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Consumers to bear security cost of power projects

By Khaleeq Kiani 2016-09-24
ISLAMABAD: The government on Friday decided to recover the cost of security required for upcoming power projects from consumers through monthly bills for entire 25-30 years life of the projects.

The decision was taken at a meeting of the Economic Coordination Committee (ECC) of the cabinet presided over by Finance Minister Ishaq Dar.

The meeting also decided to float the Islamic Sukuk bond in the international market. Depending on market response and pricing, the size of the bond will range between $500 million and $1 billion, although the government has set a target of $750m in the budget for Sukuk.

Documents seen by Dawn suggest that the government will direct the National Electric Power Regulatory Authority (Nepra) to allow one per cent increase in capital cost of all upcoming power projects, mostly under the China-Pakistan Economic Corridor (CPEC), for recovery from consumers.

`The ECC approved a summary of the Ministry of Water and Power for issuance of a policy directive to Nepra to allow 1pc of the capital cost net of aforementioned $150,000 amount on account of security to be distributed annually starting f rom the construction period till the term of the Power Purchase Agreement,` said an of ficial statement.

The government is already charging at least four special surcharges of about Rs3.50 per unit in consumer tariff to cover low recoveries, high losses, special debt servicing, tariff equalisation across various distribution companies and so on.

The documents suggest that the prime minister had originally allowed the Planning Commission to allow one per cent additional cost of all CPEC projects to meet the expenditure of a Special Security Division of the army being raised to protect CPEC. The government had allocated about Rs30bn in the budget to meet initial expenditure and then allow one per cent increase in capital cost of all projects under the Public Sector Development Programme.

According to sources, security concerns have been raised by relevant quarters following recent incidents of terrorist attacks, growing threats to power projects and the general security situation.

At a recent meeting, the prime minister is reported to have highlighted the importance of CPEC and termed it vital for futuresustainability of the national economy.

However, despite an early decision to include a security cost of 1pc at the time of regulatory approval of the CPEC projects, no arrangements have been made to make necessary adjustments in tarif f.

As a result, a number of projects in power and communication sectors have gone into the implementation phase without actually having any solid arrangement for recovery of even recurrent expenditure of special security on these projects.

The prime minister was of the view that apart from provision of cost of establishment of separate forces, including the Special Security Division, the projects when completed would require expenditure on recurrent annual basis for maintaining these forces which would have a notable strain and impact on the federal budget.

Therefore, the prime minister directed the water and power ministry to ensure that the remaining sponsors of power projects where the financial close had not yet been achieved must add 1pc of the actual capital cost on account of security to the projects.

This should also include the early harvest projects where the financial close is still pending, as well as new additions to the projects already under implementation.

The prime minister is also reported to have ordered that for the projects which are already under implementation, the ministries of water and power and finance `will immediately carry out an exercise` for an increase in tarif f through Nepra to cover for recurring security of the projects for their entire period of operation.

The ECC also approved another summary of the water and power ministry to allow the National Transmission and Despatch Company to approach Nepra for approval of extension of tariff from Jan 1 to Dec 31, 2016, for a contract with TAVANIR of Iran for purchase of 74MW.

According to the statement, this is an existing arrangement for payment of electricity dues to Iran and is formally approved every year at a rate of about Rs10 per unit for enabling Nepra to make it part of the consumer tariff.

The ECC also approved a summary of the finance ministry to allow Habib Bank Limited to open its branch in Urumqi, China.

The meeting reviewed macroeconomic indicators and was informed that CPI inflation was 3.56pc in August this year, compared to 8.55pc in Aug 2013 and 11.56pc in Aug 2011.