ISLAMABAD: The federal government has reportedly decided to settle payables of government-owned power plants amounting to Rs 357 billion as of June 2020 at par with settlement with Independent Power Producers (IPPs), well-informed sources told Business Recorder.

The decision was taken by the Cabinet Committee on Energy (CCoE) headed by the Minister for Planning, Development and Special Initiatives, Asad Umar. The decision was ratified by the Cabinet.

The government has also decided that return on equity of the Quaid-e-Azam Solar Park should also be included for reduction to 17 per cent rupee-based Internal Rate of Return (IRR) recalculated using USD rate of Rs 148/ USD, similar treatment to other government IPPs.

The CCoE directed Power Division to consider reduction in Rate on Equity (RoE) on government IPPs upto 10 per cent and fix it in rupee terms rather than in dollars.

Power Division after various consultative sessions with relevant stakeholders calculated the impact of reduction in capacity at 10 per cent RoE and presented to Prime Minister in a meeting held on August 21, 2020. Prime Minister in the meeting directed to revise the rupee-based RoE @ 10 per cent to government-owned power projects.

Power Division recently presented the implementation status of the decision and proposal therein after incorporating the reviews and comments of the relevant stakeholders as follows :(i) Nepra allowed 17 per cent to Wapda in rupees without any dollar indexation. The impact of reduction in RoE from 17 to 10 per cent on Wapda revenue would be around Rs 16 billion for FY 2021. Wapda submitted that any reduction in capacity component would have severe implications for timely completion of strategic projects ( Diamer Basha, Mohmand and Dasu) and Rs 160 billion additional allocation would be required from PSDP in next 10 years. The payables to Wapda as on June 20 were around Rs 208 billion; (ii) with regard to Genco, impact of reduction of RoE of all Gencos to 10 per cent would be around Rs 3.5 billion for FY 21. The payable of Gencos as on June 2022 was around Rs 48 billion. At present, the profit-making Gencos are supporting the loss-making Gencos, which will require budgetary support to cover their losses;(iii) after fixing RoE of nuclear power plants at 14.50 per cent IRR and freezing rupee to dollar rate at Rs 148 the impact of nuclear power plant would be around Rs 2.07 billion. The payables of nuclear power plants as on June 20 were of Rs 59 billion.

To compare the RoE of government-owned RLNG IPPs with other government-owned projects the return was reduced to 12 per cent IRR with dollar indexation. The projected reduction in RLNG projects will be of Rs 6.71 billion.

Currently, the projects owned by NPPMCL (federal government plants) are in process of privatisation near to finalization stage. Post-privatization, the return will depend on the new investors - in case of local investor's returns will be 17 per cent without dollar indexation using dollar- rupee parity at Rs 148 per dollar; however, foreign equity will get 12 per cent with dollar indexation. The payables to NPPMCL and QATPL as on June-20 are around Rs 42 billion.

"Board of Directors (BoDs) of Gencos, Pakistan Atomic Energy Commission and government owned power plants (NPPMCL, QATPL, PTPL) and Wapda Authority will approach Nepra for revision of their RoE component and accordingly revise their determinations," the sources said.

Power sectors analysts maintain that the cumulative financial impact of deals with private IPPs, government IPPs and Wapda hydroelectric, would be savings of around 680-700 billion in the next seven to ten years. The savings under the 1994 power policy would be of Rs 225 billion, followed by Rs 200 billion under the 2002 generation policy and over Rs 250 billion under the 2006 power generation policy during the life of these projects.

The CCoE also took the following decisions : (i) return on equity of the Quaid-e-Azam Solar Park should also be included for reduction to 17 per cent IRR( rupee based) recalculated using USD rate of Rs 148/ USD as similar treatment to other government IPPs;(ii) the financial settlement of payables to government-owned power plants shall also be considered at par for any future settlement with IPPs pursuant to the ongoing negotiations by the IPPs committee; (iii) the financial benefit to Wapda, if any, due to a reduction in RoE shall be arranged through Public Sector Development Plan (PSDP) funding for implementation of mega development power projects such as Diamer Basha, Mohmand and Dasu; (iv) the financial deficit to Gencos, if any, due to a reduction in RoE shall be funded by Finance Division to support loss-making Gencos and; (v) Power Division to submit information regarding payables to government owned power plants to the CCoE for information.

The sources said Power Division has been directed that necessary process/ approvals for submission of tariff revision petition to Nepra should be completed immediately.

The government has also decided that financial settlement of payables to government-owned power plants (Rs 357 billion as of June 2020) shall also be considered at par with any future settlement with IPPs.

Copyright Business Recorder, 2020