Government Power Plants Seek Approval for Hybrid Payment Model

ISLAMABAD: Four Government Power Plants (GPPs) have requested Nepra’s endorsement to transition from their existing ‘take or pay’ agreements to a hybrid ‘take-and-pay’ structure. This modification is anticipated to yield savings of Rs 2.162 trillion throughout the remaining operational lifespan of these projects.

The power plants involved are Balloki Power Plant, Haveli Bahadur Shah, the 747 MW Guddu Power Plant, and the 525 MW Nandipur Power Plant.

According to the Central Power Purchasing Agency Guarantee (CPPA-G), the total reduction in future capacity payments and associated obligations resulting from these negotiations includes Rs 354 billion from GENCOs (Nandipur and Guddu), Rs 1.808 trillion from Haveli Bahadur Shah, Balloki, and QATPL plants, and Rs 498 billion from PTPL.

Revised IPP deals are expected to provide Rs3.5trn savings over a 3-20 year period.

The benefits of the Negotiated Settlement Agreements (NSAs) and the subsequent tariff reductions will be extended to consumers, pending Nepra’s approval of the tariff adjustments. A public hearing regarding this matter is scheduled for April 24, 2025.

As indicated in the joint applications submitted by the GPPs and CPPA-G, both entities have entered into an NSA. As per Clause 2.2(a) of the NSA, the applicants have concurred to amend the tariff components as detailed below:

Operation & Maintenance Components
  • Fixed O&M will be compensated at a rate of Rs. 0.4677/kWh.
  • Variable O&M will be compensated at a rate of Rs. 0.4438/kW/h.

These values will be adjusted based on Nepra’s determinations of February 03, 2025, March 27, 2025, and a forthcoming determination regarding NFPMCL’s application for tariff indexation. The revised O&M will be indexed quarterly following this mechanism:

  1. Fixed O&M – Local and Variable O&M – Local will be indexed with the lower of (a) five percent (5%) annually or (b) the actual average National Consumer Price Index (CPI) for the prior twelve months.
  2. Fixed O&M – Foreign and Variable O&M – Foreign will be indexed as per the existing mechanism, with PKR/USD depreciation capped at 70% of the actual annual depreciation. In the event of PKR appreciation against the USD in a year, 100% of such appreciation will be passed on to consumers. The indices used in Nepra’s quarterly indexation for Oct-Dec 2024 will be maintained.
RoE Component:

From the effective date forward, the RoE component shall be re-determined to a 13% rate of return, at a fixed exchange rate of Rs 168/USD, based on Nepra’s determined Quarterly indexation for Oct-Dec 2024 as the revised reference. Subsequently, there will be no exchange rate indexation.

These figures will be updated according to Nepra’s determinations dated February 03, 2025, March 27, 2025, and a determination to be announced regarding NPPMCL’s tariff indexation application.

Insurance Component:

From the effective date, the Insurance Component of CPP will be a pass-through item, capped at 0.8% of the sum insured as per the PPA provision.

Hybrid Take and Pay Model:

As per clause 2.2 (a)(i) of the NSA, the applicants have agreed to implement a ‘hybrid take-and-pay model’. From the effective date, the Company will be entitled to thirty-five percent (35%) of revised RoE components of tariff as part of CPP, which will be computed as per the terms of the existing PPA. If the dispatched Net Electrical Output (NEO) exceeds thirty-five percent (35%) of the total contract capacity, the company will receive RoE components of tariff calculated on the actual NEO exceeding thirty-five percent (35%) of the total Contract Capacity.

CPPA-G and GPPs have requested Nepra to:

  1. Accept their applications.
  2. Revise the indexation mechanism of the O&M component of the tariff.
  3. Revise the foreign component of RoE of the tariff.
  4. Revise the insurance component of the tariff.
  5. Revise the existing mechanism of “Take or Pay” to Hybrid Take and Pay“ model, whereby the company is entitled for 35% of ROE as part of CPP and remaining ROE component is subject to generation beyond 35% of the Contract Capacity (clause 2.2(a)(vii) of the NSA).
  6. Approve the Tariff Adjustment to become effective as provided in clause 2.1 of the NSA and notified accordingly.

The CPGCL (Guddu) tariff includes:

  1. Fixed O&M (local): Rs 0.1712 per unit (lower of 5 % per annum or actual average NCPI for preceding 12 months).
  2. Variable O&M (foreign): Rs 1.1142 per unit (US CPI&PKR/$ provided that 70 per cent PKR/$ depreciation and 100 per cent PKR/$ appreciation is applicable).
  3. RoE: Rs 0.8479 per unit (recomputed based on 13 per cent rate of return at the fixed exchange rate of Rs 168/$ and no further exchange rate indexation.
  4. Insurance: actual, subject to a maximum limit of 0.9% of allowed EPC cost.

The NPGCL (Nandipur tariff includes:

  1. Fixed cost O&M (local): Rs 0.3698/kWh for 450 MW and proposed Rs 0.3284/kWh for 507 MW.
  2. Variable O&M (local): Rs 0.0132/kWh for 450 MW and Rs 0.0117/kWh for 500 MW (lower of 5 per cent annum or actual average NCPI for the preceding 12 month.
  3. Variable O&M(foreign): Rs 0.7553 kWh for 450 MW and Rs 0.6708/kWh for 500 MW.
  4. Fixed O&M (foreign): Rs 0.4592 kWh for 450 MW and Rs 0.4078 kWh/ for 500 MW (US CPI & PKR/$ provided that 70 % PKR/$ depreciation and 100 % PKR/$ appreciation is applicable.

The RoE includes:

Rs 1.0038/kWh for 450 MW and Rs 0.8915/kWh for 500 MW (recomputed based on 13 % rate of return rate of Rs 168/$ and no further exchange rate indexation till the whole term.