ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has initiated formal hearings to approve the revised agreements between Independent Power Producers (IPPs) and the Government of Pakistan (GoP), which are expected to result in a reduction in consumer tariffs.
The session was presided over by Nepra Chairman Chaudhry Waseem Mukhtar, with the participation of Member (Tech) Rafique Ahmad Shaikh, Member (KPK) Maqsood Anwar Khan, and Amina Ahmed.
During the hearing, the authority received a briefing from the Central Power Purchasing Agency (CPPA-G), followed by a question-and-answer session.
PPAs, IAs without coercion: Govt secures written confirmation from IPPs
The following IPPs have submitted applications for tariff reductions, in line with the agreements made with the Government’s Task Force led by Minister for Power, Sardar Awais Leghari:
(i) Nishat Chunian Power Limited;(ii) Nishat Power Limited;(iii) Narowal Energy Limited; (iv) Liberty Power Tech Limited; (v) Engro Powergen Qadirpur Limited; (vi) Saphire Electric Power Limited; and (vii) Saif Power Limited.
The government has projected a reduction of Rs 0.50 per unit in the tariff, based on the generation data from these plants in the previous year.
However, Halmore and Orient Power have not agreed to the terms outlined by the GoP’s Energy Task Force and are therefore subject to a forensic audit.
The three Nepra members and the majority of IPP representatives, either present in the auditorium or participating via Zoom, refrained from commenting on the joint application presented by CPPA-G CEO, Rihan Akhtar. Nevertheless, the representatives of Nishat Power and Nishat Chunian indicated that their agreement to the revised deal is contingent on the withdrawal of Nepra’s ongoing investigation. Chairman Nepra clarified that the investigation had already been challenged in the Islamabad High Court (IHC), meaning the Authority could not take further action at this time.
The representatives from Narowal Energy requested that a mechanism be introduced to adjust furnace oil prices in case of any future increases.
CEO of CPPA-G, Rihan Akhtar, noted that the government has completed talks with 29 IPPs to review their contracts. He further mentioned that agreements with renewable energy projects would be finalized in the coming weeks. The revised IPP agreements are expected to result in total savings of Rs 920 billion.
He also disclosed that the agreements for RLNG-fired power plants have been revised and will be submitted to NEPRA for formal approval in the next day or two.
In response to a question regarding a letter sent by 10 IPPs to the Prime Minister in which they claimed they were being pressured into revising their agreements, the CEO of CPPA-G denied any coercive actions against the IPPs. The representatives of the IPPs, however, chose to remain silent on the matter.
The Parties agreed to the following terms and conditions which shall be incorporated in the “amended PPA” and the “amended IA”: (i) the Parties agree to implement a ‘Hybrid Take-and-Pay Model’, whereby tariff payment to the Company shall be made by the Power Purchaser as provided hereunder; (ii) The Parties agree that the indexation factors or adjustment factors as provided in this Agreement for the respective components shall be applicable hereinafter for any payment in connection with the Amended PPA; (iii) subject to section 2.2(b)(iv)-(v), the ‘Operation & Maintenance Components’ as determined by Nepra (for the quarter ended 30th September 2024) shall continue; (iv) the quarterly indexation for local Fixed O&M and local Variable O&M shall be the lower of (a) five percent (5%) per annum or (b) the actual average National Consumer Price Index (NCPI) for the preceding twelve months; (v) for each year (starting from 1 October), the current indexation mechanism of Nepra shall continue for Foreign Fixed O&M and Foreign Variable O&M, provided that the PKR/USD depreciation shall be allowed only to the extent of 70% of the actual depreciation per annum. In case the PKR appreciates against the USD in a year, 100% of such appreciation shall be passed on to the consumers. For clarification, the indices used in the quarterly indexation determined by Nepra for the period July-Sep. 2024 shall prevail; (vi) Sales Tax, currently included in the existing Cost of Working Capital 1 Component (the “CWC”) shall be removed, and the current spread above Kibor of 2% has been revised as 1%.
The revised Working Capital Components in future shall be indexed at KIBOR 1% on a quarterly basis;(vii) foreign component of RoE and RoEDC as determined by Nepra for the Oct-Dec 2024 quarter shall be recomputed based on 17% rate of return, at the fixed exchange rate of Rs 168/USD. Thereafter, there shall be no exchange rate indexation; (viii) from the effective date prorated for remaining period of the current Agreement year, and thereafter for every Agreement year, the Company will be entitled to thirty-five percent (35%) of revised RoE and RoEDC components of tariff as part of CPP, which will be computed as per the terms of the Existing PPA. From the Effective Date, in case the Dispatched and Delivered Net Electrical Output (the “NEO”) of the Company exceeds 35 percent (35%) of the total Contract Capacity in terms of kWh, then Company will be entitled to receive RoE and RoEDC components of tariff, which shall be calculated on the actual NEO exceeding thirty-five percent (35%) of the total Contract Capacity in terms of kWh and the Company shall claim the differential CPP accordingly; ix) Forced Outage or Partial Forced Outage and Scheduled Outage and other allowances shall remain the same as per Existing PPA. Subsequent to the current Agreement Year and from the Effective Date, the Period Weighting Factor shall be unity (ie factor one (1); (x) The RoE and RoEDC shall not be accounted for in preparation of ’Economic Merit Order; (xi) from the subsequent Agreement Year, i.e. 30th April 2025, the Parties agree that the Insurance Component of CPP shall be revised such that it should be paid in actual subject to a maximum limit to be capped at 0.9% of allowed EPC Cost as per existing mechanism; and (xii) the company waives, abandons and relinquishes all rights and claims it may have with respect to late payment interest as on October 31, 2024. For clarity, it includes the late payment interest claims that will arise on payments made up to 31st October 2024.
Copyright Business Recorder, 2025
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