Setting up an Independent Power Project

Institutional Framework and Infrastructure

Background
Initially, Pakistans power sector was owned and served by two public utilities; the Pakistan
Water and Power Development Authority (WAPDA) and Karachi Electric Supply Company
(KESC). Over the years it was observed that these institutions were not able to meet the
electricity demands of the country that resulted in supply-demand gap. The performance of
power sector was continuously deteriorating due to the institutional weaknesses, lack of
management in tariff structure and subsidies. To improve the performance of power sector,
the Electric Power Act was passed in 1997 and an institutional framework was setup. National
Electric Power Regulatory Authority (NEPRA) was established to function as an independent
regulator and to ensure a transparent, competitive, commercially-oriented power market in
Pakistan. (Emphasis supplied)
In the new setup, the Power Wing of WAPDA was unbundled into four Generation Companies
(GENCOs), nine Distribution Companies (DISCOs) and one National Transmission and
Despatch Company (NTDC). The large hydro power projects remained the responsibility of
WAPDA. The KESC has also been privatized. Nuclear power plants remained under Pakistan
Atomic Energy Commission (PAEC). Private Power and Infrastructure Board (PPIB) has
been established to facilitate private investment in power sector. Alternative Energy
Development Board (AEDB) has been set-up for the exploitation of renewable energy
resources.
The overall planning of electricity system was and is under the control of The National
Economic Council (NEC) which is the supreme body responsible for ensuring balanced
development of the country. It was created in December 1962 under Article 145 of the
Constitution of Pakistan. NEC is headed by the Head of Government. Its members are Federal
Ministers, Governors/Chief Ministers of the provinces, and the Deputy Chairman of the Planning
Commission.
The Planning Commission is the chief instrument for formulating the national plans. The
Energy Wing of the Planning Commission estimates the energy demand on the basis of
information obtained from all concerned entities and formulates unified short and long-term
national energy plans. The NEC approves all plans and policies relating to energy/electricity
sectors development. The Executive Committee of the National Economic Council (ECNEC)
supervises implementation of the energy policy laid down by the Government, and approves any

energy sector project to be built by the public sector. The planning and development of nuclear
power is the responsibility of PAEC.

Current Structure
1.

Development of Power

The federal Ministry of Water and Power is responsible for development of water and power
resources in the country. It is the Government of Pakistans executive arm for all issues related to
electricity generation, transmission & distribution, pricing and consumption in the country. The
Ministry exercises this function through respective organizations. It also performs certain
specific functions such as coordinates power sector plans, formulates policy and specific
incentives, and liaisons with provincial governments on all related issues. (Emphasis supplied)
2.

Pakistan Electric Power Company (PEPCO)

Initially, WAPDA was catering to the Power and Water wings of Pakistan. However,
subsequently WAPDAs growth caused inefficiencies, 'demand suppression' and high tariff
policy, proliferated theft. All these factors, over the years adversely affected WAPDAs financial
condition and WAPDAs functions under its wings were to be segregated. In consequence
thereof, WAPDA was given the responsibility for water and hydropower development while
PEPCO (an agency within WAPDA) was vested with the responsibility of thermal power
generation, transmission, distribution and billing.
PEPCO has been fully empowered and is responsible for the management of all the affairs of
corporatized nine Distribution Companies (DISCOs), four Generation Companies (GENCOs)
and a National Transmission Dispatch Company (NTDC). These companies are working under
independent Board of Directors (Chairman and some Directors are from Private Sectors).

3.

Generation and Distribution Network

There are four Generation Companies and nine Distribution Companies responsible for
generation, transmission and distribution of power to their respective cities. There are around 20
independent power producers (IPPs) that contribute significantly in electricity generation in
Pakistan (the setting up of a power plant procedure set forth hereunder pertains to these same
IPPs).

Amongst the distribution and generation Companies, KESC is the most prominent one since it is
responsible for generation, transmission and distribution of power to the city of Karachi and
surrounding area. It operates thermal capacity of 1,955 MW.
4.

Electricity Transmission Network

The NTDC is responsible to construct, operate and maintain electricity transmission system of
the country that comprises transmission lines of 220 kV & 500 kV, and grid stations linking all
power plants of the country. It also provides services to the distribution companies in designing
and construction of 132 kV transmission lines and grid stations.
5.

Planning and execution of Hydropower

WAPDA is responsible for planning and execution of hydro power projects. At present, WAPDA
has accumulative generation capacity of 25,000 MW for hydro power.
WAPDA's vertical-monolithic Power Wing has been restructured into twelve (12) distinct autonomous
entities under Companies Ordinance 1984. These are: three generation, one transmission and eight
distribution corporate entities. The restructuring programme of WAPDA's Power Wing is based on the
new strategic policies of the GoP and endorsed and supported by the donor institutions.

