By Managing Director PEPCO November 11 , 2010

1. POWER SECTOR REFORMS PROGRESS ON THE TRANSIT FRONT, ISSUES, CHALLENGES AND WAY FORWARD By Managing Director PEPCO November 11 , 2010

2. Progress on Transit Front Governance & Operational Efficiency

3. Governance Reconstitution of BODs of PSCEs Names for BODs of DISCOs proposed to Transition Committee HESCO BOD to be reconstituted shortly Appointment of CEOs of Corporate Entities & CPPA by the BODs After reconstitution of BODs Appointment of Senior Management Positions in the Companies After reconstitution of BODs Activation of CPPA Transition Committee to work as BOD of CPPA till a regular Board is appointed CEO to be appointed after reconstitution of BOD SOP for CPPA functions being formulated by Steering Committee in consultation with Ministry of Water & Power, PEPCO and other stake holders

4. Governance Transfer of powers from PEPCO to PSCEs Notification issued authorizing the Companies to initiate and countersign Performance Evaluation Reports (PERs) of all Officers w.e.f. 1st January 2011 onwards Notification issued authorizing the Companies to adopt Schemes of Basic Pay Scales as per notifications issued by the GoP Notification issued authorizing the Companies to enter into rate contracts for purchase of daily use and small equipment

5. Transfer of Manpower from PEPCO to PSCEs • The employees working in HQ PEPCO have been allocated for their permanent absorption in the companies, as below:

6. Transfer of Manpower from PEPCO to PSCEs Employees transferred to Corporatized Entities on 29-10-2010 in first phase Note: Transfer of manpower in second and third Phases depends upon resolution of core issues listed in the subsequent slides

7. Core Issues • Issues to be resolved before full HR functions are devolved to the Companies: • Service Rules and Regulations for BS 18 and above to be formulated by the respective BODs • Resolving integrated seniority issues of employees on transition • Career progression matters like promotions/postings of BPS 18 and above Officers • Creation of certain posts in DISCOs/GENCOs/NTDC/PITC for adjustment of allocated PEPCO HQ employees • Transfer of Assets, Finances, T&P and Logistics to companies • Transferring legal cases for dealing them uninterruptedly

8. Actions in Hand • Formulation / Issuance of SOPs for smooth devolution of Functions to companies: • Leave, Retirement, Pension, Admn Approvals, Loans / Advances etc. for BPS 19 & 20 Officers • Inter-Company transfer of officers of BPS-18 and above. • Implementation of directives of PM and CCOR on Austerity Measures through respective BOD of the Companies • Competency for BPS 20 Officers and appellate forum for BPS 19 Officers in disciplinary cases at company level • Transferring of Investigations / Enquiries by M&S Division PEPCO • CBA’s issues etc.

9. Operational Efficiency Introduction of Smart Metering Tree right from generation to consumers Being implemented in a phased programme. In first stance, Distribution Companies have been asked to install Smart Meters in the areas where losses/theft is comparatively high. LESCO has completed a Pilot Project, which has shown positive results, and will be replicated in other DISCOs. Smart Metering Tree right from generation to consumers needs a comprehensive study, and would require huge investment. USAID being requested to finance the study Consumer Classification DISCOs has awarded contracts to conduct the survey Survey to be completed in 3 months

10. Operational Efficiency Improved Recovery Outsourcing of FATA Feeders to improve collection TESCO will propose the TESCO Feeders within a week time, to be considered for outsourcing Experience to be replicated in other DISCOs Reduction of losses Conversion of 66 kV system into 132 kV system Enhancement of Transformation capacity Installation of capacitors at grid stations & 11 kV feeders Load balancing Introduction of Incentive Scheme Measures to control theft Draft of the Electricity Act to be finalized by the end of November 2010

11. Operational Efficiency Fuel efficiency Laying pipeline between MahmoodKot and Muzaffargarh Power Station for supply of fuel to avoid theft and mixing Use of additives to improve the fuel efficiency Rehabilitation of GENCOs to recover lost capacity and efficiency Energy and Technical Audit of GENCOs USAID is being requested to finance the audit

12. Power Sector Issues

13. Power Sector Issues Delay in tariff determinations by NEPRA Unfavourable energy mix heavy dependence on furnace oil generation Inadequate provision of tariff differential subsidy Non-payment by KESC, FATA and Provincial Govts. Low collection and high losses of HESCO, PESCO & QESCO Non bill payment culture and theft Circular debt Theft and mixing of fuel in GENCOs High fuel consumption by GENCOs

14. Challenges

15. Challenges Recovery of cost of services to overcome circular debt Higher cost of generation due to use of RFO Availability of diverted/curtailed gas again to Power Sector to reduce generation cost Uninterrupted power supply to industry, trade, agriculture and domestic Eradication of theft System augmentation to reduce line losses Recovery of electricity bills in HESCO, PESCO, QESCO and TESCO Regular payment of dues by KESC Availability of finances for Power Sector for rehabilitation and augmentation of the system Capacity building of human resource

16. Way Forward

17. Way Forward Capacity building of Companies through crash training and courses on planning, design, standard and procurements etc. Elimination of subsidy through cost reflective tariff Recovery of arrears from KESC, Provincial Governments and private consumers Introduction of coal based generation to reduce dependency on RFO based generation Full Allocation of Gas to Power Sector Availability of uninterrupted supply to industry and commerce Launching of energy conservation programme IPO/Share Issues (IESCO,LESCO, FESCO)

18. THANK YOU

19. ELECTRICITY GENERATION BY FUEL (excluding KESC) (2006-2007) & (2009-2010)

20. Gas Allocation for Power Sector Make or Break Situation!

21. Gas Allocation for Power Sector • Average gas requirement of GENCOs is 780MMCFD, whereas the average supply in 2010-11 is 301 MMCFD (up to 7th Nov. 2010). • An additional 200 MMCFD of gas is needed to run KAPCO economically – which, too was drastically reduced to just 70 MMCFD in late 2007 and then stopped altogether. • The Gas Companies on their own and on requirement from other Sectors have been instrumental in reducing the required gas for the Power Sector. • Erratic supply (non-supply) of gas to the Power Plants has adversely affected the generating capacity of various Power Plants. It has been the practice of Gas Companies to curtail/totally stop gas supply to the Power Plants in the winter months, while giving preference to other sectors and customers. • Gas supplies by M/s SNGPL to GENCO – III i.e. TPS Muzaffargarh, NGPS Multan, SPS Faisalabad, GTPS Faisalabad and GTPS Shahdara are nil at present.

