Two coal-based IPPs to make Rs483b extra profit: govt report

ISLAMABAD: The 296-page report of committee on power sector audit, circular debt resolution and future roadmap- recently submitted to Prime Minister Imran Khan- has said that the coal based Independent Power Producers (IPPs) at Port Qasim, Karachi, and Sahiwal set up under China Pakistan Economic Corridor (CPEC) during the last government will be be making Rs483.64 billion extra profit in next 30 years under heads of projects’ excess set-up costs and internal rate of return allowed by National Electric Power Regulatory Authority (Nepra) and the Central Power Purchase Agency (CPPA) respectively.Chinese and Qatari companies have separately invested in the plants.

The detailed report said that internal rate of return of 17 per cent allowed in power policy 2015 was violated by the CPPA as it was found to increase the internal rate of rerun by 1.39% to 18.39% against the Power Policy 2015 and Nepra allowed the increase in projects’ cost by Rs32.46 billion with huge impact of Rs291.04 billion in 30 years time.

Both the projects are installed under 2005 power policy that allows 17 percent internal rate of return with US dollar indexations. However, the consumers will have to pay the power plants the additional amount of Rs484 billion in three decades.

The detailed findings of the report unfolded that Sahiwal coal project was given the excess set-up cost of Rs13.16 billion and Port Qasim coal project Rs19.30 billion and power consumers will be paying extra amount of Rs160.14 billion in thirty years’ period.

The sponsors of Sahiwal coal project will be getting extra amount of Rs376.71 billion that include Rs13.16 billion in the head of excess project cost that will turn into Rs291.04 billion and Rs72.51 billion because of raise in the internal rate of return in 30 years.

Similarly, Port Qasim coal power will get extra amount of Rs106.93 under the same heads.

The report said that the raise of 1.39% in internal rate of return translates into around Rs1 billion per year extra payment to each IPP at the current USD/ PKR exchange rate. Assuming that USD appreciates against PKR at an average rate of 6 per cent per annum, the excess payment would amount to Rs72.5 billion in case of Sahiwal coal power house and Rs87.6 billion in case of Port Qasim coal based power house, aggregating to Rs160.14 billion over the project life of these two IPPs. The government panel on power sector audit also held Nepra responsible for allowing the increase in projects setup cost by Rs32.46 billion with huge impact of Rs291.04 billion in 30 years’ time.

The report says that Nepra allowed total project cost of $1,782.31 million and equity of $361.6 million to Sahiwal coal based power house at the time of CoD (Commissioning of Date) tariff determination. However, if excess in set-up cost is deleted, the project cost and equity worked out by the committee on power sector audit to $1,678.54 million and $340.57 million respectively.

Based on this adjusted equity amount, Sahiwal project was entitled to $70.90 million per year as RoE (Return on Equity), however, project has been allowed $98.30 million by Nepra.

Since the project has recently started and the RoE is indexed with US dollar, assuming that dollar appreciates against rupee at an average rate of 6 per cent per annum, the excess payment on this account aggregates to a total of Rs291.04 billion over the next 30 years.

In case of Port Qasim project, the report said that Nepra corrected the error of construction period and assumed actual construction period to compute return during the said period.