ISLAMABAD: The National Electricity Regulatory Authority (Nepra) on Monday refused to revise the level benchmark tariff for the 969 MW Neelum Jhelum hydroelectric project (NJHPP) from Rs 9.1184 per unit to Rs 10.30 per unit (6.2440 cents) for 30 years, until Wapda obtains a Third Party Validation (TPV) or waiver of “ questionable ” fees from the federal government.
President Nepra Tauseef H Farooqi announced his decision after arguments and counter-arguments were put forward by both sides, including NJHPC CEO Muhammad Zarain with members of the Nepra regulator from Sindh and KP, giving him some difficulty in requesting a revision of the reference tariff without validation of third party costs. The Central Power Purchasing Agency-Guaranteed (CPPA-G) supported Nepra’s position that some project costs were not justified.
Sharing details with the Authority, the case officer said that the EPC stage proposal filed by CAPP-G on behalf of the NJHPC on February 2, 2018 was determined by the Authority on November 19, 2018, in which the NJHPC was entitled to Rs 5.9180 per unit (against the claim of Rs 13.0331 per unit), in which the petition was not decided on the merits due to a conditional approval of PC-1 by ECNEC, therefore, an interim tariff was granted to cover essential expenses (O&M and debt) for the viability of the project and to minimize the anomalies increase in tariffs in recent times. A petition for review of the NJHPC was filed by the CPPA-G on November 29, 2018, which was decided by Nepra on August 19, 2019, in which NJHPC was authorized at a tariff of Rs 9.1184 per unit which expired on October 16 2020.
A tariff request at the Commercial Operation Date (COD) stage was filed by the CPPA-G on November 18, 2020, which was decided by the Authority on January 4, 2021 as non-maintainable and ordered the CPPA -G to first file a reference determination request. rate. The CPPA-G has also been tasked with ensuring that the request is accompanied by the report of an independent consultant regarding the validation of project costs according to ECNEC guidelines or validation of project costs by TPV.
On the issue of the TPV, the CNJH argued that the TPV, to be headed by the Ministry of Planning, Development and Special Initiatives, is at the stage of appointing the consultant. Therefore, at this stage, a level tariff of the NJHPC can be assigned and the TPV can be adjusted subject to the agreement of Nepra and the MoPD & SI.
The CNJH has requested that the uncovered cost of Rs 30.111 billion due to the tariff difference of Rs 2.8137 billion per unit for the period July 2018 to October 16, 2020 can be recovered in equal monthly installments.
The CEO of NJHPC also informed the Authority that then Prime Minister Shahid Khaqan Abbasi had granted TPV a waiver. However, when the current government came to power, ECNEC asked Wapda to end the TPV, prompting President Nepra to comment that Khaqan Abbasi was no longer a prime minister and was advising the CEO of the company. to contact the outgoing Prime Minister in this regard.
He added that there were certainly “questionable” elements in the draft due to which ECNEC ordered third party validation.
The CEO argued that the company obtained loans for the project which must be paid, which led to President Nepra’s investigation if the loans were not covered by a tariff of Rs 9,118 per unit, this to which the CEO replied in the negative.
President Nepra further asked the case manager to share the finances of the NJHPC and was informed that the company had submitted its tariff request based on the accounts of June 30, 2018. Nepra granted a tariff of approximately Rs 5 per unit which was then revised upwards to Rs 9,118 per unit. Wapda had submitted a loan repayment schedule on the basis of which the tariff was revised.
President Nepra noted that when the tariff was revised based on the loan repayment schedule, then how it can be stated that the company is unable to repay its loans.
During the hearing, the case officer said that the loan that the tariff was revised on was based on PC-1 which was on the higher side and is now being revised downwards. The cost of the project has already fallen due to the appreciation in the value in rupees. However, the CEO argued that the company has not repaid the entire loan to the government because the TPV will take six months.
Initially, the cost of the project was over Rs 500 billion, and in addition there are observations on tunnel boring machines (TBMs).
President Nepra advised the CEO of the company to discuss with the Planning Commission which decided on the TPV of the project. However, the CEO of the company argued that if the payment is not made, interest will continue to accumulate on the loans and the company will be in a position of default.
A representative of the CPPA-G technical team, Ahmad Sajjad, who is technical director at CPPA-G, said his organization supports Nepra’s point of view on the TPV. Commenting on the capacity factor, he said CPPA-G has previously explained that the energy determined by the company has not been justified. CAPP-G raised a similar issue at the previous hearing. According to her, for example, the energy determined by the company is not backed by an entity in the electricity sector.
He accepted Nepra’s view that the NJHPC either obtains a waiver from the relevant forum like the Planning Commission or opts for the TPV as indicated by the ECNEC.
President Nepra noted that it has come to his knowledge now that the TPV requirement has not been met. He said there was no third option available.
“There is something, somewhere, fishy because of which the project owner – GoP – has taken a rigid stand and is asking the TPV for the costs of the project. Nepra has approved the rates for dozens of projects but we did not. never heard of TVP, ”President Nepra said, adding that since NJHPC is unable to convince its owner (GoP), how can it convince the regulator?
After a detailed discussion, the Authority ordered the CEO of NJHPC to obtain a waiver of the TPV condition of the costs from the authorities concerned or to contact Nepra for a tariff review once the POS formalities have been completed.
The company assumed an exchange rate of Rs 165 / USD while the return on equity (RoE) was claimed at 10 percent ISS (Institutional Shareholder Services). The proposed debt ratio is 74:26 based on Granted Foreign Loans (FRLs), GoP Treasury Development Loans (CDLs) and Local Business Loans. The interest rate on FRL ranges from 12% to 15%, for CDL it ranges from 10.65% to 11.79% and for local business loans 6 months Kibor + 113 basis points is used. The debt repayment period was assumed to be 20 years (semiannual).
Copyright Business Recorder, 2021
