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ADB to finance gas-fired power plant in Sindh

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MANILA: The Asian Development Bank has approved investment in a gas-fired power plant in Pakistan that will provide additional low-cost electricity to consumers to address a looming power shortage that could undermine the economic expansion of the country. The development of a 171-megawatt combined cycle low-Btu gas-fired power plant, which is expected to supply base load power to the national grid. Btu, or British thermal units, is a basic measure of thermal energy.

The facility will be located in Daharki, District Ghotki in Sindh, which is the third largest province in Pakistan. Gas will be supplied from the nearby Mari gas fields. The power plant will increase the net electricity generation capacity of Pakistan which should help reduce constraints on economic growth caused by power shortages. About 60% of Pakistan’s population has access to electricity from the national grid. The rest of the population use kerosene, wood and other bio-fuels for lighting, cooking and heating.

The project will promote efficient management of natural resources, as it will tap an otherwise idle gas resource and pave the way for lower-cost generation given the proximity of the plant to the gas field. The project, estimated to cost approximately $200 million to complete, will be the first gas-only plant developed under the 2002 power policy of Pakistan and is expected to begin commercial operations in the fourth quarter of 2009.

A growing population and thriving economy mean that power demand is always accelerating. The average annual electricity demand of Pakistan is currently increasing by 11%, with urban areas experiencing significantly higher demand growth. However, power supply has not kept pace. ADB estimates that Pakistan needs to add about 2,000 megawatts of new capacity every year to avoid power shortages. ADB is a major source of external investment in the energy sector in Pakistan, having provided about one third of the total finance from external sources.

“The proposed assistance is consistent with the energy strategies of ADB and the government of Pakistan. In addition to its long-term partnership with the government in the power sector arising from its public sector activities, ADB is also, since 1996, involved in the sector through private-sector loans and investments,” said Robert Bestani, Director General of ADB’s Private Sector Operations Department.

ADB has approved an equity investment of up to $2.75 million in the project’s holding company and a guarantee for a $44 million loan for that same holding company. Subject to approval of concerned authorities, both the guaranteed loan and equity investment will be contributed by the holding company as equity in Foundation Power Co. Daharki Ltd which will own the power plant. Proceeds from the equity investment and guaranteed loan will be used to partially fund the costs of designing and constructing the project. A consortium of local and international banks has provided $150 million in debt financing for the project.

“In addition to the positive development impacts of the gas-fired power plant itself, the proposed transaction is designed to encourage equity investors to again look at the Pakistan generation sector as an attractive investment opportunity, while not increasing costs for the consumers or the government. Further, it is designed to draw in future offshore funding and promote future power project financings. Such investments are crucial to complement the government’s own efforts in the sector,” said Martin Tornberg, an Investment Specialist with ADB.

The project sponsor is the Fauji Foundation, which was set up as a charitable trust in 1954. It channels about 80% of its profits from commercial ventures into welfare programs for former servicemen and their dependents, all of whom account for 7% of the population. The foundation has experience in owning, managing and operating a low-Btu, gas-fired power plant in Pakistan through its majority ownership in Fauji Kabirwala, which was commissioned in 1997 and co-owned by El Paso Energy International and ADB, which also provided a loan to the project.

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Rubab Saleemhttp://www.rubabsaleem.com
Rubab Saleem is Editor of Pakistan Times
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