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July 10, 2019

Capacity charges go up to Rs900 bn from Rs650 bn


July 10, 2019

ISLAMABAD: The capacity charges payments of the power plants have alarmingly ballooned to Rs900 billion this year from Rs650 billion in last fiscal year. The increase in capacity charges payments mainly came on account of Neelum-Jehlum hydropower project. In addition, one more RLNG-based power plant that is built at Trimmu is going to come on stream, may be in the later part of ongoing financial year.

In the wake of these projects, the capacity payment will soar to whopping Rs900 billion, a senior official at Power Division told The News. The capacity charge payment component has now emerged as one of the major factors causing the hike in power tariff. The hike in tariff by Rs1.50 per unit effective from July 1, 2019 is mainly because of the capacity charges payments.

Thar coal-based power plants are being built and one more imported coal based power plant in Baluchistan has almost come on stream. More importantly, the capacity payments have also been increased because of the massive devaluation of Pak Rupee by Rs40 during the PTI government.

However, the government has decided not to extend the power purchase agreement of those power plants whose agreements will elapse. This year, the agreement of Kot Addu Power Plant is going to elapse and in next financial year the PPAs (power purchase agreements) of HUBCO power plant of 1200 MW will elapse and under the policy decision, no extension of PPAs of the said plants will be made.

However, if there is a need for electricity, these plants will be asked to provide electricity to the system and get payment and no capacity charges payment will be made. This means they will be offered take and pay system.

In the capacity charges head, apart from IPPs, net hydel profit of hydro power projects is also being treated as capacity charges owing to which the tariffs are increasing. The end consumers pay 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 stood at Rs650 billion. Now capacity charges payments are projected to sell to Rs900 billion.

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.

Khan said that the government will continue to pay till five years after 2028 as Power Purchase Agreements (PPAs) with most of the IPPs have been signed for 25-30 years 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.

Calling the capacity charges payments a threat to sustainable power sector, he said that in the past questionable 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,” he said.

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