Nepra report further states: “2.3.7 Energy Charges vs. Capacity Charges: The consumer-end tariff comprises Energy Purchase Price (EPP), Capacity Purchase Price (CPP), the impact of T&D losses, Distribution & Supplier Margin, and Prior Year Adjustment.
In FY 2022, EPP constituted around 60% of the tariff, while CPP accounted for about 40%. The percentage of CPP in the overall tariff is on an increasing trend…
The increase in CPP percentage is due to the augmented capacity of power generation plants and the addition of the HVDC line to the system.
At present, fixed charges billed to electricity consumers range from approximately Rs 200 to Rs 500 per kW/month, determined by their Actual Maximum Demand (MDI) for the month or 50% of sanctioned load, whichever is higher. In contrast, capacity charges billed to DISCOs by CPPA-G remain consistently over Rs 4,000 per kW/month.
This highlights that only around 3% to 4% of the fixed costs is accounted for as fixed charges, while the rest is billed based on variable charges depending on energy consumption
To alleviate the impact of heightened capacity charges, it is crucial to boost the growth rate of electricity sales by implementing cost-reduction measures. Additionally, it is essential to retire generation capacity that has surpassed its initial licensed lifespan, along with low efficiency power plants of GENCOs and KE. Furthermore, the decision in respect of induction of new generation capacity shall be made only after a thorough consideration of all relevant factors and comprehensive analysis.“
This means that the regulator itself has admitted the mistake or mala fide intentions. They have presented a solution, which is not workable. On account of higher prices the sales of electricity are decreasing in the productive industrial sector.
The question is whether or not there was a method in the regulator’s madness. It is a recorded fact that the government in power during 2013-2018 wanted to demonstrate that they have installed power plants in their constituencies. The question is not about personalities and provinces; it is about the state. Their policies have weakened the state and now dissent is emanating from politicians’ own constituencies.
Affordability-Tariff Determination Cost to the Consumers
It is important to identify why this storm which was gathering at the bottom for decades has suddenly come out. This has been explained with a real illustrative case as under:
The profile of the coal-fired plant of Huaneng Shandong Ruyi (Pakistan) Energy (Private) Limited as per PACRA is as under:
“China Huaneng Group Company Limited - a state-owned Chinese Company, is the ultimate parent of Huaneng Shandong Ruyi (Pakistan) Energy (Private) Limited (“HSR” or “the Company’’), which is Independent Power Producer (IPP) operating a 1,320MW coal based power plant located at Qadirabad, District Sahiwal. HSR is part of the China Pakistan Economic Corridor (CPEC). …Shandong Huatai Electric Operations & Maintenance (Private) Limited is appointed as the O&M operator for the plant. The plant operates on imported coal which is sourced through China Huaneng Group Fuel Company Ltd under the Coal Supply Contract.
However, in recent development, the Company has started operating the entire plant on Afghan coal which meets the specifications of the plant. The coal is being procured through local traders on a spot basis. During CY22 the plant generated net electrical output of 4,855GWh (CY21: 7,720GWh) while maintaining its agreed benchmarks.
The decline in generation reflects the priority of the power purchaser to source electricity from cheaper sources. As per NTDC merit order list for July 2023, HSR is ranked at 30th with a specific cost of PKR 28.87050 KWh. Subsequently, the company reported Net Income of PKR~20,970mln for the year end Dec 2022. …Circular debt issues along with mounting receivables due from CPPA of PKR 111,254mln against capacity and energy payments remains an issue for the Company.
Financing Structure Analysis Debt Financing constitutes 80% of the project cost i.e. approx. USD 1,784mln. The project debt of USD 1,411mln was funded by the Chinese lenders with the consortium lending by Commercial Bank of China Ltd. (ICBC) and others include Agriculture Bank of China Ltd., China Construction Bank., and Bank of China Ltd. Priced at 3M LIBOR plus 4.5% spread p.a. The principal amount is repayable in thirty-four unequal quarterly instalments ending on 01 April 2030 in accordance with the amortisation schedule provided by the consortium of banks. The remaining 20% is injected by the sponsors.
As agreed with NEPRA the levelized tariff for 30 years is US¢ 7.8457per KWh. Return On Project The IRR of the project as agreed with NEPRA is 27.2% for imported coal and 29.5% for local coal.“
When the foreign loan of USD 1.4 billion was obtained the exchange rate used was Rs 97.10/US$. This rate has been used in calculating the reference tariff and the same shall be used for indexations/adjustments where applicable.
The initial tariff approved was Rs 8.8 per KwH per unit, which was Rs 4.4 each for fixed and capacity charges fixed in initial approval given by NEPRA in 2015. Now in May 2024 in the approval of revised tariff NEPRA wrote as under: for energy cost:
“DECISION OF THE AUTHORITY IN THE MATTER OF FUEL PRICE ADJUSTMENT FOR THE MONTH OF MAY 2024 FOR HUANENG SHANDONG RUYl (PAKISTAN) ENERGY PRIVATE LIMITED.
