Non-availability of fuel at site: capacity payment approved for coal-fired projects

The government has reportedly approved capacity payment of up to 80 percent Return on Equity (RoE) component of the tariff for coal-fired projects in case of non-availability of fuel at site, well-informed sources in PPIB told Business Recorder.
"In case a plant is not available for dispatch due to non-availability of fuel at site solely caused by delayed payments by the power purchaser for consecutive 90 (for local coal)/150 (for imported coal) days, power plant will be entitled for capacity payments during suspension period up to 80% RoE component of the tariff," the sources added.
Some officials in the PPIB, however, argue that incentives for coal-fired projects will turn out to be a scandal and certainly send a few officials to jail.
Giving details, sources said that in an earlier summary of January 9, 2015 on this issue, the ECC had directed the Ministry of Water and Power that secretaries, Finance, Water and Power Divisions and MD PPIB should resolve outstanding issues and submit the same for consideration of ECC in its next meeting.
Simultaneously, the Cabinet Committee on Energy (CCE), in its meeting held on January 9, 2015, directed that PPIB would get project documents such as PPA/EPA, IA and GSA prepared by professionals to ensure that they are bankable.
Pursuant to the CCE decisions, various meetings were held to discuss the outstanding issues. In a meeting on January 22, 2015 and attended by the Minister for Water & Power, Secretary Water & Power, Additional Secretary Water & Power, Additional Secretary PM Secretariat, MD NTDC and MD PPIB, it was decided that there is a need to develop a new power generation policy to address the outstanding issues of the market highlighted by the ECC and the CCE.
Accordingly, the draft Power Generation Policy, 2015 was circulated amongst stakeholders prior to its submission before the Council of Common Interests (CCI). The draft policy was also discussed in a meeting of the stakeholders including the representatives of federal and provincial governments, AJ&K and Gilgit-Baltistan and changes were made with consensus among the participants. The draft policy was also presented to CCE which approved it in principle in its meeting of March 3, 2015.
The policy provides for standardised security package documents for power projects in the private sector. The draft documents comprise Implementation Agreement (IA) and Power Purchase Agreement (PPA) which provide a legal and contractual framework for the financial closing, engineering, procurement, construction, commissioning, operation, and maintenance on build, own and operate basis (BOO) of power projects in the private sector.
The sources said that services of an international consultant were hired to address the issues raised by stakeholders in the standardized security package documents and to ensure their bankability on the basis of best market practices and specified local requirements.
PPIB prepared coal security package documents keeping in view the specific and peculiar requirements associated with coal power projects including: (i) a dedicated coal jetty; (ii) a mine mouth coal power plant; (iii) availability and use of coal; (iv) coal power specific political and change in law risks afforded protection under force majeure provisions; (v) land lease and support services agreement defined in the project agreements; (vi) guaranteed availability of 85%; (vii) minimum off take of available capacity (take or pay) at 50%; (viii) heat rate test at the time of commissioning; (ix) penalties by the power purchaser and company in case of delay in performances; (x) income tax exemption for the term of the project; (xi) suspension; and (xii) compensation, etc. The Coal Security Package Documents are designed to cater for the requirements of imported, local, and mine mouth integrated coal generation power plants. However, certain project-specific amendments would be inevitable during negotiations with the project companies provided GoP obligations do not increase. In addition to Coal Security Package Documents, a Supplemental Agreement to cater for China Pakistan Economic Corridor power projects was suggested pursuant to the provisions of an agreement between the Governments of Pakistan and China.
The Council of Common Interests, in its meeting held on March 18, 2015, also granted, in principle, approval to the Power Generation Policy, 2015.
According to sources, the ECC, in its recent meeting took the following decisions on standardised security documents for coal power projects under the policy for Power Generation Projects 2015: (i) standardised security package documents for coal power projects under the policy; (ii) PPIB Board is authorised to make and approve any project specific amendments in the Standardised Coal Security Package Documents required during negotiations provided GoP obligations or liabilities are not adversely affected; (iii) PPIB Board is authorized to make and approve any amendments in the Coal Security Package Documents required to comply with Nepra's Tariff Determination, and or, approvals; and (iv) investors/sponsors holding valid LoIs under the Policy for Power Generation Projects 2002 will continue with the same policy. The new policy will be applicable only if opted by valid LOIs holders (2002) within a month. The Standardised Security Package Documents (except for certain specific provisions as contained in the Policy 2015) would be applicable to such projects, with the modification that in case of delay in payments, the applicable delayed payment interest shall be reduced from KIBOR + 4.5% to KIBOR + 2% and; (v) summary for approval of standardised security documents for coal power projects under the policy for power generation projects 2002 of January 9, 2015 is withdrawn.