Regulator cuts tariff by up to 18.5% for new Thar power projects

Decision comes as investors adopt latest technology, production cost falls

KARACHI: The power sector regulator has scaled down the tariff for electricity supply from new Thar coal-fired plants by up to 18.51% while keeping in view the declining cost of production.

However, there are fears that the decision will hurt the flow of investment into power generation.



The new tariff has been announced in line with recommendations of the Ministry of Water and Power, which pressed for a reduction of 15-20% during the consultation process, according to documents prepared by the National Electric Power Regulatory Authority (Nepra).

The ministry suggested that investors were employing latest technology in new power projects, which were highly efficient and would help bring down the cost of production.

Contrary to that, the Sindh Board of Investment (SBI) argued that the regulator should refrain from slashing the tariff in order to woo investors and attract new investment in Thar projects.

Nepra has announced new levelised tariffs for Thar coal-fired power projects in the range of Rs7.58 to Rs7.79 per kilowatt-hour (kWh).

Previous tariffs were in the range of Rs8.33 to Rs9.56 per kWh, which expired in January 2017.

The regulator has announced eight tariffs depending on the installed capacity of projects and whether they are based on water or air-cooling technology and/or set up with local or foreign financing. The tariffs are announced for 30 years as project debt will be paid off in 10 years from the start of commercial production. The cost of water and air-cooling technology has also been incorporated into the tariffs as Thar is a water-deficit district.

Ministry’s point of view

The Ministry of Water and Power said during consultation with Nepra that improvements in “tariff will bring down the levelised tariff by around 15-20%”, Nepra documents said.

“The cost of machinery is 10-15% lower than that estimated while setting the previous upfront tariff,” it said.



The State Bank of Pakistan’s benchmark interest rate has also come down to 5.75% from 9.50% in 2014. “This requires a matching rationalisation in the IRR (internal rate of return), especially when uncertainties in investment in Thar coal-based power plants have reduced considerably,” the ministry said.

SBI’s input

The investment board, in its comments, said during pre-tariff consultation that “Thar coal is in its nascent stage of development and any reduction in tariff will cause irreparable damage to the momentum towards energy autarky.”

“Even if there is a possibility of reducing tariff, it will be unwise at this stage when Thar coal lease-holders have spent tens of millions of dollars on mine development and are on the threshold of launching an integrated investment plan of billions of dollars for Thar coal development.”

SBI said it endorsed the reduction in the cost of electricity production, but believed that such a reduction was sustainable in the long run by promoting economies of scale in coal mining rather than upsetting investor returns through policy reversals.

Thar coal projects

The government has so far approved four Thar coal-fired power projects with total capacity of 2,640 megawatts, according to Nepra documents.

First project of 330MW, being developed by Engro PowerGen Limited, is scheduled to kick-start production by June 2019.

Later, Engro will add one more unit of the same capacity. ThalNova Power Thar and Thar Energy Limited will launch projects of 330MW each. Thar Coal Block-I Power Generation Co is to install two units of 660MW each.

Lucky and Siddiqsons are also constructing power plants that will consume Thar coal, but their projects are far away from the coalmines.

Published in The Express Tribune, July 28^th, 2017.

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