ISLAMABAD: The international Development Financial Institutions (DFIs) are reluctant to finance projects in Pakistan due to country risk as the spread is hovering around 6.5 percent to 8.5 percent.
This was disclosed at a public hearing on Tuesday held at the National Electric Power Regulatory Authority (Nepra) on tariff petitions filed by Trans-Atlantic Energy (Pvt) Ltd for 49.5 MW wind power project which is a category-II project and cost plus tariff petition filed by Western Energy (Pvt) Ltd for 47.6 MW wind power project.
The hearing was officiated by Member (Technical), Engr Rafique Ahmad Shaikh (on Zoom), Member (Licencing), Engr Maqsood Anwar Khan, Member (Technical and Finance), Mathar Niaz Rana and Member (Law), Amina Ahmed (on Zoom).
“The main reason of financing cost is higher because Pakistan’s rating is CCC improved from – CCC. No one knows what will happen because Pakistan’s risk is too high. Pakistan’s spread is between 6.5 percent to 8.5 percent whereas India’s spread is 2.5 per cent, Malaysia 1.5 per cent,” said Akbar Bilgrami, CEO Bridge Factor.
The wind power companies are seeking cost plus tariff but the regulator is stressing on open bidding-based tariff so that those investors be encouraged who offer the least tariff for renewable energy projects.
The representatives of both companies sought upward revision in the cost of their project due to a variety of factors including the financing cost.
The projects’ companies complain that the regulator makes undue deductions in the proposed cost which make projects unfeasible.
The regulator raised its eyebrows on not following the prescribed criteria by the power companies as they did not advertise their projects in the media to seek the best and least cost EPC contractor.
The power companies’ representatives were of the view that no international EPC contractor is ready to come to Pakistan at the cost determined by the regulator due to which only the option of Chinese EPC contractor i.e. Power China Northwest Engineering Corporation Limited, is available as this EPC has already set up 12 wind projects.
Western Energy said that the EPC cost of the project has increased from the previously approved US$ 57.25 million to US$ 62.8 million and the same has been requested for the approval of the Authority.
The company further stated that there is a significant increase in the cost of turbines, steel rebar, transportation, electrical balance of system, foundation/civil works including the cost of cement, labour, HSD etc. These factors resulted in higher EPC costs of wind projects.
It is pertinent to mention here that despite the significant increase in cost of the above items, the company managed to achieve a competitive EPC price of US$ 62.80 million for the project.
“Despite the fact that most costs have gone up by more than 50 per cent (some in excess of 100 per cent), the per MW cost of EPC has only increased by 15 per cent as compared to earlier determined EPC cost,” the company said, adding that this cost optimisation of overall EPC price is achieved by selection of larger and efficient WTGs to offset the unprecedented cost increase in individual EPC components in the last 3-4 years.
The representative of the CPPA-G in his comments stated that since the project has already been given tariff, there is a need to file a fresh tariff petition. He also opposed an increase in the cost of projects.
At one stage, hot wards were also exchanged between the representative of Western Energy/Atlantic Energy and the representative of the CPPA-G when the latter opposed the proposed revised cost of projects.
However, Member (Licencing) Engr Maqsood Anwar Khan, who was presiding over the hearing in the absence of the Nepra chairman, directed both the warring sides to avoid crosstalk and address the chair.
The authority will announce decisions on review tariff petitions of both companies after internal consultations.
On Monday, the authority also held a public hearing on the tariff proposal of Koak Power Ltd for its 229.4 MW Asrit Kedam hydropower project and KA Power Ltd for its 238 MW Kalam Asrit hydropower project.
Copyright Business Recorder, 2023
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