Nepra competitive bidding tariff: Amendments to RFP, SPDs for large solar projects approved

ISLAMABAD: The Board of Private Power & Infrastructure Board (PPIB) has approved amendments in the Request for Proposal (RFP) and Security Package Documents (SPDs) for large solar projects under Nepra Competitive Bidding Tariff (Approval Procedure) Regulations, 2017, well- informed sources told Business Recorder.

On August 23, 2023, MD PPIB explained to the PPIB Board that for the development of large-scale solar PV projects under the Substitution Initiative, PPIB (AEDB) prepared the draft standard RFP and Security Package Documents (SPDS) comprising of an Implementation Agreement (IA) and an Energy Purchase Agreement (EPA) in consultation with the relevant public sector stakeholders, as well as, private sector stakeholders and donor agencies.

The RFP document was approved by the AEDB Board in its 58th meeting held on October, 14, 2022.

Further, the standard EPA &IA were also approved by the Boards of CPPA-G and AEDB, respectively, and subsequently by the ECC/ Federal Government.

The RFP for first 600-MWp solar PV project at Kot Addu/ Muzaffargarh, Punjab was submitted to Nepra for approval and determination of the Benchmark Tariff, which was then approved with unit-based benchmark tariff of Rs. 7.8449/ kwh (US 3.4108 cents/kwh) for the control period of 25 years, with quarterly indexation of 70% for exchange rate variations.

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However, when the RFP was floated, no bid was received owing to lower benchmark tariff/ project cost as it did not take into account primarily the impact of high market prices for equipment, high interest rates in the global market, no indexation against SOFR/ KIBOR and inflation, Pakistan macroeconomic situation and aggressive project implementation timelines.

The federal government; therefore, decided to allow: (i) conduct of competitive bidding with or without benchmark tariff, (ii) indexation of 80% for forex variation and (iii) indexation for LIBOR/ SOFR & KIBOR and (iv) require projects to achieve FC in 6 months of LoS and achieve COD within 10 to 24 months of FC depending on the project size. Accordingly, the RFP and SPDs have been revised/ amended by PPIB in consultation with stakeholders concerned.

MD PPIB presented amended RFP and SPDS and explained the changes made therein highlighting (i) incorporation of open competitive bidding process, without any ceiling/ benchmark tariff enabling discovery of true market price and fast track deployment of solar PV projects, (ii) forex indexation of 80%, instead of 70% on tariff, which will be adjusted one time at COD and thereafter quarterly for the term of the Project, (iii) the adjustment of tariff on account of actual variations in LIBOR/ SOFR and KIBOR which will not only enable the prospective investors to secure financing for the project in the current market conditions but will also enable the Power Purchaser to reap the benefits of low interest rates during the term of the project, (iv) amendments in project timelines, (v) criteria for selection of the successful bidder in case where the lowest Bid Tariffs are equal, (vi) income tax on profits and gains derived from sale of electricity that exceeds 15% will be pass-through item under the EPA, and (vii) project cost for computation of compensation amounts payable by the GoP following a termination of project will now be lower of the one given in the term sheet and financing documents.

After detailed explanation, MD PPIB sought guidance of Board whether this change will require approval of ECC. The Board decided that this being consequential to the Cabinet approval; hence, does not require approval of ECC.

Representative of the government of Punjab proposed that where income tax above 15% is passed through, a reciprocal provision should also be incorporated, whereby income tax below 15% may be considered as an adjustment in evaluated bid price. DG (Law) PPIB clarified that provision of “tax savings” is already available in EPA if applicable tax in income tax law is reduced to 15% or lower to which the Board agreed.

Director (Wind/ Solar) PPIB explained changes in technical parameters, encompassing the point that being a Build-Own-Operate-Transfer (BOOT) basis project, the revised documents consider Performance Ratio (PR) test as part of the Reliability Run Test (RRT) to ascertain the overall Complex’ performance. Furthermore, in addition to the construction reports, the IPP would also be required to submit detailed O&M Reports under the EPA on annual basis confirming fitness of the Complex in accordance with requirements of EPA.

It was also elaborated that in order to enable the IPP to achieve COD earlier than the RCOD, the purchaser under the EPA is required to complete the Purchaser Interconnection Facilities (PIF) 90 days prior to SCOD enabling the IPP to complete the testing/ commissioning of the project. However, CPPA-G has reduced such timeline to 45 days which may be restored to 90 days. CEO CPPA-G agreed with the proposal and accordingly the Board decided to restore the timeline of 90 days for completion of PIF prior to SCOD.

CEO CPPA-G informed the Board that the new Grid Code requires hourly and daily forecast of Net Delivered Energy. The Board discussed the matter and decided that EPA should be in accordance with the current Grid Code.

While responding to a question of representative of Secretary Petroleum, regarding dissenting note of a Member Nepra, MD PPIB explained that revised RFP is under consideration and will be approved by Nepra as deemed appropriate.

After detailed discussion, the PPIB Board, took following decisions: (i) accorded ex-post facto approval for submission of Review Petition before Nepra for approval of revised RFP documents under Nepra Competitive Bidding Tariff (Approval Procedure) Regulations, 2017; (ii) approved the revised Request for Proposal (RFP) & Security Package Documents (SPDs) for development of large scale solar PV projects under the Substitution Initiative; (iii) allowed PPIB to make necessary changes in the RFP & SPDS, if required, pursuant to decision of Nepra; and (iv) allowed PPIB to make necessary changes in the EPA, it required, pursuant to decision of the BOD of CPPA-G.

Copyright Business Recorder, 2023