Country won’t head towards ‘knowledge economy’ until it spends on education and research: PM
ISLAMABAD: Prime Minister Imran Khan says the country won’t progress towards “knowledge economy” until it spends its resources on education and research.
Speaking at an event at COMSTECH, he said the ongoing coronavirus crisis has brought many things to light for them.
“We have a dependency syndrome, we lack self-belief,” the prime minister said, adding it is this crisis that made us realise that producing ventilators is not difficult. He pointed out the country had the capacity to make nuclear bombs but found it hard to make ventilators.
He said it is the self-belief that takes a nation forward and brings it at a stage where it can overcome any challenge.
Read More: Pakistan now capable of exporting hand sanitisers, disinfectants: Fawad
Prime Minister Khan said the coronavirus pandemic doesn’t differentiate between the rich and the poor, lamenting the ruling elite didn’t spare a thought for developing the country’s health infrastructure in the past and went abroad for treatment at the taxpayers’ expense.
Now, they can’t go abroad because the situation is more dangerous there than in Pakistan, he added.
The prime minister stressed the need for strengthening the health system so as to face any challenges in future.
Towards the end, he lauded Minister for Science and Technology Fawad Chaudhry for making endeavours to produce hand sanitisers, disinfectants and ventilators in the country.
Read More: Confirmed coronavirus cases in Pakistan rise to 15,759
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The Solution to the Pakistani Power Imbroglio - Part 1
ReplyDeleteDoom No.1
IPP/RPP Power APM, is at 12-16% in USD - which,in effect,affixes the power tarriff in USD,for sale by the IPP/RPP,to the TransCo,at a certain PLF,with passthrough of fuel,taxes and capacities,in a tolerance band,with bonus/incentives and penalties.
Solution No.1 to Doom No.1
The rationale for the USD - APM , is that the investors could have invested,in thermal loads - base and peak,in the USA and EU,and would have earned a return in USD .That is bull,as power plants based on coal,are banned in the EU, and even for liquid fuel,and gas plants - the "effective" return,is subject to market risk - and the minimum return, is way below,what Pakistan offers.dindooohindoo
It is assumed that the APM,is subject to tax/WHT etc.,subject to sectoral holidays.In other words,over the life of the project - it should not be that the APM in USD,is tax free,at point of profit,or at the point of repatriation.That would be a disaster,as the US/EU conventional power sectors,have no absolute tax waiver.
So the Dollar peg,has to reduce.In addition,the RPP and IPP cannot have the same APM rates ,in USD,for the same or different fuel,at the same or co-terminus times - as the RPP has a practical and technical exit option,from the PPA and the Pakistani nation.
Solution No.2 to Doom No.1
However,the IPP/RPP will state that they have factored Country and Grid Risk,in the APM. The Risk premiums on soverign paper,and semi-soverign paper of Pakistan,is known,and the co-terminus, risk premium is traded and known,on several Risk Exchanges all over the world.
So the APM has to be the minimum assured yield,on thermal power plants,for base load and peak load,in USD,in the USA/EU, PLUS,the risk premium for Pakistan
The soverign debt of SBP,in USD,net of US G-sec yields,for co-terminus tenor,is the country risk for Pakistan,in BPs.The Risk Premium loaded by the IPP/RPP,cannot exceed this BP spread.
Solution No.3 to Doom No.1
Unilever has invested in Pakistan - w/o an APM in PKR or USD.People can live w/o food for 3-5 days,but not w/o power.However, Unilever has an effective ROE of 30-50%,which cannot be given to a power plant.Also,Unilever has no soverign exposure, or guarantee,from the Pakistani Government.
Therefore,at a USD-APM,of 12-16%,after,say 6 years,when the entire equity is recovered,then either the APM is to be in PKR,or the USD-APM in USD has to be halved - as there is no empirical credit default,and the USD equity is recovered from the project.
Solution No.4 to Doom No.1
Even assuming an APM at 12-16%,in USD,the Risk premium,has to be on a floater mode,and cannot be fixed throughout the PPA tenor.The difference can be adjusted,in the 1st quarter, of a FY,for the previous FY,based on monthly or weekly averages,of the risk spreads , converted into Basis Points.Risk premiums,per se, and Country Risk premiums change over time - and an IPP,cannot claim a valid bet,on implicit soverign risk.
Part 2 of Solution to Pakistan Power crisis
ReplyDeleteSolution No.5 to Doom No.1
If all the above solutions,were not thought of,at the stage of the MOU/PPA, AND it was on account of coercion,corruption and /or fraud - then the PPA and MOU,is void ab initio.
Basically,the minutes of meetings by bureaucrats,will prove the fraud.In any case,any fundamental vulnerability or inequality or inequity or foolishness, in any contract,is a sign of fraud and coercion.
