Having been under litigation for many years, the 150 megawatts installed capacity Lakhra power plant,
Having been under litigation for many years, the 150 megawatts installed capacity Lakhra power plant, which is owned and managed by Lakhra Power Generation Company Limited (GENCO-IV), is now set to be divested by end December 2015.
Consequently, the Privatization Commission has invited Expression of Interest to be received by March 24 for appointment of financial advisors who would assist the government in the privatization process through competitive bidding. In July 2014, the government had decided to embark upon its 100 percent divestment, and subsequently obtained clearance/approval from the Cabinet Committee on Privatization and the Council of Common Interests.
Lakhra power plant is situated in Khanot, District Jamshoro, and consists of three units each of 50 megawatts installed capacity based on bubbling fluidized bed boiler technology. The power station, which uses lignite coal from Lakhra coalmines and limestone quarry located at a distance of 25-km from power station, was established by WAPDA at a total cost of Rs5.58 billion. Dongfang Corporation of China, which was awarded the turn-key contract on negotiations basis, commissioned the plant during March-December 1994, but it faced numerous technical and operational problems from the initial stages, and power generation on commercial basis could only start in 1996.
The main issue has been obsolete coal combustion technology employed by the Chinese that was already outdated when the power station was installed. In fact, Dongfang Electric had developed first- generation technology based on American design and engineering, and Lakhra power plant was their experimental project to test technical viability of a 50-megawat coal-based power plant as till then China had constructed coal-fired power plants only up to maximum 25-megawatt capacity module. However, Lakhra plant proved to be giving un-satisfactory performance in terms of economy, efficiency, pollution control and operational reliability.
For this reason, the Chinese de-rated the capacity of each unit to 40-megawatt immediately on commissioning the power plant. Within few years of its operations, power plant suffered major maintenance problems also, which WAPDA did not address effectively, resulting in frequent shut-down of units. Normally, a coal-based power plant has a designed life of 25 to 30 years, but Lakhra power station outlived its usefulness within less than ten years. Understandably, the Chinese company never made a replica of Lakhra power plant in China as planned.
Unfortunately, a politically manipulated decision was taken by the government to hand over Lakhra power station to a pre-selected private sector party. For the purpose, Lakhra Power Generation Company was incorporated in February 2002 as subsidiary of WAPDA. Somehow, the Sindh Privatization Commission, (though the Sindh Government had no stake in the Company), advertised on July 26, 2003 inviting international operator for rehabilitation, operation, maintenance and management of the power plant. Only two companies namely Habibullah Energy, Karachi and Muhammad Ismail & Co, Hyderabad were prequalified, still, Associated Group, Lahore that had not even participated in the process was selected for award.
The national press, along the two pre-qualified parties, however, created commotion in business circles exposing the non-transparent procedure in which the contract was awarded. The privatization process was therefore cancelled in March 2004, and WAPDA was asked to carry out in-house maintenance and rehabilitation of power station. This was not done. Instead, WAPDA continued negotiations with Associated Group. To cover up the underhand dealings, WAPDA later processed privatization at its end asking for the “operator”. In response, only Habibullah Energy submitted a technical and financial proposal by the due date i.e. May 22, 2006.
However, no decision was taken on the bid received, and instead Lakhra power plant was leased out for twenty years to Associated Group on September 11, 2006, though advertisement had called for appointing an “operator”. Resultantly, the corresponding power purchase agreement was signed on December 15, 2007. But, Habibullah Energy and Lakhra Power Company’s labor union filed petitions in the High Court, and later in Supreme Court, against the leasing of power plant to a third party that was not even pre-qualified. The plant therefore could not be transferred to Associated Group, and the matter remained sub judice in the Supreme Court for long. Finally, the Supreme Court declared in August 2013 the lease to have been given in a non-transparent and illegal manner, and thus void.
Sadly, there was no major maintenance undertaken by the Company since 2001-02, and it failed to provide dependable capacity and reliable supply to national grid. This had resulted in operation of its two units only with cumulative capacity of 71-MW by June 2003. While litigation proceedings were taking place, the plant deteriorated further in subsequent years, resulting in shut down of its two units completely. The third unit has been in operation intermittently.
Plans for its modernization and rehabilitation too at a cost of Rs 34 million could not be implemented, ironically, due to non-release of funds by WAPDA, whereas Japan International Cooperation Agency (JICA) that had prepared the scheme was willing to finance the project.
Thus, power generation operations are practically at a standstill for many years. Currently, only one unit is in operation with a de-rated capacity of 31-MW and net capacity of less than 20-MW, giving net energy output of about 100 GWh annually. Due to low capacity utilization, cost of sales is as high as almost double of the energy sales, resulting in net loss of Rs 500-Rs 700 million annually. The Company, having accumulated losses of over Rs 3.60 billion by June 30, 2014, is at the verge of collapse. The plant machinery is in a very bad condition. As the installed flue gas desulphurization and emission control equipment proved to be inefficient and ineffective, sulfur compounds have corroded the plant very badly and fly-ash or coal dust is spread all over the plant area further damaging machinery and accessories .
Prevalent poor condition of Lakhra coal power station is a case of criminal negligence, reflecting on absence of governance, improper planning, poor management and lack of political will, if not gross corruption, on the part of all concerned. While the ongoing power crisis has intensified during the past years, the government remained indifferent to affairs of the only coal-fired power plant in the country. The first-ever coal-based power station, of 15-MW (2x7.5 MW) constructed by WAPDA at Sheikh Manda near Quetta, was closed down in 2002 after successful operations for four decades.
At this juncture, therefore, the divestment of Lakhra power plant would not be in the national interest, if at all a buyer is available. Instead, its rehabilitation and modernization should be undertaken by the government on priority, to promote use of indigenous coal for power generation.
The writer is Chairman Institution of Engineers, Pakistan
