ISLAMABAD: The federal and Sindh governments seemed working on contradictory policy directions on electricity tariffs for future power projects based on Thar coal.

This became public when the Sindh government on Tuesday demanded continuation of existing expensive tariff for Thar coal-based power projects and the federal government demanded 15-20 per cent cut in existing rates that were offered to ‘early bird’ investors to open up Thar coal deposit.

At a public hearing presided over by National Electric Power Regulatory Authority (Nepra) Chairman Tariq Sadozai, independent experts on the other hand suggested that future rates for Thar coal-based power plants should be in line with competitive market rates for other sources and the practice of preferential treatment to any specific fuel should be brought to an end for a fair market environment.

The hearing was attended by an unusually large number of participants as the regulator sought views for international competitive based tariff for Thar coal investments instead of old incentivised cost plus tariff structure that expired a few months ago. The Nepra panel also comprised all the four provincial members.

Former member Planning Commission Syed Akhtar Ali said the 20pc return on investments for early investors was too high and ended up somewhere around 30pc when calculated also for tax exemptions and sovereign guarantees for debt arrangement. His argument was that other fuels on average were given 15pc internal rate of return and 1pc incentive should have been enough for Thar coal-based plants.

He said it was also misstatement that Thar coal was an unknown territory because plants were already operating across the border on the same structure. Also advised that interest rate of Kibor plus 3pc was very high which should be allowed on the basis of some professional study to have a long-term view.

A representative of the Private Power and Infrastructure Board (PPIB) told the hearing that the highly incentivised tariff for Thar power plants had already expired that offered guaranteed return on equity which should now be rationalised. He said it was a misdemeanour that investment would move out if return on equity was replaced with competitive bidding based tariff.

A note sent by the Ministry of Water and Power was read out at the hearing which advocated reducing levelised tariff for Thar coal-based power plants by up to 20pc. Nepra, noted with concern that the ministry had not deputed a representative to the hearing to take note of what was happening in the market and comments coming from all sides even though the ministry was one of the most important stakeholders.

The regulator has started suo motu proceedings for the development of new tariff for Thar coal-based power projects through reverse competitive bidding (lowest tariff) as the previous tariff expired on Jan 19, 2017 after completing its two year-term. The old upfront tariff ranged between 8.5 cents to 9.5 cents per unit for various capacities and funding sources.

The power ministry said the highly incentivised tariff for Thar coal-based plants was offered, and notified on Jan 20, 2015, due to lack of investor interest in the power sector at that time due to security reasons, uncertainties over infrastructure connectivity with Thar coal and expensive interest rates.

The situation has changed now, the ministry claimed, saying the policy objective has been achieved through higher investor interest in Thar particularly triggered also by CPEC investment. It said three Thar blocks of coal were now on the CPEC having a total capacity of up to 9,000 megawatts while the previous rate was applicable to 3,600MW of plants in different stages of implementation.

The ministry said the construction and engineering cost had dropped by 10-15pc over the past couple of years while interest rate had come down from 9.5pc to 5.75pc and the project completion time could be secured in 30-36 months against 48 months. It argued that investment now should be attracted in super-critical technology.

Shamsuddin Shaikh, the chief executive officer of Sindh Engro Coal Mining Company that is currently in the process of coal mining and setting up of power plant said the previous tariff was applicable to a total of 10 power plants currently in difference stages of implementation and demanded that the same tariff should be allowed for another four plants for the coal mine expansion.

He said even if the tariff was changed its notification should not be delayed beyond June 2017. He argued that the benefit of lower tariff should be weighed against non-expansion of coal mines and opined that even if the tariff appeared on the higher side its overall benefits would be greater.

A representative of Oracle Power working on another block of Thar coal said it would be unfair to offer 20pc internal rate of return for block-2 of Sindh Engro Coal and reduce it for others.

Representatives of the Sindh Investment Board argued that energy shortage is an extraordinary situation requiring extraordinary steps to encourage fresh investments in Thar to bridge this gap. The crux of the argument was ‘don’t disturb the existing arrangements until power production starts from Thar”.

The Sindh government also sought extension in previous tariff for a few months because investors were upbeat in setting up of power plants.

Published in Dawn, March 29th, 2017