian Development Bank funding, with a cumulative capacity of 80 MW. These projects are being implemented through the provincial governments and are expected to reach completion in 2011. Asian Development Bank (ADB) has recommended two small hydro power projects to be included in the multi tranche financing facility. PC-Is for both projects are in the process of approval. 26 MW Hydro Power Plant at Shegherthang in Skardu,  4 MW Hydro Power Plant at Chilas. Presently, sixteen Independent Power Producers (IPPs) are operating in the country. Thus, world-renowned power sector players are already present in the market, e.g. Siemens, General Electric, AES, International Power, El Paso, Tenaska.Twelve IPPs with a capacity of 2,539 MW have achieved Financial Close and started project construction. These IPPs are sponsored by local as well foreign investors. Presently, approximately 40% of generation capacity of the country is in private sector. An additional 6,000 MW are planned to be added to this installed electricity generation capacity by the year 2010 through the IPPs, including Wind Power. AEDB has been successful in developing quality products through the private sector such as Solar Geysers, Solar Based LED Lights for Public Lighting Applications, Solar Lanterns, Paddle and Hand Generators etc. Entrepreneurs have shown substantial interest in rental power plants to be installed in Pakistan. More  private sector entrepreneurs must come forward to join hand with the government for power sector investments and projects.. NEPRA has made considerable progress towards the development of the regulatory regime and future market design for the power sector. PPIB – with a successful track-record of attracting FDI of over US$ 4.5 Billion in the last one decade or so – provides a one-window facility for the processing of private power generation projects above 50 MW. The Policy for Power Generation Projects, 2002 is an investor-friendly policy that offers an attractive set of fiscal and financial incentives to the private sector. The Policy provides a balanced risk profile for the investors, lenders, and government agencies. GOP guarantees the performance obligations of its entities such as the power purchaser, and the provinces. GOP also provides protection to sponsors and lenders in case of termination of the project. Typically, a long-term tariff of 25 – 30 years is contracted with the power purchaser. The IPPs, thus, are not subjected to market risk for their output. The projects are expected to earn an attractive / competitive and stable return on investment. Standardized and tested agreements – namely, the Implementation Agreement (IA), the Power Purchase Agreement (PPA), the Fuel Supply Agreement (FSA), etc. – are   available upfront..  To cover the exchange rate variations risk, the various tariff components are indexed for variation in the Pak Rupee and US$ exchange rates. GOP guarantees protection against any change in duties and taxes, and against specified “political risks”. Exemption from income tax, including turnover rate tax and withholding tax on import, is available to private power generation projects. For hydropower projects, hydrological risk is to be borne by the power purchaser. Good quality and cost-effective technical manpower is available in Pakistan to under take power generation projects.Banks and other financial institutions are keen to lend to the power sector due to lower risk profile and GoP’s guarantee for power purchaser . entrepreneurial ventures have a huge scope to be very profit making projects ,along with meeting power demand of Pakistan ,effectively. As SMEDA has the responsibility to develop  SME sector in Pakistan along with other organizations, It should make viable and pragmatic strategies for small power projects in coordination with PEPCO and all other concerned organizations.

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