Private sector on Monday urged National Electric Power Regulatory Authority (Nepra) to review per megawatt cost for proposed tariff for planned LNG-fired projects, Internal Rate of return (IRR), interest during construction, O&M cost, encouraging small power plants, guaranteed fuel supply and period of construction and efficiency.
The interested parties gave their viewpoints at public hearing organized by the Nepra on a petition filed by Private Power Infrastructure Board (PPIB) on a proposed 3600 MW LNG-based power projects near load centres. The Cabinet Committee on Energy (CCoE) headed by the Prime Minister in its meeting on January 9, 2015 decided that the RLNG-based power plants will be located near Bhiki (Sheikhupura), Balloki (Kasur) and Haveli Bahadar Shah (Jhang). Exact sites and power plant capacities at each location will be finalised by NTDC considering the feasibility, supply-demand requirements, power evacuation and system studies. Furthermore, the CCoE directed the Managing NTDC to ensure investment of approximately $38 million in providing grid connectivity to the three sites selected for RLNG based power plants.
The acting Managing Director, Shah Jahan Mirza, said that 3600 MW capacity power plants which will be established on imported LNG by government or government-owned public sector entity. These plants will be established by the private sector. The government also intends to set up LNG-fired power plants under this plan. He said government has already announced the LNG policy and anybody can import LNG and set up power plants in any part of the country.
"We have done the working on three prices ie $10, $11 and $12 per MMTBU and it is assumed that it will be delivered at a cost which includes re-gasification, transportation losses etc. I think even today between $9 and $10 per MMTBU price is reasonable if we start with the LNG landed price of $7 to $8 per MMBTU," Mirza added.
He said the government actually prefers three sites which are near the load centres where the country needs power immediately but plants can also be established on other sites.
He argued that comparison of tariff is being given on the O&M sites and Capax sites ie with Uch II power plant but he did not consider it a realistic approach because Uch II is based on low BTU gas of 400 BTU; hence there is a specific requirement with additional O&M and Capax.
PPIB has recommended agreement for 20 years but ministries of Petroleum and Water and Power have recommended 15 to 20 years. He said the life of plants will be 30 years, requesting Nepra to look into this issue. He informed Nepra that the government also intends to set up such LNG power plants, so this tariff will be applicable to public sector power plants.
Slaman Lodhi of Engro Powergen, in his comments stated that the per MW cost recommended by PPIB is insufficient and should be revised upward. He also said that there is ample storage capacity of LNG as an LNG vessel can be delayed due to some reason. He suggested that the power plants should be based on dual fuel. He maintained that though the government will use systems of SNGLP and SSGCL, Ogra rule of third party should also be taken care of. He proposed cost of one MW should be enhanced from $1.1 million per megawatt to $1.2 million per megawatt.
He further stated that O&M cost is also on the lower side, suggesting it should be 0.5 cents keeping in mind the O&M cost of 0.27 cents fixed in 2008-09. He said 15 per cent IRR is inadequate and it should be raised to 18 per cent. Commenting on the size of the project, he said the plant size of 800 MW is too big to start with, adding that not only the size but cost should be reconsidered. He suggested that plants of 200-250 MW capacity should be encouraged because such plants can be established with lower investment. He said the period of financial close should also be extended from proposed five months.
Shahid Sattar, former Member Energy Planning Commission, said that the price of LNG is around $7 dollar per MMTBTU, opposing $12 per MMTBU price. He opposed long-term contract of LNG procurement. He further stated that it has never been Nepra's role to enter into power market. He said when price of furnace oil has already dropped the proposed price of $12 per MMTBU is not feasible.
Raziuddin, former Managing Director Oil and Gas Development Company Limited (OGDCL - who represented the KPK government, said that LNG fired power plants policy should be across Pakistan and not a province-specific. The Nepra Chairman clarified that projects would be set up near the load centres and any province can set up LNG power plants.
Amir Baloch of Fatima Group said that 700 MW to 900 MW projects are large projects which require huge investment from private investors. "We feel this should be more flexible and there should be more room for the investors to come in," he said. He further argued that projects of 200-400 MW should be approved in first phase and then 800 MW may be considered, adding this will help attract more investment.
He said a drop in gas pressure which ultimately affects the plant's efficiency should also be considered before finalization of a policy. He said the cost of one megawatt power has been calculated at $1.2 million; and 56.4 per cent maximum efficiency has been achieved so far on gas fired power plants.
He further stated that the Power Policy 2002 provides better clarity and understanding of all required formalities including timelines. He suggested that Nepra should allow establishment of LNG-based power plants at different locations because investors choose better locations if allowed the choice.
PPIB has suggested that interest rate during construction should be allowed at 40 per cent for first two years and 20 per cent in third year. He said interest during construction should be allowed at 60 percent during the first two years, 20 per cent during year third year and 10 percent in the fourth year. The representative of K -Electric suggested that NTDC should be asked to arrange funds to import LNG instead of PSO.
The representative of GE suggested that Nepra should consider tiered tariff which implies that small power plants of 200-250 MW should be preferred which require less time for completion. He recommended that for LNG-fired power plants, second fuel considered should be diesel oil.
Sohail H. Hydari of Saif Group recommended continued fuel supply to ensure continued generation from LNG power plants. The Authority after listening to all the comments and suggestions provided a 7-day period for any further comments before making a decision on the issues. According to official documents, upfront tariff is worked out on the following basis: LNG price is assumed at $10, $11 and $12 per MMBTU on LHV basis. Actual price of LNG for power plants will be based and indexed to the LNG prices to be determined by OGRA/ GOP. Gas will be of pipeline quality with calorific value: (950 BTUs).