Power Demand will crash, during and post COVID.
CPEC will have its own Gwadar based CPP.A SEZ needs CPP, as a pre-requisite - and the PRC,will not buy power from the IPP/RPP - but they may buy,from the state grid - but only,at levelised rates.
IN ANY CASE,COVID is MORE THAN a Force Majeure event,as a Force Majeure event - after it occurs - has an ending and a quantification.For COVID,there will be NO CURE,and there MAY BE a vaccine - but only,after a long time.Hence,power demand,will disappear - and that is the basic premise,of a power project.Hence the IPP/RPP,have to re-negotiate,or exit and go,to the Hague.
Several nations will terminate PPAs and Fertiliser plants, on APM and Capacity charges - as even if a vaccine comes,BILLIONS will NOT Take the shot.
Doom No.2
In nations like Pakistan - IPPs use multi-fuel power plants,and bill the grid, for fuels which they do not have,or which do not exist,in that specification.So a liquid fuel RPP,on a ship,or an IPP on land - can use several types of liquid fuel.So they have paper and tank stocks of various fuels - whose ACTUAL stocks,are NEVER checked by the state - and the clown auditors,do not have the technical skill,to check the stocks,from several angles.In addition,the shipping documents,and the ship draft and tank meters,and dips etc.,are all fudged,within a tolerance limit.
So,in a compromised or inept systen,WITHIN A CERTAIN LIMIT, the IPP can bill for expensive fuel,which it did not have,or claim that the demurrages were paid,as the tanks were full,as the state did not have facilities,for power evacuation etc.Even a coal based Power plant,at a point in time,will have several grades of coal,in different storage conditions,and of different specifications.
Solution to Doom No.2
INTENSIVE,SYSTEMIC,ONLINE,TECHNICAL - BUT NON INTRUSIVE PHYSICAL VERIFICATION OF STOCKS,and the entire supply chain,from load port of fuel port to discharge port,evacuation to port tanks,port tanks to IPP/RPP tanks,meters,pressure and temperature gauges,sludge tanks etc.
Doom No.3
The FX loss on IPP/RPP PPA.The concept of keeping the FX position,on the IPP/RPP unhedged,especially since the SBP,in effect,affixes the PKR float - with no NDF trades - makes no sense at all.It is assumed that the IPP/RPP.,do not get the USD index gains on the retained earnings,at all - as the IPP/RPP,should have the dollar index frozen,on the date of the retained earning (which would be,the end of the FY)
If the PKR declined by 100$,in say 4 years,then the USD-APM of 16% or 12%,is 32& or 24%,in PKR
If the world economy is doomed,PKR exports will fall,manufacturing and power demand will crash,PKR will crash and THE CAPACITY CHARGE IN USD will be paid to IPP/RPP - which is a dead loss to the state.At the minimum,the state can hedge the USD Risk - as Imran Khan cannot revive the world economy.
Solution to Doom No.3
The Pakistan state has to HEDGE THE ROE-APM in USD,as the SBP knows the daily IBR,in the morning and the evening - before the sun rises,and before the sun sets.Irrespective of the nature of the project (BOO/BOOT etc.),the IPP has to forfeit the power plant salvage and sale value,at any stage of the project,except when the state is in default.dindooohindoo
The Solution to the Pakistani Power Imbroglio - Part 3
ReplyDeleteThe Sugar-Power Paradox
Pakistan sugar mills,make sugar,at say,a Total Cost,of Rs 60/kg,sell it,at Rs 65/kg,when the import price (duty free) would be,say Rs 30/kg.In addition,the stocks of sugar,liened to the banks,are liquidated by exports,by selling the sugar,in the export markets,at Rs 30/kg. Hence, the sugar mills are paid Rs 30/kg,as subsidy.dindooohindoo
However,it must be noted that subsidy of Rs 30/kg,or the higher sugar price,paid by Pakistanis, HAS BEEN PAID,IN A SIGNIFICANT PART,BY THE SUGAR MILLS,to the farmers,the state (as taxes),and to the bank (as interest).The nation has received stocks of sugar, produced a strategic input,and kept millions employed and nutritious - in lieu of the subsidy,and import proection.
Therefore,the SUBISDY ON SUGAR,is not the same,as the CAPACITY CHARGE,paid to IPP/ RPPs.The State receives nothing,in lieu of the capacity charge,as,in theory, no power is produced by the IPP/RPP,at all.
Doom No.1 - Capacity Charges,in a No-Power scenario
The Capacity Charge paid to IPP/RPPs - which is a dead loss,to the state - as the IPP/RPP,will repatriate the money,to the overseas principals.The Capacity Charge is paid,irrespective of power demand, evacuation issues and Force Majeure events,and also,new power corridors and West and Central Asia.The capacity charge,is also paid,notwithstanding,peak and base load power plants.
