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Govt-IPPs deals: Nepra asks govt why dollar rate kept at Rs148

ISLAMABAD: National Electric Power Regulatory Authority (Nepra) on Wednesday quizzed the government...
Updated 04 Mar 2021

ISLAMABAD: National Electric Power Regulatory Authority (Nepra) on Wednesday quizzed the government as to why the dollar rate was kept at Rs 148 rather than any other rate while negotiating new deals with the Independent Power Producers (IPPs).

This transpired during a public hearing on tariff adjustment applications of 24 Independent Power Producers (IPPs), baggasse Co. Gen IPPs and wind power projects that recently signed agreements with the government. A total of 47 IPPs signed an initial agreement with the government with 30 power companies signing off on the final agreement the financial benefit of which is projected at Rs 836 billion over a period of 20 years.

The average tariff reduction will be in the range of Paisa 25 per unit, which will increase to Paisa 40 per unit in 2027. However, officials did not indicate any relief will be directly available to consumers in their tariffs.

The representative of CPPA-G stated that initially the government and IPPs had agreed to freeze the rupee-dollar parity at Rs 168 which was revised downwards to Rs 148 in the final agreement. Losses will not be passed on to the consumers and only savings will be shared with them.

Chairman Nepra, Tauseef H. Farooqi noted that the “real performance” of CPPA-G would be noted after the dollar crosses Rs 168/$.

Chief Financial Officer (CFO) CPPA-G, Rehman Akhtar, said that “either way it is a success of the government,” adding that the agreement at current rate is also a win-win situation for the CPPA-G. “We tried to convince IPPs to agree to Rs 160/$ instead of Rs 168/$. Current arrangement is also beneficial for the consumers and in case dollar rises above Rs 168/$, then it will be a win-win situation for the consumers,” he added. Rehan endorsed the viewpoint of Chairman Nepra that in case the dollar rate exceeds Rs 168, then consumers will get more benefit but noted that it is still viable and beneficial for the consumers.

The Chairman Nepra inquired if the CPPA-G official has undertaken any cost-benefit analysis in case the rupee dollar parity exceeds Rs 170, Rs 175 or Rs 200? The CFO CPPA-G replied that their analysis is based on 5 per cent annual depreciation but if the dollar stays at the agreed rate of Rs 148, it will be beneficial for the government in case of foreign lenders and in case of local lenders liability will not increase.

The following 12 IPPs with dependable capacity of 2355MW (6 oil-based and 6 gas=-based) established under the Power Generation Policy 2002 are under strict scrutiny and have filed applications for adjustments in components of tariffs: (i) Atlas Power;(ii) Attock Gen Limited ;(iii) Engro Powergen Qadirpur Limited;(iv) Foundation Power Company (Daharki) Limited ;(v) Halmore Power Generation Company Limited ;(vi) Liberty Power Tech Limited ;(vii) Narowal Energy Limited ;(viii) Nishat Chunian Limited ;(ix) Nishat Power Limited ;(x) Orient Power Company Limited ;(xi) Saif Power Limited and ;(xii) Sapphire Electric Power Limited.

The savings from agreements with 12 thermal IPPs will be of Rs 182 billion for the life of these projects; their cases are being scrutinized by National Accountability Bureau (NAB) and Power Division is not ready to pay them until they get NAB clearance.

One of the representatives of IPPs, Shahab, clarified that the deals struck with the government are in the “national interest” and not in light of the Muhammad Ali Committee’s report.

“The Muhammad Ali Committee’s report was not shared with us and whatever discussion took place it was in the national interest,” he added.

In reply to a question on NAB, the Chairman Nepra suggested that the question be asked from NAB as the ongoing proceedings for tariff adjustment have come to Nepra. However, if any case is in court, the matter is subjudice and the regulator will not comment on it. The role of ISI officials in negotiations with IPPs also came under discussion. However, neither Nepra nor CPPA-G offered any comment in this regard.

CPPA-G requested changing the existing RoE and RoEDC components of tariff computed @ 15 per cent return with dollar indexation to 12 per cent with dollar indexation in case of foreign equity investment and 17 per cent with exchange rate fixed at Rs 148/$ with no further indexation in case of local equity investment. CPPA-G also proposed the pass-through withholding tax on dividend to be calculated in accordance with the adjusted RoE and RoEDC components.

The CEO CPPA-G noted that the first installment of 40 per cent of agreed amount will be paid to the power projects after their tariffs are notified whereas the second installment of 60 per cent of agreed amount will be paid in the next six months.

The profits of IPPs will reduce to some extent after implementation of the agreements.

“Tariff discount will commence when the tariff is notified and first installment is paid to the power companies,” said another official representing CPPA-G. The number of invoices will remain the same.

