Nandipur power plant may collapse economically

Tariff rise not enough to enable project to survive

ISLAMABAD: The 425-450 MW Nandipur power plant will go in loss and ultimately collapse economically when it runs even at the new tariff of Rs 11.6361 per unit that Nepra has extended as the earlier tariff stood at Rs11.3073 per unit. 

And if the plant keeps on running on the new tariff which is almost close to the earlier tariff, it will add to the circular debt and ultimately prove a white elephant, as with the new tariff, the cost of plant is not recovered as the Northern Power Generation Company Limited (NPGCL) had submitted Motion for Leave for Review with the regulator, seeking the tariff over Rs15 per unit, a senior official of the ministry told The News. 

NPGCL in its review petition had built the case arguing even if it gets operational and generates 425-450 megawatts electricity, Nandipur power project will collapse and turn out a huge liability under the existing tariff of Rs11.3073 on furnace oil determined by Nepra, as its electricity generation cost is not recovered. 

With the costs and tariff of Rs 11.3073 per unit determined by the learned authority, the project will not be able to even pay the lenders’ payments and it will collapse like other Gencos (electricity generation companies) within days. 

The official said since the regulator has not given relief in tariff as the new tariff of Rs 11.6361 per unit which is slightly higher, it is still close to the earlier tariff and is not enough to provide any relief to the project management, so the project is still prone to economically collapse even on the new tariff. However, because of the steep decline in furnace oil prices, the project has got the solace, but when fuel price surges the project will become a liability at the new tariff.

Water and Power Secretary Younas Dagha remained out of access for the last two days despite repeated attempts by this correspondent to make contacts with him. On top of that, the scribe sent him SMSs containing questions whether the project will be viable when it runs on the new tariff Rs11.6361 per unit, as the government has mentioned in the petition submitted with the regulator that on the earlier tariff of Rs 11.3070, which is almost the same with the new tariff, survive or not? Further, will the project recover the cost with the new tariff? But the scribe did not get any response from Mr Dagha. 

The same questions were sent to Joint Secretary (power) Zargham Khan but no response was sent. However, the officials said the top mandarins of the ministry are upset over the verdict of Nepra. Spokesman of the ministry Zafar Yab Khan is in London and not available for giving the version of the ministry over the new tariff determined by Nepra. 

However, in its latest determination, Nepra has determined the EPC cost at $109.22 million against $382.52 million demanded by the petitioner. It is a huge setback to the NPGCL, putting the government in a fix as to how the project will run with new tariff which is not enough to cater to the cost of the project. Nepra has also disallowed the non-EPC cost also saying the overrun cost because of the delay in execution of the project cannot be passed on to consumers. 

In other words Nepra has foiled the government move to pass the burden of Rs 21 billion to the consumers and halted its spillover impact in the form of increase in tariff by Rs 4 per unit. In case the regulator agreed with the petitioner, the tariff of Nanipur power plant would be over Rs 15 per unit, a senior Nepra official told The News. 

However, Nepra in its earlier determination of April 14, 2015 had approved the EPC cost at $99.81 million. On the issue of relief in variable O&M (operation and maintenance) cost on furnace oil, Nepra refused to subscribe to the demand of the petitioner seeking Rs 0.7074 per unit as O&M cost; rather the regulator has allowed O&M cost at 0.480 per unit. The regulator in its earlier determination had determined the variable O&M cost at 0.455 per unit. The government is perturbed on this account, the official said.

Independent experts view that the project on furnace oil on new tariff, when it starts generating electricity commercially, will not be in a position to recover its cost and pay the loans; rather this project will be causing addition in circular debt. 

The regulator, however, has accommodated the government on the issue of return on equity during construction (ROEDC) calculation by permitting the petitioner on using the application of First In First Out (FIFU). The calculation of ROEDC in FIFU has already been extended. 

According to its determination issued Wednesday (January 27, 2016)  against Motion for Leave for Review submitted by NPGCL, the power consumers will annually pay Rs 11090  Kw/hrs under the head of debt servicing against the loan of Rs29.387 billion taken for the project.

The government has increased the cost of the Nandipur project to Rs 65.349 billion from earlier cost of Rs 58.804 billion by also including the expenditures of gas infrastructure. However, the regulator in its decision decided not to allow the cost of gas infrastructure amounting to Rs 4.750 billion in the cost of the project, arguing that it is Ogra that allows laying gas pipeline, it will give the tariff for RLNG that will be used in the plant for electricity generation.  

However, Nepra has allowed including in the cost of the project $20.29 million that will incur on the cost for gas conversion, which is based on estimate offered by GE worth $ 15.42 million and $4.87 million offered by DECL is considered legitimate cost. The petitioner had asked for gas conversion cost at $25 million. The regulator has also slashed cost from $15 million to $1.95 million incurred on procuring spare parts.