Nepra defies Kepco’s demand for adding take or pay condition to PPA

ISLAMABAD-Opposing the demand of the Kot Addu Power Company (KAPCO) for adding take or pay condition to the power purchase agreement, which will burden the consumers of capacity payment of Rs36 billion per year, NEPRA has said that consumers have paid capacity payments for 25 years to KAPCO and it is not appropriate to burden them again.
In a public hearing on KAPCO petition for reference generation tariff, NEPRA has said that KAPCO plants are 25 years old, which are running at 40 percent capacity, why the regulator would allow substandard and expensive power plants to generate electricity? The hearing was presided over by NEPRA Chairman Waseem Mukhtar and it was attended by all the members of the authority.
After completion of 25 years life by the KAPCO power plants, the company has once again sought a reference tariff from Rs28.80 per unit to Rs77.31 per unit for its various power plants. Kot Addu Power Company generate electricity from Gas, Furnace Oil, Diesel and LNG. The production tariff includes a capacity payment of upto Rs5.37 per unit. The CCPA-G and Multan Electric Supply Company (MEPCO) have also refused to enter into a fresh power purchase agreement with KAPCO. NEPRA has framed various question on the KAPCO demanded. It was asked that whether requested mode of tariff on “Take or Pay” for Plant-I and “Take and Pay” for Plant-II is justified? Official of the KAPCO was of the view that criticality of the facility for overall energy security of the country has been recognised in IGCEP. NTDC’s board of directors has specifically approved the retention of EB-1 and EB-II A (500MW) for system requirements/ constraints to ensure reliability of power supply to area network.
Black-start facility is necessary to be retained to ensure availability in case of country-wide blackout. In the absence of confirmed revenue, its availability can’t be ensured. Considering Black-start facility, Plant 1 (892MW) is offered on take or pay out of total capacity (1,386MW). Kot Addu Power Complex was constructed by WAPDA in five phases from 1985- 1996 and then established KAPCO in April 1996. The 36 percent shares of the company were sold to a UK based company in June 1996. KAPCO’s 25 years Power Purchase Agreement expired in June 2021; however, it was extended through settlement till October 2022. Similarly, the generation licence of the company expired on September 21,2021; however, it was also extended till September 21, 2024. The total capacity of the KAPCO is 1,600MW, but the de-rated capacity is 1,345MW.
It is also worth to mention here that the Senate Standing Committee on Power is against any further extension to KAPCO in Power Purchase Agreement (PPA) and has threatened to refer the case to NAB and will recommend action against those officials who allowed the power company to deliver electricity beyond the PPA. During hearing, NEPRA noted that consumers had paid capacity payment for 25 years to KAPCO, why burden them now? Official of the National Power Control Centre (NPCC) informed that if KAPCO will not generate electricity, they will resort to load-shedding in Multan region.
In Multan region, if the demand surpasses beyond 4,000MW, it is necessary to run Kot Addu Power Plant, NPCC official said. This year, to save our system, the authorities of Multan region resort to load-shedding of 500MW, the official said. The system is prone to breakdown due to aging transformers and grid overloading, the official added. NEPRA official said that KAPCO is seeking Rs 77 per unit, which is too high. This plant is 25 years old and is running at 40 percent capacity, the official added. Why regulator will allow substandard and expensive power plant to operate, NEPRA official asked. It is astonishing that after 25 years KAPCO is still proposing capacity payment of Rs36 billion per annum from consumers, the authority noted.
NEPRA asked KAPCO to sign an agreement for supply electricity when it is required. Discos will take electricity when needed and there will be no capacity charges, NEPRA added. However, KAPCO and NPCC official opposed the NEPRA’s proposal. KAPCO official, on the other hand, was of the opinion that they can’t shut down the power plant; it’s not possible to generate immediate power at the time of breakdown. They have to restore the system in time of breakdown and for the purpose they should be allowed to add the condition of Take or Pay to the PPA, the official said.
The regulator outraged over KAPCO officials’ proposal to add 6 percent risk premium. After 25 years, your plant has completed its natural life, the risk premium proposal is not valid, authority noted. Some of the other issues framed by the authority for the hearing were; whether the tariff should be determined for KAPCO keeping in view the direction issued by the Senate Standing Committee on Power? Whether there has been any technical study conducted by the NTDC or any independent consultant, justifying the need for PPA extension in scenario of the surplus capacity in system? Whether it is justified to allow the tariff for the 5 years for all energy blocks?
Whether the request of two part switchyard tariff comprising energy transformation charges and fixed charges are justified? Whether all costs associated with black start facility are inherent part of proposed tariff so that the facility may be utilised in a smooth and reliable manner during system emergencies? Whether the average load factor of 30 percent is justified? Whether the requested efficiencies/ heat rates and fuel cost component on different fuel is justified? Whether the requested ROE of 17 percent with CPI indexation is justified? Whether the requested cost of working capital on the basis of 3 months KIBOR + 2 percent is justified? Whether the exchange rate of Rs265.95/USD is justified? NEPRA has reserved the judgment and will announce it later.

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