The National Electric Power Regulatory Authority (Nepra) is poised to approve nearly a 60% hike in the Fuel Cost Component (FCC) for electricity generated by bagasse-fired Independent Power Producers (IPPs), raising it from Rs5.9822 per unit to Rs9.8719 per unit, according to a news report.Â
Central Power Purchasing Agency-Guaranteed (CPPA-G) CEO, Rihan Akhtar, disclosed during a recent public hearing that the cost increase is largely due to the depreciation of the rupee. Under the revised arrangement, consumers would absorb 30% of the devaluation’s impact, while the bagasse-fired IPPs would manage the remaining 70%.
The CPPA-G and nine bagasse-based IPPs, including Chiniot Power, JDW Sugar Mills (units II & III), Al-Moiz Industries, Chanar Energy, Thal Industries Corporation, Hamza Sugar Mills, RYK Mills, and Shahtaj Sugar Mills, jointly submitted tariff revision petitions.
The revised FCC tariffs, effective from October 1, 2021, stipulate a fuel cost of Rs4,500 per ton with an annual indexation of 5%. These agreements calculate the FCC based on a calorific value of 7,000 BTU/kg.
Further amendments include a 50% reduction in the Working Capital Component (excluding Shahtaj Sugar Mills), fixed Return on Equity (RoE) and Return on Equity During Construction (RoEDC) at an exchange rate of Rs168/USD without future dollar indexation, and restricted local operation & maintenance (O&M) indexation capped at 5% or the National Consumer Price Index (NCPI), whichever is lower.
Moreover, depreciation adjustments for foreign O&M costs will be limited to 70% annually. However, any appreciation of the rupee against the dollar will be fully passed on to consumers.
Additionally, IPPs may sell electricity to Bulk Power Consumers (BPCs), subject to modifications in their Generation Licenses and Energy Purchase Agreements (EPAs), along with compensation to CPPA-G.
As per CPPA-G estimates, the revised agreements would result in cumulative savings of Rs235 million over the lifetime of these projects.
During the hearing, consumer representatives expressed concerns over increased tariff burdens due to frequent currency depreciation. Interveners highlighted that consumers currently pay around Rs6 per unit, while future tariffs may increase significantly due to backdated adjustments and annual indexation.
Responding to concerns, Nepra Chairman Chaudhry Waseem Mukhtar assured stakeholders that the overall tariff is being further reduced by approximately Rs1 per unit in the Quarterly Tariff Adjustment (QTA) for the third quarter (January-March) of fiscal year 2024-25.
