V.
CO-GENERATION POWER PROJECT BASED ON BAGASSE/COAL AT SUGAR MILLS
Background
Pakistan faces a large power shortage which has crippled the local industry and economic growth.
In order to cater for the rapidly growing energy requirements of the country, the Government of
Sindh, with a view of utilizing the large reservoir of alternative energy resources present in the
country, plans to explore new horizons for generating electricity through renewable resources.
Pakistan is fifth largest sugarcane producer in the world with a production of 50 million tons of
sugarcane annually, yielding over 10 million tons of bagasse, a survey of already installed
cogeneration capacity in the sugarcane processing sector as well as existing development plans has
established that bagasse-based production of electricity for export to the national grid bears a great
potential in Pakistan.
Resource Potential
It is estimated that Pakistan has a potential of generating more than 3000 MW of electricity through
cogeneration from its existing sugar industry. It will not only offset greenhouse gas emissions but
would also help in generating additional sources of clean energy in the country. There are 83 sugar
mills in Pakistan of which 45 sugar mills are located in Punjab, 30 in Sindh and 8 in Khyber
Page 84 of 103
Pakhtunkhwa. The Government announced the National Policy for Power Co-Generation based on
biomass / bagasse in January 2013 and has put in place a favourable regulatory framework and also
an up-front tariff for new projects.
Objective
Government of Sindh is seeking investors to develop five power projects using bagasse with a
capacity of 50MW each in the sugar-cane processing industry.
Investment Plan
The project will be implemented under the PPP mode. The total cost is estimated to be USD 150
million for the development of a 50 MW sugar mill cogeneration power plant with a debt to equity
ratio of 75:25.
The estimated total investment required for the project is as follows:
Project Cost USD 150 Million
Equity USD 37.5 Million (25%)
Debt USD 112.5 Million (75%)
The Implementation/Concession Agreement(IA) shall be signed between the Energy Department,
Government of Sindh, Alternative Energy Development Board, Government of Pakistan and the
Private Investor(s). While the Power Purchase Agreement(PPA) will be signed with either a Private
Party or a Power Distribution Company(DISCO) based on the location of the project.
Milestones
GoS intends to achieve the following milestones for the project:
- Bidding process to be initiated by early 2016
- Financial Closure by June 2017
- Commercial Operation Date by December 2018
Page 85 of 103
National Policy for Power Co-Generation by Sugar Industry
The Government of Sindh recognizes the importance of tapping the potential of sugar industry in
contributing to power generation. Therefore, the government has taken an initiative to promote
power generation through environmental friendly and cost effective means. The formulation of the
National Policy for Power Co-Generation by Sugar Industry (the Co-Gen Policy), is one of the major
steps taken towards achieving this goal.
The investor will have the option of getting the tariff allocated either through the Cost-Plus Formula
or, for fast-track projects, through the Upfront Tariff Regime. Nepra has already approved Rs10.50
per unit as the upfront tariff for power generation through sugar mills by utilizing sugarcane
bagasse.
Returns to Investment
Investor will enter into a 30 year Energy Purchase Agreement with Central Power Purchasing
Agency (CPPA), a wholly owned entity of the Government of Pakistan. The power project will earn a
guaranteed 17% Return on Equity (in current USD terms) throughout the term of the EPA, backed
by Government of Pakistan’s performance guarantee of the power purchaser for payment.
Land Provision
Government of Sindh will allocate land for the development of the project as per land allotment
policy.
Tax Holidays/ Exemptions
The following holidays and exemptions are available for this project
· 100% capital repatriation allowed through dividends
· No local equity/ investor requirement
· No capital input tax on the imports of machinery
Legal Frame Work
The project will operate in a robust regulatory environment structured in accordance with the
following:
· Renewable Energy Policy 2006
· Sindh Public-Private Partnership Act, 2010
· Foreign Private Investment (Promotion & Protection) Act, 1976
· Protection of Economic Reforms Act, 1992
· Commercial Arbitration Act, 2011
· The Arbitration (International Investment Disputes) Act, 2011
· Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011
· Foreign Exchange Manual 2002 of State Bank of Pakistan
· Special Economic Zones Act, 2012
· Competition Act, 2010
· Banking Companies Ordinance, 1962
· Companies Ordinance, 1984
· National Policy for Power Co-Generation by Sugar
The above mentioned statutory enactments can be downloaded from www.sbi.gos.pk. Further,
details of the above are also available on request.
Page 86 of 103