Step-By-Step guidance pertaining to setting up of Power Plants by Independent Power

Producers (elaboration of point no. 3 above):

The legal steps and procedure required for setting up an independent power plant by independent
power producers (hereinafter referred to as IPPs) in the form of a generation company in
Pakistan (GENCO) and for acquiring license for power generation from NEPRA, are set forth
hereunder:
The investors can propose any plant configuration subject to its operational feasibility, safety and
environmental concerns.
There are at present three IPPs with solar power generation license (generation license to be
received from NEPRA as elucidated herein).
1. Registration with AEDB
An application will be made for the registration of GENCO with AEDB through an application
addressed to the Secretary, AEDB. The application is to be accompanied by the following
documents:

1.
2.
3.
4.
5.

Pay Order/Bank Draft in favor of AEDB for USD 100.

GENCOs Profile
GENCOs Bank Statement for the past six months.
Copy of GENCOs NTN1 and GST2 registration certificates
Last annual audit of GENCO (if audit not provided then confirmation letter that it would
be provided as soon as it is done)

2. Finalization of Project Location

The project has to be within the jurisdiction of NTDC/PEPCO (basically any part of Pakistan
excluding Karachi). The proposal must be accompanied by an NOC by PEPCO and NTDC
regarding the choice of location for project.

3. Project Size
The Project has to be 50MW capacity or above. The use of a particular technology has to be
pre-approved by PPIB Board.

4. Financing Requirements
The debt/equity ratio for the financing of the project should be 20:80 minimum and 30:70
maximum. The main sponsor of the consortium shall be required to hold a minimum of 20%
equity in the project for the lock-in period which will be between the issuance of LOS until
the sixth anniversary of the commissioning of the plant.
5. Term of the Project
The Term of the project has to be 20-30 years.

6. Sequence of activities in setting up of Project

Sequence of activities in setting up of project by an IPP is as follows:
1 National Tax Number, which is to be applied for at the Federal Board of Revenue
(online or in person)
2 General Sales Tax

a) Registration of GENCO with PPIB by sending letter of request with USD 200 as
registration fee
b) Submission of proposal to PPIB with USD 20,000 processing fee (details of the
documents for proposals required are also given below);
c) Examination and evaluation of proposal and approval by PPIB Board;
d) Submission of performance guarantee by UD 1000/MW by investor;
e) Issuance of Letter of Intent by PPIB;
f) Submission of tariff petition and generation license application to NEPRA (if the
application of generation license and tariff determination is not made within 3 months of
issuance of notice to proceed by PPIB, the performance guarantee may be encashed by
PPIB);
g) Tariff determination and license issuance by NEPRA
h) Submission of performance guarantee at USD/ 5000 MW and a processing fee of USD
80,000 to PPIB;
i) Issuance of Letter of support (LOS) by PPIB;
j) Finalization of project agreements, including inter alia, Implementation Agreement
(IA), Power Purchase Agreement (PPA), Fuel Supply Agreement (if any) etc.;
k) Achievement of financial close within 9 months of issuance of LOC;
l) Commencement of construction activity;
m) Achievement of Commercial Operation Date (COD) within date stipulated by IA,LOS
and PPA.
7. Time Frame:
COD is to be achieved within 33 months of LOS or 24 months of execution of IA, whichever is
earlier.

8. Proposal Requirements:
The proposal to PPIB should also contain the following pertinent documents:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)

Power Plant details

Contact person details
Consortium details, including sponsors and equity ratio of sponsors
Credit rating; financial statement data of sponsors
Experience of power projects, if any
Consortium agreement if any, and power of attorney in favor of main sponsor by other
consortium members
Affidavit on equity commitment and eligibility requirements
Endorsement of PEPCO/NTDC for fuel/size/technology of the project
Site finalization NOC from PEPCO/NTDC
Confirmation of availability of equipment
Confirmation of fuel availability (NA for Solar)

9. Details of License Application to NEPRA

The license application will be made in accordance to the form specified in Schedule I of the
NEPRA (Licensing) Regulations 1999. The required documents for licensing application 3 are as
follows:
1.
2.
3.
4.
5.
6.

Fee (Rs. 400,000 for project up to 100MW)

Location (location maps, site map) of project and details of land
Technology, size of the plant and number of units
Emission values
Cooling water source: sea/river/canal, tubewells etc
Interconnection with national grid company; distance and name of nearest grid, voltage
level.
7. Infrastructure: roads, colonies etc
8. Project cost details
9. Project commencement and completion schedule with milestone details
10. ESSA (Environmental and Social Soundness Assessment)
11. Safety and emergency plans
12. System Studies: Load flow, short circuit, stability, reliability
13. Plant characteristics: generation, load, power, automatic generation control, ramping rate
etc
14. Control, metering, instrumentation and protection
15. Training and development
16. Feasibility report

10. Details of Tariff Petition to NEPRA

(a)
(b)
(c)
(d)
(e)
(f)

Project location
Feasibility Study
Interconnection detail with national grid
Summary of Project cost
Details of Project costs including preliminary work, taxes and customs etc
References

3 The detailed sample application can be found on this link for ease of reference and
understanding: http://www.nepra.org.pk/Licences/Licence%20Application/2014/July
%202014/Generation%20License%20Application%20of%20NBT-III.PDF