New power plants to burden economy by billions

KARACHI: Financial pressures are seen mounting on the country’s economy as the new power projects, currently at various stages of completion, would add billions of rupees to capacity charges to be paid by cash-strapped government, analysts at a brokerage firm viewed.

“Significant power capability will [also] be added to the system after the swift commercial operations of initial projects under CPEC; however, the progress of incorporation of new plants has slowed down,” a latest research report released by Multiline Securities Limited (MSL) noted.

According to the report covering the power sector of the country, Lucky Electric Power, which recently announced commercial operations of its coal power plant, is expected to add Rs50 billion to the capacity charges, while Thar Energy Limited, set to start commercial operations in 2023, will make the capacity bill fatter by Rs40 billion.

The most notable addition to the power sector is the recent commissioning of KANUPP-3, seen to add Rs200 billion to the same.

Around 600MW wind power projects and 250MW solar projects are expected to start generating electricity in 2023.

Punjab Thermal may also be switched on this year.

The next leg of power sector expansion would be tilted towards hydroelectricity and coal power projects.

Karot Hydro Power, ThalNova, and Thar Coal Block-I power projects would be fired up in FY24.

Whereas, Suki Kinari and Kohala Hydro Project would be notable additions in the coming years.

About the impact of tariff modification, the report said the government in 2020 renegotiated the tariff structure of 47 IPPs (Independent Power Producers).

Majorly the power plants included RFO (Residual Furnace Oil) based plants followed by Chashma Nuclear, newly inducted RLNG, wind, and solar plants.

The dollar indexation for ROEs (Return on Equity) of 2002 RFO plants have been de-linked and are now fixed in the rupees calculated through 17 percent ROE generation calculated at parity of PKR/USD 148.

The said change would help save Rs30 billion/annum, translating into lowering the capacity charge by Rs0.24/kWh.

The structure for 1994 IPPs has been adjusted downwards with PKR/USD indexation applicable on 50 percent of scalable components with variable O&M (operation and maintenance) reduced by 11 percent.

As a result of this, the government would be able to save around Rs22 billion.

The RLNG projects have been decreased to 12 scalable IRR (Internal Rate of Return) from 16 percent with dollar indexation.

The applied change would reflect in savings of Rs8.5 billion.

The ROE for wind power projects have been trimmed from 18 percent to 13 percent along with downward adjustments in O&M components.

The ROE of solar projects has been cut from 17 percent to 13 percent.

Chashma’s return has been fixed in rupees, which would save the government over Rs30 billion.

The overall impact would be more than Rs90 billion - resulting in Rs0.73/kWh as saving in capacity charge.

The government tried to re-negotiate tariffs of coal power plants but the deal didn’t materialise.

The downward readjustment of ROE would be near impossible but any negotiations related to stretching debt repayments could reduce per unit cost to material extent.

By increasing the loan repayment period from 10 years to 20 years could lead to Rs0.6/kWh downward adjustment in tariffs.