Capacity charges payment issue biggest threat to power sector

ISLAMABAD: Under new scenario, capacity charges payments issue has emerged as biggest threat to sustainable power sector as the electric power consumers will have to pay enormous amount of Rs650 billion in the tariff in the same head in 2018-19, unfolds the latest official working, of which copy is available with The News.

In the capacity charges head, net hydel profit will also cause more surge in end consumers’ tariff. In the existing notified tariff consumers are paying Rs70 billion in the head of NHP. Nepra has determined the increase in the consumers’ tariff to Rs15 per unit from existing notified tariff of Rs11.50. And if the government notified Rs15 per unit, then the net hydel profit, which is paid to KP and Punjab, the end consumer will pay off Rs180-200 billion in 2018-19.

In the system, new 500MW wind projects, LNG, Coal, Nuclear (Chashma-3), Neelum-Jehlum and other projects are added in the system which have increased the fixed cost of capacity charges payments by Rs150-200 billion per annum that will be paid by the consumers. Prior to the new projects, consumers were paying Rs280 billion as capacity charges which now swelled to whopping Rs650 billion. In 2015-16, the end consumers paid the capacity charges, which are fixed cost and included in the tariff, amounting to Rs280 billion and in 2016-17 the consumers paid Rs358 billion in the head of capacity charges which have been projected in 2018-19 at Rs650 billion.

Top officials said that fuel cost is now on the decline but unfortunately capacity charges which are the fixed cost of electricity units are on the rise which is alarming development. Under the power policy Rs1.5 is allowed to IPPs as capacity charges on delivered electricity units. And this should be applied also on hydropower projects when it comes to payments of net hydel profit and the amount of NHP should be determined on delivered units.

On account of the new electricity generation over 11000MW that has been added in the system, the surplus capacity is now hovering at 4000MW in winter season and the power consumers will pay their capacity charges. However, Zargham Eshaq Khan, Joint Secretary (Power) said that in the last year of 2016-17, Rs203 billion has been paid in the form of capacity charges to the power houses excluding the payments of net hydel profit.

Mr Khan said that the government will continue to pay till five years after 2028 as the Power Purchase Agreements (PPAs) with most of the IPPs have been signed for 25-30 years time and they will end up by 2028 and capacity charges payments will continue 5 years beyond 2028. He, however, admitted that every year the capacity charges payments to IPPs hovers in the range of Rs150-200 billion.

Top man of Power Division while admitting the capacity charges payments a threat to sustainable power sector said that in the past questionable Power Purchase Agreements (PPAs) were done with IPPs which were not in favour of the countrymen. However, the then decision makers are of the view that Pakistan was considered high risk country and no one was ready to invest in power sector. So such kinds of PPAs were inked to ensure the electricity availability in the country. “If one happens to go through such PPAs, one will feel that investors had drafted the PPAs on their own and the state officials had just signed the said agreements. Now many of PPAs of some IPPs are going to expire in 4-5 year and will completely erode by 2027-28.”

“Now after power projects under the umbrella of CPEC, there is a line of projects from other economies we have,” he claimed saying that Pakistan now enjoys the luxury to pick up the projects with PPA for 10-15 years at the maximum with no capacity charges in the agreement. In the future, the projects will be entertained with no capacity charges in the agreements. They will be paid only for the electricity. “This is how the government will come out of capacity payment charges’ crisis,” the official said.