Govt approves upfront tariffs for Thar coal-fired power projects

KARACHI: The National Electric Power Regulatory Authority (Nepra) has approved upfront tariffs for brand new coal-fired power plants in Thar, thus, removed a key hurdle to the investors’ plans to finance projects in the rigid desert projects under Pak-China Economic Corridor.
The return on equity (RoE) of 30.65 percent/annum has been allowed for the projects having construction period of 40 months and 34.49 percent/annum for the projects having a construction period of 48 months.
Nepra has notified upfront tariff of 8.5015 cents/unit for Thar coal-based power projects of 330 megawatts on foreign financing, while tariff for similar capacity projects on local financing has been fixed at 9.5643cents/unit.
The upfront tariff will be 8.3341 cents/unit for coal-fired power projects of 660 megawatts on foreign financing, while tariff for similar capacity projects on local financing has been fixed at 9.5668 cents/unit.
The upfront tariff will be 7.9889 cents/unit for power projects of 1,099 megawatts on foreign financing, while tariff for similar capacity projects on local financing has been fixed at 9.1368 cents/unit.
The tariff period is 30 years and will be applicable only for the mine-mouth projects in Thar area.
The sponsors of the plant will be allowed to select plant of any technology based on the quality of coal as far as the minimum efficiency thresholds are ensured.
The regulator has calculated capital cost for coal-based power project of 330 megawatts at $408.245 million; $767.868 million for 660 megawatts plant and $1.192 billion for 1,099 megawatts plant.
The capital cost for the coal-based power project includes cost of main plant equipment system, boiler, including auxiliaries, balance of plant equipment system, other mechanical equipment system, electrical equipment system and coal handling infrastructure, engineering and project management, erection and commissioning, land, site development and civil works, transportation and evacuation cost up to inter-connection point.
Under the foreign financing originating from Chinese banks, upfront Sino sure fee of 7.0 percent on the total debt servicing (including principal and mark-up for the entire loan tenor) has been included in the project cost.
The project cost will be adjusted at the time of commercial operation date (COD) on the basis of actual Sino sure fee subject to maximum of 7.0 percent. In case the sponsor managed better alternative Sino sure fee arrangement, the same will be considered at the time of COD
An official said no withholding tax on local foreign contractors, sub-contractors, supervisory services and technical services provided by foreign (non-residents) entities has been assumed, adding, the actual expenditure on this account will be included in the project cost at the time of commercial operations on the basis of verifiable documentary evidence.
Construction period for the generation facility having a capacity of up to 330 megawatts will be 40 months and 48 months for the generation facility having a capacity of 660 megawatts and above.
The sponsors of the project can arrange foreign financing in the US dollar, British pound sterling, euro, Japanese yen and Chinese yuan or in any currency as the government may allow.
The upfront tariff has been determined on the basis of debt equity ratio of 75:25, while the minimum equity will be 20 percent and the maximum equity will be 30 percent; if the equity actually deployed is more than 30 percent of the capital cost, equity in excess of 30 percent will be treated as loan.
The Chinese government and banks have committed to finance $45.6 billion worth of energy and infrastructure projects in Pakistan over the next six years, according to the deal signed by Prime Minister Nawaz Sharif during a visit to China recently.
Both Sindh Engro Coal Mining Company and Sino Sindh Resources expect to achieve the financial close by June 2015 for their coal-mining and mine-mouth power projects.