Rate of return on four LNG-based power plants cut to 12pc

Published February 26, 2021
Two of these projects of 2,453MW combined generation capacity are owned by the federal government under the umbrella of National Power Parks Management Company Ltd. — Reuters/File
Two of these projects of 2,453MW combined generation capacity are owned by the federal government under the umbrella of National Power Parks Management Company Ltd. — Reuters/File

ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) on Thursday reduced the rate of return on equity (ROE) from 16 to 12 per cent for four public sector LNG-based power projects in Punjab with total generation capacity of about 4,900MW.

Two of these projects of 2,453MW combined generation capacity are owned by the federal government under the umbrella of National Power Parks Management Company Ltd (NPPMCL) and located at Haveli Bahadur Shah while two others of 2442MW plants belong to the Punjab government and are located at Sheikhupura and Jhang.

The reduction in the ROE is part of the government decision to reduce capacity charges. On Aug 27, 2020, the Cabinet Committee on Energy (CCoE) had decided to reduce the ROE of the state-owned power projects (RLNG IPPs) from 16pc to 12pc internal rate of return (IRR) with dollar indexation and had directed the authorities concerned to approach Nepra for revision of ROE component through tariff revision petition.

The decision was ratified by the federal cabinet on September 8 and the revised petitions were filed with the regulator on Oct 6 for revision in ROE components on the basis of 12pc IRR.

The CCoE decision said “to compare the returns on equity of state-owned RLNG-based independent power projects (IPPs) with the other government-owned projects, the return is reduced to 12pc IRR with dollar indexation. The projected reduction in RLNG projects will be Rs6.71bn.”

The CCoE had also decided that currently the projects owned by the NPPMCL (federal government) are in the privatisation list and bidding process is near to finalisation stage. Post-privatisation the returns will be dependent on the new investors in case of local investor’s returns will be 17pc without dollar indexation using US$ to rupee parity at Rs148 per US$, however, foreign equity will get 12pc with dollar indexation...(sic)”.

Based on these instructions, Nepra approved to reduce IRR on equity from 16pc to 12pc for federal projects and from 15 to 12pc for provincial projects.

As such, the ROE component for Punjab government’s Bhikki-Sheikhupura project that stood at Rs0.44811KWh (unit) on RLNG operations and Rs0.4984 per unit on HSD operations provided has been replaced with Rs0.3117 per unit on RLNG operations and Rs0.3467 per unit on HSD operations calculated on the basis of revised return on equity during construction (ROEDC) of $56.21m, equity investment of $192.494m and IRR on equity of 12pc.

For Jhang-based under construction RLNG project of Punjab government, Nepra approved that ROE component of Rs0.333 per unit on RLNG operations and Rs0.3825 per unit on HSD operations be replaced with Rs0.2562 per unit RLNG operations and Rs0.2943 per unit HSD operations calculated on the basis of revised ROEDC of US$33.38 million, equity investment of US$176.940 million and IRR on equity of 12pc. Since the project is in the construction phase, the revised tariff shall be effective from commercial operation date.

Published in Dawn, February 26th, 2021

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