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ENERGY & POWER- Pakhtunkhwa Energy Development Organization (PEDO)

Energy & Power - Pakhtunkhwa Energy Development Organization (PEDO)

Overview

The energy sector plays a vital role in any country’s development and economic growth. Electricity—a highly versatile form of energy—stimulates economic performance and plays an essential role in developing every sector of the economy.

The demand for electricity in Pakistan is partly determined by rapid population growth, economic expansion, and electricity prices. The energy sector is facing global challenges regarding sustainability, economics, and the environment.

Pakistan’s energy generation capability (availability) has remained lower than the peak demand in the last decade. However, in FY 2020, energy generation capability has crossed peak demand, and regulators are now more focused on the cost of electricity and the use of indigenous resources like coal, hydro, wind and solar within the generation segment. Pakistan’s installed generation capacity of 35,735 MW is heavily skewed towards thermal (62%), with hydel sources accounting for 28% of the total capacity.

In the future, the GoKP, in line with the vision of GoP, intends to accelerate the adoption of renewables. The focus is thus now shifting towards optimization and expansion of the country’s transmission and distribution network, which is widely seen as the key bottleneck towards ensuring reliable electricity supply to households, businesses and industries.

ENERGY & POWER-PEDO

SUB INTERVENTIONS

KP Power Sector Business Plan

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PEDO Funding Strategy

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Support to PEDO on Wheeling of Electricity

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Support to PEDO for Tariff Modification Petitions

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Public Private Partnership (PPP) Project-Lower Spat Gah

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Amendment in Hydel Development Fund (HDF) & PEDO Act

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KP Power Sector Business Plan

OVERVIEW

Pakistan and specifically Khyber Pakhtunkhwa (KP) province is bestowed with enormous hydro power potential which can ensure energy security on a long-term basis with the right planning. Indeed, the need for harnessing the hydropower potential in the province cannot be overemphasised. The topography of the area coupled with the water flows offers opportunities for development of high-head, medium-head and low-head run of river and storage dam power stations across the rivers and their tributaries in the province. KP has an estimated potential of nearly 30,000 MW, which can lead to employment generation, regional development and poverty eradication.

Progress

SEED has developed a Power Sector Business Plan (View Business Plan) for KP covering sustainable generation, distribution, and transmission. In addition to developing the plan, SEED has also facilitated the formal approval and adoption of the Plan, by holding consultative meetings, revisions, and formal presentations to the key stakeholders in GoKP. The KP Power Sector Business Plan has now been published and is available on the Pakhtunkhwa Energy Development Organisation (PEDO) and Energy Department websites.

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Pakhtunkhwa Energy Development Organization (PEDO) Funding Strategy

OVERVIEW

A stable, low-cost power supply is essential to attracting investment in countries. With their experience in successful infrastructure projects in energy markets, BF and SEED can help translate power sector reforms into private investment. PEDO, a corporate body, needs to become self-sustainable and raise capital for its under-listed projects. 

PROGRESS

A complete review of PEDO’s portfolio including projects nearing completion, under construction, and in the pipeline was done before developing the PEDO Funding Strategy. It is based on the funding requirement; possible debt structures for raising financing; and possible priority list of projects. The PEDO Policy Board has approved the Funding Strategy and in July 2021 the cabinet also gave it the green light. As pilot transactions, the following interventions are being implemented by SEED:

Intervention

Volume (In PKR)

Arrangement of debt under Project Finance structure for Koto Hydropower Project (40.8 MW)

PKR 10,499 MN

Arrangement of debt under Project Finance structure for Karora Hydropower Project (11.8 MW)

PKR 3,466 MN

Arrangement of debt under Corporate Finance structure for PEDO

PKR 7,200 MN

These will be used to meet PEDO’s overall funding requirement as identified in the PEDO Funding Strategy i.e., PKR 283 Bn. These Pilot transactions would help provide a model for making PEDO self-sufficient and profitable.

Following several rounds of lengthy deliberations among all the stakeholders, i.e., PEDO, Bridge Factor, SEED, and Axis Law, a private law firm, on the necessary amendments to the Hydel Development Fund ordinance and PEDO Act and subsequent approval from the Cabinet Committee, the amendments have been submitted to the Law Department, GoKP for review.

Simultaneously, Pakhtunkhwa Energy Development Organisation (PEDO), with technical assistance (TA) from SEED, has signed a Term Sheet (TS) with a consortium of Habib Bank Limited and Bank of Khyber for raising PKR 7.2 billion Term Finance Facility (TFF) to fund the under-construction existing hydel projects of PEDO. Since the reorganisation of PEDO as a corporate entity, for the first time, a commercial loan is being raised to fund ongoing hydel projects.

At the same time, the transaction structure for the Project Finance Facility (PFF) is being finalised, while a detailed financial model (FM) and an Information Memorandum (IM) are being developed.

