ISLAMABAD: The government is to make it mandatory for Special Economic Zones (SEZs) to sign Power Purchase Agency Agreements (PPAAs) with power Distribution Companies (Discos) for supply of power equivalent to peak demand for five years, sources close to Power Minister told Business Recorder.
The proposal will be approved by the Cabinet Committee on Energy (CCoE), in its forthcoming meeting to be presided over by Prime MinisterShehbaz Sharif.
SEZ Act of 2012, enacted by the Government, represents a significant step towards streamlining processes and promoting ease of doing business by offering various concessions and potential benefits to investors. These zones function as catalysts for attracting both domestic and foreign investment.
Disco applicable rates: Govt set to provide power to SEZs
Pursuant to the SEZ Act 2012 [Amended 2016], Section 27(1)(i) and in accordance with Rule 14 of SEZ Rules 2013, it is the prerogative of the Federal and Provincial Governments to ensure the provision of essential utilities, including gas and electricity, to SEZs.
SEZs, established under the SEZ Act 2012, face significant challenges that hinder their potential for economic growth and industrial development. These challenges include unreliable supply of electricity, delays in the development of distribution infrastructure and lack of compliance with the requirement of firm capacity / non-availability of generation capacity under supply licence requirements per section 23E. NEPRA Act does not cover the provision of electricity at a single point supply by distribution companies for further resale to consumers, causing delays in power connections from DISCOS and impeding the process for ensuring uninterrupted power supply crucial for sustained economic activity within SEZs. Even if permitted by law, this arrangement would result in higher tariffs for SEZs compared to the uniform industrial tariff of DISCOs, as outlined in the Development Agreement of Rashakai SEZ. Furthermore, the process of obtaining requisite licenses also face delays due to ambiguity regarding the source of supply for SEZs which is essential for issuance of supplier of last resort licence to SEZs.
The sources said, despite the legislative mandate, the prevailing challenges besetting the electricity supply ecosystem for SEZs necessitate a comprehensive re-evaluation of the existing supply mechanism to ensure the fulfillment of this statutory obligation within the legal and regulatory framework.
Accordingly, detailed deliberations were carried out with the Chinese counterparts and the following modalities for supply of electricity were discussed: (i) CPEC SEZs will remain under the service territory of the concerned distribution company (network and supply licensees). The SEZ developer will sign an O&M agreement with the DISCOs for development, operation and maintenance of infrastructure, supply of electricity and billing and collection thereby eliminating the need for additional licenses for the zone developer. The industrial consumers would be charged uniform industrial tariff and the developer will receive an O&M fee for maintaining the network which would be approved by NEPRA in the distribution margin of DISCOs;(ii) CPEC SEZs will sign a Power Purchase Agency Agreement (PPAA) with DISCOs for supplying power equivalent to peak demand for five years (extendable). SEZs will apply for supplier of last resort and distribution licenses from NEPRA under Section 23E and 20, respectively for the supply of electric power and development, operation & maintenance of distribution infrastructure within SEZ premises / service area. The SEZS shall be obligated to procure additional power per NEPRA-approved regulations and applicable codes. NEPRA, in its advertisement of September 6, 2024 has advertised draft amendments in its NEPRA Licencing (Electric Power Supplier) Regulations, 2022, whereby regulatory barrier in the said option for sales of electricity by host DISCOs as supplier of last resort (SoLR) to other power supplier is being removed, allowing concerned DISCOS to sell electric power to any zone developer having NEPRA’s supplier licence under bilateral contract under NEPRA’s to regulate tariff ; and (iii) CPEC SEZs will sign a Power Purchase Agency Agreement (PPAA) with CPPA for supplying power equivalent to its demand for a five-year period (extendable). Based on this agreement, SEZs will apply for supplier of last resort and distribution licenses from NEPRA under Section 23E and 20, respectively for the supply of electric power and development, operation and maintenance of distribution infrastructure within SEZ premises/service area. The SEZS shall be obligated to procure additional power per NEPRA approved regulations and applicable codes. Provided further, the CPPA- G will charge uniform industrial tariff to the SEZ based on the industrial consumers’ data provided by SEZ. The SEZ shall also be obligated to pay the revenue collected against the electricity sales from industrial consumers to CPPA-G, through escrow arrangement, after deducting its respective Distribution Margin as determined by NEPRA. This proposal once again contradicts the current legal and regulatory framework wherein CPPA-G is responsible for billing and settlement of DISCOs as per NEPRA approved transfer pricing mechanism.
The sources said, NEPRA, BoI and Planning Division, have supported clause 3b of the summary whereas Commerce Ministry is of the view that revised mechanism should not be limited to CPEC SEZs rather it should be provided to all SEZs. CPPA-G has recommended temporary supply arrangement i.e. the electricity supply and distribution within the SEZS be handled by PESCO or through any other arrangement.
Ministry of Industries, in its comments has opined that the scope of summary is restricted to CPEC SEZs whereas it would be prudent to include all SEZs in its scope to avoid creating any anomaly and multiple regimes.
K-Electric has supported clause 3a of the summary subject to the approved regulatory framework, while Finance Division and Petroleum Division have supported clause 3a.
After explaining the background, Power Division has submitted the following proposals to the CCoE: (i) CPEC SEZ will sign a PPAA with Discos for supply of power equivalent to peak demand for five years (extendable);(ii) SEZs will apply for SoLR and distribution licences from NEPRA under Section 23E and 20, respectively for the supply of electric power and development, operation and maintenance of distribution infrastructure within SEZ premises/service area ; and (iii) the SEZs shall be obligated to procure additional power per NEPRA approved regulations and applicable codes.
Copyright Business Recorder, 2025