ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) on Wednesday completed the hearing on tariff revisions of 30 independent power producers (IPPs) under renegotiated deals with the government, which reported that 17 producers had not yet signed the tariff reductions.

The hearing on the request of the Central Power Purchasing Agency (CPPA) followed a deal between the IPPs and the government signed last month and was presided over by Nepra chairman Tauseef H. Farooqui.

Additional secretary of power division Waseem Mukhtar told the regulator that 17 of the 47 power producers which had initialed revised agreements for tariff discounts had not signed final agreements. He said final agreements had been signed with 30 IPPs. The remaining 17 had also signed MoUs and the government was in talks with them for final agreements, he added.

CPPA’s Chief Financial Officer Rehan Akhtar said revised agreements with thermal IPPs would reduce energy costs, help reduce circular debt and profitability of the IPPs. He said the IPPs set up through foreign investment would get 12pc rate of return on equity instead of the erstwhile 15pc and power generation had been frozen at an exchange rate of Rs148 per dollar.

Power regulator’s hearing on rate revision concludes

The CPPA representatives reported that revision in thermal IPPs’ tariff was expected to provide about Rs182bn while there would be a similar saving of about Rs191bn through revised tariffs of 17 wind power plants.

The hearing was informed that with total savings of about Rs836bn through revised agreements over a period of 20 years would help reduce the circular debt and the average tariff would drop by about 25 paisa per unit.

The reduction in tariff would go up to 40 paisa per unit in 2027, the CPPA officials said, but declined to indicate if any relief would be provided directly to consumers in their bills.

Nepra members questioned the logic behind fixing the exchange rate at Rs148 while negotiating a fresh deal with IPPs. The CPPA-G representative said that initially the government and the IPPs had agreed to freeze the dollar at Rs168, which was reduced to Rs148 in the final agreement.

Nepra chairman Tauseef H. Farooqi was of the opinion that the “actual performance” of CPPA-G would be considered after the dollar again went beyond Rs168.

The CPPA CFO claimed that the agreement at the current rate was also a win-win situation for consumers. He explained that the government was also able to persuade the IPPs to agree on exchange rate of Rs160 at the time of agreements, as the rupee value appreciated against dollar though the original MoUs entailed exchange rate of Rs168. If the dollar rate exceeded Rs168, it would benefit the consumers more as the return would be calculated on the basis of Rs148, he added.

When the Nepra chairman asked if the CPPA had analysed the benefit in case the dollar was valued at Rs170, Rs175 or more than Rs200, the CFO replied that their analysis was based on 5pc annual depreciation. However, he added, if the dollar stayed at the agreed rate of Rs148, it would benefit the government in the case of foreign lenders but not in the case of local lenders.

One of the IPPs representatives said the report of the Muhammad Ali Committee was not shared with the IPPs and whatever discussions took place was in the national interest. In response to a question about the National Accountability Bureau (NAB), the Nepra chairman suggested that such questions should be referred to the anti-graft watchdog, as the petitions had come to the regulator for tariff adjustment.

The CPPA requested that in case of foreign equity investment, the existing return on equity and the return on equity during construction components of 15pc return should be replaced with 15pc return with dollar indexation and fixed exchange rate at 14pc. In case of local equity investment, the rate of return at 17pc with no further indexation is required. The regulator was told that the first installment of 40pc of the agreed amount would be paid to the power projects after notification of their rates, while the second installment of 60pc of the agreed amount would be paid within the next six months.

Nepra will issue its determination soon.

Published in Dawn, March 4th, 2021