ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) approved on Friday an average tariff applicable for 30 years of 7.24 cents per unit (Kwh) for the 1,100MW Kohala Hydropower Project, to be set up in Azad Kashmir by a subsidiary of the China Three Gorges Corporation at an estimated cost of $2.3 billion.

The tariff was finalised following negotiations between the National Transmission and Dispatch Company (NTDC) and the China International Water and Electric Corporation (CWE). The project would take six years to become functional and would provide cheap electricity for around 50 years.

Take a look: $2.4bn Kohala hydropower deal finalised

Its tariff for the first 12 years would be about 8.03 cents per unit, at an exchange rate of Rs98 to a dollar, and would pay off 70 per cent of the debt portion.

The project will provide cheap electricity for about 50 years

The tariff is expected to come down to 4.65 cents per unit after 12 years and is likely to remain so until the expiry of the 30-year contract period. Therefore, the average tariff for 30 years has been put at 7.24 cents per unit.

Upon completion of the 30-year contract period, the project would stand transferred to the Azad Kashmir government under the existing power policy and remain in operation for another 20 years.

The advance tariff would help attract construction companies and arrange finances for the project. The project’s tariff is much lower than the tariffs of all other competing fuels and renewable energy sources.

The tariffs for liquefied natural gas, furnace oil, high speed diesel, solar, wind and coal range between nine and 15 cents per unit.

In June last year the NTDC had filed a request for permission to hold negotiations on the matter and then moved a tariff petition for power acquisition based on feasibility study of the project. All major stakeholders, including the provinces, supported the tariff except the Transparency International Pakistan which opposed the negotiated agreement and called for an open bidding.

The 1,100MW Kohala Hydropower Project is located on the Jhelum river in Muzaffarabad district near Siran village, about 100 km from Islamabad.

The site is located about three kilometres downstream of the Kohala bridge.

The project is being developed by the private sector under the Power Policy 2002 on a Build-Own-Operation-Transfer (BOOT) basis with an expected concession period of 36 years, including six years for project construction and an operation period of 30 years.

The contract has been finalised on the basis of a memorandum of understanding signed by the power ministry and the CWE in October 2008 during then president Asif Ali Zardari’s visit to China. Subsequently, on submission of performance guarantee by the CWE, a letter of interest was issued by the Private Power and Infrastructure Board (PPIB) to the Chinese firm for updating the feasibility study. The Chinese firm had originally sought a tariff of 9.22 cents per unit for 50 years, based on an investment of $2.5bn, but was then reduced to 7.9 cents for 30 years.

After detailed examination of all the costs, Nepra worked out an average tariff of 7.24 cents per unit which would be liable to one-time adjustment on the basis of certified actual expenses at the time of project completion.

Published in Dawn, April 11th, 2015

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