Nepra okays tariff for Bhikki power plant without disclosing project cost


ISLAMABAD: In another somersault, the National Electric Power Regulatory Authority (Nepra) on Monday approved interim tariff for regasified liquefied natural gas (RLNG)-based 1,180-megawatt Bhikki Power Project in Punjab without declaring its project costs — one of the major elements of power tariff.

“This is for the first time that a tariff for a power plant had been announced without the overall project cost or EPC (engineering, procurement and construction) costs,” said a former government official who has been associated with power sector for 25 years.

The Nepra determinations are legal documents, open to public examination and used as reference for other projects.

“What if someone has objection over the tariff and wanted to challenge its parameters?” he wondered.

In a determination, Nepra on Monday sanctioned 30-year levelised tariff on LNG at Rs6.58 per unit. It also approved the high speed diesel (HSD) as alternate fuel for the same plant and set its tariff at Rs10.67 per unit.

The project is being implemented by the Punjab government under its Quaid-i-Azam Thermal Power (QATP) and targeted the plant to achieve commercial operation by December 2017. Final tariff will be approved on completion of the project on the basis of actual costs and other factors prevailing at the time, the Nepra said.

On Feb 9, Nepra conducted a public hearing for the project tariff which was strongly opposed by the Sindh government which said RLNG-based projects could not be taken in hand without approval of the Council of Common Interests (CCI) because it involved provincial matters.

Earlier this month, the regulator withdrew upfront tariff for three RLNG-fired power plants (all to be based in Punjab). The benchmarks provided by the Private Power and Infrastructure Board (PPIB) for upfront tariff about a year ago had drastically changed.

This came after Prime Minister Nawaz Sharif’s open criticism of Nepra at the foundation stone laying ceremony of the Bhikki project for approving higher upfront tariffs. He said the government was able to secure huge financial savings by holding competitive bidding.

The authority on April 3, 2015 determined and announced upfront tariff for RLNG-based new power projects on a petition filed by the PPIB and set upfront tariff for 1,200MW RLNG-based project at Rs15 per unit.

The ministry did not notify this tariff and instead challenged it before Nepra. QATP, wholly-owned by the Punjab government, also filed a motion for leave to review against the said tariff and sought increase in financial close period, increase in construction period, change in back-up fuel and calculation of RLNG price and increase in operating and maintenance cost.

On Monday, the regulator said the QATP was of the view that it had finalised power-purchase agreement (PPA) with the Central Power Purchase Agency (CPPA) and gas supply agreement with Sui Northern Gas Pipelines Limited (SNGPL), but was waiting for the tariff for their formal signing. It said the company had also opened irrevocable letter of credit (LC) of $233 million and Rs6.5 billion in favour of Chinese engineering, procurement, and construction (EPC) contractors.

It was also informed that the company was obligated to open LCs for remaining 55 per cent of the EPC cost by mid-April for which financial close was required to be declared by March 2016.

Both these were contingent on condition precedents like PPA, implementation agreement and letter of support which was dependent on a “viable tariff” as an “immediate requirement” or else face contractual default.

Therefore, Nepra approved fuel cost component, operation and maintenance costs, return on equity and debt servicing but did not disclose the project cost or EPC cost. The government told the regulator that since the projects were being set up under Nepra’s upfront tariff, therefore, EPC and other projects costs were not relevant under Nepra’’s upfront tariff regime. “In case we opt for the cost route it would convert the regime from an upfront tariff to a feed-in (cost-plus) regime.”

Interestingly, the very premise of this argument, i.e. upfront tariff, stood withdrawn under Feb 9, 2016 determination which was never notified by the power ministry.

The Bhikki project shall use RLNG as its primary fuel and shall employ the highest efficiency machines to keep the cost of electricity to the end-consumer at its bare minimum.

Sources said the EPC contract of the project has been awarded to Harbin Electrical International Company of China at a total cost of $539.26 million including both offshore and onshore EPC costs.

Official sources said the EPC contractor shall install the most efficient H-series gas turbines at the plant manufactured and guaranteed by the General Electric of the United States. The SNGPL shall be the supplier of 200 million cubic feet per day (mmcfd) of RLNG to the Bhikki project.

The electricity produced from the project shall be sold under a power-purchase agreement to CPPA and all its obligations shall also be covered by a sovereign guarantee.

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