Nepra approves Rs 5.9084 per unit tariff for 1,263 MW RLNG-fired power plant

National Electric Power Regulatory Authority (Nepra) has approved tariff of Rs 5.9084 per unit for combined cycle 1263MW RLNG-fired power plant for 30 years, to be established in Jhang by the Punjab government. Tariff petition had been filed by Punjab Thermal Power (Private) Limited (PTPL) for the Government of Punjab (GoPb) owned company, incorporated under the Companies Act, 2017 to act as an IPP to set up a combined cycle power project of 1,263.20MW (net 1,242.70MW) on re-gasified liquefied natural gas (RLNG) as the primary fuel and high speed diesel (HSD) as back-up fuel located near Haveli Bahadur Shah/Trimmu Barrage, District Jhang, Punjab.
The tariff for combined cycle power plant to be run on HSD has been fixed at Rs 11.1659 per unit for 30 years. However, tariff on simple cycle operation has been determined at Rs 9.3042 per unit. The tariff has been determined on the basis of debt equity ratio of 75:25. Minimum equity requirement is 20%. There will be no limit on the maximum amount of equity; however, equity exceeding 30% of the total project cost will be treated as debt.
The debt part of the project can also be financed through foreign financing or mix of local and foreign financing and the debt servicing component shall be adjusted accordingly. In case of foreign financing, LIBOR+ a premium of 4.5% shall be applicable.
In case of actual premium is negotiated less than 4.5%, the saving shall be shared between the power purchase and the power producer in the ratio of 60:40. In case of foreign financing, Sinosure fee/ECA exposure fee/credit insurance fee shall also be applicable with maximum of 7% of debt service amount. The plant availability shall be 92%. The tariff control period shall be 30 years from the date of commercial operation.
The simple cycle tariff on unit delivered basis on RLNG fuel shall only be applicable during the availability of the gas turbines for simple cycle operation for maximum of 349 days before the COD of the complex on combined cycle operation. The construction period is 26 month. In case of early commissioning of the project, bonus shall be calculated strictly in accordance with the terms and the benchmark established in the coal upfront tariff.
According to tariff determination, the following one-time adjustment has been allowed at COD: (i) since the exact timing of payment to EPC contractor is not known at this point of time, therefore, an adjustment for relevant foreign currency fluctuation for the $415.968 million of the EPC portion of payment in the foreign currency shall be made against the reference exchange rate of Rs 109.9/US $ on the basis of actual payment.
The adjustment shall be made only for the currency fluctuation against the reference parity values; (ii) adjustment as per actual with maximum of $5.71 million for items outside the scope of the EPC contract along with currency fluctuation for dollar portion, if any; (iii) the customs duties and cess of $29.326 million shall be adjusted as per actual; (iv) adjustment as per actual with maximum of $5.257 million for O&M mobilization cost; (v) adjustment as per actual with maximum of $7.986 million for security and surveillance cost; (vi) adjustment as per actual with maximum of $10.995 million for administrative cost; (vii) adjustment as per actual with maximum of $36.224 million for gas pipeline cost; (viii) adjustment as per actual of $14.776 million for financing fees and charges subject to maximum of 3.0% of the debt amount; (ix) IDC shall be re-established at the time of COD on the basis of applicable KIBOR, actual premium, actual loan and actual loan drawdown; (x) RoE component of tariff shall be adjusted for variation in actual equity investment and actual equity drawdown and; (xi) O&M components shall be adjusted as per the signed O&M Agreement, LISA Agreement and actual recurring administrative expenses.
The reference tariff has been determined on the basis of guaranteed net capacity of 1,242.7MW on RLNG and 1,081.80MW on HSD. All the tariff components of capacity charge shall be adjusted at the time of COD based upon the Initial Dependable Capacity (IDC) test to be carried out for determination of net contracted capacity.
In case net capacity is established lower than the guaranteed level, maximum three percent of the auxiliary consumption shall be allowed and appropriate adjustment in the tariff components shall be made after adjusting LDs as per Schedule 10 to the EPC contract against the project cost.
