ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has rejected the tariff modification request of the Chinese firm, Pak Matiari-Lahore Transmission Company (Private) Limited (PMLTC), saying the ground presented by the company does not support any alteration in its decision of December 4, 2018.
The PMLTC in its letter of March 4, 2022 filed a tariff modification petition under Section 31 of the NEPRA Act (read with all the enabling provisions of the law and particularly under Rule 3 of Nepra Tariff Standards and procedure Rule, 1998)
In the petition, the PMLTC submitted that the reference tariff of December 4, 2018, provides for bi-annual indexation of principal and interest tariff components of foreign currency loans on account of variations in PKR/USD exchange rate which do not allow the company to recover the costs prudently incurred in the light of PKR/USD exchange rates volatility. Therefore, the reference tariff is modified to allow for the tariff components to be indexed on account of the PKR/USD exchange rate on a quarterly basis.
The PMLTC submitted that at the tariff petition stage PPIB submitted that the interest rate and exchange rate variations for the debt servicing will be made on a semi-annual basis i.e. on January 01 and July 1. Accordingly, the Authority allowed indexation of the debt servicing components on a semi-annual basis. However, due to consistent variations in the exchange rate and steep devaluation of the Pakistani Rupee against the USD over the last few years, the company is requesting Authority to allow quarterly indexation of tariff components on account of PKR/USD.
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The transmission company submitted that the tariff determinations are inconsistent with the Transmission Policy which provides for quarterly indexation. The PMLTC further submitted that the Transmission Policy also offered fiscal and non-fiscal incentives to the prospective investors, and in this regard Transmission Policy contemplated the indexation/adjustment for principal and interest/markup payments against foreign currency loans on a quarterly basis. Based on this, the Company submitted that indexation of the tariff components under the PMLTC tariff determinations should follow and be guided by the policy rationale expounded in the Transmission Policy.
The PPIB, in its comments, stated that the reference tariff petition was prepared by PPIB in consultation with NTDC and PMLTC. Accordingly, the petition was filed on the analogy that PMLTC’s debt servicing will be on a bi-annual basis if the PMLTC considered that this was an error, which should have been contested in the motion for leave for review and subsequent tariff modification petitions by PMLTC.
The Authority during the hearing directed the PMLTC to submit the financial impact of the exchange rate variation. The impact submitted by PMLTC was analyzed and it was observed that the indexed revised tariff components were not the same as have been approved by the Authority vide decisions of December 24, 2021 and June 01,2022 in the matter of interim relief for indexation of the relevant reference tariff components of PMLTC’s transmission tariff.
Accordingly, indexed tariff components as per the decisions were used for calculating the exchange gain/loss if any. In addition, the details of payment received by PMLTC from NTDC and the payments made to the lenders by the company, for the period from October 2021-March 2022 were also obtained vide the PMLTC’s letter of August 15, 2022, wherein it was observed that the first debt repayment was made to the lender on April 15, 2022, and the PMLTC has been receiving payment from NTDC since November 18, 2021.
The Authority also considered that PMLTC in its working assumed that 100 percent of the invoice amount has been received by PMLTC on the 1st day when it is due which is a correct approach since inefficiencies and any loss due to contractual commitment cannot be passed on to the end consumer.
Accordingly, based on the given information the Authority observed that there was no exchange loss rather there was an exchange gain during the period from September 2021 to March 2022 particularly due to the fact that the payment to the lender is made on April 15, 2022, whereas the amount received from the NTDC has been calculated for a 7-month period starting from September 2021 till March 2022.
The Authority maintained that if this exchange gain is considered for the payment for the next 6 months, the PMLTC will still not be having any exchange loss.
The Authority, in its decision, has stated that it believes that the PMLTC can mitigate the risk (if any) due to exchange rate risk variation between receipt of payment from NTDC and subsequent payments to the lenders.
Since the PMLTC receives payment of invoices from NTDC on a monthly basis whereas it is required to make payment to the lenders after six months, therefore, as PPIB commented during the hearing, PMLTC can invest the amount received from the NTDC in TDRS or any other such instruments for mitigating the risk, if any.
The Authority further considered that it would be unjustified to pass on the impact of exchange risk to the end consumer on account of the fact that the same could not have been managed by PMLTC through financial management strategies. Further, the Authority argued that the IRR and spread on debt servicing already cater to the country's risks at the time of tariff determination. In the instant case, 17% IRR on equity and 4.5% spread over LIBOR was allowed keeping in view all the risk factors. Therefore any associated risk during the operation period on this account would be unjustified to be passed on to the end consumer.
With regard to the PMLTC’s submission that the Authority has allowed indexation of tariff components on a quarterly basis for various other projects developed under the CPEC framework, the Authority stated that it considers it necessary to state that those projects were awarded tariff under upfront tariff regime wherein no project specific adjustments were allowed. Therefore, if the project companies have agreed for semi-annual debt repayment after opting for upfront tariff, the indexation mechanism for the same has not been revised since there is no provision of such adjustments in the upfront tariff determination. The same was also supported by the representative of the PPIB during the hearing.
After going through documents and arguments of the PMLTC and the PPIB, the Authority noted that the grounds advanced by the petitioner do not require any modification in Authority’s decision of December 04, 2018; therefore, the Authority has decided to dismiss the instant tariff modification petition filed by the PMLTC.
Copyright Business Recorder, 2022
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