The National Electric Power Regulatory Authority (Nepra) has offered the tariff of 9.28 cents/kWh to the sugar mills which will generate electricity for the national grid by the end of March 2014 by using bagasse and coal. The regulator has offered the same tariff to the entire sugar industry that was given to the first ever 80 MW co-generation power project by the JDW Power (LTD) of Jahangir Khan Tarin, former Minister for Industries and Production.
However, this offer may not be considered as feasible by Pakistan Sugar Mills Association (PSMA) which was demanding and expecting tariff of 11.115 cents/kWh, which was being opposed by other public sector stakeholders, including Nepra itself. On March 24, 2010, the Cabinet approved upfront tariff for co-generation on a summary submitted by the Ministry of Water and Power.
The Ministry had demanded tariff of 11 cents/kWh for the sugar mills which intend to establish power plants. The Private Power Infrastructure Board (PPIB), which is a subsidiary of the Water and Power Ministry, along with Nepra, were among those entities which resisted upfront tariff for the cogeneration power plants.
"Presently, the tariff range for projects based on oil lies between 13 and 15 cents/kWh, gas 8 cents, coal 8 to 10 cents/kWh and that of hydel projects is between 8 and 9 cents/kWh. The upfront tariff of 11 cents seems on the higher side and may not be affordable from the consumer point of view," said PPIB in its comments on the summary of Water and Power.
While announcing its tariff determination for the first sugar mill, namely JDW, Nepra had decided that to encourage the available potential of over 3000 MW of power generation through use of bagasse and coal, internal rate of return (IRR) of 18 percent on bagasse will be given as an incentive to those sugar mills which achieve commercial operation by March 2014.
The IRR for bagasse is 3 percent higher than IRR allowed to thermal projects on RFO/gas. Bagasse based co-generation power projects of 3000MWs have the potential to save annually more than $980 million in foreign exchange that would have been spent on the purchase of expensive RFO for generation during 188 days bagasse based operations.
Nepra had determined tariff of 8.2866 cents/kwh, against the PSMA demand of 11.115 cents/kwh, and notified it on June 12, 2008. Nepra also declared that the tariff determined by it would be an "indicative tariff", and each sugar mill, wishing to install a power plant, would submit individual tariff petition along with a generation licence application, as provided in the Nepra Act 1997, and relevant rules and regulations.
"It is expected that the tariff of 9.28 cents/kWh, now being offered to the sugar industry based on the incentive of higher IRR, will go a long way in meeting the longstanding demand of the sugar industry to make use of available generation capacity with them at an appropriate price," says Nepra in its official announcement.
According to the tariff petition submitted to Nepra, JDW group owns three sugar mills with a combined crushing capacity of 38,000 tons per day which makes it the largest group in the sugar industry of Pakistan. Sugar recovery percentage of the group is highest within the entire industry at 11.21 percent while the average for the industry for the year 2008-09 was 9.46 percent.
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