NEPRA Approves Revised Power Purchase Agreements, Anticipating Rs 1.567 Trillion in Savings

The National Electric Power Regulatory Authority (NEPRA) has given its in-principle approval to updated Power Purchase Agreements (PPAs) for four government-owned power plants (GPPs). These revisions are projected to yield savings of Rs 1.567 trillion throughout the projects’ lifecycles. Savings for the current fiscal year are estimated to reach Rs 21.56 billion.

The PPAs encompass the following power projects:

  • National Power Parks Management Company – Balloki (1223MW)
  • National Power Parks Management Company – Haveli Bahadur shah (1230 MW)
  • Central Power Generation Company Limited – 747 MW
  • Northern Power Generation Company Limited (525 MW)- Nandipur

During a public hearing, NEPRA Chairman Waseem Mukhtar presided, with CPPA-G CEO Rihan Akhtar stating that the amended agreements for the RLNG-based power plants (Balloki and Haveli Bahadur Shah) are scheduled to take effect on January 1, 2025. The revised PPAs for Nandipur and Guddu 747 MW will be implemented from February 1, 2025. Akhtar confirmed that the projects’ original durations remain unchanged.

Tanveer Barry, a representative from the Karachi Chamber of Commerce and Industry (KCCI), questioned the implications of the revised PPAs on capacity payments, currently at Rs 2 trillion, and the potential for direct relief in electricity bills for consumers.

Arif Bilwani requested specific figures detailing the current and revised capacity payments for the GPPs, along with estimated annual and lifetime savings. Rehan Jawed suggested employing a mix of RLNG and local fuels to achieve further reductions in generation expenses, while Aamir Sheikh inquired about potential extensions to the projects’ lifespans under the new agreements.

The anticipated savings per unit for each plant are as follows:

  • CPGCL-747 (Rs 0.2482)
  • NPGCL-Nandipur (Rs 0.3216)
  • NPPMCL-Haveli Bahadr Shah (Rs.0.2725)
  • Balloki Power Project (Rs 0.2600)

Responding to a query from the NEPRA Chairman, officials disclosed that Guddu 747 MW is operating without insurance due to unsuccessful attempts to secure coverage. The KPK Member criticized the officials for their ambiguous response, emphasizing the significant risk of operating the plant without insurance.

In response to a question from NEPRA’s Member (Law), Amina Ahmed, the CEO of CPPA-G indicated that decommissioning is expected for all government-owned Gencos, excluding Guddu and Nandipur. Both Guddu and Nandipur are slated for privatization in the second phase.

The CEO CPPA-G outlined the key negotiation points:

  • ROE fixed at 13% at Rs 168/$, without future indexation. ROE beyond 35% will be paid on a take-and-pay basis.
  • Insurance capped at either actual cost or 0.9% of the EPC for Gencos, and at either actual cost or 0.8% of the sum insured for GPPs, whichever is lower.
  • Local O&M indexed at the lower of 5% or the 12-month average NCPI. A 30% discount on foreign O&M indexation will apply if the Rupee devalues against the US dollar, with 100% of the benefit passed to consumers.

The CEO CPPA-G clarified that the revised PPAs for GPPs prioritize insurance, capped at 0.8%, for low-cost projects running on dedicated gas. Payments will be made upon securing insurance and incurring costs, with the 0.8% insurance cost provision requested for approval to ensure uninterrupted project operation.

The CEO CPPA-G presented the following proposals to the Authority:

  • Revision of ROE & ROEDC to 13% at a fixed exchange rate of Rs 168/$.
  • Approval of a hybrid take-and-pay mechanism beyond 35% on units delivered.
  • Approval of local O&M indexation at the lower of 5% or the annual average NCPI.
  • Approval of foreign O&M indexation as per the revised mechanism.

The CEO stated that reducing CPP would directly lower capacity charges imposed on Discos.

An official statement highlighted additional reforms, including capping Operations & Maintenance (O&M) cost indexation at 70% of rupee devaluation (previously 100%) and indexing local O&M expenses to the lower of 5% or the 12-month average NCPI. The return on equity (ROE) structure has also been streamlined. Plants will now receive 35% of the ROE as fixed, with the remaining 65% contingent on actual plant operation, a departure from the previous 100% guaranteed ROE model.

These efficient measures are expected to create approximately Rs 1.6 trillion throughout the project, which include Rs 22 billion in the current year.

Attendees, including industry experts and the public, largely commended the hearing, expressing appreciation for the Authority’s dedication to financial prudence and its proactive approach to ensuring a sustainable and consumer-focused power sector. NEPRA remains focused on executing reforms that promote power sector transparency, efficiency, and affordability.

NEPRA intends to issue a thorough determination on the updated agreements within the next couple of weeks, after all outcomes are reviewed.