The energy charge part of the tariff relating to fuel cost shall be adjusted subsequent to the heat rate test carried out by the independent engineer in the presence of representatives of power purchaser in accordance with the established benchmarks. Subsequent to the submission of the test report to the satisfaction of the Authority, onetime adjustment shall be made in the fuel cost components.
In case the efficiencies on either fuel establish lower than the guaranteed levels, appropriate adjustment in the fuel cost components shall be made after adjusting LDs as per Schedule 10 to the EPC contract against the project cost. In case the efficiencies on either fuel establish higher than the guaranteed levels, the gain shall be shared in the ratio of 60:40 between the power purchaser and power producer and fuel cost components shall be adjusted accordingly.
The actual insurance cost for the minimum cover required under contractual obligations with the power purchaser not exceeding 1% of the EPC cost shall be treated as pass-through. Insurance component of reference tariff shall be adjusted annually as per actual upon production of authentic documentary evidence.
The interest part of capacity charge component will remain unchanged throughout the term except for the adjustment due to variation in interest rate as a result of variation in 3 months KIBOR. At the time of COD, cost of working capital shall be adjusted for actual payment terms agreed in the PPA and GSA and fuel prices. Thereafter, the cost of working capital shall be adjusted quarterly for variation in KIBOR and fuel prices only.
The fuel cost component of tariff subsequent to adjustment of heat rate test at COD shall be adjusted on account of fuel price variation as and when notified by the relevant authority.
Schedule 10 to the EPC Agreement and shall be included in the project cost at the time of COD. The dispatch will be at appropriate voltage level mutually agreed between the power purchaser and the power producer. The dispatch shall be in accordance with economic merit order.
In case the company is obligated to pay any tax on its income from generation of electricity, or any duties and or taxes, not being of refundable nature, are imposed on the company, the exact amount paid by the company on these accounts shall be reimbursed on production of original receipts.
This payment shall be considered as a pass-through payment. However, withholding tax on dividend shall not be passed through. Taxes and duties on the import of plant & machinery during the construction period have been included in the project cost and shall be adjusted on actual at the time of COD on the basis of verifiable documentary evidence. General assumptions, which are not covered in this determination, may be dealt with as per the standard terms of the Power Purchase Agreement.
Nepra Member (KP), Hamayat Ullah Khan in his additional note has stated that CPPA- G was treating step-motherly with almost five dozen projects of different technology vis-à-vis RLNG projects being established by Punjab government. He was of the view that the justification by the petitioner, CPPA-G and the Authority to grant a "take or pay" tariff is: a) the provisions of the applicable Power Policy; b) bankability of the project is based on a guaranteed/firm commitment of dispatch of power.
He further stated that while the rationale of above justification is valid for the instant project, it is equally valid on a generic basis, for all other projects. "I feel it my duty to point out the discriminatory attitude of CPPA-G while dealing with other projects which fall within the contours of abovementioned rationale and are equally entitled to be treated accordingly but have been discriminated against," he added.
According to the member KP, the petitioner submitted that due to its low tariff, the project will lead to a reduction in the basket price of electricity in the country and will also be high on the economic merit order thereby will not be directly receiving any idle capacity payments; that CPPA-G is the appropriate agency to address the issue of excess capacity.
The CPPA-G stated that it has segregated all its generation plants into two categories ie (i) "committed" and (ii) "non-committed." Hamayat Ullah Khan was of the view that RLNG Jhang project falls under the "committed" category and will therefore not add to surplus capacity. This is a very vague, general and invalid statement. It has not provided any details nor defined the two terms yet given a very categorical conclusion that the project will not add to surplus capacity. He said CPPA-G needs to further substantiate its position. On the other hand, the "Power Balance upto-2025" preliminary report of June 2017, received from NTDC, points towards a different scenario, where there is a significant visible gap between demand and supply of power generation in the immediate future.
However, without going into the details of the report, the government would need to take appropriate remedial measures in retiring some of the old/less efficient Public Sector GENCOs/IPPs to avoid falling into an excess capacity trap and making avoidable idle capacity payments, thereby, addressing the issue of increase in the circular debt.