22. AVERAGE GAS REQUIREMENT VS. ACTUAL GAS SUPPLIES TO GENCOS POWER STATIONS * During summer only **Up to 7th Nov. 2010. Present supply to TPS Quetta is nil.

23. Gas Allocation for Power Sector • GSA of KAPCO, most efficient IPP (partly owned by GoP), for 70 MMCFD gas has expired in 2007. Despite best efforts for extension of GSA, SNGPL did not agree. Presently, no gas is being provided to KAPCO • Gradually, the gas supplies have been curtailed against the committed volumes of gas, specially by SNGPL • 110 MMCFD Mari gas has been diverted from TPS Guddu to M/s Fatima Fertilizers Ltd. In September 2009. In lieu thereof, gas from Kandhkot and Mari Deep was to be provided but the same has not been supplied so far despite vigorous follow up by PEPCO. At present only 60 MMCFD Mari Shallow Gas is being provided as per Prime Minister Directive.. • Business Plan FY 2009-10 envisaged incremental supply of 350 MMCFD gas to the Power Sector

24. Gas Allocation for Power Sector • Non-availability of gas caused: • Reduced generation by about, 1500 MW • Increased HSFO consumption by GENCOs and IPPs. In the year 2009-10, GENCOs consumed approximately 2,559,496 M. Tons of HSFO worth Rs. 110.788 billion (US$ 1.3034 billion). During the same tenure, IPPs consumed 4,756,787 M. Tons of HSFO worth Rs. 205.898 billion (US$ 2.4223 billion). The resulting impact was: • Three fold increase in cost of service as compared to cost on gas. • The expense of US$ 3.7255 billion worth foreign exchange for import of HSFO. 24

25. Financial Impact of additional supply of gas 25

26. Gas Allocation for Power Sector Availability of Gas to Power Sector Will: • Reduce the cost of service. • Save foreign exchange worth billions of US$. • Diminish the compulsion to repeatedly increase power tariff. • Trim down the volume of Circular Debt. 26

27. Recommendations for immediate availability of Gas for Power Sector • 90 MMCFD gas committed for transfer from SSGCL system to SNGPL during winter months should continue and diverted to PEPCO. • 40 MMCFDZamzama gas allocated to TPSGuddu by ECC, and not being supplied by SNGPL, be provided to GENCO-III power plants • 60 MMCFD gas which is equivalent to 30% of 200 MMCFD gas added into SNGPL system from TAL Block should be allocated to power plants of PEPCO. • CNG stations should be monitored to restrict their respective load as per their contracts with M/s SNGPL and SSGCL. It is envisaged that a saving of 10-12 MMCFD is possible for diversion to PEPCO. • About 305 MMCFD gas is being supplied by SNGPL and SSGCL to Captive Power Units. The gas companies are not following any power plants’ efficiency criteria/protocol for supply of gas to the Captive Power Plants and the saved quantities of gas be provided to PEPCO. • Gas Allocation and Management Policy-2005 needs amendment so as to cater for Power Sector at the highest priority. • Gas supplies to the sectors having low priority than power generation sector (e.g. CNG, Captive Power and cement sector) should be stopped for supply of the gas to high priority Power Sector. 27

28. Recommendations for immediate availability of Gas for Power Sector • Gas Management Plan for winter months should continue throughout the year. The gas saved should be diverted to PEPCO. It is anticipated that 450 MMCFD gas can conveniently be saved for PEPCO through this exercise. Specific emphasis is needed to continue the rolling gas cuts to the CNG stations. • The price differential between the supply of gas for power generation by PEPCO and fertilizer industry needs to be revisited, so that affordable power can be supplied to everyone by the utilities. • Power generation by fertilizer plants (10 Nos.) through utilization of gas needs to be stopped and shifted to Furnace Oil. Fertilizer sector should be allocated gas for Feed Stock only. The gas thus saved (50 MMCFD approx.), should be diverted to PEPCO power plants. The earlier steam turbines/BOP capable to run on RFO are still available at the sites/works. • Out of the 183 MMCFD gas diverted to Power Sector through PM Directive issued in 1st Energy Summit held in April 2010, only 60 MMCFD from Mari Field is being supplied at present and the remaining quantity has been withdrawn by Gas Companies w.e.f. 21.09.2010 . 28

29. Recommendations for immediate availability of Gas for Power Sector • 183 MMCFD gas supply as per Prime Minister Directive should remain intact for Power Sector. Additionally, 265 MMCFD gas (Total = 448.5 MMCFD) should be saved through various measures and diverted to Power Sector. • Quota of 30% of additional gases from existing fields of Manzalii, Makori, should be diverted to Power Sector. • 100% gases from new fields such as, Manzalai-II, Nashpa, Mamikhel, Maramzai, Kohat Block, KunarPasakhi, Sinjhoro, JhalMagsi, etc. should be exclusively allocated to Power Sector. 29

30. Suggested Curtailment Plan For Additional 265 MMCFD Gas For Power Sector (MMCFD) 30