Sans formal govt approval: CPPA-G expresses inability to supply power to RSEZ

ISLAMABAD: Central Power Purchasing Agency -Guaranteed (CPPA-G) has reportedly expressed its inability to supply electricity to Rashakai SEZ (RSEZ) as Discos agent sans formal approval of federal government, well informed sources told Business Recorder.

CPP-G took this stance at a recent meeting held in Board of Investment (BoI) at the request of the SEZ’s authorities.

DG SEZ, BoI apprised the meeting that under section 27 (1) (i) of the SEZ Act 2012 the Federal and Provincial Governments are obligated to ensure the provision of public utilities including supply of electricity at the designated zero-point of each SEZ, whereas section 27 (l) iii) of the SEZ Act makes it a responsibility of each developer to ensure the supply of electricity to all zone enterprises in the service territory of a particular SEZ.

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In November, 2022 the RSEZ Development & Management Company (RSEZDOC), the co-developer of the RSEZ, applied for grant of Nepra licences for distribution and supply of electric power supply pursuant to applicable regulatory framework; however, Nepra’s decision on it remains pending owing to lack of clarity on the source of supply, where from the RSEZDOC plans to purchase electric power; i.e., whether from CPPA-G or PESCO, prior to the grant of these licences especially supplier licence by NEPRA.

He added that there are currently ten active enterprise that are under construction in the RSEZ service territory, while two of them are expected to commence production shortly but progress might hamper due to non-availability of electricity.

It was also highlighted that grant of licences are fundamental requirements for distribution and supply of electric power within the service territory of the RSEZ to individual consumers; i.e., zone enterprises, beyond the designated zero-point, under applicable regulatory framework and the Nepra Act.

It was further apprised that earlier a meeting was held in CPEC Authority on December 14, 2023, in which it was acknowledged that the tariff offered by PESCO to RSEZDOC for distribution and supply of electric power to the RSEZ will not be viable and competitive option.

While deliberating on the high tariff with PESCO as a source, another option to purchase power from CPPA-G at basket/ pool price under prevailing transfer pricing mechanism came to the fore and the Ministry of Energy Power Division noted that it is already working on summary for seeking policy decision for provision of electricity to SEZs by CPPA-G.

In pursuance to the meeting Nepra also on December 29, 2023, required the RSEZDOC to choose between PESCO and CPPA-G as its source of supply and confirm one of them, which is pre-requisite for grant of supplier licence, whereas on March 27, 2024, Nepra reminded the RSEZDOC and mentioned ten days deadline to confirm its source of electric power supply to decide the matter of pending distribution and supply licence applications.

To facilitate the RSEZDOC in the matter and to make this choice BoI requested Power Division twice to hold a meeting of all stakeholders, however owing to lack of response from Power Division in the matter, and keeping in view Nepra’s deadline, BoI called the meeting to deliberate the issues and bottlenecks for amicable and sustainable solution in the matter.

The chair/ Additional Secretary-II BoI, Khalil ur Rehman asked the RSEZDOC to state its position. The RSEZDOC representative apprised the house that in line with its commitment, internal distribution infrastructure was completed in March 2023, considering the compliance with laws, regulatory requirements, to address high tariffs and ensure quality of services and in view of other related matters, the RSEZDOC applied for licences to offer reliable and affordable electricity to RSEZ enterprises to realize their investments, generate exports and add to overall economic growth. Therefore, under the applicable regulatory framework of NEPRA and Federal Government Supplier Rules the application for Supplier of Last Resort (SoLR) licence was submitted at Nepra; however, decision on grant of licences is on hold due to provision of pending pre-requisite information by RSEZDOC to Nepra.

Furthermore, RSEZDOC noted that they intend to get supply of electric power pursuant to the SEZ Act from CPPA-G at basket/ pool price as applicable in case of Discos including PESCO and KEL, if not lower, to provide RSEZ enterprises with affordable and reliable supply of electricity to facilitate their investments as per their plans and commitments.

Representative of Power Division, Shafqat Abbas was requested to update status and progress with regards to the policy decision of Federal Government for provision of supply of electric power to SEZS from power pool through CPPA-G, and he stated that he would get back with current updates at the earliest.

Representative from CPPA-G, Omar Haroon Malik briefed the house that CPPA-G is a corporate entity registered with Nepra as an agent of Discos and responsible for purchase of power from generation companies through power purchase agreements under the applicable regulatory framework and cannot decide on supply of electric power to SEZs on its own.

However, he supported the proposal and stated that CPPA-G has no objection for supply of the electric power from the power pool managed by CPPA-G as agent of Discos, provided that relevant policy and regulatory approvals are in place from the Federal Government and NEPRA along with clear understanding on the applicability of differential tariff or uniform tariff in case of SEZs.

