The Case Against Privatization of Haveli Bahadur Shah & Balloki Power Plants

05:17 PM | 21 Feb, 2019
The Case Against Privatization of Haveli Bahadur Shah & Balloki Power Plants
National Power Parks was established in March, 2015 to develop and manage two power plants, viz. Haveli Bahadur Shah (HBS) power plant and Balloki power plant. The capacity of both power plants is 1,230 MW, and 1,223 MW respectively, both using imported Re-liquified Natural Gas (RLNG) as a fuel source.

Both power plants are fitted with highly efficient General Electric 9HA.01 turbines, with one of the higher efficiency levels in the country. The power plants were financed largely through Public Sector Development Program (PSDP) allocations – with 30 percent of the project cost classified as Equity, while the remaining was classified as Debt. National Electric Power Regulatory Authority (NEPRA) in August, 2016, determined a levelized tariff for 30 years of US cents 6.1145 per kWh for HBS, and US cents 6.1223 per kWh for Balloki. The tariff is presented here in US cents (rather than PKR), because a significant component of tariff, is pegged to US$, so any change in PKR-US$ parity also results in a corresponding change in tariff in PKR terms.

Tariff of a power plant primarily consists of two components, viz. variable charge, and capacity charge. Variable charge refers to consumption of fuel, and other variable expenses which are incurred during production of electricity. Similarly, capacity charge largely refers to fixed costs, which would incur whether electricity is produced or not, and primarily covers, a component for Return on Equity (ROE), principal repayment of debt, and interest payment of debt. In tariff determinations, Internal Rate of Return (IRR) is often fixed for a period of 30 years, to provide necessary incentives to investors, covering for risk.

The IRR in this case was fixed at 16 percent in US$ terms – which means that even if the PKR depreciates, the funds need to be paid in US$, thereby incurring higher PKR expense. Similarly, cost of debt was pegged to KIBOR + 3 percent.

In-effect, Government of Pakistan is the primary sponsor of the project, which in return for its investment in power plants is expected to generate PKR 40 billion, or US$ 286 million every year, for the first ten years, as payment for interest, principal, and return on equity. The same amount can be distributed as dividends, or reinvested in other power projects. For the first ten years, the cumulative receipts would amount to US$ 2.86 billion. For the next twenty years after that, the sponsor will continue to get US$ 104 million as ROE payment, which can be distributed to the national exchequer in the form of dividends.

National Power Parks is a highly profitable company, and 1Q-FY19 results indicate that it generated profit of PKR 2.7 billion. The company has an equity base of PKR 122.5 billion, and a loan from Pakistan Development Fund Limited (PDFL) of PKR 32.7 billion – which will most likely be converted into equity, before privatization. Looking at listed power plants on the Pakistan Stock Exchange – the average Price-Book value is 1.5x, suggesting that any buyer would bid for National Power Parks in a range of PKR 233 billion (or US$ 1.66 billion).

A significant one-time inflow of US$ 1.66 billion looks like a sweet deal, until you realize that a perfectly healthy power company, which is profitable, and self-sustaining is being sold-off, resulting in potentially higher US$ outflows in times to come. Over the next ten years, there may be a potential outflow of US$ 280 million every year, in terms of principal, interest, and ROE payments received by the power plant. In-essence, the buyer would be able to recoup its initial investment in less than 6 years – while the country will be hooked on to managing an outflow of at least US$ 280 million during the first ten years, followed by US$ 104 million during the following twenty years. In such a scenario, is a privatization really justified? The dividends that can be paid by the project to Government of Pakistan would be significant to support social objectives of health and education, while also conserving precious foreign exchange reserves.

In purely cash flow terms, an outflow of US$ 280 million for the first ten years, against upfront privatization receipts in the range of US$ 1.66 billion seems to be a high price to pay for access to foreign exchange liquidity, while also losing control of a profitable and self-sustaining national asset. It might be prudent to issue a Eurobond at prevailing yield, thereby keeping cost of funds low, rather than privatization of these power plants.

