Policy For Power

Generation Projects
Year 2002 vs. Year 1994
Power Policy Agenda
• Sufficient capacity of power generation at least cost.
• To exploit different resources of power generation.
• To ensure that all stakeholders are looked after in the process, i.e. a
win-win situation for all; and
• To be attuned to safeguarding the environment.
Power Policy General Mechanism
• Tariffs are divided into two parts;
1. CPP paid on a monthly basis covers all debt servicing, fixed
operation and maintenance costs, insurance expenses and return
on equity.
2. EPP is paid on the basis of per unit cost (kWh) and consists of
variable cost like fuel.
Power Policy 1994 (Highlights)
• Offering a Bulk Power Tariff of 6.5/kWh as an average of first 10 years
for sale of electricity. Applied on all projects up to 20 MW.
• A Levelized Tariff of US cents 5.9/kWh over the life of the project is
also given as a parameter for acceptance of tariff. Sponsors will need
to work out year-wise tariff which match their annual debt servicing.
• Bulk Power Tariff of 6.5/ kWh is an indicative figure. The actual cost
will consist of CPP and EPP.
• CPP is guaranteed to be paid by government but not EPP.
• Same tax facilities as available for Non Banking Financing Institutions
approved by CLA.
• Companies can obtain Foreign Exchange Risk Insurance (FERI)
Power Policy 2002 (Highlights)
• Imports on concessionary rates, exempt from income tax including turnover
rate tax and withholding tax.
• Adjustments for exchange rate fluctuations are effected quarterly.
Fluctuations above 5% during any month is allowed
• Permission to issue corporate registered bonds.
• Permission to issue shares at discounted prices possibly to venture capitalist
• Permission of Foreign Banks to underwrite shares and bonds.
• Repatriation of equity along with dividends is allowed
• Protection against changes in taxes and duties as well as political risks.
• Ensure convertibility of PAK Rs. to USD at then prevailing exchange rates to
cover necessary payments related to project including debt servicing and
payment of dividends
Differences
1994 2002
• Only Build – Own – Operate • Hydel projects on BOOT &
(BOO) projects. Thermal projects can be either
be BOO or BOOT.
• No Lock in Period
• Lock in Period
• Transmission line to the power
complex of power plant to be • 3 different points of Delivery
provided by the power
purchaser
Differences
1994
• No particular Tariff proportion for
Hydel Projects.
• Levelized tariff is calculated at 25%
return of Equity
• Premium of US Cents 0.25/kWh sales
of above 100 MW for first 10 years .
• Upper limits on Tariffs.
2002
• CPP of 60-66% and EPP for 40-44% of
the levelized Tariff of Hydel projects.
• Levelized tariff is calculated at 12 %
discount rate, on the basis of average
hydrology or annual plant factor.
• No upper limit on Tariff, it has to be
reasonable and according with the
standards given by NEPRA.
• Debt related CPP will match loan
repayment stream.
• CPP (non-debt related) and EPP may
increase over time depending on cost of
fuel if any and also to incorporate
inflation WPI will be used as reference
on the Bid submission date.
Differences
1994
• PSEDF providing up loans to
40% of the cost of Capital.
• Import has no custom duties,
sales tax or any other charges
• Protection from natural
disasters
2002
• Custom duties of 5% on import
of plant and equipment.
• Water use charge will be paid to
government at rate of Rs.
0.15/kWh.
 Structure of
Power Sector
in Pakistan
Power Sector Overview
• NEPRA - Regulatory Body (Standards, Licensing and Tariff)
• WAPDA – Water and Hydropower development
• GENCOs – Thermal generation companies
• IPPs – Thermal power companies shift towards renewable energy.
 ELECTRICITY GENERATION 2016-17

Oil, 32.10% Gas, 33.60%

Coal, 0.20%
Renewable, 2.20%

Nuclear, 5.70%

Hydel, 26.10%
Tariff Structure (NCPL)
• EPP- Calculated on the basis of Fuel {With efficiency of 45 % (197 grams/kWh)}
and Variable O&M charges (Foreign & Local).
• CPP- Escalable(All fixed charges) and non- Escalable(Principal and Interest
payments)
• Calculated at plant load factor (in this case 60%).
Circular Debt (Inter-company debt)
• Started in 2007 and growing.
• Factors affecting are;
1. Price Anomalies
2. Misallocation of Natural Gas
3. Unfavorable Generation Mix
4. Generation Inefficiency of GENCOs
5. Hefty T&D losses
6. Poor Bill Collection
Solutions
1. Reallocating Gas to Power Sector
2. Removal of Price Anomaly in energy sector
3. Energy Efficient Projects
4. Explore Gas Potential
5. Renewable Energy and Coal Projects