ISLAMABAD: The proposed alteration in tariff for upcoming Thar coal-fired projects has reportedly become a bone of contention between the federal and Sindh governments as the latter has severely criticised the Centre for seeking a 15 to 20 percent reduction in levelised tariff of Thar projects.

This scene was witnessed at a public hearing held in National Electric Power Regulatory Authority (Nepra) on Tuesday presided over by Chairman Nepra Brig. Tariq Saddozai( retired). Hamayat Ullah Khan (Member KPK), Saif Ullah Chattha( Member Punjab), Syed Masood-ul-Hasan Naqvi ( Member Sindh) and Major Haroon Rashid (retired) were also present. Sindh government’s team was led by Chairperson Sindh Board of Investment (SBI) Naheed Memon. No official from the Ministry of Water and Power attended the hearing as it had already dispatched its comments. However, Private Power & Infrastructure Board (PPIB), an arm of Water and Power, was duly represented.

According to Chairperson SBI, Chief Minister Sindh, Syed Murad Ali Shah maintains that tariff for Thar coal fired projects which expired on January 19, 2017, should continue so that the investment plans started by Sindh Engro Coal Mining Company (SECMC) may not stop. A number of investors are in the pipeline and have already given their commitment so it is not prudent at this stage to announce new tariff.

“We cannot dis-incentivise current policy at this time as project development will halt. Substantial work is still needed including infrastructure issues. The Sindh Government has to work hard on it. Obviously when investors will come, the process will continue and if investors are discouraged at this point of time, this process will stop,” she added.

Naheed Memon argued that imported fuel will create problems in future for the power sector.

When Chairman Nepra welcomed comments from the Ministry of Water and Power and suggested that it should have been better if a representative from the Ministry had attended the public hearing, Chairperson SBI angered at the Water and Power Ministry for seeking for lower Thar coal-fired plants tariff by 15-20 percent, said the officials of the Ministry are right now at the Governor’s House in Karachi. She said Sindh is still facing substantial load shedding.

She further contended that if Thar coal-fired projects are completed, dependency on indigenous fuel will increase and circular debt will decrease because presently circular debt is standing at the same high level.

Another official from Sindh government expressed surprise at the mention of air cooled technology for the upcoming Thar coal power plants. He said a study is under process on availability of water for upcoming projects and claimed there is no issue of water for 5000 MW power plants. The capacity of existing developed and under-developed blocks in Thar is 10,000 MW.

It was also argued that everyone has been misguided with the argument that different costs, including the EPC cost, have declined.

Naheed Memon said that Ministry of Water and Power should be realistic saying that the risk is not yet over.

“Let the mine open and let generation start. With retraction from existing tariffs our investors will be disheartened,” she added.

Syed Akhtar Ali, former Member (Energy) Planning Commission, maintained that 12 per cent IRR is given to investors across the world but in Pakistan it is 20 per cent. He argued that interest rate was 17-18 per cent when 20 per cent IRR was announced whereas now interest rate has declined to 6-7 per cent.

He further stated that Thar is not a new thing. Power plants have already been set up in Thar (India) and insisted that Kibor plus three per cent margin is too high.

The representative of PPIB, in his arguments said that tariff for Thar coal-fired power plants should be rationalized, adding that investment in not dependent only on IRR.

Current LBOD scheme is sufficient for 4x330 MW. Water component of 0.52 cents / KWh is allowed under Nepra’s upfront tariff.

The following options are available for fulfilling water requirement: (i) expansion of LBOD scheme to make water available for future IPPs following resource estimation at source. This expansion will have to be financed by GoS/ IPPs/ others and will have to be compensated in the tariff. Approximate required cost may be 0.78 cents/ kWh versus base case of 0.52 cents/ kWh; and (ii) use of air cooling (or hybrid) technology instead of wet cooling technology. IPP can be run using air cooling technology or with water (hybrid technology) but this would require increase in CAPEX, increase in auxiliary load, decrease in thermal efficiency and decrease in plant factor. The required cost would be 1.27 cents/ kWh verses base case of 0.52 cents/ kWh.

“Revision in benchmarks should be market-based which should also include law and order cost and country risk,” he continued.

According to Shamsuddin Sheikh, CEO SECMC, Nepra should play its role in developing tailor-made tariff that accounts for unique needs of Thar ( e.g. water component), providing adequate incentives that help attract necessary investment and allow a separate fixed FCC component to ensure mine fixed cost recovery.

Sheikh who got upfront tariff for his projects, did not oppose competitive tariff, but said, the true benefits of Thar coal can only be realized if mine is expanded to its optimal capacity.

Talking about water supply to the plant, he said enough ground water and drain water can be generated from eight IPPs which can be treated through advanced High Efficient Reverse Osmosis (HERO) to run 2-3 IPPs. The required cost is slightly above case of 0.52 cents/ kWh.

“Since Thar coal tariff is most sensitive to expansion of mine, Nepra should consider the pros and cons of reducing tariff versus the risk of non-expansion and/or delayed expansion. Based on this, SECMC is of the view that maintaining the same tariff (with appropriate) adjustment for steel price indexation) is the best way forward,” he continued.

SECMC requested Nepra to announce separate tariffs for IPPs using wet-cooled technology (either source of water) and air-cooled technology. The regulator was also asked to encourage IPPs to use ground water and/or drain water.

A couple of other interveners also commented on the fixation of new tariff for the upcoming Thar coal-based projects.

The upfront tariff for Thar coal based power plants was determined on July 9, 2014 which was subsequently notified by the Ministry of Water and Power on January 20, 2015. The validity of the upfront tariff was two years from the date of its notification. The tariff expired on January 19, 2017. The levelized tariff for 330 MW power plants on foreign financing was 8.5015 cents for units and on local financing 9.5643 cents per unit. For 660 MW power projects, the notified tariff was 8.3341 cents per unit for foreign financing and 9.5668 cents per unit for local financing. The notified levelised tariff for 1100 MW Thar-coal fired power plants was 7.9889 cents for foreign financing and 9.1368 cents for local financing.

The Authority on January 4, 2017 decided not to extend the upfront Thar coal tariff and initiate proceedings in respect of tariff for future projects. The Authority in its letter of January 13, 2017 also solicited Ministry of Water and Power’s point of view as to how many more MWs from Thar coal are being envisaged along with a timeframe but no response was received. A reminder to the Ministry of Water and Power regarding update, spelling out the timeframe and MWs envisaged from Thar coal projects was also sent on March 15, 2017.

Ministry of Water and Power, in its comments stated that three blocks of Thar-coal are included in the CPEC and in order to provide economies of scale, each block must achieve a capacity of more than 15-20 million tons per annum which means generation of around 7,500-9,000 MW cumulatively. At present, tariff on Thar coal is available to projects of around 3,600 MWs.—MUSHTAQ GHUMMAN