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Support to Pakhtunkhwa Energy Development Organization (PEDO) on Wheeling of Electricity

OVERVIEW

The provincial government is taking a number of steps for rapid industrial growth in KP, including creating Special Economic Zones and providing cheaper hydropower to the local industry.

Wheeling allows power producers to directly sell electricity to a Bulk Power Consumer (BPC), under the 2016 NEPRA Wheeling of Electric Power Act. Already, since 2019 PEDO has been supplying electricity to industrial consumers of KP through Pehur (18 MW) after a successful wheeling auction. PEDO is also currently in the process of implementing phase-II of wheeling of electricity to industrial consumers.

PROGRESS

SEED is helping GoKP with the wheeling regulations and coordinating a market between the generator (PEDO), and the Bulk Power Consumers (BPC). SEED is also facilitating a transaction between Daral Khawar [OF1]  (36.6 MW) and private consumers. Though the process was initiated back in March, 2021, it came to a halt after a stay order from the Islamabad High Court.

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Support to Pakhtunkhwa Energy Development Organisation (PEDO) for Tariff Modification Petitions

OVERVIEW

Overview: SEED is providing support for the government’s Publicly Financed Hydro Power Portfolio (HPP) by resolving tariff-related issues of selected projects.

PROGRESS

Progress: BF, SEED’s consortium partner, has drafted, submitted, and defended/represented petitions for tariff modification on behalf of PEDO on Daral Khawar (36.6MW), Machai (2.6MW), Pehur (18MW), and Ranolia (17MW) HPPS, to take these projects to wheeling. Resultantly, National Electric Power Regulatory Authority (NEPRA) has awarded favourable decisions on Machai (2.6MW) and Daral Khawar (36.6MW) which has resulted in unlocking sales receivables of PKR 1.5 billion. A decision on Pehur (18MW) is expected anytime soon while a hearing on Ranolia (17MW) is underway. In parallel, efforts to reach a favourable agreement on Malakand III are also underway. SEED made a strategy document to facilitate Central Power Purchasing Agency-Guarantee (CPPA-G) and PEDO to agree on the amount the latter has to pay, to allow for the incorporation of exit clauses in PPA.

Public Private Partnership (PPP) Project-Lower Spat Gah (496 MW)

OVERVIEW

GoKP has signed an MoU with KHNP (Korea Hydel and Nuclear Power Company, a state owned enterprise of Korea), to buy into the project by purchasing 26 per cent of its total equity. SEED-BF has been requested by GoKP to negotiate and finalise the PPP arrangement

PROGRESS

PEDO has signed a Term Sheet with KHNP at Dubai Expo 2020 with technical assistance from SEED. 

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AMENDMENT IN HYDEL DEVELOPMENT FUND (HDF) & PAKHTUNKHWA ENERGY DEVELOPMENT ORGANIZATION PAKHTUNKHWA ENERGY DEVELOPMENT ORGANIZATION (PEDO) ACT ​

OVERVIEW

Overview: Owing to limited institutional capacity within key departments to engage and partner with the private sector (investors/multilaterals/banks/financers), GoKP has not been able to mobilise private investment. To unlock the true potential of investment-led growth,  SEED has taken multiple initiatives in the Energy & Power sector in KP, of which amendments to HDF Ordinance and PEDO Act are the flagship interventions.

PROGRESS

SEED is providing technical assistance (TA) to PEDO to amend Hydel Development Fund (HDF) ordinance to facilitate raising the required debt, i.e., US$120 million, under Project Finance and Corporate Finance structure, for Koto and Karora hydropower projects (HPP) and PEDO, respectively. The amendment in HDF Ordinance is required to allow PEDO’s existing and upcoming projects to raise commercial debt/financing, and project financing from local and foreign institutions. SEED shared the proposed amendments in the HDF ordinance and PEDO Act with PEDO which have been approved by the Cabinet Committee in its third meeting on December 30, 2021. 

A new provision has been inserted in HDF Ordinance stating that funds utilized from HDF for the development of hydel projects shall be allocated in terms of equity, debt, or a combination of both, and the return on funds shall be in accordance with prevailing market rates or the rate will be determined by the competent regulatory authority, allowing PEDO to retain project-related operating expenses. Any amounts required for debt servicing and meeting relevant financial covenants in connection with the projects, HDF Board shall, prior to the annual budget each year, conduct and approve a review of PEDO’s funding requirement for the next five years to allow the use of profits from operational HPPs.

The proposed changes have been agreed upon in principle by the Ministerial Committee on HDF which includes representation from the Law Department, Energy & Power Department, and Finance Department.  A summary of HDF Amendments has been submitted to the office of Chief Secretary for onward submission to the CM for the Cabinet approval before being tabled in the KP Assembly. 

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KP CLIMATE WORKING GROUP CONVENTION ON VOLUNTARY CARBON MARKET ​

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