Solution No.1 to Doom No.1
The State has to terminate the capacity charge agreements,due to the COVID Force Majeure,as this event will destroy power demand for ever,as also change the power corridors in West and Central Asia.COVID was planned to ensure financial forfeitures and preclosures. There is no DESTRUCTION OF INDUSTRY - DUE to fire,or an accicent - and so,there is no loss to insurers.The Millions,who will die of COVID,would have died in any case,it is,thus a timing loss - and there is no investment loss,to the insurers,as the claims will be paid, from the sharp rise,in new premiums (by new scared and panicked and hapless sentients).There is no "Loss of Business" Insurance Policy,in vogue - as it is expensive,and a compendium of sophistry.
When insurers do not LOSE,due to a disaster - they gain exponentially - as everyone will insure,for the unknown - especially,"loss of business" policies - which are LOP (Loss of Profit Policies - and very expensive).This is a sure sign,of a man made virus - with a financial, economic,military and political objective.
This is the right time,to 1st kick out the RPPs - as they can physically exit,at will - with a few contingencies.Then the IPPs,have to forfeit the capacity charges - for those projects,where APM in USD,has already recouped the EQUITY,of the project cost.The IPP/RPPs have to partake in the realties of the energy paradign,in light of the Force Majeuere world.Even the Hague will accept this logic - as the continued operations - will be a prime case,of rapacious profiteering.Capacity charges have to be forfieted,by all the IPPs,with USD-APM,and,for others,the capacity charges have to be drastically cut down,AND,if needed,the liquid fuelpower sector,can be nationalised.
Nationalisation will have no impact on FDI etc.,as the prime investor is PRC - which will,thus, not bother about the implications of PPA termination,or Power plants takeover. In a world of economic ruin,the PRC is sitting on 3-4 Trilion USD,of US-DEBT and Gold.
The Solution to the Pakistani Power Imbroglio - Part 4
ReplyDeleteSolution No.2 to Doom No.1
The Capacity charges have to be re-negotiated - on purely technical reasons.The engineering and maintenance supply chain,of power plants,will be destroyed - as the suppliers will be busted,and those in operation,will have shortages of staff and inputs.Thus,the IPPs will ultimately default,on their capacity commitments.If the IPP can claim Force Majeure,w.r.t their engineering supply chain,the State,can also invoke Force Majeure,on their commitments,to profiteering clauses,in the PPA.
Besides,with the crash in power demand, the technical life of the power plants will increase, as there will be,less usage,and depreciation and damage.Due to the disaster in the power sector,there will be less R&D,and so,lesser risk of technical or technology obsolescence.
In view of the above,the capacity charges have to be drastically reduced,and/or forfeited
Solution No.3 to Doom No.1
In the COVID scenario, and in view of the above, the high marginal cost IPP/RPP and SOE,and also,old power plants - whose engineering supply chain will collapse - can be shut down,and kicked out - and the resultant cost saved - even on,revised power demand estimates,can be shared with the residual IPPs,in terms of higher power tarriffs (in lieu of elimination of capacity charges,PPA restructuring and eradication of high cost power plants)
It might also be noted that,with the crash in power demand,and possibly agri activities, the hydel power plants of Pakistan,might be able to take over the peak load power demand - and so,gas-combined cycle-liquid fuel-naptha based plants - MIGHT not be required - and,if required,will need to be negotiated,in light,of the new environment.dindooohindoo
Thus,in addition, there can be no basis,for payment of capacity charges,for peak load IPP/RPPs,as,in the new power demand matrix - there may be no peak demand, and the peak demand,may be met,by hydro power plants.In any case,in a free market,for peak load power,or a supplier's market, there is no case for capacity charges,in a nation,like Pakistah - as there was,in the past,enough residential and industrial peak demand,and grid disasters - with ample scope for the IPP,to make exorbitant profits.
