Grant/extension of generation licences to outdated, inefficient plants by Nepra a horrible crime: Report

All such thermal power plants having capacity of 4309MW should be shut down right away to reduce circular debt and lower bills

ISLAMABAD   -   While terming the grant/extension of generation licences to outdated/inefficient power plants by the National Electric Power Regulatory Authority (NEPRA) a horrible crime and primary cause of the endless cycle of circular debt, Centre for Research & Security Studies report has said that it is strongly advised that all such thermal power plants having the capacity of 4309MW should be shut down right away to reduce the circular debt and lower consumer electricity bills.

“It would be financially disastrous to keep operating the outdated, inefficient steam thermal power plants when there are plenty of capable, efficient power plants available on a “take or pay” basis. While NEPRA has consistently stressed the need to only retire the GENCOs’ older power plants, it has never mentioned the retirement of IPPs’ thermal plants, which would have lessened the sector’s financial burden and diverted precious fuel to the most efficient power plants,” said a report “Circular Debt Reduction is Possible in a Single Click to Save Pakistan from Financial Catastrophe and Destabilization,” released by Centre for Research & Security Studies. According to the report, Pakistan’s total circular debt as of March 2024 was Rs3,000 billion. The National Power System Expansion Plan (2011–2030) calls for the retirement of a sizeable portion of current thermal power plants—6,935 MW—by NTDC, the party that signs power purchase agreements with IPPs, said the report.

According to this plan from NTDC, a company that used to purchase electricity from IPPs, 127.5MW of Gull Ahmad Energy and 123.5MW of Tapal were scheduled to retire in 2019–20. However, NEPRA also approved a ten-year license extension for them. One of the primary causes of the endless cycle of debt that is currently causing instability in Pakistan is the horrible crime committed by NEPRA, which was to grant generation licenses to outdated and inefficient plants. The nation would have avoided financial catastrophe if NEPRA had not decided to extend their generation, the report claimed.

Power Plants with the capacity of 4309MW have completed their life time and are ready for retirements, however they are still in the system because either NEPRA had granted them late licenses or extended their licenses terms. According the report, 1601 MW Kot Addu (KAPCO) RFO based power plant, generation license (granted in September 2004) was three years from the date of expiry. RFO based 1292 MW HUBCO power plant started generation in 1996, while NEPRA granted license after 12 years on 23 June 2008. Similarly, in case of another RFO based power KEL (Kohinoor) 131MW, NEPRA deleted the original date of expiry 25th August 2019 and replaced it by 25th August 2027. Lincenses were granted, for 30 years, to two more RFO based power plants of 362 MW AES Lalpir and 365 MW AES Pak Gen after six years of operations.

The license of gas/HSD based 140 MW Habibullah Coastal Power was extended up to September 10,2029, while 127.5MW RFO based Gul Ahmad energy was granted extension till August 2029.Similalry, 136 MW RFO based Saba Power started generation in 1999, while NEPRA granted license after 4 years of operation. Altern Energy Limited gas based 31MW power plant was granted generation license for 17 years but was extended for another terms of 10 years (up to June 2031). NEPRA had extended the generation license of 123.5 MW Tapal Energy, Engine 1997, till June 2029. Similarly, all GENCO power plants, except the 545 MW Nandipur Thermal Power Plant and the 747 MW Guddu Thermal Power Plant, have a combined installed capacity of 2,435 MW and ought to be retired based on their old commission date, the report maintained.

Over time, the efficiency of outdated thermal power plants has declined. Additionally, as a result of their low efficiency, the plant utilization factors have decreased to lower bounds. The nation is constantly burdened by the operation of inefficient GENCO and IPP power plants. It would be financially disastrous to keep operating the outdated, inefficient steam thermal power plants when there are plenty of capable, efficient power plants available on a “take or pay” basis. While NEPRA has consistently stressed the need to only retire the GENCOs’ older power plants, it has never mentioned the retirement of IPPS’s thermal plants, which would have lessened the sector’s financial burden and diverted precious fuel to the most efficient power plants.

It is strongly advised that all inefficient/outdated thermal power plants should shut down right away to stop the circular debt and lower consumer electricity bills. This GoP action will adhere to international agreements, particularly to respect the Paris Declaration, which committed Pakistan to lowering its carbon footprint. It is important to remember that power plants emit more carbon dioxide when they operate less efficiently, even though they are producing the same amount of electricity.

The major issues causing the high cost of electricity, other than inflated contracts with IPPs, are deliberate non-use or underutilization of the optimal operation of the most efficient power plants. The use of highly inefficient power plants, particularly by K-Electric in Karachi, exacerbates the situation. Non-use or underutilizing the efficient power plants not only deprives the motherland of available cheaper electricity units but also increases the burden on the national economy in the form of capacity payments for unutilized capacity.

The reason for the continuous rise of circular debt is the operation of inefficient power plants. The glaring examples of non-usage of efficient power plants and capacity payments are 1250 MW HUBCO Coal, 1250 MW Sahiwal Coal (HSR), and 1250 MW Port Qasim Coal power plants. Particularly, 1250MW HUBCO Coal and 1250 MW Port Qasim fall within the jurisdiction but have almost remained idle for the last two years. Yet, at the same time, both IPPs claimed capacity charges at 60%.

The majority of PPAs involving base load thermal power plants are “Take or Pay” agreements that are based on capacity and mandate capacity payments against available generation capacity whether or not it is used. The ‘Take or Pay’ mandate demands that these power plants be used to their fullest potential to prevent needless capacity payments, which increase the cost of each unit of electricity produced.

While successive governments concentrated on building more power plants, the maximum utilization of these facilities has frequently remained unattainable, resulting in higher electricity prices for consumers and a significant financial burden for the power sector regardless of the sale of electricity. The base load “Take or Pay” for CPEC and other major thermal power plants in the CPPA-G system dropped from FY 2019–20 to FY 22–23, meaning that customers were also required to pay capacity charges for 60% of the unutilized capacity.

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