Utilities seen privatizing for productivity and profits

Privatization was a dominant theme during POWER-GEN Asia in Singapore this fall. Ho Kwon Ping, Singapore Power chairman, led the keynote address with a discussion of capacity additions and privatization, followed by H.E. Khawaja Muhammad Asif, Pakistan Federal Minister and Chairman of the Privatization Commission.

Installed capacity worldwide is expected to double by 2005, with 465,000 MW of additions in Asia alone. Mr. Ho predicts that three-fourths of the new investments in power generation will go to China and India, both of which limit investor returns. China allows no more 15 percent returns and India`s top is 16 percent. Mr. Ho noted that subsidized tariff rates in these nations distort the true cost of power there.

“The emerging trends in more developed markets are indications for what is coming in Asia,” he said. These trends include deregulation and competition, branding of services, integrating services, and selling and marketing power just like any other commodity. “Risk management products are coming,” he said. “Enron already has one that is linked to the weather. The industry is becoming more sophisticated.”

Singapore Power is “heeding the winds of change.” In 1996-97, its maiden year as a privatized company, Singapore Power saw a 43 percent increase in profit after tax, with approximately half of that jump attributed to productivity gains.

Pakistan

Asif focused his attention squarely on privatization. “The power sector plays a central role in the economic development and social advancement of a nation,” Asif said. “Electric power is the lifeblood of a modern industrial economy and the driving force behind modern industrial technologies required for sustained economic growth and international competitiveness.” Restructuring and privatization are high on the agenda of Pakistan`s government. He said privatization combines the objectives of increasing efficiency and competition, encouraging foreign investment and expertise, and promoting international friendship and cooperation.

Pakistan has a relatively new government, elected last spring with a mandate for reforms and privatization. “The most significant elements of the agenda are privatizing government-owned assets, revamping the taxation system and creating new incentives for local and foreign investors,” Asif said. “The government`s reform strategy has restored the macroeconomic stability of the country, doubled the country`s foreign exchange reserves, caused an upturn in the stock market and inspired the confidence of international lenders and investors.”

The electricity market in Pakistan has grown at an average annual rate of 9.1 percent over the past 20 years while the annual gross domestic product has averaged 5.7 percent growth. Despite the fast rise in consumption, only about half of the country`s population has access to electricity. The lack of availability, poor quality and reliability of service for electric power have been serious constraints to economic growth in Pakistan, he said. “Acute power shortages, characterized by frequent power outages, voltage and frequency fluctuations, and frequent load shedding have been especially troublesome.”

Pakistan has two vertically integrated public sector electric utilities–Pakistan Water and Power Development Authority (WAPDA) and the Karachi Electric Supply Corp. (KESC). WAPDA supplies power to all of Pakistan, except the metropolitan area of Karachi, which is supplied by KESC. The systems of the utilities are interconnected through 220 kV double circuit transmission line. Total generation capacity is 14,834 MW, with 9,929 MW owned by

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WAPDA, 1,735 MW by KESC, 137 MW by Karachi Nuclear Power Plant and 3,033 MW by private power generators.

Private sector generation includes the 1,300 MW Hub project, which achieved commercial operation in April 1997, and the 1,600 MW Kot Addu facility, which was owned by WAPDA before the sale of 36 percent of its equity, along with management control, to the private sector. Several more private sector projects are under development.

“A crucial element of our program is the transparent, competitive and efficient privatization of the power sector,” Asif said. “We believe that this approach will ensure transactions that provide long-term benefit to the investors, to the government, and to the country, and will eliminate questions about the fair dealing and motivations for award of a contract.”

Awards

Power Senoko Ltd. received a “Project of the Year” award from Power Engineering International and Power Engineering magazines during this year`s POWER-GEN Asia keynote session. Key vendors in the project, Siemens AG Power Generation Group and Austrian Energy & Environment, were also presented awards for their contributions to the project. The gas-fired Senoko power station was converted from simple cycle to combined cycle, synchronizing with the Singapore grid in June 1996. More information on this project, and the two US-based award-winning projects are available in a special feature included in this issue of Power Engineering International.