Daharki Power Project
Total Page：16
File Type：pdf, Size：1020Kb
Extended Annual Review Report Project Number: 41903 Equity and Guarantee Number: EI7265/GU7265 September 2013 Equity Investment and Guarantee Pakistan: Daharki Power Project In accordance with ADB’s public communication policy (PCP, 2011), this extended annual review report excludes information referred to in paragraph 67 of the PCP. CURRENCY EQUIVALENTS Currency Unit – Pakistan rupee/s (PRe/PRs) At Appraisal At Project Completion 3 October 2007 16 May 2011 PRe1.00 – $0.0164 PRe1.00 – $0.0136 $1.00 – PRs60.74 $1.00 – PRs73.32 ABBREVIATIONS ADB – Asian Development Bank COD – commercial operations date DPHL – Daharki Power Holdings Limited EMS – environmental management system EPC – engineering, procurement, and construction FPCDL – Foundation Power Company Daharki Limited HSE – health, safety, and environment IPP – independent power producer KPS – KEPCO Plant Services and Engineering Co. MGCL – Mari Gas Company Limited MPCL – Mari Petroleum Company Limited NTDC – National Transmission and Despatch Company Limited O&M – operation and maintenance PPA – power purchase agreement RBS NV – The Royal Bank of Scotland N.V. RCOD – required commercial operations date ROW – right-of-way RRP – report and recommendation of the President SEPA – Sindh Environmental Protection Agency SRO – Statutory Regulatory Order XARR – extended annual review report WEIGHTS AND MEASURES m3 – cubic meter Btu – British thermal unit kV – kilovolt kWh – kilowatt-hour MMCF/day – million cubic feet per day MW – megawatt MWh – megawatt-hour NOTES (i) The fiscal year (FY) of the Government of Pakistan ends on 30 June. The fiscal year of Daharki Power Holdings Limited ends on 30 June. (ii) In this report, "$” refers to US dollars. Vice-President L. Venkatachalam, Private Sector and Cofinancing Operations Director General J. Yamagata, Private Sector Operations Department (PSOD) (OIC) Director M. Barrow, Infrastructure Finance Division 1, PSOD Team leader S. Kondo, Investment Specialist, PSOD Team members M. Hashimi, Investment Specialist, PSOD C. Alano, Associate Project Analyst, PSOD A. Porras, Senior Safeguards Officer, PSOD R. Samiano, Safeguards Officer, PSOD M. Manabat, Senior Investment Officer, PSOD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area. CONTENTS Page BASIC DATA EXECUTIVE SUMMARY i I. THE PROJECT 1 A. Project Background 1 B. Key Project Features 1 C. Progress Highlights 2 II. EVALUATION 3 A. Project Rationale and Objective 3 B. Development Impact 3 C. ADB Investment Profitability 5 D. ADB Work Quality 5 E. ADB’s Additionality 5 F. Overall Evaluation 5 III. LESSONS 6 APPENDIXES 1. Basic Data: Investment Summary 7 2. Private Sector Development Indicators and Ratings: Infrastructure 8 3. Environment Impact 12 4. Social Impact 15 BASIC DATA Daharki Power Holdings Limited for the Daharki Power Project (EI No. 7265 – Pakistan) and (GU No. 7265 – Pakistan) Project Screening, Appraisal, Structuring, Expected Actual Monitoring, and Supervision Concept Clearance Approval August 2005 12 May 2007 Board Approval October 2007 30 October 2007 Financial Agreements Signed November 2007 24 April 2008 First and Final Disbursement of Equity 30 September 2008 Guarantee: First Disbursement of Guaranteed Loan 10 June 2008 Last Disbursement of Guaranteed Loan 2 June 2010 Effective Date of Guarantee 24 April 2008 Termination of Guarantee 5 June 2024 Commercial Operations Date October 2009 16 May 2011 Latest Annual Monitoring Report November 2012 Extended Annual Review Report Mission 9–12 April 2013 Project Administration and Monitoring No. of Missions No. of Person-Days Due Diligence (15-17 August 2000/24-27 July 2000) 2 25 Project Administration (25-26/08;4/6-7/11/05/30-31/08/05) 11 29 Extended Annual Review Mission (19-25 Jun 08) 1 20 Nov03/25-26 Feb 08) EXECUTIVE SUMMARY Pakistan is facing an acute power shortage, leading to an increasing number of blackouts and proving a significant drag on economic growth. In addition, private investment in the power sector is hampered by concerns over investment returns. As a result, scarce indigenous fuel resources that could be used for power generation are lying idle, and much- needed increases in generation capacity are being delayed. The project played an important role in filling some of these gaps. In October 2007, the Board of Directors of the Asian Development Bank (ADB) approved an equity investment in Daharki Power Holdings Limited (DPHL) of up to $2.75 million, and a guarantee in the principal amount of up to $44 million plus interest for the lenders to DPHL. DPHL owns Foundation Power Company Daharki Limited (FPCDL), the project company. The project is a combined-cycle, low-Btu gas-fired power plant in Daharki, Ghotki District, Sindh Province, Pakistan. The plant consists of one gas turbine, one heat recovery steam generator, and one steam turbine. It has a total installed capacity of 186 MW and a net/dependable capacity