Revised Power Purchase Agreements Approved for Government Power Plants

ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has, in principle, sanctioned the updated Power Purchase Agreements (PPAs) for four state-owned power generation facilities. These revisions are projected to yield savings of approximately Rs 1.567 trillion throughout the projects’ lifecycles, with an anticipated Rs 21.56 billion reduction in expenses for the current fiscal year.

The four power generation projects encompassed within these amended PPAs include:

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

During a public session led by Nepra Chairman Waseem Mukhtar, CPPA-G CEO Rihan Akhtar communicated that the revised arrangements for the RLNG-fueled power plants (Balloki and Haveli Bahadur Shah) are scheduled to be implemented from January 1, 2025. The revamped PPAs for Nandipur and Guddu 747 MW will be put into effect on February 1, 2025. He stated emphatically that the operational durations of the facilities remain unchanged.

Tanveer Barry, a representative from the Karachi Chamber of Commerce and Industry (KCCI), inquired about the influence of the revised PPAs on capacity payments, currently at Rs 2 trillion, and the potential for immediate cost reductions for electricity consumers.

Arif Bilwani requested specific data concerning the current and adjusted capacity payments for the GPPs, along with anticipated annual and long-term savings. Rehan Jawed suggested utilizing a combination of RLNG and local fuels to achieve further decreases in power generation costs. Aamir Sheikh questioned whether the project timelines would be extended under the updated agreements.

The estimated savings on a per-unit basis 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

In response to a question posed by the Chairman of Nepra, officials acknowledged that the Guddu 747 MW plant is functioning without insurance coverage due to previous unsuccessful attempts to secure it. A Member of KPK criticized the officials for their vague response regarding the plant’s operation without insurance, highlighting the substantial risk involved.

Responding to an inquiry from Member (Law) NEPRA, Amina Ahmed, the CEO of CPPA-G mentioned indications suggesting that all government-owned Gencos, excluding Guddu and Nandipur, are slated for decommissioning. Both Guddu and Nandipur are included in the second phase of privatization efforts.

As stated by the CEO of CPPA-G, the main points of negotiation include:

  • A fixed foreign Return on Equity (RoE) at 13% based on an exchange rate of Rs 168/$, without future indexation. RoE exceeding 35% will be compensated based on units delivered (take and pay).
  • Insurance costs will be the actual amount or 0.9% of the EPC for Gencos, whichever is lower. For GPPs, the insurance component will be the actual cost or 0.8% of the insured amount, whichever is lower.
  • For Operations & Maintenance (O&M), local O&M will be indexed at either 5% or the 12-month average NCPI, whichever is lower. A 30% discount on foreign O&M indexation will apply in cases of Rupee devaluation against the US dollar, with consumers receiving 100% of the benefit from such devaluation.

Answering another question, the CEO of CPPA-G clarified that conversations surrounding the revised PPAs for GPPs emphasized the low-cost nature and dedicated gas supply of the projects. This led to an insurance component cap of 0.8%, with payments contingent upon actual insurance procurement and cost realization. He requested approval for the 0.8% insurance cost provision in the revised PPAs to ensure uninterrupted project operations.

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

  • Revise RoE & RoEDC to 13% at a fixed exchange rate of Rs 168/$.
  • Approve a hybrid take-and-pay mechanism beyond 35% on a units-delivered basis.
  • Allow local O&M indexation at the lower of 5% or the annual average NCPI.
  • Permit foreign O&M indexation as per the revised mechanism.

The CEO noted that a decrease in CPP would directly result in lower capacity charges for Discos.

According to an official announcement, supplementary changes involve restricting the indexation for Operations & Maintenance (O&M) expenditures to 70% of rupee devaluation, reduced from the prior 100%. Domestic O&M expenses will be linked to either 5% or the 12-month average of the National Consumer Price Index (NCPI), whichever is less. Moreover, the return on equity (ROE) framework has been streamlined. Plants will now be allocated 35% of the ROE as fixed, with the remaining 65% connected directly to the plant’s actual functioning – a marked departure from the previous 100% guaranteed ROE structure.

These careful actions are predicted to result in savings of Rs. 1.6 trillion throughout the projects’ durations, including Rs. 22 billion within the present financial year alone.

The session, featuring industry experts and the general public, garnered widespread approval. The Authority received praise for its dedication to fiscal prudence and its proactive role in promoting a sustainable and consumer-oriented power industry. The Nepra continues to be dedicated to executing changes that ensure accountability, efficiency, and accessibility in the power sector.

Nepra will disseminate a comprehensive determination on the revised agreements within a couple of weeks after verification of all conclusions.