A Sustainable Goldmine:Developing Renewable Energy For Rapaid And Inclusive Development of Gilgit-Baltistan
Keynote Speech for the Energy Conference Serena Hotel, Islamabad February 7, 2014
By: Izhar Hunzai
A Sustainable Goldmine
The unique topography and hydrology of GB holds unmatched potential for generating low cost hydropower. The hydropower potential of GB is well established for large projects, such as the Diamer-Basha Dam and Bunji and other high potential projects in 100s and 1000s of MW in capacity.
In addition, there are hundreds of other sites for building technically sound, economically viable and ecologically smart projects. These are low hanging fruit type projects, and are attractive from a range of strategic investment perspectives. For one thing, they fall under the provincial government authority, which makes them immune to national and international politics, thus making them more feasible from a commercial point of view. They also contribute to fiscal independence and better local governance, so the people and political leaders are looking for good partners
We Need a Smart Energy Policy
Developing even a fraction of this vast resource can be a boon, not only for the GB economy, but also for agricultural and industrial development in the whole of Pakistan. Energy security through hydropower development can reduce dependence on fossil fuels and contribute to national development and its stability.
The economic rational is that, a potentially large resource exists next to a huge energy deficit market in Pakistan and an energy-hungry China. Why this demand has not met with the potential supply remains a major question mark in Pakistan. The missing link appears to be not lack of good planning, in fact too much planning, or investment capital, technology or expertise, but smart policies and political will. The government’s hydropower policy is allover the Indus Basin, instead of just focusing on a feasible few and building one or two projects quickly.
The ideal option would be fast-tracking Diamer-Basha and Bunji Project on Indus. However, these projects are costly and they will take their own time to build, if everything goes well. Pakistan has not built a mega project since Tarbela, hence, there is reason to be skeptical.
The second best option would be building the Grid first, and allowing private sector to crowd-in the energy market through a variety of Captive, BOT and BOO projects, starting with shovel-ready small, medium and big projects. The Grid can also be used to import energy from China for an initial period to meet current national shortfall, which can eventually be reversed to sell surplus energy to China, as energy production increases in GB and on Indus. Building a Khunjrav-Thakot Power Grid for mutual energy security of Pak-China, is likely to be the first project of the economic Corridor.
However, we know that the GB government has no influence on national policy and resource allocation decisions. The energy policy is highly politicized in the country, and the economic argument alone is not sufficient to sway national policy and action.
In the absence of workable national level initiatives in the sort and medium terms, what is that the GB government and Council can do to develop it energy and other strategic resources, such as minerals and tourism? The key opportunity available to the GB Government is to craft a smart energy policy that puts private sector in the lead, and allows it to create revenue and jobs for the government, and market-based services for the industry and other consumers.
The GB government is currently 100% fiscally dependent on the Center. Hydropower can give it the necessary fiscal muscle in the long-term to enjoy its political autonomy. As it emerges from its long physical and political isolation, GB has an opportunity to integrate with the national and Chinese energy and capital markets.
Realizing hydropower potential through private investment and through PPPs requires streamlining the coordination between the various agencies within GB, such as GBLA and GBC, Planning and Finance, Water and Power, and other stakeholders.
On the tributaries of Indus, the GB government has the right to develop its own resources, so it does not have to tangle with a web of national energy bureaucracies. Once a policy and regulatory framework is in place, competitive bidding procedures should be adopted to ensure a level playing field to potential investors.
Elements of an Enabling Energy Policy
The future energy policy of GB must focus on short, medium and long-term objectives. Instead of giving across the board subsidies, investment incentives must be targeted at specific long-term goals, such as fiscal autonomy, industrialization and productive uses, and energy export. The policy can offer long-term tax incentives and even a line of credit and other incentives to investors who contribute to sector development, such as upgrading local grids and integrating them into a regional grid, or captive energy generation. The GB government should look for long-term partners, who can co-invest with local companies and communities, look after the fragile ecology of this mountain area, and generally be socially responsible.
Specifically, key elements of GB’s energy policy could include the following principles:
- A diversified portfolio of energy projects, such as captive energy generation, BOT, BOOT and BOO; and provisions for multi-scaled investments, from micro, community-based utilities, to captive power generation and export; as well as investments in grid up-gradation, and rehabilitation of old plants on BOT basis.
- Simplified regulation and institutional arrangements, including a one window service and specified turnaround time for processing investment proposals
- Creation of an energy development investment fund, using public and private money
- Creating synergies with wider economic development goals and sector development policies, such as mineral development, irrigation, industrialization, and achieving seamless integration in development strategies, including cultivating good behavior among consumers
- Targeted incentives and concessions, linked to specific targets and outcomes
- Fostering responsible investor and consumer behavior, incorporating corporate social responsibility (CSR) and encouraging local equity participation in joint ventures, and discouraging theft and abuse of public services
- Incorporating sustainable development principles in investment policy, maximizing positive and minimizing negative impacts of investment
- Promoting a partnership approach among public, private and community sector stakeholders
- Opening up multiple opportunities for investment for sector development, such as generation, distribution, technology development, skills and professional training
- Investing in and upgrading oldest plants located in prime sites should be a key consideration. Beyond, this, improving conservation of heat through thermally efficient buildings must be part of the long-term energy development and efficiency agenda.
Why GB is Attractive to Investors?
- The cost of hydropower development in GB is relatively low as compare to national and international standards; therefore it could be very attractive for private sector and financing agencies to invest in hydropower development in GB
- For instance, the installed cost is Rs. 83,571 for Naltar II or Rs 1.85/ kWh, and Rs. 120,684 for Talu Project per kW, or Rs 2.15 kWh.
- There are many shovel-ready projects that the GB government has already proposed for private sector investment. In addition, a long list of raw sites is also available with preliminary ranking, using a criteria developed by PPIB, GIZ and AEDB
- The higher the capacity of the project, the lower the cost of development, therefore higher capacity projects could be a better option to invest
- Major resettlement cost is not involved in construction of hydropower projects in GB, except temporary displacements during construction of the projects.
- Basic infrastructure is available in most cases; therefore, no major cost is involved in basic infrastructure development for the projects.
- Captive power, development of hydropower projects by clubbing it with viable mining, cottage or tourism industry for captive power generation and also facilitating local industries and consumers from the spillover or surplus energy may be the most preferred option.
- Energy banking or wheeling concept can also be applicable, when high density Grid is available
- And finally, benefiting from the economic opportunities that the proposed Kashgar-Gawader Corridor, as energy is key to creating a viable economic Corridor.
Shared by Raees Kamil Jan