The power regulator — National Electric Power Regulatory Authority — approved on Aug 20, about 71 paisas per unit (kilowatt hour) tariff for the Matiari to Lahore transmission line project, to be set up by the private sector (read: a Chinese state-owned company).

The line will aim to evacuate 3,000-4,950MW power from upcoming power stations at the Thar, Port Qasim and Hub Coastal areas for delivery in Lahore and Faisalabad.

This was a landmark first step as it allowed a separate tariff for a transmission line, that too of such a large capacity, for 25 years. This is also the first private sector transmission line project based on the Build Own Operate and Transfer (BOOT), under the Transmission Line Policy 2015. It will be a 600kilovolt (KV) high voltage direct current (HVDC) transmission line.

“Nepra, throughout the tariff determination, lamented that international competitive bidding had not taken place and yet went on to accept the petition and determine the tariff”

Interestingly a petition for the tariff has been filed by the PPIB (Private Power and Infrastructure Board) on behalf of the NTDCL (National Transmission and Dispatch Company Limited), which is the grid company and whose two earlier requests for upfront tariff for the same project had been rejected.

The decision has, however, not gone well with both its proponents and critics. The petitioner (a government entity) feels aggrieved over the lower project costs determinations by the power regulator and the resultant lower than demanded tariff.

The Private Power and Infrastructure Board (PPIB) is believed to be preparing for a review petition to enhance tariff. Critics, on the other hand, are raising questions of transparency, propriety and locus standi.

For example, “the project is being processed in haste without proper technical, financial and legal scrutiny of the issues”, according to Anwar Kamal Associates — a law firm that remained part of the public hearing process of Nepra.

For Barrister Asghar Khan — a former head of PPIB’s legal department — PPIB was not competent to file a tariff petition as it did not have locus standi and thus cannot assign tariff to either NTDCL or the private party; along with being barred under the PPIB Act.

A former chief executive of the NTDCL also noted that the company had already entered into an agreement with the State Grid Company of China to be awarded the project; and now Nepra has allowed a return on equity of 17pc during construction which is unprecedented for the transmission line project. The project has been approved at a cost of $1.6bn. Nepra has allowed all components of tariff as was requested by the PPIB.

Mr Khan said regulators around the world do not allow for fixed ROE throughout the term of a project as country risk varies from time to time and consumers should benefit from lower rates.

He said that Nepra, throughout the tariff determination, lamented that international competitive bidding had not taken place and yet went on to accept the petition and determine the tariff.

“The Nepra restricted itself to cost comparison with other projects in countries where the risk and cost structure is not comparable and could not determine the project cost on the touchstone of prudency or the cost of service in accordance with the law”, he said.

It was more ironic, he said, that Nepra was cognisant of the fact that the transmission line policy prescribed international competitive bidding and did not contain the processing of transmission line projects through unsolicited options; and yet approved the petition, prima facie, on government pressure.

“Any policy of the government is a ‘policy direction’ to Nepra, to be followed in accordance with the provisions of the Nepra Act” which has not been followed in the instant matter, he explained.

The barrister further stated that the regulator should have mandated a risk allocation in a manner that if generators were not available to deliver power, then they are liable for the penalties to be paid to the transmitter, and if the off-taker was not available, then it should be liable for penalties to the transmitter. “In each case the consumers should have been protected”.

Furthermore, in no case should the debt repayment have been linked to the declaration of available capacity, as such a concept is impracticable for transmission services, unlike generation services, and debt payment should only be admissible with the flow of energy units.

The Nepra can only grant a licence to the special purpose transmission licencee if it is in public interest. Such public interest has not been discussed in the tariff determination and the exclusivity of the national grid company has been diluted while the NTDCL itself came up with vague and evasive responses.

Barrister Asghar said he was surprised that the Nepra determined the tariff whereas the transmission services agreement had not been approved either by the government or the regulator itself.

“Without the allocation of risk under the project agreement how can the tariff be arrived at in a just and beneficial manner,” he wondered. That’s why the Nepra rules and regulations allow for consideration of all the relevant documents, including the power purchase agreement, for a fair assessment of risks and for purposes of tariff determination, which has not been done.

From the benefit of hindsight, the regulator facilitated the supply of 3000-4,950 megawatts of electricity from south to northern load demand centres in Punjab as part of the China-Pakistan Economic Corridor (CPEC) through a 878-kilometer line of $2.1bn.

The regulator noted that the petitioners, despite being government entities, had built ‘substantially high’ project cost factors.

For example, it noted that the cost of convertors was claimed at $315,000 per mw against comparable costs of $178,000-248,000mw (including a few from the same Chinese firm).

Likewise, the cost of transmission line was claimed at $566,000 per km against $280,000-358,000 for similar projects. Also, some international consultants had estimated up to 47pc lower rates.

Interestingly, it noted the NTDCL had also claimed $332,358 per km cost for a similar project of CASA-1000 against much higher rates of $566,123 for the Matiari-Lahore project.

The project has been assigned to the Chinese firm without competitive bidding and on the basic premise on which the NTDC’s request for upfront tariff was rejected twice within 2015.

The NTDC and China Electric Power Equipment and Technology (CET) — a subsidiary of State Grid Corporation of China — had already entered into a cooperation agreement in April 2015 as part of priority projects of CPEC.

Based on engineering procurement and construction (EPC) cost of $1.76bn and other cost build-ups total $2.1bn, the PPIB had requested Nepra for a transmission tariff of 95 paisas (0.914 cents) per unit (kWh) for the 30-year life of the transmission line, involving 80:20pc debt-equity ratio.

Published in Dawn, Business & Finance weekly, September 12th, 2016