Hydropower project: Riali-II to be processed on ‘must run & take-and-pay’ basis

ISLAMABAD: The government has decided to process the 7.08 MW Riali-II hydropower project as must run on a take-and-pay basis with hydrological risk parked on the project sponsor, well-informed sources told Business Recorder.

Last week, the Power Division informed the Cabinet Committee on Energy (CCoE) that it had submitted a summary for the ECC on October 7, 2021 and Standard GoP Implementation Agreement (IA) (along with GoP guarantee at Schedule 3 thereof) and standard EPA for SHPPs may be approved; contractual obligations of AJ&K/Provincial governments arising out of and under the AJ&K IAs and Water Usage Charges (WUAs) executed based on standard AJ&K IA and WUA shall be backstopped and guaranteed by the GoP under the GoP Implementation Agreement (IA) and GoP Guarantee respectively; Boards of PPIB, CPPA-G and Governments of AJ&K/Provinces be authorized to make and approve any project specific amendments in the respective agreements required during final negotiations provided GoP obligations or liabilities under the GoP IA and guarantee are not increased; and Boards of PPIB, CPPA-G and Governments of AJ&K/provinces be further authorized to make and approve any amendments in the GoP IA, EPA, AJ&K IA and WUA, as the case may be, required to comply with NEPRA’s tariff determination and approval/licence for specific projects.

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The ECC, in its decision on October 07, 2021, directed the Power Division to first place the matter before CCoE for consideration and then to the ECC. The CCoE, in its decision of October 29, 2021, directed the Power Division to revisit Standard Security Agreements for small hydropower projects under Power Generation Policy 2015 in consultation with relevant stakeholders to align the recommendations with the Cabinet-approved fundamental principles of “moving to competitive market” and “no must run projects” and submit the same for consideration of the CCoE.

On this issue, the Power Division solicited views and comments of NEPRA which on January 24, 2022, has shared its views affirming that existing CCI-approved policies do not bar NEPRA from allowing must-run condition to small hydropower projects and has further maintained that in recent cases for small hydropower projects, in the better interest of the consumers, it has shifted to the take and pay contract with must run while also shifting the risk of hydrology to power producers.

The Board of PPIB in its 129th meeting held on January 4, 2021, approved the standard draft along with the GoP Guarantee (in the form of Schedule 3 to the IA) for payment obligations of the power purchaser, AJ&K /provinces under and pursuant to the Energy Purchase Agreement (EPA), AJ&K IA and the Water Usage Agreement (wherever required).

The Power Division was of the view that the standard draft Security Package Documents have been prepared while using earlier ECC-approved security package documents for hydel projects processed under Policy for Power Generation Projects 2002 with two distinct features: (a) first, hydrological risk has been parked on power producer (though the policy provides that it will be borne by the Power Purchaser) and second, the two-part tariff regime (with separate capacity and energy payments) has been dispensed with and now a single part tariff based on “take-and-pay” with “must-run” arrangement is stipulated. The reasons for above changes were two-pronged.

Copyright Business Recorder, 2024