Baggasse-fired IPPs: Nepra set to approve 60% hike in FCC

ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) is all set to approve about 60% increase in Fuel Cost Component (FCC) of baggasse-fired independent power producers (IPPs) to Rs9.8719 per unit from existing Rs5.9822 per unit.

The Central Power Purchasing Agency–Guaranteed (CPPA-G) stated that consumers have to bear the brunt of rupee devaluation by 30% whereas 70% will be have to be adjusted by the baggasse-fired IPPs.

This was disclosed by the Chief Executive Officer (CEO), CPPA-G, Rihan Akhtar during a public hearing on revised tariff review petitions of nine baggasse-fired IPPs. The cumulative savings from revised deals with the baggasse-fired IPPs will be Rs235 million over the life of the projects.

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CPPA-G and nine baggasse IPPs had filed joint tariff revision petitions. The names of baggasse IPPs are as follows: (i) Chiniot Power Ltd; (ii) JDW Sugar Mills Ltd (Units II); (iii) JDW Sugar Mills (unit III); (iv) Al-Moiz Industries Ltd; (v) Chanar Energy Ltd; (vi) Thal Industries Corporation Ltd; (vii) Hamza Sugar Mills Ltd; (viii) RYK Mills Ltd; and (ix) Shahtaj Sugar Mills Ltd.

According to documents presented during the hearing, CPPA-G and nine baggasse-fired IPPs agreed that effectivity of revised FCC of tariff will commence from October 01, 2021 as per following terms and conditions: (i) Rs4,500/ton as on October 01, 2021 thereafter 5% annual indexation; and (ii) FCC to be calculated at Calorific value of 7000 BTU/kg.

Other conditions of the revised pacts are: (i) reduction of Working Capital Component (WCC) by 50% for all Baggasse IPPs (except for Shahtaj whose tariff does not include WCC component); (ii) fix RoE and RoEDC components at PKR 168/USD with no future USD indexation;(iii) indexation of local O&M shall be allowed as lower of (a) 5% per annum or (b) the actual average National Consumer Price Index (NCPI) for the preceding twelve months for all the Baggasse IPPs;(iv) foreign O&M - 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, then 100% of such appreciation shall be passed on to the consumers; (v) IPPs may sell electricity to Bulk Power Consumers (BPCs) subject to amendments in its GL and EPA, and upon commitment for payment of compensation to CPPA-G for each unit of electricity supplied to the BPCs;(vi) the cap of insurance during operation shall be 0.7% of the EPC cost for Chiniot Power Ltd. in line with other baggasse IPPs; (vii) reduce reference O&M component by 10% for Chiniot Power Ltd. at par with other baggasse based IPPs; and (viii) revision in sharing mechanism beyond Net Annual Plant Factor (for Baggasse based IPPs except for Shahtaj).

According to CPPA-G, (i) FCC has been reduced by Rs2.6069 per unit from existing Rs12 .4788 to Rs9.8719 per unit, (ii) working capital will be reduced by Rs0.1669 per unit from existing Rs0.3338 per unit to Rs0.1669 per unit; and (iii) RoE to be reduced by Rs0.3014 per unit from Rs2.0122 to Rs1.7108 per unit. However, there will be no change in variable O&M (L) of Rs0.2835 per unit, fixed O&M(L) Rs1.1147 per unit and insurance Rs0.1543 per unit. This implies that tariff will be reduced by Rs3.0752 per unit to Rs14.0589 from Rs17.1341 per unit.

During the hearing, one of the interveners, Arif Bilwani, argued that in Pakistan’s circumstances, currency appreciation was seen rarely whereas depreciation is often, which means that consumers have to bear the brunt of 30% of devaluation.

Another intervener, Aamir Sheikh, said that currently, consumers are paying around Rs6 per unit for the electricity from baggasse IPPs whose current generation tariff of Rs14 per unit will be reduced to Rs10 per unit which implies that baggasse IPPs tariff will further increase.

“Nepra has increased purchase price of power from baggasse IPPs to Rs14/ unit with fuel cost of almost Rs10/unit. People have always said cost from baggasse is half of that. So we wonder what calculations were used to finalise the Rs14 figure which will also increase every year. Since this is back dated, there will be huge arrears that have to be paid and that will be passed on to consumers,” he added.

However, Chairman NEPRA Chaudhry Waseem Mukhtar said that tariff is being further reduced by around Rs1 per unit in QTA of third quarter (Jan-March) 2024-25.

Copyright Business Recorder, 2025