CCOE reviews cut in profit of power projects

PAEC has not yet given consent on reducing profitability on investment

Shahbaz Rana May 05, 2020

ISLAMABAD: Pakistan Atomic Energy Commission (PAEC) has not yet given its consent to reduce profitability on investment in power projects, which the government wants to slash significantly on all power projects to lessen the burden on consumers on account of idle capacity charges.

Nonetheless, the Water and Power Development Authority (Wapda) and government-owned generation companies (Gencos) have shown their willingness to reduce the return on equity to 10%.

Headed by the planning and development minister, the Cabinet Committee on Energy (CCOE) on Monday reviewed the implementation of its decisions, including the reduction in profit ratios.

In April, the CCOE had directed the Power Division to consider a reduction in the return on equity for the government power producers up to 10% and fix the same in rupee terms rather than in dollar.

Power sector: reforms and way forward

The CCOE was informed that the Power Division had held meetings with Wapda, PAEC and Gencos.

PAEC suggested that the decision on reducing the return on equity investment to 10% should be taken at higher levels. The Strategic Plans Division oversees the PAEC affairs.

Pakistan has a plan to augment its nuclear-based power generation to 8,800 megawatts and currently, nearly 2,200MW Karachi Nuclear Power Plants (K2 and K3) are under consideration with the financial support of China. These projects are funded by the government of Pakistan, including K1 and Chashma nuclear power plants.

The CCOE had also given directives for presenting the cash flow situation of power projects under Wapda and PAEC. An inquiry committee has recommended the government to renegotiate terms of power projects aimed at saving the exchequer and electricity consumers from the heavy financial burden of idle capacity payment charges.

In the first phase, the Economic Coordination Committee (ECC) had decided that the profitability of government-owned power projects may be rationalised. The government has also engaged in private-sector power purchasers. But so far they have not shown any inclination to renegotiate the deals.

The rate of return for government-owned power plants ranges from 13.75-17%. The CCOE has given the go-ahead for reducing the rate of return to 10%.

Government-owned power plants receiving capacity charges include Gencos based on furnace oil or natural gas, hydroelectric power plants owned by Wapda, liquefied natural gas (LNG)-based power plants and nuclear power plants. The total capacity of these plants is 22,972MW.

Capacity charges for government-owned power plants constitute 42% of the total capacity payments and as new plants come on line they will further increase to approximately 47%, according to a story published in The Express Tribune last month.

According to the inquiry committee, the existing capacity payments have touched the Rs900-billion mark, which will rise to Rs1,500 billion by 2025 with the commissioning of new plants. These payments are being made to the idle power plants for not generating electricity.

The CCOE was apprised of the progress on formulation and approval of the renewable energy policy and the introduction of a competitive bidding process for the entry of new producers into the renewable energy sector of Pakistan, according to a statement of the planning ministry.

Economy faces first-ever contraction since 1951

The CCOE directed the Power Division to expedite the process of finalising the renewable energy policy and report back to the committee. The CCOE also approved proposals of the Ministry of Power about the placement of various project companies in their respective categories on the basis of already specified criteria.

The CCOE was apprised of the energy demand outlook in the country and steps being taken to ensure the availability of power to various sectors and the progress being made on rationalising energy prices in the country.

The National Electric Power Regulatory Authority (Nepra) apprised the meeting of the progress made on the introduction of advance design of the Competitive Trading Bilateral Market in Pakistan.

The CCOE was briefed about steps being taken for improving governance in the power sector.

Published in The Express Tribune, May 5th, 2020.

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