Nepra again refuses to raise Nandipur power plant tariff

ISLAMABAD: The much-touted about Nandipur power plant has emerged as permanent headache for the incumbent government as the National Electric Power Regulatory Authority (Nepra) has, for the third time in a row, refused to provide the required solace to the government by not allowing raise in its tariff as was desired by the government.

This time too, the regulator unfolded its decision on September 2, 2016 of which a copy is available with The News under which it has blatantly refused to provide any kind of relief in tariff to the top management of Nandipur power project in the heads of delay cost, efficiency and other costs. 

The power regulator maintained its tariff at Rs11.6361 per unit for 30 years, by rejecting the re-consideration request of Ministry of Water and Power against the determination over Motion for Leave for Review (MLR) petition. The regulator argued in the favour of its verdict saying that the allowed tariff is reasonably sufficient to not only cover all of Nandipur's fixed capacity charges (where all the delay cost is parked) but also sufficient revenues to earn profit even in the first 15 years of its operation wherein the loan is scheduled to be paid back.

The ministry of water and power that submitted its re-consideration request with Nepra against the earlier determination over the Leave for Review petition demanded the inclusion of Rs20 billion in the cost and its reflection in the tariff arguing that at the existing tariff, Nandipur project will continue to be prone to get economically collapsed.

However, the decision that Nepra gave on September 2, 2016 with no increase in tariff has virtually irked the top mandarins of the Ministry of Water and Power. “We will submit a new petition by depositing the fee with Nepra seeking the relief, as it is the right of the petitioner to get the relief, one of the top officials of the ministry told The News while reacting to the latest determination of Nepra over the Nandipur tariff.

“We have carved out the strategy to deal with the issue by making new petition and in case of failure we will be left with no option but to close down the project as under the present tariff project it will economically collapse as the existing tariff will continue to expose project to the loss.”

So far Nandipur power plant, the official said, has sustained the loss of Rs12.3 billion till now as the Nepra had earlier disallowed the cost of over Rs20 billion in the tariff . The relevant official of the Ministry of Water and Power said since its commissioning of date (CoD) until now, the project braved the loss of Rs12.3 billion in the wake of refusal by Nepra in allowing over Rs20 billion as increase in cost of the project in the tariff. The total cost of the project stands at Rs58 billion out of which Rs53 billion has been spent. The remaining amount will be spent on the gas conversion of the project by February 2017.

“The decision will make us unable to pay the loans of Rs34 billion borrowed for the project,” the official of the ministry said. In the petition, the government had asked for inclusion of cost incurred due to delay in completion of the project. It has also asked Nepra to permit the reduction in efficiency of the plant to 44 percent as the regulator has determined the efficiency at 45 percent which is on higher side.  The ministry in the head of other costs had also sought the inclusion of 15 percent surcharge paid on income tax that amounts to Rs2.5 million, contractor delayed payment of Rs5.5 million, land preparation and building that incurred cost of Rs123.63 million, delay period admin & overhead expenses of Rs205.024 million, employer engineers cost of Rs26.22 million and demurages and detention charges of 718.13 million apart from seeking the inclusion of interest during cost till the completion of the entire project, cost of fuel oil treatment plant, and gas pipeline charges. 

In the petition, the federal government also stated that the authority has allowed the cushion of 6 percent in efficiency of plant for impact on weather and conditions at the port, but has taken the benchmark efficiency by 52.7 percent, which needs to be revised because the efficiency of the plant is affected by various reasons including the weather conditions, altitude, and site configuration.

The authority says that the allowed tariff is reasonably sufficient to not only cover all of Nandipur's fixed capacity charges (where all the delay cost is parked) but also sufficient revenue to earn profit even in the first 15 years of its operation wherein the loan is scheduled to be paid back. It further argues that after the debt is paid Northern Power Generation Company Limited (NPGCL) return is expected to increase further. The project will only forgo some of the portion of 15 percent guaranteed internal rate of return (IRR) that would have been earned if the project was built within the normal time period without any delays.