“Pursuant to the Authority’s decision dated March 31, 2015 in the matter of Approval of Upfront Coal Tariff for 2x660 MW coal power plant of Huaneng Shandong Ruyi (Pakistan) Energy Private Limited (HSRPEL), decision dated September 23, 2016 regarding Suo Moto Review Proceedings in the Fuel Price Adjustment Mechanism, decision dated February 15, 2018 regarding inland freight charges, decision dated January 17, 2019 in the matter of tariff adjustment at Commercial Operation Date (COD) of HSRPEL and decisions dated August 22, 2019 & May 6, 2021 in the matter of motion for leave for review regarding fuel price adjustments, the fuel portion of the energy charge part of HSRPEL’s tariff has been adjusted for variation in coal price(s). HSRPEL requested a weighted average coal price of Rs 47,246/Ton for coal consumed during the month of May 2024. HSRPEL requested fuel cost component of Rs 18.4149/kwh for May 2024. 2.
Authority in its collective and joint wisdom considering all aspect decided with consensus as under; which will be hereafter called as decision of the Authority in the matter: “Based on the documentary evidence and information submitted by HSRPEL, the fuel cost component of energy charge part of HSRPEL’s tariff is adjusted for variation in coal price for the month of May 2024.
“The revised FCC of energy charge part of HSRPEIJs tariff indicated hereunder shall be immediately applicable to the units delivered during the month: Period Reference Fuel Cost Component Rs/kWh Revised Fuel Cost Component Rs/kWh May 2024 (4.2913) Rs 16.6068.”
For capacity charges
“The Authority in its collective and joint wisdom considering all aspects decided with consensus as under; which will be hereafter called as decision of Authority in the matter:- “indexation/adjustment for April to June 2024 quarter has been made in the tariff components in accordance with the requisite indexation adjustment mechanism stipulated in the decision(s) of the Authority. The revised components indicated hereunder shall be immediately applicable. The rate will be Rs 10.3445 against Rs 3.2696 per KwH per unit.”
This means that as against Rs 7.84 per unit the price to be paid to this Chinese plant will be Rs 26.9 per KwH. This is an over 350 percent increase, which is effectively due to devaluation of rupee versus USD during the same period. It is very simple economics and accounting. When this project was installed the value of USD was around Rs 100 (2013) whereas they are now being repaid in USD for capacity charges and cost of fuel when the rate is over Rs 280.
The problem actually worsened after 2021 when the rupee declined from 162 to 280. This is a 350% increase from 2013. Consumers cannot afford as their earnings have not increased in the same proportion. As a result, electricity has become absolutely unaffordable in Pakistan. This is not rocket science. It is an accumulation of errors, omissions and intellectual corruption and incompetence.
When compared to the region our situation is catastrophic as reported in this paper as under:
“Industrial power tariffs in Pakistan are currently at around 17 cents/kWh. This is over twice the regional average, with power tariffs for the textiles sector in India at 6 cents/kWh, Bangladesh at 8.6 cents/kWh and Vietnam at 7.2 cents/kWh.”
The killer factor is 17 cents/kWh with Rupee 280 per one USD against Indian rupees Rs 85 for I USD. The earnings and profitability of Pakistani consumers and businesses are in PKR whereas they have to pay for energy in USD and that too at a much higher rate.
It would be interesting to note the tainted and blurred vision of our political leadership and intellectual corruption and incompetence of our economic manager if we read the following tweet of the then chief minister of Punjab, Shehbaz Sharif, on the inauguration of this project on July 3, 2017:
“Both units of Sahiwal Power Project (2x660) become operational today — producing 1320 MW of energy at Rs 8 per unit
“The commissioning of 1320MW Sahiwal Coal Power Plant represents the fulfilment of a dream. The idea of putting together such a mega coal-fired power plant seemed ambitious with no prior experience of such an undertaking at our end…. When an agreement to set up a power plant was principally reached, at our behest and request, our Chinese friends committed to the completion of the project by December 2017…. There you are today on this epoch-making day wherein the whole project has been commissioned six months ahead of its scheduled date of completion… The fastest construction of the project in just 22 months, allow me to repeat 22 months only, has set a world record for completion of a similar project anywhere in the world including China… Sahiwal Coal Power Project is the flagship and first mega power project of the CPEC. It has set a precedent for not only other CPEC projects here but also regionally as well. It has set the pace, the tone and quality standards. It has set a tradition of healthy competition.”
How was this rare feat achieved? How was history made? How do you resolve this riddle that has stunned our friends and foes alike?
In my understanding, there are two main reasons: the transparency and strong commitment of the leadership and unconditional support and excellent cooperation of our Chinese brothers and friends.“
Now just after five years of this profound historical statement, this epoch-making project is at 30th number in the priority (merit) list of the units from where power is to be purchased.
The question which this country has never asked is whether or not our economic managers had taken into account the present scenario whilst installing this plant, which, in addition to capacity charges, uses most expensive input in the form of RLNG. Who is responsible for this serious intellectual corruption? Is there any accountability for the same?
(To be continued)
Copyright Business Recorder, 2024
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