NEPRA approves 3.4 cents tariff for 600MW solar project in Muzaffargarh, but with some caveats

ISLAMABAD: The National Electric Power Regulatory Authority (NEPRA) has approved a tariff of 3.4 cents (Rs7.8 per unit) for the 600 MW solar project to be installed at Muzaffargarh, but the regulator has also imposed some conditions on the project, including indexation of 70 percent on the tariff due to change in exchange rate variations, on a quarterly basis.

In addition, the income tax of 15 percent on the income and gains of the power producer of the 600 MW solar plant to be installed at Muzaffargarh will be paid by end consumers as it will be part of the benchmark tariff. Alternate Energy Development Board had pleaded that the 15 percent income tax should be treated as a pass through item, which the regulator rejected and made it past of the benchmark tariff.

In addition, the consumers will also pay yearly lease rentals at the rate of 5 percent (Rs70 million) of the proposed cost of land (Rs1,400 million) that will translate into tariff impact of Rs0.06/kWh.

The NEPRA has approved the Request for Proposal (RFP) documents for the government's pilot project of a 600 MW solar power plant. The RFP will be open for bids from investors until May 31, and the winner will be awarded the contract for the project.

However, Nepra has also stated that the government's guidelines framework approved in 2022 under which the project will be installed is inconsistent with the ARE policy 2019 approved by the Council of Common Interests (CCI).

Maqsood Anwar Khan, member from KPK in NEPRA in its dissenting note also highlighted that Framework Guidelines, 2022 under which the project will be established are not approved by CCI and this project is highly inconsistent with the ARE policy 2019 approved by CCI.

In the dissenting note, Khan said the government's initiative for the fast-track solar PV utility scale projects development for the substitution of expensive imported fossil fuel with Solar PV Energy is commendable. The development of indigenous and renewable resources is need of power sector and economy to ensure affordable and sustainable tariff for the consumers of the Pakistan.

However, he said the process of development of alternative and renewable energy (ARE) projects should be compliant and transparent and in accordance with the Constitution of Pakistan, applicable laws, CCI approved policies and other regulatory framework.

It should be noted that as per Article 154 of the Constitution, the CCI alone is competent to formulate and regulate policies in relation to the subject of electricity. Further, section 14(A) of the NEPRA Act stipulates that National Electricity Policy (NE Policy) be approved by the CCI and NEPRA have to perform regulatory functions accordingly.

“As per our understanding the "Framework Guidelines, 2022" are not approved by the CCI so same may not be recognized as valid legal and applicable document, as it has been approved by Federal Government without the consultation of the provinces, and hence it is in derogation of the Constitution of Pakistan and the NEPRA Act.”

It is also important to mention that after due processing, the CCI, duly represented by federal and provinces under Article 153 and as empowered under Article 154 of the Constitution has approved the Alternative & Renewable Policy 2019 (ARE Policy, 2019) for the competitive basis development and procurement from ARE projects to achieve the goal of affordable tariff for consumers.”

It should be noted that the ARE Policy, 2019 is still in the field, and in my humble opinion, the development of renewable resources including wind, solar, and other ARE technologies should be encouraged and developed in compliance to the provisions of the ARE Policy, 2019.

He said that In the current case, Alternative Energy Development Board (AEDB) has submitted the RFP for the development of 600 MW Solar PV Power Project at Muzaffargarh before the Authority, under the federal Government approved Framework Guidelines, 2022; which in his opinion is not appropriate and legally sustainable framework as it appears as the parallel regime with the ARE Policy, 2019.

Hence, he is of the considered view that development of solar PV projects under the Framework Guidelines, 2022 while ignoring the CCI approved and applicable ARE Policy, 2019 is tantamount to disregard to the CCI approved Policies and may have far reaching impacts on the power sector of Pakistan.