ISLAMABAD: The National Electric Power Regulatory Authority (NEPRA) is reportedly under investigation for providing a financial benefit of Rs 22 billion to sugar mills operating bagasse-fired Independent Power Producers (IPPs) through their tariffs, as confirmed by reliable sources.
The inquiry focuses on the authority’s members who approved a 110% increase in the tariff for bagasse-based generation, raising it from Rs 5.9822 per unit to Rs 12.4788 per unit by linking it to international coal prices. Shah Taj Sugar Mills has been specifically mentioned in connection with a price agreement of Rs 2,750 per ton of bagasse that was reportedly undermined by certain individuals.
This issue gained attention during a recent public hearing on the Fuel Charges Adjustment (FCA) by Distribution Companies (Discos) and in discussions at the Senate Standing Committee on Power, led by Senator Mohin Aziz. The chairman of NEPRA faced repeated questioning regarding the rationale behind the substantial tariff increase for sugar mills’ co-generation power plants.
According to documentation presented to the Senate Standing Committee, NEPRA decided to allow a 5% annual indexation on the applicable bagasse price, effective from October 2022, referencing the base price from the previous year. The base price for the 2022-23 indexation was determined using the coal-linked mechanism established in the 2013 upfront tariff.
During the hearing, the NEPRA chairman struggled to provide a satisfactory explanation, asserting that the authority lacked a basis to revise the co-generation power plant tariffs, which is why they remained lower than those for Thar coal. He contended that the tariffs for bagasse-fired power plants are still below those for Thar coal.
In March 2013, the Economic Coordination Committee (ECC) approved a Framework for Power Cogeneration for Bagasse and Biomass, leading NEPRA to issue an upfront tariff. This included pricing calculations based on imported coal values and a yearly indexation linked to fluctuations in international coal prices, while maintaining a floor price of Rs 100.67 per ton. A levelized tariff of Rs 10.41/kWh was established for bagasse IPPs, with an FCC of Rs 5.7702/kWh.
The issue was further spotlighted when businessman Arif Bilwani raised concerns about the Central Power Purchasing Agency (CPPA-G) seeking approval for a Rs 15 billion adjustment under the guise of Prior Year Adjustments (PYA). This amount included Rs 1.478 billion for Chiniot Sugar Mills, Rs 1.422 billion for Hamza Sugar Mills, Rs 2.024 billion for JWD II, Rs 2.049 billion for JWD III, and Rs 400 million for RYK.
Mr. Bilwani argued that NEPRA should have conducted a public hearing before making such decisions.
The authority approved a bagasse price of Rs 2,750 per ton, similar to the one established in the 2017 upfront tariff, with a 2% indexation every two years. Displeased with NEPRA’s decision, bagasse IPPs filed writ petitions in the Islamabad High Court (IHC), which subsequently suspended the controversial decision. As a result, FCC payments to bagasse IPPs were based on the applicable FCC reference of Rs 5.9822/kWh from 2015. The case was later transferred to an appellate tribunal, which issued its ruling on November 18, 2022.
On February 7, 2024, NEPRA decided to permit fuel cost adjustments from October 2018 to September 2022, following the FCC adjustment mechanism detailed in the 2013 determination. Bagasse IPPs are required to submit their requests according to this mechanism, including relevant indices such as the international coal price and bunker index for the applicable years.
In the 2013 upfront tariff, NEPRA linked the bagasse price to imported coal based on the BTU values of each fuel, acknowledging the absence of a published bagasse price and a future adjustment index. NEPRA highlighted the significant potential of bagasse as an indigenous fuel source for power generation, estimating it at 2,000 MW. The authority expressed concern that prolonged uncertainty and the failure to announce a suitable price for this indigenous fuel have hindered investment in bagasse-based power plants. This has increased reliance on imported fuel for power generation and elevated foreign exchange expenditures. Currently, only 900 MW of Letter of Intent (LOI) holders have opted for the 2013 upfront tariff, with the installed capacity of bagasse remaining at only 253 MW, indicating substantial untapped potential for utilizing this energy source. Harnessing indigenous fuels like bagasse not only promotes energy independence and sustainability but also reduces reliance on imported fuels, thereby enhancing energy security and diminishing external economic dependencies.
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