13MW 'UMKU project' accorded special treatment

The Economic Coordination Committee (ECC) of the Federal Cabinet has reportedly accorded special treatment to 13MW power project on a Power Division summary tailored to the instructions of one of the senior officers, well-informed sources at the PPIB told Business Recorder. Giving the background, the sources said, the Davis Energen (Pvt) Limited (DEPL) was operating a 13 MW power project in District Jhang pursuant to Power Policy, 1994.
The PPA of DEPL familiar as "UMKU project" has been amended from time to time to accommodate changes in technology and other circumstances. The company achieved Commercial Operations Date (COD) on July 13, 2013. The original PPA, like all other PPAs, allowed for a capacity payment of twelve months including one month capacity payment for scheduled maintenance outages.
The availability of PPA was amended on July 05, 2010 (amendment 3) to accommodate non-availability of gas during winter months (December to February), since the Company's Gas Sales Agreement (GSA) with Sui Northern Gas Pipelines Limited (SNGPL) had a firm commitment of gas for only nine months of the year. A new definition of "as available period" was thus added to the PPA which is as follows: "from the COD, the three months period commencing on December 1, and ending on February 28 (29th during leap year) every year till the expiry of the Gas Sales Agreement (GSA) entered into between the company and SNGPL."
The Power Division further noted that the capacity payment clause of the PPA read as follows: "capacity payments. From and after the COD, WAPDA shall pay the capacity payment to the company, in accordance with section 9.7. For each month, the capacity payment shall be equal to the product of Capacity Purchase Price (CPP) and the dependable capacity for that month."
The Power Division apprised that through amendment 3, a provision for payment during the as-available period was introduced: "as-available-period, except for scheduled outages and Maintenance Outages period, WAPDA shall pay the company both energy payments and 50 percent of scalable component of the capacity payments (calculated as kWh on 100% plant factor) on the basis of dispatched and delivered net electrical output."
The Power Division further apprised that DEPL claims, like other IPPs, was also entitled to 1-month capacity for scheduled outages and under clause 9.3 of the PPA it can claim the capacity payments during the "as available period." In other words, the company was currently being paid capacity payments for nine months, and under the PPA it should have been paid 10 months for the first 5 years of operations. The DEPL PPA was amended to accommodate the non-availability of gas during winter months of December to February as during these months SNGPL used to face acute demand supply gap. However since February 2016, the complex is operating on RLNG, which is available throughout the year.
Due to availability of gas throughout the year, and the shifting of power plant to RLNG, DEPL had requested to amend the PPA from 9-months firm supply to 12 months by removing the as available period definition from PPA. This would restore the PPA to the standard original PPA entered into by all other IPPs.
The project setup by DEPL has an ISO rating of 13.2 MW. However, the PPA and IA were of 10.5 MW. Nonpayment of capacity coupled with compulsorily shifting of complex to RLNG with a weekly gas cost billing cycle has adversely affected the cash flows of the company vis-à-vis the original plans. Resultantly the complex was shut down on September 08, 2017 due to gas disconnection. The mismatched billing cycles keep on adding to this financial distress.
The Power Division submitted following proposals for consideration of the ECC: (i) payment of capacity for one month during the as available period be allowed with immediate effect; (ii) PPA be amended to remove the "as available period" and "as available period payments" clauses, so that it becomes a 12 month PPA; and (iii) power in excess of the dependable capacity of 10.28 MW may be allowed to be sold to bulk consumers.
During ensuing discussion in the ECC, the Secretary, Planning, Development & Reform Division, maintained that cost benefit analysis of the proposal is also required to be given in the summary for information of the forum. The Prime Minister observed that Davis Energen (Pvt) Limited should be treated equally with other IPPs with regard to capacity payment since COD is in line with Power Policy, 1994.
The ECC considered the summary submitted by the Power Division regarding the maintenance monthly capacity payments and amendments to the PPA for annual operations and approved the recommendations with the direction that henceforth the project be treated in line with other IPPs.