RLNG-, coal-fired plants: Rs4.50 per unit cut in power prices likely if pacts reviewed

ISLAMABAD: The electricity prices are expected to be reduced by up to Rs 4.50 per unit, provided agreements with RLNG- and coal-fired plants are reviewed for which talks with top Chinese leadership are already in progress, well-informed sources told Business Recorder.

The committee headed by Muhammad Ali, former Chairman SECP, in its report which was ignored by the government after it appeared in the media, has recommended recovery of Rs 100 billion from IPPs furnace oil fired power plants established under 2002 Generation Policy. This amount will be recovered from the IPPs over a period of time.

The best outcome of the committee headed by Fateh Yaqoob Babar is not allowing dollar indexation to local investors, fixing it at Rs 148 per dollar, which is a key saving and achievement. This implies that dollar indexation for foreign investors will not change for next 10-15 years.

Another big achievement of the committee is that the capacity payment of power projects established under Power Generation Policy 1994, which was based on dollars has been reduced by 11 per cent and the remaining 89 per cent will be divided between the two parties equally. Of 89 per cent, the share of 44.5 per cent of power generator will be paid in dollars.

For wind power projects, profits have also been reduced from 18 per cent to 13 per cent but it will be in dollars not in rupees. This has been clubbed with further extension in PPAs for five years. Wind Power Projects have also been asked to reduce interest rate to 0.5 per cent from one per cent with foreign banks. Wind power projects with capacity payment above the benchmark of 31 per cent will be shared equally between the GoP and power producer.

The sources said, Government's own generation is around 40-50 per cent. The return of government owned power plants will be converted into rupees. Rate of Return of government owned projects are being reduced from 10 per cent to 7 or 8 per cent in addition to an extension in tenors of projects. This will also give a saving.

Chinese President is also visiting Pakistan next month. The government is planning to ask him to reduce dollar return to 13 per cent from existing over 17 per cent and extension in tenors of the projects. The alteration in power projects agreements will have financial impact of over Rs 450 billion.

For instance, the annual sale of electricity is around one billion units and the cumulative financial impact of Rs 4.50 unit will be Rs 450 billion.

"Saving of hundreds of billions of rupees is expected in absolute terms over the remaining period of projects. Details are being worked out for each item," said one of the officials who was part of negotiations.

Copyright Business Recorder, 2020