Representative of NEPRA apprised the house that under NEPRA Act and applicable documents, it is required to expedite and decide tariff and licence applications within specified regulatory timelines, however considering the significance of SEZs and the need for reinvigorating industrial demand driven growth and obligation of Federal Government under the SEZ Act, the Authority is fully cognisant of the facts and committed to provide every possible facilitation and flexibility under the applicable regulatory framework for grant of the licences and supports provision of supply of electric power to SEZs under applicable laws.

Furthermore, when asked by Chair for comments on the viability of the proposal of supply to SEZs through CPPA-G, he enlightened the house that considering issues like year-on-years reduced sales of Discos, increasing capacity additions by committed projects, existing generation fleet underutilization in CPPA-G basket/power pool, technical and commercial losses, system constraints, quality of service, subsidies, theft, governance and lack of full revenue recovery coupled with fast-paced renewable energy resources induction, distributed generation trending growth, digitalization and innovations in utilities business and other associated challenges, may further impact the liquidity, affordability, financial viability and sustainability of the power sector resulting into higher tariff of regulated consumers and build-up of circular debt, therefore the issues and challenges faced need to be addressed.

He also reiterated that as mentioned by DG SEZ that a number of SEZs are under development in country and are expecting the supply of electric power at designated zero-point from Federal Government as per obligations under the SEZ Act, hence the proposal of policy level decision by Federal Government for sale of electric power to SEZs through CPPA-G under contractual arrangement merits due considerations for timely conclusions, while keeping in view the availability of electric power, capacity obligations, demand and supply situations of Discos. In the current demand and supply situation, any prospective decision by Federal Government for supply of power to SEZs on short to medium term basis can be evaluated, and enable CPPA-G for sale of any available electric power from power pool, resulting in improved efficiency and liquidity with positive impact on affordability of consumers, financial viability of sector and economic growth of country.

Furthermore, the RSEZDOC noted that they intend to get supply of electric power pursuant to the SEZ Act from CPPA-G at basket/pool price as applicable in case of DISCOS including PESCO and KEL, if not lower, to provide RSEZ enterprises with affordable and reliable supply of electricity to facilitate their investments as per their plans and commitments.

Representative of PESCO supported the proposal, reiterated stance of CPPA-G and endorsed views of NEPRA in the matter.

The course of deliberations among the participants revealed that PESCO as a source of supply at respective consumer category tariff will not be a viable option, however option of CPPA-G may be viewed as a win-win and a viable source for provision of electric power supply specifically for RSEZ and generally in case of other SEZs.

However, following two issues need to be resolved through policy level decisions by the Federal Government through due support of MoE (PD) to streamline the solution and enable the CPPA-G for sale of power to SEZs under contractual arrangement pursuant to applicable laws: (i) that CPPA-G as an agent of XW-DISCOS for the legacy contracts cannot decide on its own for supply of electric power to SEZs. Hence, supply of electric power from CPPA-G/power pool needs to be decided at policy level by Federal Government, similar to the precedence prevailing in case of KEL, wherein ten years purchase agreement is recently signed between CPPA-G and KEL; and (ii) that understanding and clarity with regards to the applicability of cost of service/differential tariff in case of SEZs as private SoLR licensee be reassured pursuant to provisions of the NEPRA Act. Since, XW-DISCOS as SoLR are public sector licensees and are managed for sale of power under uniform tariff whereas , in case of RSEZ and SEZs the fundamental objective of distribution and supply of electricity is to ensure recovery of prudent cost of service to ensure predictable and affordable tariff for industry to remain competitive, ensure sustainable investments and economic growth.

To achieve the desired goal and objectives, Federal Government approval is required for sale of electric power to SEZs from the CPPA-G/ power pool and confirmation that no uniform tariff be applicable but differential tariff pursuant to the provision of NEPRA Act. Once policy level decisions are made by the Federal Government, any operational level matters can be resolved at respective organizational level with close coordination of the relevant stakeholders.

It was unanimously decided that representative of PD shall immediately apprise the current status and update with regards to progress on the policy decision for provision of electricity to SEZs from CPPA-G to further decide way forward in matter. Next meeting would be held shortly to deliberate on actions subsequent to progress update by Power Division for initiation of summary for Cabinet Committee on Energy (CCoE) and ratification of decision by the Federal Cabinet in the matter.

In pursuance of the meeting, the RSEZDOC would submit a response letter to Nepra against its letter dated 27th March 2024 and NEPRA may consider holding the processing of applications till the time source of supply is decided and confirmed by Federal Government for the RSEZ.

Copyright Business Recorder, 2024