KP’s plans for hydropower projects

Posted on August 29, 2011. Filed under: Hydal |

REPEATED attempts by the Khyber Pakhtunkhwa governments have failed to attract private investment for developing hydropower projects.

According to officials, the private sector’s financial constraints and poor security situation in the KP are mainly responsible for the poor response.

Hydropower happens to be a capital intensive sector. The average cost of developing hydropower projects, according to experts, comes to $2.5 million to $3 million per MW. Construction cost of even a small hydropower station runs into hundreds of millions of rupees. This induces local private enterprises receiving Letters of Interest (LoI) to form consortium to manage the needed funds. In the case of KP investors, loans are more difficult to obtain. Private and nationalised banks alike are cautious in giving loans to investors in the high security risk area.

Even the international lending institutions do not invest in the public sector projects located in the troubled areas. For example, the Asian Development Bank did not provide funds for the Daral Khwar hydropower project due to deteriorating law and order situation in the area.

Similar is the fate of at least three private sector hydropower projects in the security-troubled areas. They are: a 157 MW hydropower project in Madian in Swat, 197 MW power station at Kalam-Asrit and 548 MW project at Kaigah, district Kohistan.

“The investors are concerned about the future of their investments in these areas,” said a Peshawar-based official.

The work on the Kalam-Asrit project has not been initiated due to non-completion of the feasibility study. In the case of another project, the private party is finding difficult to arrange the funds required to finance the project.

“The sponsor now wants the provincial government to become an equity partner” says a wellplaced official. However, the government is unlikely to oblige.

According to a Peshawar-based official, land acquisition for the 147 MW Patrind hydropower project on the borders of KP and Azad Jammu and Kashmir is under progress. The project is scheduled to become operational by December 14, 2014.

The Suki Kinari hydropower project with an 840 MW generation capacity is passing through a crucial stage as the Lahore-based private party needs to meet the financial close deadline, being issued Letter of Support in July this year.

Situated on River Kunhar in the Hazara region of KP, the Suki Kinari hydropower project has been through a difficult time after the last KP government moved the Supreme Court to claim the province’s right over the project ownership.

However, the incumbent government withdrew the case, allowing the Private Power and Infrastructure Board to move ahead with its plan to allow the project in the private sector.

As per the 2002 power policy, provinces can set up in the public sector or involve private investors for projects up to 50 MW.

The previous KP government was of the opinion that after it was allowed to execute the 81 MW Malakand-III hydropower project, it was its due right to own and execute the Suki Kinari power project, too, involving a 840 MW generation capacity. The project, with an investment of over $1.1 bn, is supposed to become operational by December 17, 2017.

The provincial government’s new strategy prepared and executed by the Sarhad Hydro Development Organisation (Shydo) is likely to compete with the private sector. Its three hydropower projects earned over Rs2bn revenue last year.

The Shydo plans to set up 24 projects in the public sector and complete them in the next ten years. Twelve of them has a generation capacity beyond the 50 MW upper limit set for the provinces under the 2002 power policy.

Officials say that after the passage of the 18th Amendment this bar on provinces stands removed and, according to the KP government circles, the federating units can now execute hydropower project(s) with over 50 MW generation capacity.

They, however, say that the KP government will move the Council of Common Interest because as per the 18th Amendment, the provinces cannot engage private investors even for executing projects as small as of one MW generation capacity. “This is an anomaly,” says a development planner.

The Shydo is working on a project to conduct pre-feasibility studies on hydropower generation potential at 10 sites situated in Chitral, Dir, Shangla, Mansehra, and Swat. Each of the sites, said an official, involves up to five MW generation capacity. After the prefeasibility studies, said the official, the sites would be offered to the private sector for developing the hydropower stations there.

However, after the 18th amendment, the KP government circles believe that the province can only run projects in the public sector. “Under the given situation, private sector can only be engaged by the federal agencies,” said the official.


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