Cost of Nandipur Power Plant hikes

Islamabad

The cost of Nandipur Power Plant hiked by Rs3.6 billion to Rs61.6 billion from Rs58 billion on account of the inclusion of the cost of Rs4.7 billion of 88 kilometers gas pipeline and this fact will be unfolded in the tariff petition that the government is going to submit with Nepra.

“We are in the process of preparing the petition primarily based on the bids both on RFO (Residual Furnace Oil) and gas that the government has received for operation and maintenance of the power plant and on top of that the ministry would include the actual cost of the project after converting the plant on to gas fuel for which the 88 kilometers pipeline infrastructure is being laid down,” top official of the ministry who is relevant to Nandipur Power Plant confided this to The News.

Earlier, Water and Power Secretary Younas Dagha in an interaction with The News some days back also confirmed that the ministry would file the review petition for tariff based on bids received for operation and maintenance.

The official said that Nepra had allowed Rs2.5 billion in the head of conversion of power plant to gas fuel. The ministry had earlier told the regulator that Sui Northern would not only purchase the pipeline but also lay down it on its own resources and would not charge from Northern Power Generation Company Limited (NPGCL) and so the cost of pipeline of worth Rs4.7 billion was not included in the PC-1 of the project and tariff petition as well.

Now the ministry has paid the whole cost of gas pipeline and therefore Rs4.7 billion is being included in the revised PC-1 of the project which will escalate the cost of the project to Rs61.6 billion from Rs58 billion.

The efficiency of the plant on gas will be 48 percent owing to which its capacity to generate electricity will hike to 525MW as on furnace oil the efficiency of the plant is 45 percent. The roll over impact on economy of the Nandipur power plant with capacity to generate 525MW will also increase manifold.

To a question the official said that out of 88 kilometers gas pipeline, 65 kilometers portion had been laid down. He said that the amount of Rs2.5 billion was already permitted in the cost and Rs1.1 billion rupees had been saved in some heads of the project during construction. So the net increase in the cost of the project stands at Rs3.6 billion after even including the cost of Rs4.7 billion to be incurred on laying down the gas pipeline.

In the wake of the revised cost, the government will again seek the Interest During Cost (IDC) till the execution of the project which amounts to Rs14 billion, but regulator had earlier allowed the tariff just Rs7 billion as IDC arguing that the interest till execution could not be included in the tariff because of the delay in completion of the project. “However, our connection is that Nepra has also extended the IDC to many power plants. More importantly, Nandipur power plant has also been denied the inclusion of Rs4.5 billion spent on fuel for pre-CoD operation, but the regulator didn’t allow that too in the tariff knowingly that it is common practice that expenses incurred on pre-COD operation of the plant are allowed in the tariff.

Coming to outsourcing of the O&M of the project, the official said that the decision to this effect had been taken in line with the directives of the regulator which had asked the ministry to first go into the contract with the lowest bidder on O&M and then come to Nepra with petition seeking the adjustment in the tariff for O&M which was earlier allowed.

He further divulged saying that the experts were unable to run new power plants and their refusal to run such plants had been documented.

Nepra had allowed O&M tariff on RFO at Rs0.697 per unit whereas the bid price was at Rs0.8595 per unit and on gas regulator has extended the tariff on Rs0.543 per unit whereas the lowest bid stood at Rs0.4873 per unit. Nepra on O&M tariff on gas extended the impact of Rs2.113 billion per annum, but the contracted impact has been calculated at Rs1.896 billion showing that just in this head the plant will be having saving of Rs217 million a year. This means that Nandipur power plant will turn around when it starts running on gas with additional saving of Rs2.17 billion per annum ensuring the positive cash flows.

Hydro Electric Power System Engineering Company of China (HEPSEC) has won the bid and so the government has awarded the contract of O&M to the said Chinese company for long 10 years. The company will run the project on gas and in return it has guaranteed 90 percent of the availability of the complex (plant). HEPSEC is bound to make the plant available for electricity generation for 339 days out of 365 days. HEPSEC will take 90 days to mobilise its staff and equipment and by the time the gas conversion is to get completed enabling the plant to get operational by April 30, 2017. However, on RFO, the said company has the bid for O&M at higher side and so the ministry wants the Nepra to give adjustments in the tariff enabling the Chinese company to run the project both on gas and RFO.