CHINA PAKISTAN ECONOMIC CORRIDOR (CPEC)

CHINA PAKISTAN ECONOMIC CORRIDOR (CPEC)

Mr. Kashif Mateen Ansari,

CEO Sachal Energy

At the moment CPEC is one of the most significant topics under discussion. It ranges from the drawing rooms to the floors of the National and the Provincial assemblies. Though the CPEC is rightly a game changer in the region and especially, for Pakistan but it has also evoked a lot of positivity mixed with anxiety, unfounded fears, and some rightly-placed apprehensions. As soon as CPEC was announced, there was a visible lobby which lost no opportunity to finding fault with the CPEC, the way it is planned or in the manner it is executed as well as how it moves forward. While we will try to discuss some reservations about CPEC, we will also try to steer our discussion in areas, which are often not yet touched upon in the popular discourse. CPEC has been maligned on various bases ranging from Punjab being the favored beneficiary, to the fears of the Baloch losing their own homeland and becoming a minority. However, if you look at Chinese history for the last thousands of years, China has never engaged with occupational wars, it does not bear any favoritism towards taking over and subjugating other people. The way CPEC Is planned, it is a large infrastructural project having no parallel in the history of Pakistan. It is planned as a network of roads and rail bridges and tunnels and then adding together industrial zones and power generation being the most dominant element of the grand project. Now in the area of power generation we all know that in the early harvest projects, we are looking at almost 10,000 MW of energy ultimately getting to our grids. Already work on grid projects is underway that means the bottleneck created by our old and poorly maintained grid would be solved. New grid lines are being planned and at least a few of the major ones have started coming on ground. Another fear is that the cheap Chinese goods are going to elbow out the Pakistani products. I think this is an unfounded fear because what we are seeing in the core projects of CPEC, they do not relate to any cheap product. First of all we are looking at the power plants. The Pakistani manufacturers and the Pakistani industrial sector have nothing to offer in competition where we can produce the power machinery the turbine generators or the power plants. While we are looking at the roads and the railways most of the raw material in the form of cement and steel will come from the local area economy and once it comes to the construction of these mega projects I believe there is still a division over the underlying sub-contracting between the Chinese and the Pakistani businessmen. However, what we must look at is that, at the moment at many levels Pakistani businesses do not possess the adequate experience and knowledge in high- level engineering and technology. They will be best served by their interaction with the ongoing and the future projects and working in those areas where they have a competitive advantage and yet being exposed to those areas which are traditionally new to us and thus creating new expertise and understanding. The real trade between China and Pakistan will start and as the numbers go we are looking at hundreds of thousands of containers moving over these arteries. Obviously this will give rise to enormous economic activity ranging from the logistics businesses to the services and supplies enroot for the trade convoys going down to Gwadar and I believe that the people living in the far flung areas of the Baluchistan, KP and GB will see unprecedented economic growth which they have never seen before. With the better network of railways and roads they will be connected to the outside world, information knowledge and money will flow-in, opportunities will grow so shall the economy. With the availability of power and increase in the power generation we are sure that the economic activity will grow. There will be remarkable increase in the GDP and the peripheral economic activity will also be stimulated by the availability of the power. There will be a certain cost to it. First of all you must allay the fears about the CPEC being loaded on the weak economic backbone of Pakistan in the form of the costly debt. First of all not all the part of the CPEC is debt, and second, if there is a debt associated with the project that can produce returns in excess of the interest burden of the debt then such a debt can only enhance the economic activity and will not harm the economy in general. Although it is very easy to criticize the CPEC and the Chinese investment marking it as purely debt but if you look back a few years even from my own experience of developing a Wind Power Project, Pakistani projects were struggling to find any financing in the international market. Hence, even the availability of the foreign debt by virtue of CPEC is a positive thing for our economy. However, generally the kind of fear that Mr. Kashif Mateen Ansari CEO Sachal Energy 14 February 2017 is evoked by the perception of the foreign debt actually relates to the debt which is not used for any productive set-up of projects or economically viable project. If a foreign debt is used only to pay off for the largesse or the corruption of the ruling elite then obviously that debt is a trap that would lead any economy to ruin. But in case of CPEC projects, the investments which are coming in the form of debt, will ultimately result in the construction of power plants or the erection of the major grid lines or the network of motorways, rails and roads along with the industrial estates, allied industries and the dry ports, which will have a positive impact on our economy. What we have yet failed to understand is that CPEC requires something more, not only that this is an economic activity creating enormous economic opportunities for the people but also there will be an avenue of the cultural exchange and enhance friendly ties, with not only China but with all the regional players in Central Asia and South Asia. I believe the real long term effect of the CPEC would be the integration of this region in a friendlier economic zone lowering of the restrictions on the movement of trade, goods, and people. It is likely to enhance the cultural exchanges between us, the Central Asian states, China and rest of the South Asia. What we need to look forward to is how we can enhance the technical knowledge and the productivity of our people, how to get ready for the incoming competitions, how to benefit from the enormous opportunities that are going to open in front of us, how not to get carried away by our fears rather to look towards our future with hope and promise. We must also start thinking on the lines that we have to put down the gauntlet and reduce the negativity towards the regional players, though this has to be reciprocated from all sides but nonetheless we have to change the narrative on our side also. We have to bring forth a narrative of peace, a narrative of mutual co-existence and respect for all the players in the region. We have to cultivate and encourage any opportunity to improve ties with India and we must look towards China to help us in settling our dispute over Kashmir and water. We must look towards Afghanistan to help Afghanistan gain stability which in turn would stabilize our tribal areas and foremost we have to equip our young generation with the modern knowledge and tools to be able to take part in economic activity that is now being unleashed from the heights of Himalayas down to the shores of Gwadar.

