Islamabad: The federal government has expressed frustration with the Punjab government for delaying the approval process for tariff reductions at two LNG-based power plants in the province, which together have a combined capacity of over 2,400 MW.
The delay in approving the tariff adjustments could result in missed savings of approximately Rs600 billion over the remaining operational lifespans of these plants, which range from 18 to 23 years.
A senior official informed media that the Central Power Purchasing Agency (CPPA), a subsidiary of the power division, had been in contact with Punjab’s energy department to finalize the necessary procedures for submitting tariff reduction applications to the National Electric Power Regulatory Authority (Nepra).
The official mentioned that the matter was included in the provincial cabinet’s agenda well before Eidul Fitr, yet, as of April 25, approval had still not been granted despite repeated reminders.
The two LNG-based power plants—located at Bhikki and Trimmu—are among the most efficient in the country, with a plant efficiency rate exceeding 61%.
The 1,180 MW Bhikki plant began operations in 2018 and is set to remain operational until 2043, while the 1,262 MW Trimmu plant, which commenced commercial operations in May 2023, can continue functioning until 2048.
The official further disclosed that both the power division and the Prime Minister’s office have expressed their dissatisfaction with the delays and have urged the Punjab government to provide clearance as soon as possible.
The task force on power producers had finalized the revised terms for all four LNG-based plants—two federal and two provincial—approximately two months ago.
LNG Based Plants
While the federal government had already obtained approval from its cabinet and submitted tariff reduction petitions to Nepra, which held a public hearing on the matter last week, the approval process for the provincial plants has yet to be concluded.
The federal government had anticipated that the regulatory process for all four plants would be completed simultaneously, if not jointly, but the provincial approval remains pending.
The anticipated savings from the tariff reductions at Bhikki and Trimmu are estimated at around Rs596 billion over their remaining operational lives.
Read More: NEPRA Approves Provisional Tariff for KAPCO’s 500MW Power Project
The revisions to their contracts include a shift from the current “take-or-pay” model to a “hybrid take-and-pay” model, a reduction in the rate of return, and a cap on dollar indexation at Rs168.
The government claims that the total savings from these six government-owned power plants, which include the Punjab projects, will amount to Rs2.162 trillion.
This includes Rs1.567 trillion in savings from four federal plants, such as the 1,220 MW LNG-based Balloki and Haveli Bahadurshah plants, the 747 MW Guddu power plant, and the 510 MW Nandipur power plant.
As part of the revised agreements brokered by the task force, Nepra announced that it would discontinue dollar-based indexations for these plants, opting instead for rupee-based indexations for the entire life of the projects.
This change is intended to reduce foreign exchange exposure and stabilize tariffs for consumers. Additionally, the indexation for operations and maintenance (O&M) costs will now be capped at 70% of rupee devaluation, down from the previous 100%.
The return on equity (ROE) structure has also been revised, with plants now receiving 35% of the ROE as a fixed component, while the remaining 65% will be tied to the actual operation of the plant. The revised O&M costs will be indexed quarterly.
Under the new deal, the power plants will implement a “hybrid take-and-pay model,” where tariff payments are made to the company by CPPA based on the effective date and prorated for the remaining period of the current agreement year.
After that, the company will be entitled to 35% of the revised ROE components of the tariff as part of the CPPA payment.
If the dispatched Net Electrical Output (NEO) exceeds 35% of the total contract capacity, the company will be entitled to claim additional ROE components based on the actual NEO above the threshold.
Also Read: Tariff Reduction from NEPRA
The government estimates total savings of approximately Rs3.5 trillion through revised power purchase agreements with 29 Independent Power Producers (IPPs) and Gas Power Plants (GPPs) over their remaining operational lifespans. Story by Ahmed Mukhtar.
