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Move to raise tariff for coal-fired power plants

By Khaleeq Kiani 2014-04-05
ISLAMABAD: Amid the government`s rush for coalfired power plants, the National Electric Power Regulatory Authority (Nepra) is under pressure to increase upfront tariff for such plants by 30 per cent to lure investment, mostly from China.

A Nepra official told Dawn that the regulator was being asked by the government to relax key parameters of plant quality and efficiency, project cost and operation and maintenance expenses and also ignore a legal requirement.

He said Nepra had offered a lucrative rate of 20 per cent return for plants based on local coal and 17 per cent for those based on imported coal through an upfront tariff announced by the regulator in June and notified by the government in September last year.

The higher rate of return was offered as a one-time incentive for six years to encourage investment in coal-fired plants with the condition that investors should take benefit of the special tariff by June 30, 2019.

`Revising a tariff approved after a lengthy process of public hearings, expert opinions and feasibility studies is unusual,` the official said, adding that Nepra should have rejected the government`s request at the very outset. But it has admitted the request for public hearing to avoid confrontation with the government.

Under the law, a determination announced by the regulator could be returned for reconsideration by the government in 15 days. In this case, the government has accepted the Nepra`s determination on upfront tariff for coal-fired power plants and also notified it.

`It is requested that 15days time limit for the reconsideration request as stipulated under section 31 (4) of the Nepra act be condoned, acting secretary of water and power Saifullah Chatta has said in a letter to Nepra.

The request for re-opening of upfront tariff for coalbased power plants has been made by the ministry of water and power, headed by Khawaja Mohammad Asif. His close relative Khawaja Mohammad Naeem, currently working as acting chairman of Nepra, was nominated by Punjab Chief Minister Shahbaz Sharif for the post. Mr Naeem`s daugh-ter Shaza Fatima belongs to the PML-N and is a member of the National Assembly on a reserved seat for women.

The notification had offered an upfront tariff of 8.2 cents to 9.6 cents per unit for 200MW plants, between 7.7 cents and 9.2 cents per unit for 600MW plants and between 7.4 cents and 8.75 cents per unit for 1000MW plants. Interestingly, these tariffs were based on feasibility studies conducted by two private sector firms -the AES Corporation and the Engro Corporation.

An official said the change in basic parameters being sought by the ministry meant the average tariff for a 600MW plant would go beyond 12-13 cents per unit, an increase of more than 30 per cent, and hence may deprive the nation of the benefit of cheaper energy. The government wanted to go out of the way to facilitate Chinese firms, he said.

The ministry has asked Nepra to increase the per megawatt cost for a 200MW plant by 36 per cent to $1.70 million. It has sought an increasein the costby28 per cent to $1.50m for a 600MW plant and an increase in the cost by 32 per cent to $1.40m for a 1000MW plant.

Secondly, the government has asked the regulator to reduce plant efficiency rate for a 200MW plant to 36 per cent from an approved, and notified, 39.5 per cent. It has sought a reduction in the efficiency rate for 600MW and 1000MW plants from approved 42 per cent to 39 per cent.

Thirdly, the regulator has been requested to double the operation and maintenance cost of a 200MW plant from 48 paisa per unit to Re1 per unit.

The government has sought to increase the cost for a 600MW plant by 41 per cent to 65 paisa per unit and by 40 per cent to 60 paisa per unit for a 1000MW plant.

An operator of a power plant said the three factors would contribute to higher upfront tariff ranging between Rs12 and 13 per unit against the existing upfront tariff of Rs7-9 per unit.

He said allowing per megawatt cost to go beyond $1.25m was unrealistic even for German and American plants, but here the government was offering up to $1.70m per megawatt cost to Chinese plants.

`It seems the government is about to offer equal tariffs for wind and coal-based plants even though the former are environment-friendly and comparatively easier to finance,` he said.