Interview Published in Business Recorder on Energy Scenario

http://epaper.brecorder.com/2014/03/21/18-page/553389-news.html

 

“Wind energy has massive potential “, CEO Sachal Energy Development

 http://epaper.brecorder.com/news_416297.pdf

Kashif Mateen Ansari is the CEO of Sachal Energy Development - a wind power IPP in Pakistan. Before joining Sachal, a wholly-owned project of Arif Habib Group, Kashif has had more than 20 years of diversified experience of leadership and management. His last recent assignment was as the Chief Operating Officer of Askari Group overseeing more than 30 companies.

 A Harvard alumnus, Kashif has served as a member of the executive board of Harvard Club of Pakistan in 2012. He is also a Fellow of the Institute of Cost and Management Accountants of Pakistan.
Below is the edited transcript of a recent discussion with Kashif at his office in Islamabad, where he sheds light on the company he runs, the renewable energy industry as a whole and the prospects of, what he calls, the democratisation of energy in Pakistan.

“We have achieved all the major milestones. Earlier this month we signed the Energy Purchase Agreement with the NTDC, which is one of the most important milestones. Contracts including equipments and construction have also been finalised. Now we are waiting for the signing of implementation agreement, which will hopefully be done this month,” says Kashif.
For the uninitiated, the implementation agreement is an agreement between the project and the federal government. Not only does it set out the terms of the implementation of the project but also spells out the guarantees that come from the federal government.
Once the implementation agreement is signed, Sachal’s financial close can be expected within the ongoing financial year and Kashif says that due diligence is already under way with banking institutions. “The project will commence operations within 18 months after the financial close, which means we should be online by December 2015,” he said.
BANKING ON CHINA

“In the private sector we would be the first project in Pakistan bringing Chinese financing into the country. The company has a debt to equity of 80:20, and about 90 percent of the debt component is from China,” he said.

The project’s EPC contractor is also a Chinese firm called HydroChina, which is one of the largest companies in the power sector in China. “Our wind turbine generator is provided by a firm called Goldwind, which stood third globally last year and the year before. Prior to that, it was first globally and the only reason it has gone down because GE’s sales have gone up due to American spending on wind,” says Kashif.
 Explaining the technology, Kashif said that Sachal’s is permanent magnet and direct drive. “Permanent magnet means that once the machine is stopped and the wind starts blowing again, this machine will not require any external excitation from the grid to start producing energy, which is a big thing.”
He says that most machines coming into Pakistan at the moment require an external excitation, if and when the machine is stopped and the wind starts blowing again. This means that if there is a problem with the grid, then you won’t be able to start producing from the wind. “We are among the the first few Pakistani projects to have this technology,” he said.

 And how does direct drive machine help? Kashif replies by explaining that his machine has no gear box, which means it reduces the probability of breakdowns because the moveable parts are reduced. “In turn it reduces the burden on the maintenance side and it gives more reliability,” he said.

 Following the completion of its ongoing project, the firm plans to explore more projects in wind. “Before exploring solar, we are looking to put up 200 megawatt wind energy projects in total, spread over a time line of 7-8 years,” said Kashif.

