U.S.-Pakistan Strategic Dialogue: Questions and Answers on the Signing of 3 Energy Implementation Letters

On March 25, 2010, USAID Administrator Dr. Rajiv Shah and Shahid Rafi, Secretary of Pakistan's Ministry of Water and Power, signed Implementation Letters confirming joint efforts to upgrade three Pakistani thermal power stations in Guddu, Jamshoro, and Muzaffargarh over the next year.

What does today's signing mean for Pakistan?

Today's signing means more energy, more power and more potential for Pakistan.

The implementation letters outline our steps with the Government of Pakistan to refurbish, rehabilitate and renovate the Guddu, Jamshoro and Muzzafargarh power stations.

These efforts are part of our $125 million commitment to improve the efficiency of the country's energy sector that Secretary of State Clinton announced during her October 2009 visit to Pakistan. These agreements also demonstrate that the U.S. is listening and responding to the Pakistani people's request for assistance with issues such as electricity that most affect their daily lives.

What is an Implementation Letter?

An Implementation Letter is a legally binding document that sets parameters between USAID and the host government.  It can be used to set conditions precedent to be met, describe scopes of work or outcomes expected, obligate funds to a particular activity, etc. As part of USAID's new way of doing business, the implementation letters are also uploaded to USAID/Pakistan's website at www.usaid.gov/pk 

Why is the US government interested in improving Pakistan's energy situation?

Pakistan's chronic, severe electricity shortages have created an energy crisis that threatens the country's political and economic stability.  The U.S. Mission to Pakistan is addressing the broad, systemic issues that have combined to create the crisis through on-going and planned programs in energy policy dialogue and reform, investments in facility upgrades, management and operational enhancements, and support for energy efficiency initiatives.  Meanwhile, citizens and families suffer, particularly in the summer, and need near-term relief from the power crisis.  The U.S. Government's Quick Impact Energy program, which these projects are part of, is designed for this purpose.

How were these projects selected?

USAID and Government of Pakistan entities, in particular the Ministry of Water and Power, the Pakistan Electric Power Company, and the Generating Companies jointly selected and planned these activities.  In addition, USAID consulted the Asian Development Bank and the World Bank, which have substantial loan portfolios in the energy sector.

How will Pakistan receive this money?

We anticipate we will be using a payment method known as Fixed Amount Reimbursements.  A Fixed Amount Reimbursement Agreement (FARA) is a USAID assistance mechanism whereby a host government is reimbursed by USAID for successfully completing specified activities in accordance with previously agreed upon specifications or standards.  The amount of reimbursement is fixed in advance based upon reasonable cost estimates reviewed and approved by USAID.

How long will it take to rehabilitate or repair these power plants?

The repairs should take about 12 months, depending on the availability of spare parts.  We will be expediting the procurement process to reduce the lead time to bring these spare parts in shorter time.

What will be the total increase in power generation capacity after the rehabilitation of these three power plants?

The improvements at the Muzaffargarh Thermal Power Station will result in a capacity gain of 165 megawatts for the national grid, Jamshoro Thermal Power Station 95 megawatts and Guddu Thermal Power Station will restore 35 to 55 megawatts.  In total, these three projects are expected to restore 315 megawatts.

How much money will generation companies be able to save due to efficiency and fuel savings after the rehabilitation?

We estimate that the three power plants will save approximately $30 to 35 million a year in fuel savings after rehabilitation.

Who is going to monitor this project to make sure it stays on track?

Due diligence reviews of these activities through program monitoring and evaluation are fundamental to reporting on progress and the quality of the work performed. USAID, through its staff and implementing partners, will provide monitoring and evaluation support services for the activity.  Each Generation Company will develop its own monitoring, evaluation, and reporting plan for the Activity.