The Chairman Nepra directed CPPA-G that it should be ensured that IPPs maintain their inventory after getting payment from the government. Previously, IPPs had argued that since they were not being paid by the power purchaser, they were unable to maintain their fuel stocks.

The Chairman Nepra further stated that Nepra would get its due fee from CPPA-G for processing tariff adjustment petition like other companies. CPPA-G, however, indicated that it may recover this amount from Discos.

The Authority also conducted a review of three wind power projects i.e. Act Wind (Pvt.) Ltd, Artistic Energy (Pvt.) Ltd and FFC Energy Ltd. The total capacity of these projects is of 130MW. The savings from these plants will be of Rs 22 billion. The remaining 14 wind power projects have yet to sign final agreements as the sponsors are in discussion with their lenders. The total projected saving from all 17 wind projects will be of Rs 191 billion.

CPPA-G sought the following adjustments in the tariff pursuant, to the Master Agreement signed between the Applicant and the Company on 12 February 2021: (i) reduction in the Return on Equity component to 13% per annum; (ii) reduction in the Operations and Maintenance component by 20% as per clause 4 of the Master Agreement; (iii) reduction in the cap for the amount of insurance during operations to seven tenths of one percent (0.7%) of the EPC cost as per clause 4 of the Master Agreement; (iv) provision for future reduction in the debt component upon the successful conclusion of debt renegotiations with the company's Lenders; and (v) approval of the tariff adjustment to become effective as provided in clause 2.2, clause 2.3 and Annex B of the Master Agreement and notified accordingly.

During a discussion, it was also pointed out that the cases of seven wind projects of IFC etc are being kept secret. However, CPPA-G stated that they are engaged with the lenders who have sought some clarifications about circular debt which is a main concern for them.

Answering a question, Chairman Nepra said that it is the mandate of Nepra to reduce tariff, adding that consumers should also benefit from the deals signed with the IPPs.

According to the application, the following baggasse Co-Gen IPPs sought adjustment in component of tariff pursuant to agreements entered CPPA-G: (i) Al-Moiz Industries Limited; (ii) Chanar Energy Limited; (iii) Hamza Sugar Mills Limited; (iv) JWD Sugar Mills Limited (Unit-II); (v) JWD Sugar Mills Limited (Unit-III); (vi) RYK Mills Limited; and (vii) Thal Industries Corporation Limited.

CPPA-G in its application has sought the following adjustments in tariff: (i) reduction in the Return on Equity component from seventeen, percent (17%) USD based per annum to twelve percent (22%) USD based per annum, from the date of signing of the Master Agreement for the next five (5) years, on the Nepra approved equity at Commercial Operation Date (COD). Subsequently, the RoE shall be changed to 17 per cent rupee-based per annum on the Nepra-approved equity at COD calculated at Rs 168/USD, with no USD indexation throughout the remaining term; (ii) reduce O&M by 10 per cent; (iii) reduce insurance to 0.7 per cent of ECP cost provided that other terms and conditions of the insurance adjustment mechanism provided in the EPA shall remain the same; (iv) approval of the tariff adjustment to become effective as provided in clause 2.2, clause 2.3-and Annex B of the Master Agreement and notified accordingly; and (v) in pursuance to clause 3.1.2of the EPA Amendment, if the Company operates above the annual forty-five percent (45%) plant factor in an agreement year, the applicant shall pay one hundred percent of the variable energy purchase price and thirty percent of the fixed energy purchase-price for energy produced beyond forty five percent plant factor.

If the Company operates below the average plant factor in an agreement year, the difference between the average plant factor and actual plant factor shall be treated as "shortfall energy" and carried forward to the following years. In case the company operates above the average plant factor in subsequent years, the purchaser shall pay one hundred percent of the variable energy purchase price, and to the extent of energy delivered beyond the average plant factor to the extent of "shortfall energy' occurring in the preceding year. Thirty percent of the fixed energy purchase price excluding debt service component and one hundred percent of the debt service component with the two arrangements remaining effective for every five year period starting from the Commercial Operations Date (COD), after which a fresh reset shall be done to re-start the new five-year period.

During a discussion, CFO CPPA-G stated that the boilers and plants of baggasse-based projects are better than the allowed plants due to which their capex is higher.

“The projected devaluation of rupee is 6.5 per cent per annum. I hope after five years it will be far below the benchmark of Rs 148/$. Looking at the historical trend, the rupee will depreciate by 30 per cent after five years from where we are standing today,” he added.

The Authority also conducted the hearing of two solar projects - Haraza solar (pvt) and ;(ii) AJ Power (Pvt.) Limited.

Copyright Business Recorder, 2021