Nandipur cost soars to Rs 61.6 billion

The cost of the much touted 425MW Nandipur power plant has increased by Rs 3.6 billion to Rs 61.6 billion from Rs 58 billion due to inclusion of an additional cost of Rs 4.7 billion of an 88-kilometer gas pipeline which would result in a new tariff petition to be filed with Nepra very soon, an official told Business Recorder. "The ministry is in process of preparing a petition primarily based on the bids both on Residual Fuel Oil (RFO) and natural gas that the government has received for O&M of the power plant.
The actual cost of the project will be included in the new petition after converting the plant to gas fuel for which an 88-kilometers pipeline infrastructure is being laid down," he added. The efficiency of the plant on gas will be 48 percent owing to which its capacity to generate electricity will rise by 25MW as on furnace oil the efficiency of the plant is 45 percent. The roll-over impact on economy of the Nandipur power plant with a capacity to generate 525MW will also increase. According to the Ministry of Water and Power, Nepra had allowed Rs 2.5 billion under the head of conversion of power plant on to gas fuel. The ministry had earlier told the regulator that Sui Northern Gas Company Limited (SNGPL) will not only purchase the pipeline but will also lay it from its own resources and will not charge Northern Power Generation company Limited (NPGCL) which is why the cost of pipeline estimated at Rs 4.7 billion was not included in the PC-1 of the project and tariff petition as well.
Now under the latest scenario, the Ministry has paid the entire cost of gas pipeline which is why Rs 4.7 billion is being included in the revised PC-1 of the project which will result in cost escalation to Rs 61.6 billion from Rs 58 billion.
To a question, the official said that "out of 88-kilometers gas pipeline, 65 kilometers has been laid down". He said the amount of Rs 2.5 billion was already permitted in the cost and Rs 1.1 billion rupees have been saved under some heads of the project during construction. So the net increase in the cost of the project stands at Rs 3.6 billion after including the Rs 4.7 billion for laying the gas pipeline.
In the wake of the revised cost, the government will again seek the Interest During Cost (IDC) till the execution of the project which amounts to Rs 14 billion, but the regulator had earlier allowed Rs 7 billion in the tariff as IDC arguing that the interest till execution cannot be included in the tariff because of the delay in completion of the project.
However, Ministry of Water and Power's argument was that Nepra extended IDC to many private power plants despite the fact that they got delayed, and that Nandipur power plant is not being treated fairly. Nandipur power plant has also been denied the inclusion of Rs 4.5 billion spent on fuel for pre-CoD operation, but the regulator did not allow that too in the tariff even though it is a common practice that expenses incurred on pre-COD operation of the plant are allowed in the tariff.
In reply to a question regarding outsourcing of the O&M of the project, an official said the decision to this effect has been taken in line with the directives of the regulator which had asked the Ministry to first go into the contract with the lowest bidder on O&M and then come to Nepra with a petition seeking the adjustment in the tariff for O&M which was earlier allowed. He also divulged that "our experts are unable to run new power plants and their refusal to run such plants has been documented".
Hydro Electric Power System Engineering Company of China (HEPSEC) has won the bid which is why the government has awarded the contract of O&M to the said Chinese company for 10 years. The company will run the project on gas and in return it has guaranteed 90 percent of the availability of the complex (plant). HEPSEC is bound to make the plant available for electricity generation for 339 days out of 365 days. HEPSEC will take 90 days to mobilise its staff and equipment by the time the gas conversion is completed enabling the plant to get operational by April 30, 2017. However, on RFO, the said company has the bid for O&M on the higher side which is why the Ministry wants Nepra to give adjustments in the tariff enabling the Chinese company to run the project both on gas and RFO.
Nepra had allowed O&M tariff on RFO at Rs 0.697 per unit whereas the bid price was at Rs 0.8595 per unit and on gas the regulator allowed the tariff of Rs 0.543 per unit whereas the lowest bid stood at Rs 0.4873 per unit. Nepra on O&M tariff on gas extended the impact to Rs 2.113 billion per annum, but the contracted impact has been calculated at Rs 1.896 billion showing that just under this head the plant will be saving Rs 217 million a year. This means that Nandipur power plant will turn around when it starts running on gas with an additional saving of Rs 2.17 billion per annum ensuring positive cash flows, the official added.