Meetings on 15th, 16th: Ways to reduce power tariff to be explored

Power Division has convened meetings of public sector Independent Power Producers (IPPs) and Generation Companies (Gencos) and private sector IPPs on April 15 and April 16 in Islamabad aimed at exploring different ways to reduce tariff.

On April 2, 2020, Cabinet Committee on Energy (CCoE) constituted a committee under the chairmanship of Minister for Power, Omar Ayub, comprising Special Assistant to Prime Minister on Coordination of Marketing and Development of Mineral Resources, Secretary Finance, Secretary Power Division and Secretary Law and Justice to deliberate various viable and mutually acceptable options to make the power sector sustainable.

The potential areas of discussion would include heat rate test, foreign currency indexation for local investors, rescheduling/ increasing the debt term, O&M costs, return on equity, etc.

Private Power & Infrastructure Board (PPIB) has asked the Islamabad -based representatives of power companies to attend the meeting in person whereas those who are in other cities can join on video link.

The CCoE has also directed the Finance Ministry to design a master structure for synthetic financing to reduce capacity charges of IPPs.

Power Division, the sources said briefed the CCoE on April 2, 2020 on synthetic financing to reduce capacity charges, suggesting that where a plant has a remaining term loan of more than five years, capacity payment can be reduced by extending tenure of loan to lower upfront tariff. This can be negotiated with various IPPs.

However, all IPPs under the 1994 Power Policy have already paid off their debt. Further, the repayment of debt of IPPs under 2002 Power Policy will be completed by mid 2021. In addition, since CPEC projects are financed through special financing arrangement, they cannot be considered under this arrangement. Therefore, in the case of projects installed between 2002 Power Policy and before CPEC, the debt repayment can be restructured for extended period, if their lenders agree.

It was stated that the financial cost will be on higher side due to spread of repayment over extended period. Mostly renewable projects would fall under this criterion.

According to sources, the CCoE took note of the presentation made by Power Division regarding synthetic financing to reduce capacity charges and decided that Finance Division will design a master structure for synthetic financing to reduce capacity charges in consultation with Power Division and NEPRA, and submit the same to ECC for approval before the end of April, 2020.

Earlier, a proposal came under consideration that the government constitute a committee under the chairmanship of Minister for Power, Omar Ayub Khan to negotiate with Independent Power Producers (IPPs) for waiver of capacity charges of CPPA-G voluntarily to lower cost of generation.