Is there any sound reason to privatize a profitable and self-sustaining national asset – potentially guaranteeing a return in excess of 16 percent to the foreign buyer in US$, while the same can be used to strengthen local fiscal position.

Foreign Direct Investment is certainly welcome, but not at the cost of national assets. A comprehensive privatization program would focus on restructuring entities which are a drain on the national exchequer, rather than selling away entities which are contributing positively to the national exchequer. National Power Parks can be made part of the newly formed Sarmaya-e-Pakistan holding company – thereby providing necessary liquidity to fund other sick entities.

Ammar Habib Khan
Ammar Habib Khan

Ammar Habib Khan has a Masters in Macroeconomic Policy, he is a Risk Manager & Energy Economist by Profession


Today's currency exchange rates in Pakistan - Dollar, Euro, Pound, Riyal rates on Sept 23, 2023

KARACHI - Following are the foreign currency exchange rates for US Dollar, Saudi Riyal, UK Pound Sterling, U.A.E. Dirham, European Euro, and other foreign currencies in Pakistan open market on September 23, 2023 (Saturday).

Source: Forex Association of Pakistan. (last update 09:00 AM)

Currency Symbol Buying Selling
US Dollar ‎USD 292 295.15
Euro EUR 317 320
UK Pound Sterling GBP 372.5 376
U.A.E Dirham AED 81.5 82.3
Saudi Riyal SAR 78.55 79.3
Australian Dollar AUD 198 200
Bahrain Dinar BHD 781.13 789.13
Canadian Dollar CAD 220 222.2
China Yuan CNY 40.22 40.62
Danish Krone DKK 42.35 42.75
Hong Kong Dollar HKD 37.93 38.28
Indian Rupee INR 3.57 3.68
Japanese Yen JPY 1.92 1.99
Kuwaiti Dinar KWD 951.03 960.03
Malaysian Ringgit MYR 62.62 63.22
New Zealand Dollar NZD 174.23 176.23
Norwegians Krone NOK 27.87 28.17
Omani Riyal OMR 762.72 770.72
Qatari Riyal ‎QAR 80.69 81.39
Singapore Dollar SGD 217 219
Swedish Korona SEK 26.62 26.92
Swiss Franc CHF 325.12 327.62
Thai Bhat THB 8.31 8.46

Gold Rate in Pakistan Today – September 23, 2023

Today Gold Rate in Pakistan

KARACHI – The price of a single tola of 24-karat gold in Pakistan is Rs 215,800 on Saturday. The price of 10 grams of 24k gold was recorded at Rs185,020.

Likewise, 10 grams of 22k gold were being traded for Rs170,068 while a single tola of 22-karat gold was being sold at Rs198,365.

Note: The gold rate in Pakistan is fluctuating according to the international market so the price is never been fixed. The below rates are provided by local gold markets and Sarafa Markets of different cities.

Today Gold Price in Pakistan - 23 September 2023

City Gold Silver
Lahore PKR 215,800 PKR 2,565
Karachi PKR 215,800 PKR 2,565
Islamabad PKR 215,800 PKR 2,565
Peshawar PKR 215,800 PKR 2,565
Quetta PKR 215,800 PKR 2,565
Sialkot PKR 215,800 PKR 2,565
Attock PKR 215,800 PKR 2,565
Gujranwala PKR 215,800 PKR 2,565
Jehlum PKR 215,800 PKR 2,565
Multan PKR 215,800 PKR 2,565
Bahawalpur PKR 215,800 PKR 2,565
Gujrat PKR 215,800 PKR 2,565
Nawabshah PKR 215,800 PKR 2,565
Chakwal PKR 215,800 PKR 2,565
Hyderabad PKR 215,800 PKR 2,565
Nowshehra PKR 215,800 PKR 2,565
Sargodha PKR 215,800 PKR 2,565
Faisalabad PKR 215,800 PKR 2,565
Mirpur PKR 215,800 PKR 2,565


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