ISLAMABAD: National Electric Power Regulatory Authority (Nepra) on Monday refused to revise levelized reference tariff of 969MW Neelum Jhelum Hydropower Project (NJHPP) from Rs 9.1184 per unit to Rs 10.30 per unit (cents 6.2440) for 30 years, until Wapda gets Third Party Validation (TPV) or waiver of ''questionable” costs from the federal government.
Chairman Nepra Tauseef H Farooqi announced his decision after arguments and counter-arguments were advanced by both sides notably CEO NJHPC, Muhammad Zarain with regulator Nepra members from Sindh and KP giving him a tough time for seeking a revision in reference tariff sans validation of costs from third party. Central Power Purchasing Agency- Guaranteed (CPPA-G) supported Nepra’s stance that some costs of the project were not justified.
Sharing the details with the Authority, the case officer stated that EPC stage proposal filed by CPPA-G on NJHPC's behalf on February 2, 2018 was determined by the Authority on November 19, 2018 wherein NJHPC was allowed Rs 5.9180 per unit (against claim of Rs 13.0331 per unit), wherein the petition was not decided on merit due to a conditional approval of PC-1 by the ECNEC, therefore, a provisional tariff was awarded to cover essential expenses (O&M & debt) for project's viability and minimizing the abnormal increase in tariff latterly. A review motion of NJHPC was filed by CPPA-G on November 29, 2018, which was decided by Nepra on August 19, 2019, wherein NJHPC was allowed a tariff of Rs 9.1184 per unit which expired on October 16, 2020.
A Commercial Operation Date (COD) stage tariff petition was filed by CPPA-G on November 18, 2020 which was decided by the Authority on January 4, 2021 being non maintainable and directed CPPA-G to first file an application for the determination of reference tariff. CPPA-G was also directed to ensure that the application is accompanied with the report of an independent consultant with regard to the validation of costs of the project in compliance with the directions of ECNEC or of TPV validation of the costs of the project.
NJHPC on the issue of TPV submitted that TPV, which is to be conducted by the Ministry of Planning, Development and Special Initiatives, is at consultant's appointment stage. Therefore, at this stage a levelized tariff of NJHPC may be awarded and TPV may be adjusted subject to concurrence of Nepra and MoPD&SI.
The NJHPC requested that the uncovered cost of Rs 30.111 billion on account of tariff differential of Rs 2.8137 billion per unit for the period from July 2018 to October 16, 2020 may be allowed to be recovered in monthly equal installments.
The CEO NJHPC also informed the Authority that the then Prime Minister, Shahid Khaqan Abbasi, had granted waiver from TPV. However, when the incumbent government came to power, ECNEC directed Wapda to get the TPV done prompting Chairman Nepra’s comment that Khaqan Abbasi is no longer a prime minister and advising the CEO of the company to approach the incumbent PM in this regard.
He further commented that definitely there are "questionable" things in the project due to which ECNEC ordered third party validation.
The CEO argued that the company has obtained loans for the project which are to be paid leading to the chairman Nepra’s enquiry if loans were not covered in tariff of Rs 9.118 per unit, to which CEO replied in the negative.
The chairman Nepra further asked the case officer to share NJHPC's finances and was informed that the company had submitted its tariff petition on the basis of accounts of June 30, 2018. Nepra granted a tariff of about Rs 5 per unit which was later revised upward to Rs 9.118 per unit. Wapda had submitted loans' retirement schedule on the basis of which tariff was revised.
The chairman Nepra noted that when the tariff was revised on the basis of loans' retirement schedule then how it can be stated that the company is unable to payback its loans.
During the course of hearing, the case officer stated that the loan on which basis the tariff was revised was based on PC-1 which was on the higher side and which is now revised downward. The cost of project has already come down due to appreciation of rupee value. However, the CEO argued that the company has not paid the entire loan to the government as TPV will take six months.
Initially, the cost of the project was over Rs 500 billion, and in addition there are observations on Tunnel Boring Machines (TBMs).
The chairman Nepra advised the CEO of the company to argue with the Planning Commission which decided on TPV of the project. However, the CEO of the company argued that if payment is not made interest will continue to pile up on loans and the company will be in a position of default.
A representative of CPPA-G's technical team, Ahmad Sajjad, who is manager technical at CPPA-G, said that his organization supports the viewpoint of Nepra on TPV. Commenting on capacity factor, he said that CPPA-G has already explained that the energy determined by the company has not been substantiated. CPPA-G had raised similar issue in the previous hearing. According to it, for example, the energy determined by the company is not backed by entity of power sector.
He agreed to the viewpoint of Nepra that either the NJHPC gets a waiver from the relevant forum like Planning Commission or go for TPV as directed by ECNEC.
The chairman Nepra remarked that it has come to his notice now that the requirement of TPV has not been fulfilled. He said there is no third option available.
"There is something, somewhere, fishy due to which the project's owner – GoP – has taken a rigid stance and is asking for TPV of costs of the project. Nepra approved tariffs’ of dozens of projects but we never heard about TVP,” the chairman Nepra said, adding that since NJHPC is unable to convince its owner (GoP) then how can it convince the regulator?
After a detailed discussion, the Authority directed CEO NJHPC to get a waiver of condition of TPV of costs from the concerned authorities or approach Nepra for tariff revision after TPV formalities are completed.
The company has assumed exchange rate of Rs 165/ USD whereas Return on Equity (RoE) has been claimed as 10 percent ISS (Institutional Shareholder Services). The proposed debt-equity ratio is 74: 26 based on Foreign Relent Loans (FRL), Cash Development Loans (CDL) by GoP and local commercial loans. The interest rate on FRL ranges from 12 percent to 15 percent, for CDL it ranges from 10.65 percent to 11.79 percent and for local commercial loans 6 month Kibor+ 113 basis points is used. Debt repayment period has been assumed as 20 years (semi-annually).—MUSHTAQ GHUMMAN