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TOPIC Executive Summary Key Points List of Abbreviations

Table of Contents OF CONTENTS

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CONTEXT THE COMPANY Business Operations and Financial Results Corporate Management and Oversight THE MARKET Market Size and Composition NPGCL Market Share Market Structure and Mechanisms Market and Tariff Regulation Fuel Availability and Pricing STRATEGIC STRATEGIC OUTLOOK Demand and Supply Market Mechanisms Competition STRATEGIC RESPONSE Positioning and Strategic Direction Management of External Affairs Effective Response to Internal Challenges TURNAROUND INITIATIVES Management of External Affairs Policy Level Support Market Issues and Relationships Response to Internal Challenges Operations Management Financial Management Organizational Redesign and Human Resource Management Management Information Systems IMPLEMENTATION Management Arrangements Business Strategy Unit Change Management & Communication Strategies Appendices Appendix 1: Financial Model and Projections Appendix 2: Implementation Framework 9 9 10 11 12 12 12 13 14 14 16 16 17 17 18 18 19 20 22 22 23 23 24 24 25 27 27 28 29 30 40

Executive Summery Background Northern Power Generation Company Limited owns and operates thermal power generation facilities located at Muzaffargarh, Multan and Faisalabad. Installed capacity of the generating assets is 1,921 MW, which has declined over the years to dependable capacity of 1,169 MW. A complex pattern of internal and external factors constrain operating and financial performance of the company. The company has been operating with a negative bottom line, which has jeopardized sustainability. Government of Pakistan aims to address the countrys power sector issues by implementing Power Sector Reform Program. As part of the program the public sector thermal power generation companies (GENCOs), including NPGCL were required to develop and implement Business Plans to effectively respond to constraints and obstacles to satisfactory performance. Ownership The company is wholly owned by the Government. Since the incorporation of the company in 1998 after unbundling of WAPDA, PEPCO has been managing financial, human resource and procurement matters of the company. PEPCO is likely to be wound up by the 3rd quarter of 2011 that may lead to full corporate autonomy of the company within public sector. External Environment Present market composition, size and structure as well as the regulatory regime have been assessed with an assessment of likely market trends in short and medium term to map strategic positioning of the company. Pakistan power sector is under severe demand pressure and is likely to remain so until a foreseeable future. Thermal power is more expensive as compared to hydro power. Gas is a cheaper fuel for power generation in Pakistan but gas reserves are depleting and new discoveries are not on the horizon. Furnace oil is more expensive and exposed to price volatility. Increased dependence of power sector on furnace oil in the recent years has impacted electricity price in the country. However, until power mix shifts back in favor of hydro power and new gas discoveries are made, oil fired plants are expected to remain in full possible production, constrained only by affordability factors. Any expansion in oil fired capacity is therefore not likely to be a right direction. Future Opportunity Demand and supply situation, fuel prices and availability constraints and internal weaknesses of the company limit the choices available for expansion. Replacement of gas fired capacity with more efficient plants after dependable allocation of gas quota is one of the few opportunities for expansion for the company. Critical Issues More critical issues for the company to address are external and

internal challenges affecting performance of the company. Effective response to the current issues is the only way for the company to survive. Once sustainability is achieved by improving the present operations of the company, avenues for future expansion and also capital market financing will eventually open up. Major external issues that the Business Plan seeks to address include corporate autonomy and governance, tariff revisions by NEPRA, PEPCO succession leading to delegation of functions to the company, and streamlining of procurement and capital expenditure procedures. Key Contracts Contractual arrangements with other market players are critical to mitigate key business risks i.e. credit risk, fuel/gas quantity, quality and availability risks. Because GENCOs and NTDC are both under PEPCO and gas and oil suppliers are public sector entities, non-arms length practices effectively govern trade relationships. Effective legal instruments such as PPA, FSA and GSA should become the tools for governance of trade relationships to create market discipline by arms-length relationships. PEPCO The company depends on PEPCO for management of some of its core business and management activities. Operating schedules are influenced by public and political pressures because of power shortages in the country. The twin factors have caused severe misalignments in operating schedules and maintenance planning, maintenance and procurement, obligations and compliance- leading to suboptimal production levels, overdue maintenance, plant deterioration leading to decline of plant dependability and efficiency levels. The company needs to develop management and technical capacities and modernize its organizational design and culture. The company aims to address the internal challenges along four key functional areas viz. Operations Management, Financial Management, Human Resource Management and Management Information Systems. Leadership and communication leading to a positive cultural change, inclusive decision-making to create ownership and provide stimulus to reform, and achievement of superior all round results by performance focus strengthened by a learning and coaching culture are important cross-cutting themes in Business Plan recommendations. Redesign of team structures in functional areas, developing management processes, automation, capacity development and skill improvement, linking of performance with compensation are key elements of design of proposed solutions. Implementation Main implementation steps would include repair and maintenance of plants, building of technical competencies and equipping competent teams with effective tools, resources and authority. Management functions are proposed to be developed by developing procedures, capacities and technology resources.

Implementation capacity of the company is proposed to be strengthened by creating a leadership team and organizing them as Business Strategy Unit to lead and coordinate internally and externally. Technical assistance of USAID/Energy Support Program would further reinforce short term capacity for implementation. Change management and communication strategies are proposed to manage resistance and win support of internal and external stakeholders. Financial analysis and simulations- using an especially designed model- have tested and guided Business Plan recommendations and are presented in this document. Mission Statement Elements of the Mission Statement as defined in the Business Plan in relation to the Power Sector Reforms Process are described in the following table:
JAMSHORO POWER COMPANY LIMITED (JPCL) GENCO I Central Power Generation Company Limited (CPGCL) GENCO II Northern Power Generation Company Limited (NPGCL) GENCO III Lakhra Power Generation Company Limited (LPGCL) GENCO IV