ISLAMABAD: The federal cabinet with Prime Minister Shehbaz Sharif in the chair, on Tuesday approved settlement agreements with eight independent power plants (IPPs) running on bagasse.
The meeting granted its approval on the recommendation of the Ministry of Energy and the Power Division. The government has successfully renegotiated agreements with eight bagasse-fired Independent Power Producers (IPPs), achieving substantial financial savings estimated between Rs 85-100 billion. These revisions include a reduction of Rs 8 billion from the Rs 22 billion recently approved for upward tariff adjustments.
Among the sugar mills signing the revised Power Purchase Agreements (PPAs) are Hamza Sugar Mills, Chiniot Sugar Mills, and others. Key changes include lowering the rate of bagasse from Rs 5,600 per ton to Rs 4,500, with a 5% retrospective deduction. The renegotiated deals are expected to save the country over Rs 100 billion in future payments The owners of bagasse IPPs remained in a local hotel in Rawalpindi for consecutive three days to finalise the figures. “Yes, Masha Allah, Task Force has signed amendments with eight bagasse based IPPs,” confirmed Special Assistant to the Prime Minister, Muhammad Ali, who is also co-chair of Task Force.
Task Force held inquiry, sources said, focused on Nepra’s decision of 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. “We have changed Nepra’s decision of imported coal based pricing to a PKR based pricing. Overall negotiations will save the country in excess of Rs 100 billion in future payments,” said Muhammad Ali.
Official documents available with NewzShewz reveal that the signed arrangement is as follows: (i) this Agreement shall become effective on 31 October 2024 (the “Effective Date”); (ii) for the purposes of the fuel cost component (“FCC”) of the tariff, with effect from October 1, 2021 onward, the reference price for bagasse shall be Rs. 4,500/ ton, and thereafter there will be 5% annual indexation on the applicable bagasse price for the previous year. The calorific value of bagasse for purposes of FCC calculation shall be taken as 7000 BTU; (iii) payment of FCC for the period from October 1, 2021 onwards shall be made as per the FCC calculated in terms of sub-clause (b); (iv) (d) for the purposes of payment of FCC for the period from October 1, 2018 to September 30, 2021, reference bagasse price shall be determined by negative backward indexation rate of five percent (5%) on the rate of Rs. 4,500/ton, and accordingly the previous invoices shall be revised; (v) the Seller hereby agrees to reduce its Working Capital Component by 50% with effect from the Effective Date; (vi) the Seller hereby agrees to change, with effect from the Effective Date, its Return on Equity (“RoE”) and Return on Equity during Construction (“RoEDC”) components to seventeen percent (17%) PKR based per annum on NEPRA approved equity at CoD calculated at PKR/ USD exchange rate of PKR 168/ USD with no future USD indexation. The Parties shall jointly develop a tariff adjustment application to be submitted to National Electric Power Regulatory Authority as a necessary condition to bringing into effect the aforesaid arrangements (the “Tariff Adjustment Application”).
The Purchaser shall, within five (5) days from the execution of this Agreement, file the agreed Tariff Adjustment Application with NEPRA. The revised tariff shall be effective from the Date of notification (the “Revised Tariff Effective Date”) subject to the terms of this Agreement, till Revised Tariff Effective Date, the Parties agree that the Seller shall commence giving discount in its invoices consistent with the notified tariff and this Agreement (“Tariff Discounts”). From and after the Revised Tariff Effective Date, billing and invoicing shall be as per the revised tariff.
The Parties agree that paragraph (b) of Section 9.1 (Payments for Monthly Energy) of the EPA, shall stand deleted and substituted in its entirety as follows: “(b) Notwithstanding paragraph (a) above, if the Seller operates above the annual 45% plant factor (the “Average PF”) in a year, the purchaser shall pay 100% of the Variable Energy Purchase Price and 30% of the Fixed Energy Purchase Price for energy produced above 45% plant factor provided; however, for every five year period starting from the Commercial Operation Date (after which a fresh reset shall be done to re-start the new five year period) if the Seller operates below the Average PF in any year (“Actual Shortfall PF”), the difference between the Average PF and Actual Shortfall PF shall be carried forward to the next year(s). In case the Seller operates above the Average PF in subsequent years, the Purchaser shall pay one hundred percent (100%) of the Variable Energy Purchase Price.
These power plants included DW Unit I, Unit II, RYK Mills, Chiniot Power, Hamza Sugar, Al-Moez Industries, Thal Industries and Chinar Industries.
After the issuance of Cabinet minutes, the Central Power Purchasing Agency would contact NEPRA regarding a reduction in the power tariffs produced by these power plants.