 WIND ENERGY PROSPECTS IN PAKISTAN

 Citing a study conducted by the National Renewable Energy Laboratory, America, Kashif says that the theoretical potential of producing wind energy is Pakistan is 133,000 MW that includes the two main corridors Nuk Kundi corridor in South Western tip of Balochistan and the Gharo-Jhimpir corridor in Sindh. He adds that the generation capacity factor in Pakistan is also decent at 33-34 percent, compared to 40 percent in the best of wind corridors in the world.
All this is hunky dory. But how much of this potential is realistic, considering the difficulties surrounding the Nuk Kundi corridor and the usual differences between theory and reality, BR Research inquires.

“For arguments sake, even if we take a conservative estimate and say that the actual potential may well be one-eighth of the theoretical potential, we are still talking about more than 20,000 MW,” Kashif replies.

“In the Rajasthan corridor, India, which is the backyard of our Sindh corridor, their installed wind energy capacity is 18000 MW,” he adds.
Responding to a question on size of investment, Kashif agrees that per mega watt investment required for producing is higher in the case of wind energy.
 However, he maintains that a comparison only in terms of investment is flawed; because in the case of wind there is no fuel cost. “In terms of tariff, many thermal tariffs based on fuel oil arehigher than the tariff for wind projects, whereas for wind the tariffs are 13-14 cents, which is fixed for next 20 years, unlike the thermal one, where the cost of fuel may increase the tariff any time in future during the project life” he said. Surely in case of hydro the tariff is far less and gas fired plants may be still cheaper than renewables at the moment but the requirement of renewables is a must from the point of view of Energy Mix of a country.

 POLICY ENVIRONMENT
 Kashif say that a number of wind energy projects totalling about 1000-1200 MW are expected to commence operations in the next few years.
 However, he does expect much after that because of pending issues with the evacuation of power.

“For the projects that are underway, the NTDC has started towards putting up the grid. But it appears that for the next wave to come in, we have to gear up ourselves on that grid side,” he said. He added that the NTDC had been delaying the signing of EPAs because there was no progress on the loops needed to connect he projects with the main grid.

“If the government is really willing to push wind energy, it can privatise the grid for the section that connects wind projects to the main grid. There will be investors who will be ready to invest, as a separate project,” he said.
 Explaining the nitty-gritty, Kashif says that the ball park cost of connecting the upcoming cluster of wind projects, for which the government is signing EPAs these days, to the main grid would be around $50-70 million. “With a debt/equity of 80:20, the equity requirement would be $14 million, which is an easy investment for those that already have stakes in wind power sector.”
While Kashif thinks the country’s renewable energy policy is “very good” with the “right incentives”, he suggests improvements in two areas.

“The policy does not stipulate the time during which the EPA or IA must be signed, which means the government can delay the EPA or IA till such time it wants. If we have to improve the policy, we have to spell out realistic timelines for various processes,” he said.

 DEMOCRATISATION OF ENERGY
 The second aspect of improvement lies in what he calls the democratisation of energy. “The renewable energy policy talks about allowing households to produce solar energy and putting excess production on the grid. But it only talks about it in one paragraph.

“The government has simply ticked a check box. But is there any detail to that? No. Are there any established rules to that? No. The government has to come up with a detailed policy and regulatory framework to incentivise individual consumer to come in as a small investor in the power sector,” says Kashif.

He adds that Pakistan has very good radiation levels all across the country which means that “we can generate electricity at a distributed level”.
Explaining his model, Kashif says that in order to reduce the requirement of the battery bank, the policy should be devised for a grid-tied system, where if there is excess energy, the producer can give it to the grid and the same producer uses the energy from the grid. And the metering can be done on a net basis.

But is it economical? “The good thing is that this does not entail a huge investment on any individuals.

 A good system may cost you roughly $1000 USD per kilowatt, which mean Rs300,000-400,000 for three kilowatt. This seems expensive as upfront and it might not be enough for you to have solar only. But it will take some of your load at lower cost of production. The payback will be in 5-6 years, whereas the life of the panel is 20 years. And more importantly, it will make people part of the process,” he replied.

 Kashif added that the government can incentivise the setting up costs by asking banks to give loans to households to set up the solar panels, with the government picking up the interest cost. “The move will trigger investments, which when pooled together, will reduce the load on domestic consumption which is the biggest consumer,” he said.
 He maintains that renewable is the only energy that can be produced efficiently at household level. “Millions of households and SME are currently producing thermal energy via generators, but at obnoxiously inefficient rates. It produces a unit at Rs40-50. Look at the foreign exchange which is being wasted due to this; had this money been pooled, we could have had three times the power produced,” he said.