Reshma Rental Power Project

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In December 2009, the rental services contract (RSC) between the state-owned Northern Power Generation Company (GENCO-III) and Reshma Power Generation Ltd. for the installation, and operation for a five-year term of a 201 MW, residual fuel oil-fired rental power plant (RPP) near Manga-Raiwind Road, Punjab province, became effective. Three conditions were required for rental contract effectiveness: (i) advance payment guarantee by sponsor, (ii) down payment by the state-owned power purchaser, and (iii) issuance of a sovereign guarantee by the Government of Pakistan (GoP). The Government of Pakistan (GoP) chose rental power projects as its major strategic tool for closing Pakistan’s electricity demand-supply gap in the short term. The project was awarded on the basis of competitive bidding. In December 2008, PPIB published a tender notice calling for the submission, by Feb. 16, 2009, of proposals for rental power projects of any capacity above 50 MW. PPIB received 10 bids, containing both a technical and a financial component, by the bid submission deadline. It declared eight of these bids 'responsive', including Reshma Rental Power Project. Reshma Power Generation Ltd. was then invited to submit a tariff bid by March 21, 2009, which was approved in April 2009. On June 23, 2009, the Private Power and Infrastructure Board (PPIB) issued a Letter of Award (LoA) to Reshma Power Generation Ltd. [Pakistan], which proceeded to sign the RSC with Northern Power Generation Company (GENCO-III), on Sep. 6, 2009. Under the RSC, GENCO-III was to pay a rental charge of US$395 million, payable in arrears in 60 equal monthly installments to the sponsor, and to pay the sponsor’s fuel costs at a rate of Rs. 5.5124 per kWh based on the reference fuel price of Rs. 20,398 per metric ton. In line with the GoP's procurement process for rental power projects, the project sponsor submitted a payment guarantee to GENCO-III equal to 7% of the RSC’s value. In return, GENCO-III made a down payment to the sponsor equal to 14% of the RSC’s value. Thereafter, the GoP issued an annual renewable sovereign guarantee covering GENCO-III’s rental payments. According to the Asian Development Bank (ADB), these steps had been completed by Dec. 31, 2009, indicating contract effectiveness. The sponsor’s estimated investment was US$79.3 million. To calculate this estimate, first the investment's present value (PV) was assumed by multiplying an assumed investment per kilowatt (US$600) by the plant’s installed capacity. The PV was then used to find an annual amortized payment, assuming 15 years as the expected asset life and a discount rate of 10%. This annuity payment was then multiplied by the term of the rental contract in years, giving the sponsor’s total estimated investment.