CPPA-G/ KAPCO differ on PPA terms amid NEPRA Chief’s frustration

ISLAMABAD: The National Electric Power Regulatory Authority (NEPRA) on Tuesday questioned the National Power Control Center (NPCC) and the Central Power Purchasing Agency-Guaranteed (CPPA-G) for giving preference to the 495 MW Kot Addu Power Plant (KAPCO) under a hybrid take-or-pay model, over other plants in the same area in the revised agreement. This was despite the fact that the area has been receiving electricity for the last eight months without the operation of any plant and without disruptions.
During the public hearing on the KAPCO addendum, some unusual comments and bashing of power sector entities in defiance of the regulator’s authority were witnessed. This prompted the calm and candid Chairman of NEPRA to seek an explanation from the National Transmission and Despatch Company (NTDC), a party to the Tripartite Agreement.
NEPRA’s authority was headed by Chairman Waseem Mukhtar, while the KAPCO team was led by its CEO, Shahad Qader Khan. However, neither a representative from Multan Electric Power Company (MEPCO), which is supposed to be the recipient of power from the KAPCO plant, nor a senior representative of NTDC, which will also be a signatory of the Power Purchase Agreement (PPA), was present.
CPPA-G, which was questioned about selecting KAPCO—whose PPA had already been extended—stated that CPPA-G and NTDC, after determining the tariff and obtaining extension in the generation license/concurrence from NEPRA, may enter into the PPA with KAPCO in line with the approved Integrated Generation Capacity Expansion Plan (IGCEP) 2022-31, dated February 1, 2023, and the Power Acquisition Plan (PAP) of Distribution Companies (DISCOs) dated May 20, 2024. The extension of the agreement term beyond the timeframe mentioned in the IGCEP 2022-31 and the PAP of DISCOs will be subject to approval within the IGCEP and the upcoming PAP, in accordance with the relevant provisions of the National Electricity Policy, National Electricity Plan, and Procurement Regulations.
KAPCO has sought a provisional tariff for its 495 MW generation capacity to start generation early, with the promise to settle disputed matters later, after encountering serious differences with CPPA-G and the absence of NTDC’s top brass from the hearing.
The government has replaced the Pakgen power plant with the KAPCO plant. Terms such as “peculiar situation” and “implicit agreement” were used for financial benefits to the power company.
The petitioner has requested three years for the new PPA with a net capacity of 495 MW (EB-I 347 MW and EB-1 148 MW) on gas/RLNG and 478 MW (EB-I 334 MW and EB-I 144 MW) on LSFO.
The petitioner has requested the determination of actual heat rates for the generation facility and a fixed O&M cost of Rs. 2.35 billion per year. The petitioner also requested a working capital cost of Rs. 0.54 billion per year based on LSFO inventory of 7 days and a 30-day SBLC cost at 1% per annum. Additionally, the petitioner requested a 25% Return on Equity (RoE) on a take-or-pay basis linked to availability, while the remainder should be allowed as per actual generation beyond 25%. The petitioner also requested the insurance cost to be allowed as per actual, with a maximum cap of 0.90% of the Engineering, Procurement, and Construction (EPC) cost.
The petitioner has sought payment of Rs. 1.611 billion on account of switchyard charges incurred from October 2022 to date, as the facility was set up at the request of NTDC and the Power Division.
The petitioner has requested a claw-back for aggregate savings of 50:50 on account of Fuel Cost Charge (FCC) and O&M.
Member (Technical) Rafique Ahmad Shaikh and Member (Law) Amina Ahmed questioned both KAPCO’s team and CPPA-G. Member (Technical) also raised concerns about the deal between KAPCO and the Government of Pakistan (GoP), brokered by the Task Force in Rawalpindi, including the reason for giving preference to KAPCO over Pakgen and not seeking new bids for cheaper electricity.
Member (Law) was of the view that, since “the new IGCEP is a black hole” as of now, a tariff cannot be granted for three years until it is included in the new IGCEP.
During the discussion, at one point, Member (Technical) and Additional Director General (Tariff) Muhammad Yousaf discussed the reasons for the previous extension, with the former accusing the latter of helping the power company.
NPCC’s representative argued that a generation facility is required in the area for system stability and to meet the power demand of the area for three years, after which NTDC’s system will be streamlined.
CPPA-G, in its comments, challenged the contents of KAPCO’s tariff petition addendum, claiming there are discrepancies between the agreement made by the Task Force and the addendum, and opposed some of the adjustments sought by KAPCO.
CPPA-G further stated that the cost of working capital should not exceed Rs. 472 million, as communicated in clause (f) of KAPCO’s offer letter dated January 1, 2025. Also, the RoE (25% guaranteed) should not exceed Rs. 295 million. CPPA-G was also of the view that NTDC/SO’s requirement of KAPCO is for three years, whereas approved documents allow only until September 2025, advising that the documents may be aligned to meet NTDC/SO’s requirements.
“FCC tariff may be based on tested efficiency or benchmark efficiency, whichever is higher. Allow LSFO fuel at the lower of the current prevailing market price or the price of fuel in its existing stock. Variable O&M should be recomputed based on recent financial criteria,” said CPPA-G during the hearing.
CPPA-G also suggested that the following pass-through items should only be paid to the company subject to NEPRA’s approval: (i) Income Tax, WWF, and WPPF; (ii) protective devices and installation costs as per NTDC’s requirements; and (iii) recognition of the Black Start Facility.
KAPCO has agreed to transfer the switchyard to NTDC at the end of the PPA at fair market value, to be determined by an independent valuer. However, KAPCO retains the right to use the switchyard after the transfer for the evacuation of power. NTDC will provide two auto transformers free of cost. KAPCO shall arrange the installation and configuration, subject to reimbursement. Ownership of these transformers will remain with NTDC.
KAPCO’s team seemed disturbed by the volley of questions from NEPRA, the opposition of some costs from CPPA-G, and the absence of two key parties to the agreement, i.e., NTDC and MEPCO.
The heated debate continued for about two hours, but the outcome of the hearing seemed “doubtful” as Chairman NEPRA threatened to recuse himself from such hearings in the future, as the authority was not being given due respect. He also directed NEPRA’s officials to call for a formal explanation from NTDC and sought their replies within seven days.
“If the regulator has to function as it is doing now, I will recuse myself from such proceedings in the future. There is no admission that this is a planning failure. How will the settlement of the Rs. 1.6 billion cost be done? It was the grace of KAPCO that allowed NTDC to use its switchyard,” Chairman NEPRA remarked.
On the issue that the pact will be tripartite, he expressed his frustration that the third party (NTDC) to the PPA was not attending the hearing.
“Today’s hearing was totally subpar, and I am expressing my dismay and frustration,” he said. Chairman NEPRA also handed over a written paper to the case officer with the direction to include it as part of the decision.
Ends