300MW coal-based Gwadar power plant: Nepra extends levelised tariff of 7.78 cents for 30 years

ISLAMABAD: Nepra has accorded approval to the levelised tariff at 7.78 cents (Rs22.34) per unit for 30 years of 300MW Gwadar coal-based power plant to be constructed under the CPEC umbrella. The project will be commercially operational in three years’ time and the plant availability will be 85 percent.

The regulator has determined the tariff on the basis of debt-equity ratio of 80:20 by ensuring the XIRR (extended internal rate of return) of 14 percent at an EPC cost of $321.41 million. Nepra came up with the decision on July 26, 2023, just 4 days before the start of the visit of Chinese vice premier. This is a project of paramount importance that witnessed many upheavals from 2017 till now. The project was earlier given the tariff in 2019 at the value of US dollar at Rs105 per unit, but the PTI government planned to abandon this project and decided to replace it with solar power plant.

Then another proposal surfaced that the project should be relocated to Thar, but China did not agree and insisted that the same power plant should be installed at the Gwadar Port, which is the flagship project of CPEC and strategically very important and China does not support any solar power plant with fluctuating electricity input. China wants a reliable and sustainable supply of electricity to the Gwadar Port to make it a success story.

The project is aimed at improving the reliability of local power supply, which would help gradually solve the problems in the current economic development and urbanisation of Gwadar Free Zone. All the major projects under CPEC in Gwadar and adjoining areas like NG1A, desalination plants, Pak-China Friendship Hospital, Pak-China Technical and Vocational Training Institute, Gwadar East-Bay Expressway, Gwadar Free Zone, Gwadar Industrial Estate, Gwadar Port Complex, University of Gwadar, as well as planned projects like Gwadar Oil Refinery and Gwadar Shipyard have a cumulative power requirement of more than 800MW. According to the uploaded determination of 300MW power plant at Gwadar, the regulator has ensured XIRR (extended internal rate of return) of 14 percent at an EPC cost of $321.41 million to CHIC Pak Power (Private) Company Limited (CPPCL). The plant will utilise the imported coal API-3 with the option to use 20 percent local Thar coal. During the 1-13 years, the project’s tariff has been extended by the Regulator at 8.689 cents per unit (Rs23.73 per unit) and for a period of 14-30 years, the tariff would be at 3.809 cents per unit (Rs17.997 per unit).

The CPPCL in its petition had asked for a levelised tariff of the project for 30 years at 8.49 cents with an EPC cost of $403 million with internal rate of return of 17 percent.

Sindh member in Nepra, Rafique Ahmad Shaikh, in his additional note said that though the development of a baseload power plant at Gwadar is necessary for the economic development of the port city and uplift of the social life in the area, the project should be allowed on local coal as the primary energy source. In case local coal is not available by the time of COD (commercial operational date), the power plant may be allowed to use imported coal, but this arrangement should not exceed three years from the Commercial Operation Date (COD).

He stressed the Chinese company, which is the petitioner, for starting negotiations with the local coal authorities for arrangement of local coal. “Lucky Electric has successfully demonstrated operation of its plant on a mix of local/imported coal.”

Further, it is highly expected that the power plant’s utilization rate will be lower in the initial years of operation, therefore, considering the economic rate of return the possibility of providing a subsidy on the generation tariff can also be explored.

“As per the information provided, the investment plan submitted by NTDC to NEPRA doesn’t include any cost related to evacuation of power from Gwadar, therefore, NTDC shall ensure that the power plant will not be underutilized due to transmission constraints and any additional costs due to transmission constraints shall be borne by NTDC.”

As per the determination, all plant and equipment shall be new and shall be designed, manufactured, and tested in accordance with the acceptable standards. The verification of the new machinery will be done by the independent engineer at the time of the commissioning of the plant duly verified by the power purchaser. The sponsor of the project can arrange foreign financing in American Dollar, British Pound Sterling, Euro and Japanese Yen or in any currency as the Government of Pakistan may allow Debt servicing & Sinosure fee components of tariff shall be applicable for the 1st twelve and a half years of the tariff control period. The tariff control period shall be 30 years from the date of commercial operation. The dispatch will be at the appropriate voltage level mutually agreed upon between the power purchaser and power producer.

The dispatch shall be in accordance with economic merit order. In case there exists a mismatch between the COD of the project and availability of the national grid for interlinking of the project resulting in idle capacity charges to the project, specific approval shall be sought from the appropriate forum for passing on the same to the end consumers. And if the company is obligated to pay any tax on its income from generation of electricity, or any duties and/or taxes, not being of refundable nature, are imposed on the company, the exact amount paid by the company on these accounts shall be reimbursed on production of original receipts. This payment shall be considered as a pass-through payment. However, withholding tax on dividends shall not be passed through.