ISLAMABAD: Korean company KOEN (Korea-South East Power Company, Ltd) has called on National Electric Power Regulatory Authority (Nepra) to set tariffs for its hydel projects under the Power Policy 2015. KOEN emphasises that the Government of Pakistan (GoP) and its regulatory bodies must uphold the integrity of their policies.
In a recent meeting with the Senate Standing Committee on Power, KOEN’s representatives sought government support.
However, Minister for Power Sardar Awais Leghari and Nepra Chairman, Chaudhry Waseem Mukhtar argued that the government is not looking to add new projects to the Integrated Generation Capacity Expansion Plan (IGCEP) as the next decade’s projects are already allocated. They suggested that Korean projects could be considered in the future if they align with the least cost methodology of the revised IGCEP, which is currently under review.
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KOEN has written to the Chairman of the Senate Standing Committee on Power, Mohsin Aziz, acknowledging that the projects in the IGCEP are viable and contribute to energy security and economic stability but Nepra’s cost comparison criteria are flawed.
The Levelized Cost of Electricity (LCoE) used by Nepra fails to account for essential financial metrics, such as interest rates, Internal Rate of Return (IRR), Return on Equity During Construction (ROEDC), concession period, equity redemption, and Weighted Average Cost of Capital (WACC). This could mean that projects appearing cheaper under LCOE might be more costly when actual tariff structures are applied.
KOEN highlighted that its projects were compared to only two others— a 82-MW private sector project for KE and a 5-MW public sector project by GoAJK— despite numerous public sector projects being included without similar scrutiny. Additionally, IGCEP includes 700-MW from undefined “new technology” with no detailed cost analysis, undermining the credibility of the planning process.
The company also addressed concerns raised during the Standing Committee meeting about government liability. KOEN asserts that Letters of Intent (LOIs) are issued under existing power policies meant to attract both local and foreign investment, offering specific incentives. The policies, along with a rigorous due diligence process, signify an invitation to invest and a commitment to support these projects.
KOEN argues that the debate over government liability should be resolved through legal channels but emphasises that the integrity of government policies must be upheld by relevant authorities. Disregarding these policies could damage the international investment community and undermine Foreign Direct Investment (FDI) across all sectors.
Despite a lack of positive response from Nepra during the Standing Committee meeting, KOEN points out that according to Nepra’s Tariff Standards and Procedures Rules of 1998, tariff determinations should be completed within 4-6 months. Their tariff determination has been delayed for over 14.5 months, and repeated communications have been met with inaction. After exhausting other avenues, KOEN approached the Nepra Appellate Tribunal, which instructed Nepra to conduct a hearing and determine the tariff within 15 days. Nepra has yet to comply, prolonging uncertainty around the projects.
KOEN’s hydropower projects have received backing from international financial institutions, export-import banks, and multilateral development banks. Discriminatory treatment of these projects could negatively impact these stakeholders and deter potential investors, particularly from South Korea, affecting the overall flow of FDI into Pakistan.
KOEN urged the government and its regulatory bodies to maintain policy integrity, ensure fair treatment for all investors, and foster a consistent investment environment. The company requested Nepra to determine the tariffs based on the Power Generation Policy 2015 and revise the IGCEP methodology for future projects to ensure fair cost criteria and policy certainty for foreign investors.
Copyright Business Recorder, 2024