RFO, capacity payment,indexation given to IPPs: Nepra for formation of commission

National Electric Power Regulatory Authority (Nepra) on Friday proposed the constitution of a high level Commission on matters relating to Residual Fuel Oil (RFO), capacity payment and indexation given to Independent Power Producers (IPPs). This proposal came from the regulator before a Senate panel headed by Senator Nauman Wazir Khattak which is also investigating "high tariff, capacity charges, heat rates and calculation of pay back periods of IPPs." The other members of the panel included Senator Afgha Shahzaib Durrani and Senator Muhammad Akram.
Nepra's Member Tariff, Saif Ullah Chatha, who headed his team in the meeting, proposed that the Commission should consist of experts from international financial institutions, legal and engineering consultants, in addition to officials from National Accountability Bureau (NAB), Finance, SECP, and Ministry of Energy; and the Commission should investigate capacity payment, higher rate of return on equity and dollar appreciation.
Saif Ullah Chatha further said that power projects and related issues are being investigated at different fora, including NAB, and now the newly established public sector Debt Commission has also started investigating power sector financial and other matters. He gave a detailed presentation on Nepra's functions, tariff fixation in the light of different power policies prior and post establishment of Nepra. Chatha maintained that he is not defending any IPP but simply explaining facts to members to make them better understand the true state of affairs.
However Nauman Wazir Khattak said that he is an engineer who also understands finance adding that this is the forum where Nepra has to submit facts. Chatha said that power policies were announced in 1997, 2002 and 2015 (RFO policy) with rates of return at 13 per cent, 15 per cent and 20 per cent (for Thar) respectively.
He argued that Power Policy 2002, approved by the then President General Pevez Musharraf and Finance Minister Shaukat Aziz, envisaged an IPP rate of return on equity of 15 per cent in rupees (with dollar indexation as international investors were not ready to invest in Pakistan due to actions of the then Ehtesab Commission). The shortfall at that time was about 2634 MW. Chatha said Nepra did not touch whatever incentives were given to the investors by the ECC or Cabinet as per the announced policy.
Senator Nauman Wazir Khattak argued that "we don't want to discriminate against anybody but don't be smart with us" adding that investors may have deliberately hoodwinked the government. He also raised a number of questions on the payment of capacity charges to the IPPs when they are not ready to operate on demand. However, the official of CPPA-G and Nepra informed the committee that if a plant does not deliver electricity on demand, a penalty is imposed which is higher than the capacity payment.
Saif Ullah Chatha further stated that at present the installed capacity is 34000 MW, of which 28,000 MW is dependable capacity. The incumbent government has transmitted 23000 MW through the system. He further disclosed that the current shortfall is 3000-3500 MW during peak hours. At this Senator Nauman Wazir Khattak stated that expensive power plants should not be run to give electricity to "thieves". "There is no shortage of electricity if feeders where theft is continuing are not counted," he added. Senator Nauman Wazir Khattak also proposed that the government first eliminates theft and then installs new power plants.
Nepra informed the committee that IPPs were paid Rs 460 billion of which Rs 82 billion was related to capacity payments. Chatha hoped that restraining orders of court with respect to IPPs will be vacated as court holidays end on August 17, 2019. He said, IPPAC has held a meeting with Nepra and discussed the issues. According to an official statement, sub-committee was told that Nepra responded to 11 out of the 17 questions posed to Nepra and needs 3-4 days' time to conduct the analysis of remaining questions and observations.
The committee observed that the restraining order of the court does not bar Parliamentary Committees to look the matter up. The agenda before the Sub-Committee was to review the issues of high tariff, capacity of charges, heat rates, and calculation of payback periods of IPPs.
The committee strongly recommended that respective members of Nepra from provinces should have expertise of one or more departments of the regulatory authority and observed that the committee will consider suggesting a number of recommendations regarding the qualifications and eligibility criteria of the people appointed in Nepra.
The committee was given details of the Power policy of 1994, power purchase agreements backed by sovereign guarantee, and the international rate of return of 13% given to IPPs. On a question by the Committee, NEPRA clarified that this 13% was given by Nepra to IPPs on shareholders' equity. Due to a number of concerns and apprehensions raised on the policy, it was revised as Policy for Power Generation Projects Year 2002 and later it was decided to index foreign O&M cost with US CPI after an ECC decision. The Power Generation Policy 2015 kept most of the things of previous policy intact and introduced some more projects while also increasing the return on equity to 15%.
The committee was told that the country has an installed power generation capacity of 35,000MW, dependable capacity of 28,000 MW, transmitted capacity of 23,000 MW and a peak time shortfall of 3,000 MW. The Committee members remarked that distribution of electricity should be equitable, areas with theft should not be given electricity and subsequently there will be no need of any more power plants.
Current tariff for different technologies was told to be 11.66 KWH for coal, 5.28 KWH for wind, 5.76 KWH for solar, 10.58 KWH for RLNG, 18.83 KWH for RFO, 22.33 KWH for Gencos, 9.74 KWH for gas based projects, 13.20 KWH for bagasse. The committee asked Nepra to share the tariffs for utilised capacity also on annual basis. Capacity charges of power sector for the financial year 2017-18 were told to be Rs 82 billion.
Nepra told the committee that it has taken notice of excess profits of five IPPs and they have had hearings in Islamabad High Court and the next hearing would be held after 17 August 2019. The Committee members observed that the committee is open to anyone who comes up to defend himself but currently the committee has a considered opinion that overpayments have been made to IPPs.
The committee was informed that 4th RLNG project was not feasible and former MD NTDC had the viewpoint that with the 4th RLNG project the government will be in a debt trap. However, the reply submitted by the GoP in international court of arbitration is contrary to the stance taken in the sub committee.