ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has decided to introduce a fresh upfront tariff for future coal-based power projects in Thar to replace the existing lucrative rates to “early birds”.

“The authority has decided not to extend the already determined Thar coal upfront tariff,” said an announcement by the regulator. It said it would introduce a new tariff regime, either upfront or the one based on competitive bidding, in view of the improvements in latest technology and reduced risks as “first movers have already been borne the first-movers risks”.

The new tariff would be determined on the basis of consultations with all the stakeholders, including federal and provincial governments, investors and experts.

Nepra announced the existing tariff for Thar power projects in July 2014 for two years and it was notified by the federal government on Jan 20, 2015. That tariff is set to expire on Jan 19, 2017.

The existing rates, criticised at the time by private commentators for being expensive, entailed upfront rate of 8.33 US cents per unit for foreign-funded plants of 660 megawatts and 9.57 cents for locally funded projects. Likewise, the upfront tariff for foreign-funded projects of 1,100MW was set at 7.99 cents and 9.13 cents per unit for locally funded projects.

Based on consultations with the stakeholders, Nepra would determine if another upfront tariff should be announced with revised benchmarks or determine benchmark tariff for competitive bidding for Thar-based power projects. These consultations would also determine if the upfront or bidding-based benchmark tariff should have the current practice of cost-plus formula or only plants with low cooling water requirements be allowed.

At least three major projects accepted the upfront tariff, including a 660MW project of Engro Powergen, a 1,320MW power project of Shanghai Electric and Sino-Sindh Resources, and a 1,320MW project being developed in Thar Block-I under the China-Pakistan Economic Corridor (CPEC).

Under the existing upfront tariff for Thar projects, up to 30.65pc rate of return had been offered to attract investment in Thar coal for exploitation of a domestic resource.

Plant factor and efficiency benchmarks were changed from European and American standards which the government felt were difficult for Chinese companies to meet. The tariff is applicable for 30 years.

The investors entitled to a rate of return on equity for imported coal at 24.5pc for 220MW plant, 27.2pc for 660MW plant, and 30.65pc for Thar coal instead of original flat rate of return of 17pc. Likewise, the plants on local coal were entitled to a return of 26.5pc for 220MW, 29.5pc on 660MW and 1,100MW plants.

In doing so, Nepra has reduced efficiency standards for 200MW power projects to 37pc from 39.5pc. The efficiency standards for 600MW power projects have also been scaled down to 39pc from 42pc while those for 1,000-1,100MW plants have been reduced to 40pc from 42pc. The efficiency standards for Thar coal-based projects of 330MW have also been set at 37pc.

Nepra stated at the time that the lucrative tariffs would enable project implementation in four years while investor would be able to draw down entire equity in three years, starting with 60pc in the first year and 20pc each in subsequent two years. It said the debt involved in the project could also be drawn down in four years, 33pc each in the first two years, followed by 20pc in the third year and 10pc in the fourth year.

The sponsors of the plant were allowed to select plant of any technology based on the quality of coal as long as the minimum efficiency thresholds were ensured.

Published in Dawn January 14th, 2017