ISLAMABAD, Nov 2: The government has increased power tariff by 25 per cent to 5.89 cents per unit for three hydel power projects of 300 megawatts capacity.
The decision was taken by the Economic Coordination Committee (ECC) of the cabinet in its meeting on Oct 31, presided over by Prime Minister Shaukat Aziz, a water and power ministry official told Dawn on Friday.
He said the ECC took the decision on the initiative of the Laraib Energy Limited for its 84MW New Bong Escape Project to be situated downstream of Mangla Dam in Azad Kashmir. He said the new rates would also apply to two other projects -- 132MW Rajdhani power project in AJK and 84MW Matiltan Project in the NWFP -- provided they achieve financial closure by December 31. All three projects are being set up under the 1995 Hydel Power Policy.
Laraib Energy had signed a power purchase agreement with Wapda in 2004 at a tariff of 3.103 cents a unit but the tariff was revised upward to 4.7 cents a unit in April 2006, despite Wapda’s opposition.
However, that too was deemed unviable by the company when it signed two loans totalling $120.6 million with the Asian Development Bank and Islamic Development Bank providing a foreign component of $74.6 million and National Bank and Habib Bank providing $46 million in rupee equivalent. The ministry of water and power accepted the company’s demand and decided to increase its tariff by about 90 per cent to 5.89 cents per unit, instead of the originally agreed 3.103 cents.
The upward tariff revision allowed to hydroelectric projects is still on the lower side when compared with average tariff for gas-based projects at 6.20-7.20 cents a unit, 12.12 cents a unit for oil-based projects, more than 13 cents per unit for diesel-powered and 9.5 cents per unit for wind-powered projects, according to a summary of the ministry.
The power ministry in its summary to the ECC claimed that tariff under the 1995 policy was based on prices and cost assumptions of that time and have not been adjusted to cater for the escalation since then, although Nepra was required to announce upfront tariff annually. Though these guidelines do not apply to tariff announced under the 1995 policy, a basic principle that upfront tariff could not be static forever and required review on regular basis has been accepted.
The 1995 Power Policy had offered an upfront average tariff of 4.7 cents per unit for hydroelectric projects but the policy was overturned by the cabinet committee on investment (CCOI) in 1997 when the then Wapda chief Lt-Gen Zulfiqar Ali Khan persuaded Laraib Energy and Iqbal Power to reduce their tariff to 3.103 cents a unit. Subsequently, about a dozen local and foreign companies stopped their investment and left the country, saying the revised tariff was not feasible, while four companies kept on rolling over their letters of support.
The power ministry official said that the ECC did not discuss who should be held responsible for overturning the 1995 policy that turned away a number of investors, resulting in massive power shortages after 10 years and damaging the country’s credibility when tariffs were significantly revised.
The meeting also did not discuss why the policy revival was meant only for three projects or why the incentive was allowed for a limited period or how the original investors of the 1995 policy could be brought back to overcome the worst-ever power shortage in the country.
