Nepra approves 182pc hike in levelised tariff of 300MW Gwadar Coal Power Plant

ISLAMABAD-National Electric Power Regulatory Authority has approved a hike of around 182 percent in the levelised tariff of 300MW Gwadar Coal Power Plant, taking it to Rs22.3431/unit mainly owing to sharp depreciation of Pakistani rupee.
The cost of the 300MW coal-fired project has also been increased, in rupee terms, by around 145 percent from the earlier Rs 42 billion to Rs 103 billion, NEPRA said in its decision on the petition of Chinese Company CIHC Pak Power Company Limited (CPPCL) for modification/revision in tariff for 300MW coal-fired project in Gwadar. However, in dollars term the cost of Gwadar coal power plant has been downward revised to $358.30 million from the earlier $399.48 million. The increase in tariff is due to enhancing the earlier reference exchange rate of Rs105/USD to Rs287/USD.
In its petition, CIHC Pak Power Company Limited (CPPCL) had requested a hike of 25.38pc in the EPC cost of the project from the earlier revised determined $321.41 million to $403 million. Originally, NEPRA had allowed EPC of $236.13 million for Gwadar coal project, which was later revised to $321.41 million in 2019. The total cost of the project approved by NEPRA was $399.43 million.
In its petition for modification/revision in tariff for 300MW coal-fired project, the company had also sought 21.43pc hike in return on equity (RoE) and requested the regulator to allow upward adjustment of Internal Rate of Return (IRR) to 17pc from the earlier determined 14pc. As per the petition submitted to NEPRA the Chinese company had requested an increase of $82 million in EPC cost. 
The petitioner also requested the regulator to remove the provisions limiting the project cost indexation to a specific PKR rate i.e. 105/USD. The CPPCL requested that Sinosure fee at actual under a Buyers Credit Insurance be allowed subject to maximum of 7pc of debt servicing. The petition requested the authority to include the financial guarantee as part of the annual recurring costs at rate of 0.9pc of the guaranteed amount applicable in a particular year. The Chinese company sought an increase in the project development and sponsor’s cost to $47.87 million against the allowed amount of $10.50 million. The petition requested to allow increase O&M cost of $17.43 million against allowed amount of $12.71 million. The company has also requested for allowing Buyer’s Credit Policy for Sinosure fee. Earlier, in the revised determination, NEPRA had allowed Overseas Investment Insurance Policy. 
In its original petition, the petition requested $369.89 million on account of EPC comprising offshore portion of $250.16 million and onshore portion of $119.73 million. Originally, NEPRA had allowed the EPC cost of $236.13 million for 300MW coal-fired power plant in Gwadar. The regulator had allowed the Chinese company a tariff of Rs6.96 per unit for the project, which was later revised to Rs 7.9 per unit in 2019. In its petition for revision the Chinese company had sought tariff at 8.4935 cents per unit which at the conversion rate of 105/USD was Rs 8.92/ unit. However, at conversion rate of 287/USD regulator has approved the per unit cost at 7.7823 cents or Rs 22.3431/unit.
Since the exact timing of payment to EPC contractor is not known at this point of time, therefore, an adjustment for relevant foreign currency fluctuation for the EPC portion of payment in the foreign currency shall be made against the reference exchange rate of Rs1051US$ on the basis of actual payment. The adjustment shall be made only for the currency fluctuation against the reference parity value.As per the decision, the revised approved cost in local currency shall remain fixed and no further indexationl adjustment would be allowed on these costs in future. 
In case NTDC does not validate the requirement of black start facility, the cost of US$ 6.9 million on account of black start facility shall be excluded from the project cost at the time of COD adjustment of tariff. The actual insurance cost for the minimum cover required under contractual obligations with the power purchaser not exceeding 0.7% of the EPC cost shall be treated as pass through.
O&M components of tariff shall be adjusted on account of local CPI, US CPI and exchange rate quarterly on 1 July, 1st October, 1st January and 1st April based on the latest available information with respect to CPI notified by the Pakistan Bureau of Statistics (PBS), US CPI (All Urban Consumers) issued by US Bureau of Labor Statistics and revised TT & OD selling rate of US Dollar notified by the National Bank of Pakistan. The interest part of capacity charge component will remain unchanged throughout the term except for the adjustment due to variation in interest rate as a result of variation in 3 months LIBOR. The cost of working capital shall be adjusted quarterly for variation in KIBOR and fuel price.

Member NEPRA Sindh, Rafiq Shaikh in his additional note has said: “Although development of base load power plant at Gawader is necessary for economic development of the port city and uplift of the social life in the area, however, I strongly believe that the project should be allowed on local coal as the primary energy source. In case local coal is not available by the time of COD, the power plant may be allowed to use imported coal, but this arrangement should not exceed three years from the Commercial Operation Date (COD). The petitioner should start negotiations with the local coal authorities for arrangement of local coal. Lucky Electric has successfully demonstrated operation of its plant on a mix of local/imported coal. Further, it is highly expected that the power plant’s utilization rate will be lower in the initial years of operation, therefore, considering the economic rate of return the possibility of providing a subsidy on the generation tariff can also be explored. As per the information provided, the investment plan submitted by NTDC to NEPRA doesn’t include any cost related to evacuation of power from Gwadar, therefore, NTDC shall ensure that the power plant will not be underutilized due to transmission constraints and any additional costs due to transmission constraints shall be borne by NTDC.”

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