Capacity payments to state-owned companies under scrutiny

Published May 5, 2020
The CCoE meeting on Monday deliberated upon creating additional storage capacity for furnace oil.
The CCoE meeting on Monday deliberated upon creating additional storage capacity for furnace oil.

ISLAMABAD: With more than half of the country’s total capacity charges payable to state-owned power projects, the initial resp­onse from their managements has not been very encouraging.

This was reported to the Cabi­net Committee on Energy (CCoE) meeting on Monday as it deliberated change in terms of contracts for Water and Power Development Authority (Wapda), Pakistan Ato­mic Energy Commission (PAEC) and government independent po­­wer producers (IPPs) including tho­­se being run on liquified natural gas (LNG) to cut electricity costs.

The meeting, presided over by Minister for Planning, Develop­ment and Special Initiatives Asad Umar, also discussed the idea of importing maximum oil and its products to benefit from prevailing low prices and creating additional storage capacity or bring into use unutilised storage of furnace oil, bunkers and shipping. Fi­­­nancial constraints will be the critical challenge more than the storage capacity, an official told Dawn.

The Ministry of Maritime Affa­irs submitted its report regarding the enhancement of off-shore storage capacity of imported petrol­eum products. The CCoE direc­ted the Petroleum Division to examine financial feasibility of the proposals, an official statement said.

Wapda, PAEC say no room for reductions; CPPs to rise to Rs1.7tr by 2025

Informed sources said the Power Division told the CCoE that inline with its directive last mon­th, meetings were held with Wap­da, PAEC and generation companies (Gencos) by the secretaries of Power and Finance Division, chief executive officer Central Power Pur­­chasing Agency and managing director of Private Power and Infrastructure Board (PPIB) for working out schemes for reducti­ons in their return on equity. Any cut in return on equity (ROE) will proportionately reduce non tax revenues of the government.

On the other hand, the top management of the PAEC has expressed inability to commit any cuts in returns, whether in the shape of ROE or Capacity charges, saying such a decision has to be taken at the “higher level”. PAEC is overseen directly by the Special Plans Division of the army and is looking after all matters relating to the existing and under construction nuclear power plants (NPPs). The per unit capacity cha­­­rge of existing NPPs is more than 3.40 US cents and would almost be double at 6.6 cents for upcoming mega NPPs of 1100mw each.

Wapda has also highlighted key problem areas including debt servicing and upcoming mega projects and how the net hydropower profit affected the overall tariff cost. The authority has sought time to come up with its detailed cash flow and profitability matrix.

Officials said that almost half (Rs550bn) of the more than Rs1 trillion capacity payments due in 2021 belonged to the public sector. This included projects under CPEC (Rs180bn), Wapda’s old plants Rs110bn, new Wapda projects Rs170bn and LNG projects Rs100bn.

The total public sector CPP is estimated to go beyond Rs700bn in 2023 and almost Rs850bn in 2025 against overall CPP of Rs1.5 trillion in 2023 and Rs1.7tr in 2025 because of materialization of CPEC and NPPs. It is estimated that capacity payments of all NPPs would increase from Rs90bn in FY2021 to about Rs280bn in FY2023 and beyond for few years because initial debt cost payable.

The CPP of CPEC projects is es­­t­­imated to increase from less than Rs200bn in 2021 to Rs350bn in 2023 and later under existing circumstances. The Wapda plants CPP would increase from about Rs280bn in 2021 to Rs390bn in 2023.

The Power Division had been instructed by the CCoE to consider reduction in ROE on government IPPs up to 10 per cent and fix that in the rupee terms rather than in dollars in consultation with the Ministry of Finance.

An official statement said the CCoE was apprised about the future trajectory of demand of energy in the country and the steps being taken to ensure the availability of power to various sectors and the progress being made on rationalising the energy prices in the country.

The CCoE was apprised about the progress on formulation and approval of the Renewable Energy (RE) Policy and introduction of a competitive bidding process for the entry of new producers in the renewable energy sector of Pakistan. The CCoE direc­ted the Power Division to expedite the process and report back.

The CCoE also approved the proposals of the Ministry of Power regarding the placement of various project companies in their respective categories on the basis of already specified criteria. The National Electric Power Regula­tory Authority (Nepra) apprised the meeting on the progress made on the introduction of the advance design of the Competitive Trading Bilateral Market in Pakistan.

The CCoE was briefed about steps being taken regarding the governance improvement of the power sector. It was informed that CEOs of Alternative Energy Dev­e­­­­­­lopment Board, PPIB, and Gencos have been appointed following a competitive process. The meeting was informed that progress is bei­ng made regarding the establishment of a Technical Directorate at the Ministry of Energy.

Members of the CCoE including Minister for Railways Sheikh Rasheed, Minister for Energy Omar Ayub, Minister for Mari­time Affairs Ali Zaidi, Adviser to the Prime Minister on Finance Hafeez Sheikh and Special Assistant to the PM on Petroleum Nadeem Babar attended the meeting. Officials from the power, petroleum, finance, maritime divisions and Nepra were also present.

Published in Dawn, May 5th, 2020

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