The National Electric Power Regulatory Authority (NEPRA) has decided to withdraw its upfront tariff for LNG based power plants announced on April 3, 2015 after analysing the engineering, procurement and construction contracts of the LNG based power projects undertaken in Punjab by the federal and provincial government.
The available information has revealed that the three LNG power projects in Punjab have different capacities with different engineering procurement and construction (EPC) and Long Term Service Agreement (LTSA) costs. Additionally, all three projects have been guaranteed different thermal efficiencies ranging from 61.59 per cent to 62.45 per cent.
The analysis clearly indicates that the evidence provided by the Pakistan Private Power and Infrastructure Board (PPIB) and the underlying assumptions on which upfront tariff was determined has materially changed which renders the existing upfront tariff redundant. Therefore NEPRA has decided to withdraw its upfront tariff determination and intimated to the federal government for notification in the official gazette.
NEPRA had approved upfront tariff for LNG power plants envisaging minimum procedural processes to save time in determining tariff and reviewing it to facilitate the investors in carrying out their due diligence regarding financial viability and acceptability of the tariff. However, the upfront tariff was subject to review at the time of the commercial operation on the basis of foreign exchange rate, customs duties and other charges and insurance cost to a maximum of seven per cent. The tariff promises 15 per cent internal rate of return (IRR) on equity to investors.
The regulator had set an upfront tariff of Rs 11.2 per unit (kWh) for first 10 years for locally funded 225 MW projects and Rs 9.4 per unit for next 20 years, with a 30-year levelised tariff of Rs 10.55 per unit. For the same capacity project with foreign financing, the first 10-year tariff was set at Rs 10.6 per unit and Rs 9.377 per unit for the next 20 years, levelising at Rs 10.2 per unit over 30 years. NEPRA had assumed LNG price at $12 per million British thermal units (mmbtu) while calculating the upfront tariff.
An official source said the National Power Parks Management Company Limited, wholly owned by the federal government, and the Quaid-e-Azam Thermal Power Limited, wholly owned by the Punjab government were reluctant to share the details with NEPRA. They submitted details after a lapse of four months from the date of conducting the competitive bidding.
The QATPPL provided the information regarding EPC contract, LTSA, request for proposal and technical and financial bids, whereas the NPPMCPL provided information regarding EPC contract, LTSA, and technical and financial bids. However, the detailed bid evaluation reports as directed by NEPRA have yet to be received.