Daharki power project

THE Asian Development Bank has approved a 171-megawatt gas-fired power plant worth $200 million, to be located at Daharki, Ghotki District, in Sindh, to which gas will be supplied from the nearby Mari gasfield, says a Recorder Report. The facility, which is expected to supply base load power to the national grid, will provide additional low-cost electricity to the consumers. The plant will not only help increase our net power generation capacity but will also promote efficient management of an otherwise idle gas resource, largely due to the proximity of the plant to the gasfield. To be developed under the country’s 2002 Power Policy, the project is expected to start commercial operations in the last quarter of 2009. It should be mentioned here that about 60 percent of Pakistan’s population currently has access to electricity from the national grid, while the rest has to rely on the use of kerosene, wood and other biofuels for cooking, lighting and heating purposes. The use of wood for cooking and heating by an energy-starved population, particularly in the mountainous north, has accelerated the process of deforestation, which has in turn generated ecological problems. According to an ADB estimate, Pakistan needs to add about 2,000 megawatts every year to its power generation capacity to forestall power shortages in future, particularly in view of 11 percent growth in its average annual electricity demand. Meanwhile, as a part of the Ghotki power project, the ADB has approved equity investment of up to $2.75 million, and a guaranteed $44 million loan for the project holding company. Subject to the approval of the authorities concerned, both the guaranteed loan and the equity investment will be contributed by the holding company as equity in Foundation Power Co, Daharki Ltd, which will be the owner of the power plant. The proceeds from the equity investment and guaranteed loan will be partially used for designing and implementing the project. A consortium of local and international banks has provided $150 million in debt financing for the project, which has been billed as the country’s first “gas only” plant to be set up under the 2002 Power Policy.
As the gas will be supplied to the power project from the nearby Mari gas-field, efforts will have to be mounted to develop additional blocks so as to ensure uninterrupted supply of the precious resource. A review undertaken by the Petroleum Ministry some months ago had painted a dismal picture of gas availability in the country, leading to the conjecture that Pakistan might not be able to attract any new gas-fired or duel-fuel IPPs in future. Keeping in view the commercial operation timeframe of the IPPs, block gas allocation at PPIB’s disposal will be 300 mmcfd in 2007-08, 240 mmcfd in 2008-09 and 152 mmcfd in 2009-10. The progressive yearly decline in gas availability will be reflective of rapid depletion of the precious resource. During the past ten years, Pakistan’s power sector has emerged as the largest consumer of gas (36.4 percent), followed by fertiliser (21.6 percent), industry (19.1 percent), household (17.8 percent), commercial (2.7 percent), cement (1.1 percent) and transport sector (CNG) 1.0 percent.

The dollar tumbles

THERE is something weirdly appropriate about the fact that it took a supermodel and not an economist to draw attention to the plight of the U.S. dollar. Reports that Brazilian supermodel Gisele Bundchen allegedly refused to be paid in greenbacks and insisted on euros had markets aflutter and highlighted the dollar’s plunging value and its potential consequences. In recent weeks, the dollar has hit new lows against most currencies. The U.S. currency reached $2.10 against the pound, its weakest against the British currency since 1981, and scrapped to $1.47 against the euro, a new record against a currency that was established eight years ago. The dollar has dropped against all 16 of the most actively traded currencies this year: It has lost 10 percent against the euro, 6.9 percent against the pound and 5.2 percent against the yen. It reached its lowest value vs. the Canadian dollar since 1950, when the fixed exchange rate ended, and hit a 23-year low against the Australian dollar. The U.S. Federal Reserve reckons that the dollar has weakened 8 percent against a basket of currencies from major trading partners since January 2006. On one level, the dollar’s fall is to be expected. Worried about a weakening economy, the Fed has been cutting interest rates: Short-term rates dropped 0.75 percentage point in the past two months, and most economists expect another cut at the Fed’s next meeting in December. Elsewhere in the world, central bankers have held the line or tightened their belts. Similarly, the sizable U.S. current account deficit — which hit 7 percent of GDP at the end of 2005 — and five years of record trade deficits (last year it reached $758.5 billion) also put considerable downward pressure on the dollar. But U.S. officials are not worried about the shrinking currency. In fact, they are quite pleased. A falling dollar means that U.S. products and services are more competitive on global markets. And, indeed, that is the case. The U.S. current-account deficit fell to 5.5 percent of GDP in the second quarter of this year, down from the 7 percent peak of two years ago. U.S. exports have hit record highs, pushing the trade deficit down to $56.5 billion in September, a 0.6 percent fall, and its lowest level in 28 months. Exports increased a little over 1 percent and the overall trade deficit is 7.4 percent below 2006’s.
Despite the fall of the dollar, inflation so far remains under control in the United States. And with other parts of the economy sputtering — due to the fallout from the subprime mortgage debacle, which has hurt consumer confidence, banks, and businesses — a reinvigorated export sector is more important than ever. By one estimate, trade contributed more to growth in the second and third quarters of 2007 than in any six-month period since 1990 and 1991. Other governments are considerably less sanguine about this turn of events. European manufacturers complain loudly about U.S. attempts to devalue their way into renewed competitiveness. In a speech to Congress, French President Nicolas Sarkozy said the U.S. readiness to let the dollar fall risked competitive devaluations and “economic war.” There is another concern, one that looks increasingly plausible as the dollar readjusts. The U.S. dollar is not merely a medium of exchange for Americans. It is the world’s reserve currency. The readiness to hold dollars is a vote of confidence in the stability of the currency.

—Japan Times