The upfront tariff has been determined for the plants with the capacities of 800 MW net at site. The actual net capacity of the complex will be determined on the basis of Initial Dependable Capacity (IDC) test at the time of COD and the relevant tariff components will be adjusted downward. However, upward adjustment in tariff will not be allowed if the IDC established lower than the benchmarks stated above.
The sponsors of the plant will be at liberty to select plant of any manufacturer based on Combined Cycle Gas Turbine technology as long as minimum efficiency and availability thresholds are ensured for the life of the project. PPIB has taken exchange rate of Rs 99.6750/US$ (2nd January 2015) in calculating the reference tariff and the same shall be used for indexations/ adjustments where applicable.
The capital cost includes cost of main plant equipment system, gas turbines including auxiliaries, STG & Auxiliaries, balance of plant equipment system, other mechanical equipment system, electrical equipment system, gas handling infrastructure, engineering & project management, erection & commissioning, land, site development and civil works, transportation and evacuation cost up to inter-connection point.
The total project costs are as follows: 800 MW net at foreign financing $863.386 million and 800 MW net local financing $938.097 million. The 800MW tariff will be applicable to the projects with the capacities of 700 MW - 900 MW respectively. Tariff for simple cycle has also been calculated for ten months and on the following basis: (i) net capacity assumed to be 60% of the combined cycle operation; (ii) fuel cost component is calculated at net efficiency of 37%; variable O&M component is calculated at 60% of the CC capacity; and (iii) fixed O&M and ROE to be 50% of the combined cycle operation as an incentive to operate.
Customs duties and cess @ 5.95% of the 66.75% of the capital cost has been assumed in the project cost which will be adjusted at the time of COD on actual basis. No withholding tax on local foreign contractors, sub-contractors, supervisory services and technical services provided by foreign (non-residents) entities has been assumed. Actual expenditure, if any, on this account will be included in the project cost at the time of COD on the basis of verifiable documentary evidence.
The targeted maximum construction period after financial close is 18 months for simple cycle operation and 28 months for combined cycle operation. No adjustment will be allowed in this tariff to account for financial impact of any delay in project construction.
The sponsor of the project can arrange foreign financing in American Dollar ($), British Pound Sterling (E), Euro (€) and Japanese Yen (Y) or in any currency as the Government of Pakistan may allow.
The upfront tariff has been determined on the basis of debt equity ratio of 75:25; the minimum equity shall be 20% and the maximum equity shall be 30%; if the equity actually deployed is more than 30% of the capital cost, equity in excess of 30% shall be treated as loan. For the purpose of determination of upfront tariff loan tenure of 10 years plus grace period equivalent to construction period has been considered.
The reference three months Karachi InterBank Offer Rate (KIBOR) of 9.57% plus 300 basis points has been used for calculating the financial charges. The reference three-month London InterBank Offer Rate (LIBOR) of 0.2556% plus 450 basis points has been used for calculating the financial charges.
The interest calculated in the reference debt service schedule shall be subjected to adjustment for variation in quarterly-KIBOR in the case of local loan and quarterly-LIBOR in the case of foreign loan on quarterly basis. The adjustment shall be made on 1st July, 1st October, 1st January and 1st April based on latest available TT&OD selling rate and KIBOR notified by the National Bank of Pakistan and Reuters for the purpose of LIBOR.
The maximum allowed premium on LIBOR and KIBOR is 4.5% and 3.0% respectively and there will be no adjustment on the basis of higher premium than the maximum allowed limit. In case spread negotiated is less than the said limit, the saving will be shared in the ratio of 60:40 between power purchaser and the power producer respectively.
Financing fee and charges are taken @ 3.5% of the borrowing to cater for the upfront fee, commitment fee, lenders' technical, financial and legal consultants' fee etc.
In case of foreign financing that originates outside Pakistan, political risk insurance fee such as export credit agency fee or sinosure fee, etc, @7% on the total debt servicing would be included in the project cost. Project cost will be adjusted at the time of COD on the basis of actual fee subject to maximum cap of 7% of the total debt servicing. In case the Sponsor managed better alternative fee arrangement, the same will be considered at the time of COD.
Interest During Construction (IDC) has been calculated on the basis of 75% of the CAPEX including customs duties as per the following reference parameters: for 800MW, IDC for first year 40.00% 2nd Year 40.00% and 3rd Year 20.00%. IDC will not be adjusted for any variation on account of actual expenditure/disbursement percentage during the construction period.
The fuel cost component will be subject to a downward revision on the basis of actual heat rates established as a result of heat rate test conduced at the time of COD in accordance with the established benchmarks in the presence of the representatives of the power purchaser. For acceptance of the test, approval of the power purchaser will be mandatory. An upward revision in the fuel cost component will not be allowed in case the net LHV heat rates are established higher than the heat rate at which minimum thermal efficiency specified above and the financial impact, if any, of lower thermal efficiency over the term of the Agreement will be borne by the power producer. However, the (60:40) sharing mechanism between Power Purchaser and Power Producer will be applicable only in case the efficiency, approved by the Authority for different capacities is established higher as a result of heat rate tests carried out at the time of COD.
During the term of the agreement, insurance component of tariff will be adjusted on the basis of actual insurance cost with a cap of 1.35% of the EPC Cost. The choice to opt for this tariff will only be available up to 90 days from the date of its determination by the Authority and Notification. Further, this tariff will only be valid for approvals given for the first 3600 MW-4000 MW of companies.
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