ISLAMABAD: Following successful negotiated deals with the five Independent Power Producers (IPPs), the Energy Task Force has also signed revised deals with eight bagasse-fired IPPs (including those owned by the Prime Minister’s sons) with a cumulative saving on revised agreements estimated at Rs 85-100 billion, as well as, a reduction of Rs 8 billion from Rs 22 billion recently allowed through upward revision in their tariffs with retrospective effect.

The sugar mills which have signed revised PPAs with the government include Hamza Sugar Mills, Chiniot Sugar Mills, JWD-II, JWD-III, Rahimyar Khan Mills, Chenab Sugar Mills, Al-Moiz sugar Mills and Thal Industries.

The sources said, sugar mills owners including Prime Minister’s son were invited for negotiations on the revised deals according to which rate of bagasse has been revised down to Rs 4500 per unit from Rs 5600 per ton. Deduction will be 5 per cent retrospectively on revised bagasse.

Baggasse-fired IPPs: Nepra allows fuel cost component

The overall financial impact of 5 per cent retrospective deduction will be around 42 per cent of allowed tariff financial implications.

The owners of bagasse IPPs remained in a local hotel in Rawalpindi for consecutive three days to finalise the figures. “Yes, Masha Allah, Task Force has signed amendments with eight bagasse based IPPs,” confirmed Special Assistant to the Prime Minister, Muhammad Ali, who is also co-chair of Task Force.

Task Force held inquiry, sources said, focused on Nepra’s decision of 110% increase in the tariff for bagasse-based generation, raising it from Rs 5.9822 per unit to Rs 12.4788 per unit by linking it to international coal prices. Shah Taj Sugar Mills has been specifically mentioned in connection with a price agreement of Rs 2,750 per ton of bagasse that was reportedly undermined by certain individuals. “We have changed Nepra’s decision of imported coal based pricing to a PKR based pricing. Overall negotiations will save the country in excess of Rs 100 billion in future payments,” said Muhammad Ali.

During the public hearing on FCA last month, CPPA-G had sought adjustment of Rs 22 billion as Prior Year Adjustment (PYA). In the first phase, the government paid Rs 840.3 million to Chanar Energy, Rs1.48 billion to Chiniot Power, Rs1.42 billion to Hamza Sugar Mills, Rs4.1 billion to two units of JDW and Rs399.3 million to Rahim Yar Khan Mills; however, Almoiz and Thai Industries did not receive any payment in the first phase.

“We have saved Rs 8 billion from approved Rs 22 billion through revision in pacts with eight bagasse-based IPPs,” the sources added.

The signed arrangement is as follows: (i) this Agreement shall become effective on 31 October 2024 (the “Effective Date”); (ii) for the purposes of the fuel cost component (“FCC”) of the tariff, with effect from October 1, 2021 onward, the reference price for bagasse shall be Rs. 4,500/ ton, and thereafter there will be 5% annual indexation on the applicable bagasse price for the previous year. The calorific value of bagasse for purposes of FCC calculation shall be taken as 7000 BTU; (iii) payment of FCC for the period from October 1, 2021 onwards shall be made as per the FCC calculated in terms of sub-clause (b); (iv) (d) for the purposes of payment of FCC for the period from October 1, 2018 to September 30, 2021, reference bagasse price shall be determined by negative backward indexation rate of five percent (5%) on the rate of Rs. 4,500/ton, and accordingly the previous invoices shall be revised; (v) the Seller hereby agrees to reduce its Working Capital Component by 50% with effect from the Effective Date; (vi) the Seller hereby agrees to change, with effect from the Effective Date, its Return on Equity (“RoE”) and Return on Equity during Construction (“RoEDC”) components to seventeen percent (17%) PKR based per annum on NEPRA approved equity at CoD calculated at PKR/ USD exchange rate of PKR 168/ USD with no future USD indexation. The Parties shall jointly develop a tariff adjustment application to be submitted to National Electric Power Regulatory Authority as a necessary condition to bringing into effect the aforesaid arrangements (the “Tariff Adjustment Application”).

The Purchaser shall, within five (5) days from the execution of this Agreement, file the agreed Tariff Adjustment Application with NEPRA. The revised tariff shall be effective from the Date of notification (the “Revised Tariff Effective Date”) subject to the terms of this Agreement, till Revised Tariff Effective Date, the Parties agree that the Seller shall commence giving discount in its invoices consistent with the notified tariff and this Agreement (“Tariff Discounts”). From and after the Revised Tariff Effective Date, billing and invoicing shall be as per the revised tariff.

The Parties agree that paragraph (b) of Section 9.1 (Payments for Monthly Energy) of the EPA, shall stand deleted and substituted in its entirety as follows: “(b) Notwithstanding paragraph (a) above, if the Seller operates above the annual 45% plant factor (the “Average PF”) in a year, the purchaser shall pay 100% of the Variable Energy Purchase Price and 30% of the Fixed Energy Purchase Price for energy produced above 45% plant factor provided; however, for every five year period starting from the Commercial Operation Date (after which a fresh reset shall be done to re-start the new five year period) if the Seller operates below the Average PF in any year (“Actual Shortfall PF”), the difference between the Average PF and Actual Shortfall PF shall be carried forward to the next year(s). In case the Seller operates above the Average PF in subsequent years, the Purchaser shall pay one hundred percent (100%) of the Variable Energy Purchase Price.

This issue gained attention in discussions at the Senate Standing Committee on Power, led by Senator Mohin Aziz. The chairman of Nepra faced repeated questioning regarding the rationale behind the substantial tariff increase for sugar mills’ co-generation power plants.

According to documentation presented to the Senate Standing Committee, Nepra decided to allow a 5% annual indexation on the applicable bagasse price, effective from October 2022, referencing the base price from the previous year. The base price for the 2022-23 indexation was determined using the coal-linked mechanism established in the 2013 upfront tariff.

In March 2013, the Economic Coordination Committee (ECC) approved a Framework for Power Cogeneration for Bagasse and Biomass, leading Nepra to issue an upfront tariff. This included pricing calculations based on imported coal values and a yearly indexation linked to fluctuations in international coal prices, while maintaining a floor price of Rs 100.67 per ton. A levelised tariff of Rs 10.41/ kWh was established for bagasse IPPs, with an FCC of Rs 5.7702/ kWh.

The issue was further spotlighted when businessman Arif Bilwani raised concerns about the Central Power Purchasing Agency (CPPA-G) seeking approval for a Rs 15 billion adjustment under the guise of Prior Year Adjustments (PYA).

Copyright Business Recorder, 2024