1. N.A. ZUBERI MANAGING DIRECTOR PRIVATE POWER & INFRASTRUCTURE BOARD October 22, 2011 “CONVERSION OF EXISTING THERMAL POWER PLANTS TO COAL” INTERNATIONAL COAL CONFERENCE

2. C O N T E N T S  Overview of Pakistan Power Sector  Power Plants for Coal Conversion  Issues on Conversion of Power Plants to Coal  Implementation Mechanism for Converting Plants to Coal  Key Features of Mechanism for Converting GENCOs/IPPs to Coal  Conclusion

3. MW % Public Sector WAPDA/SHYDO/ NA/AJK 11,603 52 PAEC 462 2 Sub-Total 12,065 54 Private Sector IPPs 8,508 38 KESC 1,756 8 Sub-Total 10,264 46 G. Total 22,329 100 Public Sector Thermal 4,900 MW Nuclear 462 MW Public Sector Hydel 6,703 MW IPPs 10,039 MW PAKISTAN POWER SECTOR TOTAL INSTALLED CAPACITY

4.   STEAM TURBINE POWER PLANTS   GAS TURBINE POWER PLANTS   COMBINED CYCLE POWER PLANTS   RECIPROCATION ENGINES POWER GENERATIOINTECHNOLOGIES POWER GENERATIOIN TECHNOLOGIES

5. MARDAN WARSAK BANNU DAUDKHEL BURHAN NEW RAWAT I.S.P.R MANGLA TARBELA GAKHAR SAHOWALA K.S.KAKU RAVI JAPAN KEL N.ABAD SABA YOUSAF WALA VEHARI KAPCO ROUSCH UCH AES N.G.P.S M.GARH GUDDU LIBERTY DADU HALARD LAKHRA JAMSHORO KOTRI HUBCO KDA-33 (KESC) 500 kV Grid Station 220 kV Grid Station 500/220 kV Grid Station Hydel Power Station Thermal Power Station IPPs at 220, 500 kV IPPs at 132 kV 500 kV T/LINE 220 kV T/LINE (240) (3408) (1000) (107) (120) (195) (1350) (310) CHEP (184) (355) (1348) HCPC (126) (548) (1655) (212) (150) (850) (174) (1200) GAZI BAROTHA (1450) CHASNUPP GATTI BUND RD: M.GARH GUDDU JAMSHORO PAKISTAN POWER SECTOR – TRANSMISSION SYSTEM G.AHMAD

6. PAKISTAN POWER SECTOR FUEL MIX (2009-10)

7.  60% power generation based on gas & furnace oil  Gas becoming scarce  Exorbitant cost of imported oil/HSD  Double-edged sword of gas depletion and higher oil prices resulted in huge circular debt running in billions  The panacea lies in converting thermal power plants to cheaper fuels such as coal EXISTING POWER SECTOR SITUATION

8.  For conventional steam turbine thermal units, the possible option is to convert them to coal  The benefit of converting the furnace oil plants would be through savings on fuel cost component  Expedite import of gas or use alternative fuels available such as LNG for gas turbine or reciprocating engine POSSIBLE SOLUTIONS TO IMPROVE PAKISTAN SECTOR

9. CANDIDATE PLANTS FOR COAL CONVERSION Capacity (MW) InstalledDerated JAMSHORO850675 Guddu unit 3,4*640580 M.Garh13701130 SPS faisalabad 1,2*132100 NGPS Multan Unit 1,2,3195120 Sub Total GENCOs31872605 HUBCO Unit 1,2,3,412921200 AES Lalpir362348 AES Pakgen362348 SABA Power134126 Sub-Total IPPs 21502022 Total53374627

10.  Involvement of new Capital Costs  Outage time to dismantle old boilers and assemble/commission new ones  Additional auxiliary consumption thereby reducing the net generation capacity  Higher O&M costs  Limitation of space for coal storage & ash handling  Probable reduction of efficiency  Availability of coal, and  Environment degradation ISSUES ON CONVERSION OF STEAM POWER PLANTS TO COAL

11.  Conversion of GENCOs plants to cheaper fuels is visualized through induction of private sector contractor(s) in Public Sector Power Stations (concept approved)  IPPs’ conversion is visualized through devising a Policy Regime (in process of approval) IMPLEMENTATION MECHANISM FOR CONVERSION TO CHEAPER FUELS

12. CONVERSION OF GENCOs TO CHEAPER FUEL THROUGH INDUCTION OF PRIVATE SECTOR GENERATION KEY FEATURES Induction of O&M Contractor for 10 years through open bidding No retrenchment of existing staff; No capital expenditure and no payment of mobilization advance by GENCOs / Government of Pakistan (GOP) No upward revision of tariff due to induction of O&M Contractor; Evaluation & Selection of O&M Contractor through a criteria based on benefit sharing, percentage of which to be determined through bidding process;

13. CONVERSION OF IPPS ON CHEAPER FUELS SALIENT FEATURES  IPPs to carry out due diligence/feasibility study individually for cheaper alternative fuels as per their technologies.  IPPs be given one year (or less if their conversion plan require less time) for conversion during which they will be provided half of their Escalable tariff component (which covers their returns etc) and full Non-Escalable tariff component (which covers their debt servicing).  Any saving that would be achieved due to switching of fuels be shared equally amongst the IPPs and the power purchaser.

14. CONCLUSION Conversion of existing thermal power plants to coal will develop the market for new coal mines – hence eliminate the MARKET RISK especially for development of Thar Coal

16. THANKS

17. US$ Billion Costs1 st year Benefits1 st Year Net Benefits GENCOs1.1803.5992.419 IPPs0.8052.5191.714 Total1.9856.1184.133 PROBABLE BENEFITS FROM CONVERSION OF SUITABLE CANDIDATE PROJECTS TO COAL

18. BACKUP SLIDES

19. CONVERSION ON CHEAPER FUELS SALIENT FEATURES  Power Purchaser be allowed to legalize the arrangement and any extensions in the Term of Power Purchase Agreements with IPPs pursuant to 1994 Policy through Side Agreements without requiring any approval from any government agency / regulator. For IPPs pursuant to 2002 Policy necessary permission of regular shall be needed.  Power Purchaser to have right to negotiate and schedule outage timings and number of units at a time for conversion, as well as fix priority of IPPs if more than one IPP approach to it for conversion, and the feasibility study favours one over the other.  Customs duty at the rate of 5% on the import of equipment, machinery and spares for carrying out Balancing, Modernization and Replacement (BMR).

20. PRE-DEVELOPMENT OF COAL MARKET – A BASIC INGREDIENT FOR DEVELOPMENT OF SINDH COAL Conversion of existing thermal power plants will pre-develop the market for new coal mines – hence eliminating the MARKET RISK especially for development of Thar Coal. As such we expect fullest support of GOS in our venture.

21. COST – BENEFIT ANALYSIS (GENCOS) Costs Capital CostUS$ 1.15 billion Increase in O& M expensesUS$ 0.032 billion Environmental mitigation cost (10% of total O&M)US$ 0.001 billion Total CostsUS$ 1.180 billion Benefits Fuel Cost Saving using imported coalUS$ 3.599 billion Net Benefits US$ 2.419 billion

22. COST – BENEFIT ANALYSIS (IPPS) Costs Capital CostUS$ 0.774 billion Increase in O& M expensesUS$ 0.030 billion Environmental mitigation cost (10% of total O&M)US$ 0.001 billion Total CostsUS$ 0.805 billion Benefits Fuel Cost Saving using imported coalUS$ 2.519 billion Net Benefits US$ 1.714 billion