ISLAMABAD: The government has blocked notifications for at least 10 tariff determinations issued by the National Electric Power Regulatory Authority for power projects using different fuels for being ‘unrealistic and inconsistent with prudent costs and market practices’.

“Almost all the upfront tariffs determined by Nepra are generally running on the higher side. So we stopped solar and wind power plants implementation and started competitive bidding on thermal plants,” a government official, who recently briefed Prime Minister Nawaz Sharif on the situation, told Dawn.

He said it was difficult to allow solar and wind power plants above average levelised tariff of 14.5 cents and 13.5 cents respectively when their international prices were going south. “These are generally small plants and do not fall in the ‘base-supply category’, so we can afford some delays here,” he said.

The prime minister agreed to stop implementation of expensive projects, convinced that it would be unwise to allow such expensive plants just because they were ‘renewable’ when his government’s overarching objective was to bring down long-term power costs while increasing generation capacity.

The official said there were three tariffs — 14, 15 and 17 cents per unit — for various solar, wind and small hydropower projects that the water and power ministry did not allow to materialise into power purchase agreements (PPAs) for implementation.

Meanwhile, steps were taken to seek upfront tariffs significantly down at around 10 and 11 cents per unit even though the move was strongly resisted by various quarters, including some friendly governments. The Central Power Purchase Agency (CPPA) that acted as an agent of distribution and generation companies on the orders of the ministry started receiving show-cause notices for not signing PPAs.

The PPA was required under the law to ensure best available tariff in the market to consumers, said the official. “How can we sign agreements with solar and wind power plants on upfront tariffs of 15 or 17 cents per unit which have tariffs of 19-22 cents in the initial few years when public hearings are in progress on revised upfront tariff of 9.5 or 10 cents per unit on the basis of reduced technology prices,” he said.

The projects included Harappa Solar, AJ Power, Safe Solar, Access Solar, Sanjwal Solar, Blue Star Hydel, Blue Star Electric, Bukhsh Solar and Access Electric and some of them were given tariffs by Nepra between March 2014 and October 2015 but the ministry did not allow their gazette notification.

Almost similar was the situation regarding LNG-based projects which involved engineering, procurement and construction cost (EPC) of $700,000 per megawatt for private sector projects. Global technology, steel and iron prices started to come down and the government decided to hold competitive bidding on upfront tariffs for discounts in the public sector, resulting in finalisation of EPC contracts on less than $475,000 per MW.

It was against this background that the prime minister publicly criticised the regulator and claimed credit for securing hundreds of billions of rupees in savings in the award of contracts for LNG-based projects at Guddu, Bhikki and Havelli Bahadur Shah.

When contacted, Water and Power Secretary Mohammad Younas Dagha declined to go into specifics but confirmed that his ministry did not notify many tariffs determined by Nepra. “We are considering filing a review petition because we feel the determination needs to be revised in the interest of consumers.”

Responding to another question, he said: “Tariff should be in such a way that gives premium for higher efficiency and better machinery and site.”

Another official said the government would like the regulator to correct its ‘mistakes’ on its own to safeguard its credibility. No wonder then, the regulator withdrew its determination on upfront tariff for LNG-based projects last week.

Nepra spokesperson Ayesha Tassaduq did not comment despite repeated requests.

Published in Dawn, February 15th, 2016