Non-determination of tariff by Nepra: Kapco threatens to invoke sovereign guarantee

ISLAMABAD: M/s Kot Addu Power Company Limited (Kapco) is said to have threatened to invoke sovereign guarantee if its tariff is not determined by National Electric Power Regulatory Authority (Nepra) as the role of the Senate Committee on Energy is ‘advisory’ in nature and it is not competent enough to issue directions, well-informed sources in Nepra told Business Recorder.

Kot Addu Power Company Limited submitted an application for approval of reference generation tariff on October 24, 2022 at the time of expiry of its Power Purchase Agreement (PPA) dated June 27, 1996 (as amended, from time to time). The application was returned ‘unactioned’ by Nepra on November 28, 2022 with a note to provide consent from the power purchaser.

The company, in its letter of December 7, 2022 stated that there was no specific requirement of Consent from Power Purchaser under the NEPRA Act, Rules and/or Regulations.

Determination of tariff, PPA: KAPCO seeks ‘Consent Letter’ from CPPA-G

The Nepra approved the Indicative Generation Capacity Expansion Plan (IGCEP 2022-2031) on February 1, 2023, which included the requirement of the Company’s power plant in the system till 2026 due to the strategic location and significance of the Power Plant.

Thereafter, the Company submitted a revised application for tariff determination on March 8, 2023, which has not been formally admitted/progressed to-date despite a lapse of almost nine weeks. The System Operator (NPCC/NTDC) as well as Mepco have repeatedly emphasized the requirement of the Company’s power plant/generation facility during the upcoming summer as well as requirement of the company’s Switchyard Facility without any expiry.

M/s Kapco argues that in the absence of generation facility, the local areas network will have an energy crisis as there will be a high likelihood of overloading of Kapco auto transformers due to the high demand of electricity especially in the Mepco local area networks.

Further, at the special request of NPCC/NTDC, the company has been making its Switchyard Facility continuously available since October 24, 2022 to date in the greater national interest, without any compensation with an understanding/expectation for appropriate compensation for making this facility available.

According to power company, keeping in view the time required by Nepra for tariff determination, it has simultaneously also filed an application for the approval of provisional tariff by Nepra, adding that since summer season has commenced, the Company will be in a position to support the system only if a tariff is approved immediately or at least it is given a provisional tariff.

Furthermore, a reference was made by CPPA-G/Ministry of Energy with regards to certain reservations raised by Senate Committee on Energy vi-a-vis technical/strategic requirement etc. of the company’s power plant.

The power company has claimed that after detailed review and revalidation of facts, Ministry of Energy (Power Division) has directed to initiate the negotiations of Power Purchase Agreement with Kapco for retention of its generation as per NTDC/Mepco requirements till 2026. It was further clarified that the role of the Senate Committee on Energy is ‘advisory’ in nature and it is not competent to issue directions.

The CPPA-G has also communicated its willingness to purchase electricity from Kapco. Before negotiation of PPA, the tariff determination by the Authority is imperative.

“We request that the process of tariff petition along with approval of provisional tariff commence at earliest, failing which the company will not be in a position to support the system in case of any emergency or system requirement,” said Kapco CEO Aftab Butt in a letter to Registrar Nepra.

The company has always supported the power purchaser/system by extending its full support; and currently it has an inventory of over 100,000MT of furnace oil for which no additional foreign currency payments are required.

The Company is a listed entity with over 65,000 shareholders. Any further delay in due tariff determination and PPA extension will not only have impact on its small shareholders, but also the stakeholders of the Company including lending banks who have extended working capital lines of around Rs 40 billion to support the power purchaser/GoP in circular debt, Aftab Butt said.

“Due to unwarranted delay in tariff processing and PPA extension, the banks have already started calling back their working capital facilities. Any further delay will not only force the company to curtail its switchyard facility but it may have to make a call under sovereign guarantee to avoid any default/ cross default under its working capital facilities agreements,” the CEO of Kapco maintained.

Copyright Business Recorder, 2023