ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) on Friday approved up to Rs10.55 per unit upfront tariff for 3,600MW of liquefied natural gas (LNG) based power projects in Punjab for 30 years, assuming the LNG price at $12 per million British thermal units (mmbtu).

The upfront tariff would be subject to change at the time of commercial operation date on the basis of foreign exchange rate, customs duties and other charges and insurance cost to a maximum of seven per cent. The tariff promises 15pc Internal Rate of Return (IRR) on equity to investors.

Nepra approved upfront tariff for LNG power plants under Upfront Tariff Regime envisaging minimum procedural processes to save time of tariff determination and reviews to facilitate the investors in carrying out their due diligence regarding financial viability and acceptability of the tariff.

In its tariff determination, Nepra set plant availability of 92pc and required the project completion within 26 months as against 28 months suggested by the Ministry of Water and Power and 36 months demanded by investors. It determined separate tariffs for all the three plant sizes based on foreign and local financing.

The regulator set an upfront tariff of Rs11.2 per unit (kWh) for first 10 years for locally funded 225MW projects and Rs9.4 per unit for next 20 years, having a 30-year levelised tariff at Rs10.55 per unit. For the same capacity project with foreign financing, the first 10-year tariff was set at Rs10.6 per unit and Rs9.377 per unit for next 20 years, levelising it at Rs10.2 per unit for 30 years.

For 400MW plant of local funding, the levelised tariff for 30 years was set at about Rs10 per unit and Rs9.5 levelised tariff for foreign funded projects.

Likewise, the tariff for 800MW plant with local funding was set at Rs9.8 for 30 years and Rs9.4 per unit for foreign funded projects.

In line with the present fuel price adjustment mechanism, the fuel cost component will be adjusted on account of variation in LNG delivered price to the IPP as and when announced by Oil and Gas Regulatory Authority (Ogra).

Nepra said its decision would enable the energy sector to switchover from expensive high-sulfur furnace oil to cheaper, environment-friendly LNG, reduce carbon emissions, decrease road congestion from oil tankers, and lower operations and maintenance costs and increase availability at power generation units translating into lower tariffs for electricity consumers.

The power regulator said the import of LNG will play a crucial part in reducing the energy shortfall of the country and provide substantial savings on annual oil import because of expensive furnace oil substitution.

It said the project sponsors will be granted approval within 10 working days subject to fulfilment of the requirements laid down in Nepra’s Upfront Tariff Regulations 2011.

A meeting of the Cabinet Committee on Energy presided over by Prime Minister Nawaz Sharif on January 9, 2015 had decided that the LNG based power plants would be located near load centres, i.e. Bhikki, District Sheikhpura; Balloki, District Kasur; and Haveli Bahadur Shah, District Jhang.

Exact sites and power plant capacities at each location will be finalised by NTDCL considering the feasibility, supply demand requirements, power evacuation and system studies.

Furthermore, the CCE directed the Managing Director of NTDCL to ensure investment of approximately $38 million in providing grid connectivity to the three sites selected for power plants of 3,600MW in Punjab.

Published in Dawn, April 4th, 2015

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