ISLAMABAD: The Hub Power Plant Management has accepted the proposal of the Power Division under which the government will buy it out for Rs65 billion but will not pay Rs260 billion as capacity payment due till 2027 under the remaining period of Power Purchase Agreement.
In return, Hubco will provide 600MW of cheaper electricity to K-Electric by 2024 based on Thar coal and will also provide 300 MGD water daily to Karachi, Special Assistant to PM on Power Tabish Gauhar confirmed to The News.
The SAPM told The News that under the latest scenario, the Hubco management has in principle agreed to the proposal that he pitched when its management offered the federal government to buy it out at Rs65 billion arguing that the power plant of 1,200 MW operates only on one percent of its capacity in the whole year.
The Central Power Purchase Agency (CPPA) does not buy its electricity since its generation cost is higher than the electric power generated by RLNG based power plants. The CPPA prefers to purchase the electricity which is cheaper as per the economic merit order (EMO).
Hubco had asserted that since the government under PPA with Hubco, which is to continue till 2027, will have to pay capacity payment of Rs260 bn but if the government buys it out at Rs65 billion, it will get rid of capacity payment.
The SAPM said he in counter proposal had told Hubco could be given Rs65 billion if it converts half of its RFO based units into the ones based on Thar coal as fuel and generate 600 MW of electricity for K-Electric. And it will also have to install a desalination plant at Hub to provide 300 million gallons of potable water to Karachi.
Now, according to Tabish Gauhar, the Hubco management has agreed with the proposal and both sides will finalize the details of the agreement within 3-6 months and once they are finalized, financial close will be achieved within one year and in 2024, Hubco will be able to provide to K-E with 600 MW Thar based coal power and 300 million gallons of water to Karachi per day.
“Since the government of Sindh will have to ink the agreement with Hubco for 300 MGD, 3-6 months are required to finalise the agreement.” He also said: “We want to set the price of each water gallon at 50 paisas and the government will also re-negotiate to bring down the price of Thar coal to $25 per ton from $50 per ton. If that is done, then the cost of electricity from Thar coal will also come down."
Gauhar claimed that the advantage to the government from the agreement will be of the potential release of a $12.5 million annual payment liability toward the Asia Petroleum Limited APL pipeline (set up to supply furnace oil to Hubco) and passing that on to a neighboring oil refinery (Byco) for their future usage to reverse pump their diesel and petrol products across Pakistan in lieu of the current practice of tank lorries or road transportation.
When asked as to how HUBCO power plant will be provided with the Thar coal, Gauhar said that transportation of incremental Thar Coal to Hubco (and also Jamshoro, Lucky Power, etc.) via the Thar Rail Link proposal will be an integral part of the Pakistan Railways revival plan and would also help in reducing the overall cost per ton of Thar coal (due to economies of scale) for the overall benefit of Pakistan's power sector in the shape of lowering tariff, and circular debt.
