NEPRA reduces tariff control period for five years in reviewed order for MSW power projects

ISLAMABAD: The National Electric Power Regulatory Authority (NEPRA) has issued a reviewed order with respect to the upfront tariff determination for Municipal Solid Waste (MSW) power projects and decreased the tariff control period for five years, among other changes.

Interestingly, after the issuance of the tariff determination on 15 January 2018, the Authority (NEPRA) in its decision in a suo moto review proceedings of the upfront tariff for Municipal Solid Waste Power Projects said it has observed few typographical errors in the said determination and decided to review the upfront tariff determination and also correct the errors. The said errors do not have any financial implications, said NEPRA.

According to NEPRA’s decision, for 1-10 year years, MSW incineration power projects levelised tariff is set at Rs12.45 per Kilowatt hour (kWh) while Rs5.594/kWh for 11-25 years MSW incineration power projects and levelised tariff is to stand at Rs10.31/kWh.

Similarly, the tariff control period has been incorrectly mentioned in the order part as 11-30 years instead of 11-25 years. Therefore, the same has been corrected through an instant decision. Likewise, since the power plant is a must run, therefore, the terms and conditions No. iii at order part i.e.”Dispatch criterion will be the energy charge” needs to be deleted. More, variable O&M has been mentioned as Rs/kW/hr basis instead of Rs/kWh.

Accordingly, correction on this account has been made. In addition at paragraph 25.3 of the determination dated January 15, 2018, fixed O&M be read as Rs/kW/hr instead of Rs/kWh, said NEPRA’s decision.

As per the authority’s order, the above tariff is applicable for 25 years from COD and is applicable for MSW power projects while variable O&M shall be invoiced separately on unit delivered basis and the equity ratio is 75:25.

This upfront tariff has been worked out on the basis of the interest rate of 6 per cent being offered under the State Bank of Pakistan (SBP) scheme. In case of commercial local financing, the tariff shall be computed using applicable KIBOR plus a premium of 300 basis points. In case of commercial foreign financing, the tariff shall be computed using applicable LIBOR plus a premium of 450 basis points. In case negotiated rates/spread is less than the said limits, the savings shall be shared by the power purchaser and the power producer in the ratio of 60:40 respectively. The power producer shall submit relevant authentic documentary evidence to the Authority, for the aforesaid adjustment within 15 days of COD of the relevant company. In case the premium on LIBOR/KIBOR is higher than that mentioned above, no adjustment on the basis of actual higher premium will be allowed.

Also, the 50 per cent of the approved total project cost has been assumed in foreign currency (USD) which shall be adjusted with respect to PKR/US$ exchange rate variation to be worked out on a quarterly basis as per the assumed schedule of debt and equity.

As per Section 7(2)(g) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 the Authority may review its orders, decisions and determinations. Further, as per regulation 3 of the NEPRA (Review Procedure) Regulations, 2009 the Authority may at any time, on its own motion, review any order passed by it and on so reviewing modify, reverse or confirm the same.

According to the terms and conditions for MSW power projects, the upfront tariff will be applicable for all new power projects using Municipal Solid Waste. And, companies recommended by the AEDB / relevant agencies for the grant of the upfront tariff will certify that all the plant and machinery to be installed will be new and of international standards.

The option for accepting upfront tariff by power projects will be applicable for one year from the date of notification in the official gazette.  The Upfront Tariff will be applicable and become effective after Commercial Operations Date (COD).  The decision to opt for upfront tariff once exercised will be irrevocable. The project sponsors will be required to achieve COD within 24 months from the date of approval of upfront tariff by the Authority. No extension will be allowed. The sponsors interested in availing upfront tariff will submit an unconditional formal application to NEPRA for approval by the Authority in accordance with the NEPRA Upfront Tariff (Approval and Procedure) Regulations, 2011. The mode of the transaction will be on taking or pay basis. No allowance/adjustment shall be given other than NEPRA allowed tariff.

The power purchaser shall procure power from the MSW power plants on a ‘must run’ basis. The projects opting this tariff shall secure debt under the concessionary financing scheme of State Bank of Pakistan. This tariff shall be allowed on the approved terms of commercial financing only after availing the option of financing under the SBP scheme. Power Producers shall have the option to offer energy to the respective Distribution Company(DISCO) at 11 KV or 132 KV, or to the CPPAG at 132 KV, provided that the cost of interconnection, grid station upgrades etc. for power evacuation shall be incurred by the respective DISCO/CPPAG.

In the ‘upfront tariff’, no adjustment for certified emission reductions has been accounted for. However, upon actual realization of carbon credits, the same shall be distributed between the power purchaser and the power producer.  Pre-COD sale of electricity to the power purchaser, if any, will be allowed subject to the terms and conditions of PPA, at the applicable tariff excluding principal repayment of debt component and interest component.

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Ahmad Ahmadani
The author is a an investigative journalist at Profit. He can be reached at [email protected]
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