Transparency International Pakistan has thanked National Electric Power Regulatory Authority's Vice-Chairman Habibullah Khilji for accepting the fact that Nepra has violated Nepra Act 1997, and condoned (illegally) the period of 15 days allowed to the Federal Government under Regulation 3(2) of Nepra (Review Procedure) Regulations 2009, by more than eight months, ie from June 30, 2013 to February 11, 2014.
In a letter sent to him on September 15 Chairman, TI-Pakistan, Sohail Muzaffar had brought to his notice a complaint against allegation of Rs 1.5/unit heavy hike in the upfront tariff of the coal power plants and lucrative incentives/benefits for installation of coal power plants in the country, eg increase in capital cost on 13,000MW Coal Power Projects by $400,000/MW, resulting in unjustified Rs 500 billion increase which consumers will have to pay in tariff.
He said it was all over the place that by revising the capital cost of coal power projects by $400,000/MW, Nepra has caused additional expenses at the cost of consumers of Rs 500 billion on 13,000MW coal power plants. This alleged illegal act of Nepra may result in declaring the May 20, 2014 revision in the determination of Upfront Tariff Based on Coal as null and void, as the Nepra Act 1997 does not empower four members to sanction any exemption, as it may open hundreds of such exemptions in future.
After revision of tariff determined and announced on May 20, 2014, and details notified on June 6, 2014, Nepra by committing this alleged illegal act of accepting MOW&P time barred request after seven months, has created suspected apprehensions in media of the biggest fraud/scam in Pakistan's history, which has endangered setting up of a single coal power plant in Pakistan.
TI-Pakistan has also noted that surprisingly Nepra has removed its press release from its website, and during Transparency International Pakistan reconfirming the complaint, it is noted that Nepra has substituted the pdf file of the press release, which was also enclosed with Transparency International Pakistan letter to the Vice-Chairman on May 25, 2014, with another pdf file of the "Decision of the Authority in the Matter of Fuel Price Adjustment for Hub Power Company Ltd.
It is also noted that minimum efficiency requirement of 660MW plant in June 2013 was 42 percent, and now reduced to 39 percent in May 2014, and for less than 660 MW, efficiency is reduced to 37 percent. This change from 660MW to 659MW perhaps is a benefit provided to companies, to accommodate secondhand/ redundant plants of lesser efficiency.
In Nepra reply it has been stated "to protect the interests of consumers and the companies providing electric power services and it cannot refuse to exercise jurisdiction where justified and is in the interests of both consumers and the companies." But this tariff determination is clearly against the interest of consumers, and only for the benefit of few industrialists.
The grounds of revision in coal tariff by Nepra are misleading and may amount to be concocted/false. This revision has resulted in serious doubts on the credibility of Nepra, and all its past Tariff Determinations of all IPPs have also become debatable. Nepra is regularly been reported and blamed in press that its decisions are always anti consumer, and has always been giving undue favors to IPPs, which has in last couple of years have caused unprecedented increase in electricity tariff.
It was reported in Transparency International Pakistan letter that Nepra has bypassed its procedure and not issued the full determination of tariff document, which most probably is the first time in Nepra history, in order to favour some parties who have already announced setting up 660MW coal power plants at PQA in April 2014. From the detailed determination this complaint is proven to be correct.
Nepra is in the business of determining the tariff since 1997, and by revising its own determination of Coal Tariff within eight months, appears to be an act of anti Consumerism, and giving undue favors to companies, Hubco (Hussain Dawood Group), Sinohydro Resource Ltd in partnership with Al Mirqab Capita (sponsored by Saif ur Rehman Ex-Ehtisab Chief), as quoted in Nepra's own document of September 2014. Nepra has failed to clarify/justify the grounds on why the June 2013 lower rates declared by Nepra, have been substantially increased in May 2014.
The letter said those increases were from Rs 7.5/KWH increased to Rs 9/KWH, capital costs by $400,000/MW, ie from $1.06 increased to $1.45, higher min requirement of efficiency 42 percent reduced to 37 percent, low Interest parentage during construction IDC of 20 percent in first two years increased to 33.33 percent, Sino-sure cost increased from upto one percent, to seven percent is the additional cost on the outstanding principal amount in case of Chinese financing and increased and guaranteed rate of return on equity increases from 17 percent to 27 percent.
How can there be 700 percent increase in the Sino-sure fee of Chinese financing in only eight months time and why Nepra in June 2013 did not know it that it is seven percent and not one percent? Why and who is responsible for the six percent increase in cost of Chinese funding from June 2014 to May 2014. On announced MoU between Pakistan and China of $32 billion, this increase Chinese loan for projects in Pakistan will cost additional amount of $1.92 billion to be paid by consumers.
The details of June 6, 2014 give an impression that Nepra's determination of Coal Tariff in June 2013 were due to inaccurate calculations by Nepra. And in this case when Sino-sure fee of Chinese financing of one percent was taken by Nepra in 2013, and according to EPRA it is now seven percent, and thus Nepra committed as mistake in 2013, then the question arises that what is the reliability of other tariff determined by Nepra in last many years.
TI-Pakistan observed from the Nepra determination chart that only due to 70 percent increase in the interest rate of IDC for two years, and six percent increase in Sino-sure cost, in a 220MW plant capital cost has increased by $133,680/MW. It was noted that Nepra has allowed 30 percent increase in capital cost between Coal Power Project in India and Pakistan, a disadvantage stated to be due to technical disadvantage of Pakistan over India in para 25 of its report. How can Nepra justify such general statements, based on which Nepra has tried to justified $300,000/MW increase in capital cost?
Nepra has neglected by just citing outdated papers from 2008 such as "coal-fired power plant construction costs by David Schlissel et al", but has not commented on the table quoted by Transparency International Pakistan in its May 2014 letter from the 2014 International Energy Agency (IEA) report on "Fossil Fuel Power Generation, pg 37-38", which shows that none of the recent Coal Power Plants is of less than 41 percent efficiency and that plant costs, of even for ultra super critical are between $0.58 million/MW to $1.1 million/MW.
Why the project costs were increased, while efficiency was reduced from 42 percent to 37 percent which allows cheaper/used plants, when it is a well known fact that by reducing the efficiency by five percent, the cost of production will increase substantially as coal consumption will increase, and more pollution will be created due less efficient plants.
TI-Pakistan requested Nepra to address all the above issues, and keep on hold the gazette notification of Coal Tariff of July 2014, to clear all doubts on the transparency in coal upfront tariffs, capital costs, IDC, 700 percent increase in Sino-sure in case of Chinese Financing and reduced efficiency of 37 percent. Nepra has already endangered the investment climate in Pakistan Energy Sector, like in RPPs in 2006 and 2008, by causing serious doubts on its own credibility.
Copies of the letter have been forwarded for information and appropriate action under the mandate vested to: Secretary to Prime Minister, Islamabad, Khurshid Shah, Leader of Opposition & Chairman, PAC, National Assembly, Islamabad, Chairman, NAB, Islamabad, Minister of Finance, Islamabad, Minister of Water & Power, Islamabad, Registrar, Supreme Court of Pakistan, Islamabad, and Anwar Kamal Law Associates, Lahore.