The Solution to the Pakistani Power Imbroglio – Part 5
ReplyDeleteDoom No.1 – Capacity Charge with no Power
Solution No.1 to Doom No.1 – If the IPP/RPPs cannot be kicked out,the capaciy charges cannot be renegotiated,the technical life of the power asset cannot be agreed to be extended,or the capacity charges cannot be waived – then it is best,to avail of the power supply,with the incremental Marginal Cost of Power,from the said IPP,if no other power supply is available, or if the Opportunity Cost of Power,from other sources,is higher than the Marginal Cost of Power,from the said IPP..dindooohindoo
The power supply so made,at a certain tarriff to the grid,and at a certain economic cost to the state – has to be recovered by any mode,even at cost – from any activity,which ideally exports power (power intensive products – ferro alloys,metals),or which leads to any economic activity,which recovers, at the minimum,the total cost of that activity (which will include the billable value of the power,at the distribution load point)
The VAT and Non-VAT taxes, which accrue to the state,as a result of the said economic activity,across the supply and value chain – arising out of the economic activity, is an added bonus to the state (besides the taxes on the employment derived therefrom)
On a cash flow perspective,the taxes on the economic activity derived,from the power produced,will pay for the Marginal Cost of the Power,from the IPP (beyond the capacity charge),with some timing mismatches.
Solution No.2 to Doom No.1 – If the T&D losses in Pakistan are 20-30%, the strategy of maximising the power output and feeding into the grid among millions of users and SMEs – has the incidental T&D loss – as,on a Marginal basis,on certain Grid-Trans lines, the entire Marginal Power produced,may be stolen (not paid for).
Hence,the IPPs have to be forced to make a JV,for Ferro Alloys manufacture or other value added activities (using power) to evacuate the power,and ensure that the cost of the power,billed by the IPP to the Grid,is recovered – by the said activity.In such a case, the power will be wheeled through the grid,at say 2-3% wheeling charge, and used by the manufacturing unit,near the port (if the output is to be exported).If the unit is given free land ,at cost water,Nil VAT, and a limited tax holiday, and at Cost-Power,
then,even if the current scenario,several JV partners,will be available.
The Limited Profit tax,on the said manufacturing unit,and the WHT and DDT on profit distributed,will MORE than,cover the cost of the power to the grid – and the state,will be a JV partner,in lieu of the free land – and if required, in lieu of free power – which will be offset,by the dividends to the state (on the JV stake)
As a generic law,any nation like Pakistan,with surplus PLF of thermal Power plants (not Hydel power),and for the state owned power plants, the aim should to be to hit the maximum PLF, and dispose the Marginal Cost of Power Produced, at the highest possible rate – in terms of economic activity.Even if 200 million Pakistanis,increase their use of e-appliances (24×7),the sale and purchase of the e-appliances,and the services on the e-appliances,has an extensive multiplier effect and impact on supply and value chain – and the taxes thereon,will more than offset,the Marginal Cost of Power produced
If peak load power tarriffs can be reduced,and the peak load supply increased,to increase the absolute profit to the grid – the downstream economic gains,to power users,will be incalculabe.
The increased load on the power plants – has no economic risk – as in the future, there will be an abundance of power corridors in West and Central Asia and PRC – bypassing Afghanistan.The Marginal cost of thermal power,is w/o considering the losses on account of spinning/reactive power,of renewables and hydel power plants.Post Aramco in Pakistan,there will be no need for these IPP/RPPs – so power generation at the cheapest cost – will not be a bottleneck,for planning or economic activity.
The Solution to the Pakistani Power Imbroglio – Part 6
ReplyDeleteSolution No.3 to Doom No.1 – If the Marginal Cost of Govtt Power plants,is higher than the Marginal Cost (beyond the capacity charge) of the IPP,then it is obviously better to use the power from the IPP,in lieu of the Govtt Power plants – and thus,pay no capacity charge.If the scenario,is in the opposite,then one should ask – why an IPP is required,if the state owned power,has a lower marginal cost (except when the power supply is limited,or not reliable.or the power plant is too old)
Solution No.4 to Doom No.1 – If the above options are not feasible in the interim,then,in any case,the state should use hydel punped storage plants – to ensure that the Marginal Cost of power from the IPP (w.r.t the alternative to pay the capacity charge),can be consumed via the pumped storage plants,to generate and store,peak load power.In any case,the excess PLF of the state owned power plants,can also be used for the same,when the Marginal cost of the power is low – and the economics of the said pumped storage,is viable.
Solution No.5 to Doom No.1 – Pakistan has to shift to N-Power, for base load power plants.The Japanese and the PRC,give N-power plants,on 40-50 year payment terms,at low prices – and the decommissioning costs,are after 40 years.The economic cost of the uranium is negligible,as the DU has several military applications,in armour and anti-tank missiles etc.There is also,no dearth of enrichment facilities in Pakistan.Even in the event of sanctions, some HEU-235,could be obtained from PRC,for downblending. Hence, there is no fuel supply risk, no logistics risk,and no manpower supply risk. dindooo hindoo
In addition,the Japanese and PRC,provide the plants at zero interest rates, and also,have provisions for supply of LEU-235-5%.If by the grace of Allah,Hindoosthan is destroyed,then Pakistan will have enough HEU,to downblend and generate power,till the Mahdi arrives on earth.