of 180 MW. It is a base load plant with 100% dispatch because of its dedicated domestic gas field and resulting low tariff. Evaluation of the project is based on four main criteria: (i) development impact, (ii) profitability of ADB’s investment, (iii) quality of ADB’s work, and (iv) ADB’s additionality. The results of this analysis were aggregated to derive an overall rating for the project. The development impact of the project is rated satisfactory. It was evaluated in four categories: (i) private sector development; (ii) business success; (iii) contribution to economic development (economic sustainability); and (iv) environment, social, health, and safety performance. The contribution to private sector development is rated excellent. As the first low-Btu gas-fired independent power producer (IPP) to reach financial close under the 2002 power policy, FPCDL set a benchmark for other IPPs and encouraged domestic and international investors to look at power generation as an attractive investment opportunity. The project is rated satisfactory for business success and excellent for economic contribution. The project’s environmental, social, health, and safety performance is rated satisfactory. Environmental impacts were minor, short-term, and temporary during construction, and there were few significant impacts such as air emission, water resource extraction, effluent discharge, noise, or solid waste generation during operation. The investment outcome of DPHL is rated satisfactory, with a robust collateral structure, timely guarantee fee payments, and a guaranteed return on ADB’s equity investment provided by the put option. ADB’s work quality is rated satisfactory. ADB’s role in the project was in line with its operating strategies, policies, and standards. ADB’s additionality is rated excellent. ADB’s participation catalyzed cofinancing for the project and provided reassurance to offshore and onshore lenders regarding the project’s viability, transparency, and governance practices. ii Overall, the project is rated successful. The project demonstrated that indigenous fuel resources with no other economic use can be used to produce additional low-cost power and reduce the constraints on economic growth caused by power shortages. ADB’s involvement encouraged the private sector to invest in IPPs. I. THE PROJECT A. Project Background 1. In October 2007, the Board of Directors of the Asian Development Bank (ADB) approved an equity investment in Daharki Power Holdings Limited (DPHL) of up to $2.75 million, and a guarantee in the principal amount of up to $44 million plus interest for the lenders to DPHL. DPHL owns Foundation Power Company Daharki Limited (FPCDL), the project company. The project consists of a 180-MW-, combined-cycle, low-Btu gas-fired power plant in Daharki, Ghotki District, Sindh Province, Pakistan (Daharki Power). 2. DPHL was incorporated in the British Virgin Islands. ADB’s financing partially funded the project through the equity investment in DPHL and through a guarantee on a loan to DPHL. DPHL contributed the proceeds of both the guaranteed loan and the equity investment as equity in FPCDL, which owns the power plant and was used to partially finance the costs of designing and constructing the project. 3. ADB holds 18.64% of the shares of DPHL, while the remaining 81.36% is held by the Fauji Foundation, the project’s major sponsor. ADB’s guarantee obligation is unconditionally counter-guaranteed (and collateralized) by the Fauji Foundation. 4. The Fauji Foundation is a charitable trust and operates on a self-sustaining basis. It channels about 78.5% of its profits from commercial ventures into welfare programs for ex- servicemen and their eligible dependents, who constitute about 7% of the country’s population. 5. The project was fully in line with ADB’s energy sector strategy, which strongly encourages ADB interventions to increase private sector participation to take advantage of the higher operational efficiencies that private operations can achieve and to meet the large capital requirements.1 B. Key Project Features 6. The project has a 25-year, build-own-operate structure, with power off-take supported by a sovereign guarantee. Power from the project is sold to the National Transmission and Despatch Company Limited (NTDC) under a 25-year power purchase agreement (PPA) in accordance with the tariff established by the National Electric Power and Regulatory Authority. At the end of the PPA period, FPCDL will be free to negotiate a new PPA with NTDC or other parties (the plant’s economic life is estimated to be 40 years). 7. The project’s initial capacity was 171 MW at approval. It is a combined-cycle, low-Btu gas-fired power plant in Daharki, Ghotki District, Sindh Province, Pakistan. The plant’s total installed capacity is 186 MW, which consists of one gas turbine (123 MW), one heat recovery steam generator, and one steam turbine (64 MW). The project’s net capacity is 180 MW.