ISLAMABAD: Member (Tariff) of NEPRA, Mathar Niaz Rana, has raised concerns about the Authority’s decision to show undue favor to the 1320 MW Lucky Electric Power Company Limited (LEPCL). He criticized the approval of an unreasonable extra fixed cost of Rs 5.10 per unit in the Fuel Cost Component (FCC) for local coal, which he believes will negatively impact consumers.
This decision comes at a time when NEPRA is already facing harsh criticism from various sectors of society for its high salaries and recent pay hikes. Additionally, the Authority’s questionable decisions are being widely discussed across different forums.
Thar coal field was envisaged to supply coal to Engro Powergen Thar, Thar Energy Limited and Thal Nova Thar and LEPCL of which first phase of Engro Powergen is completed whereas phase II of Engro Powergen Thar, Thar Energy Limited and Thal Nova is also completed. However, phase-III of Engro Powergen Thar, Thar Energy Limited and Thal Nova, Lucky Electric is under development.
According to Member (Tariff), TCEB in its decision of November 17, 2023 in the matter of Motion for Leave for Review (MLR) against the TCEB’s decision of July 25, 2023 for Contract Stage (CS) tariff for phase-III of Block-II concluded that coal supplied by Sindh Engro Coal Mining Company (SECMC) to LEPCL after February 17, 2023 will be classified as Pre-COD sales of Phase-III and the tariff applicable for such supplies shall be first year tariff of CS tariff of Phase-III. Accordingly, LEPCL applied for the re-revision of its FCCs for May and June 2023 based on first year full tariff of $40.14/Ton.
He further stated that TCEB has not yet announced or approved the Financial Close (FC) tariff for Phase-III implying that it is still under development, adding that due to LEPCL achieving COD, SECMC is currently supplying coal to LEPCL from the leftover coal stock of Phase-II while recovering full fixed cost of Phase-II of Thar Coal Mine from Engro, Thar Energy and Thal Nova.
” I am of the opinion that LEPCL should be allowed only variable coal price instead of full price (variable plus fixed price) as fixed price/tariff is fully reimbursed by all three power plants (Engro Powergen Thar, Thar Energy Limited and Thal Nova) upto phase-II,” Member Tariff continued.
He is also of the view that so, allowing fixed charges to LEPCL before the maturity of Phase-III will expose the consumers to unnecessary burden upfront and lead to increase in energy prices for consumers, affecting affordability. If fixed charges are approved prematurely, it could also incentive project developers to delay project completion, knowing they will receive guaranteed revenues, potentially leading to delays and increased costs in future.
Mr. Rana, a former bureaucrat, who has also served as Secretary, Planning, Development and Special Initiatives, maintained that it seems from the LEPCL submissions and current situation of expansion of mine, project may encounter delays or cost overrun, which also leads to the increase in fixed price/costs and current consumers pay these fixed charges/price without getting any benefit.
Further, if NEPRA approves the first year full coal price/charges (both fixed and variable) as Phase-III’s pre-COD, it would enable SECMC to earn interest on these sales and benefit without any effort and it may not adjust this earned interest into Phase-III’s capital cost.
The assumption that proceeds from Pre-COD sales will be utilized for reduction of the future mine capital cost, is like as current end-consumers paying cost (along with interest charges) today’s so that their future generations will receive the benefits. It is more appropriate that only variable price is considered for Pre-COD sales, and this period sales shall be considered for the reduction of Phase-III’s capital cost.
Furthermore, approving fixed price/tariff in the current fuel price adjustments would inadvertently shift the undue burden of late payment interests-which arises from the provision of fixed price onto the power purchaser, particularly in situations where the CPPA-G will unable to make timely payments to LEPCL as stipulated in the agreed PPA.
The comparison of FCC on the different coal prices indicates that tariff on full Thar coal price including variable fuel cost and fixed fuel cost already recovered was Rs 10.12 per unit, tariff on Thar coal variable price only stood at Rs 5.02 per unit, tariff on imported coal was Rs 16.45 per unit and tariff on mixed coal was Rs 13.2 per unit.
” It should be a matter of concern for the Authority that the recent FCC of generation on imported coal is Rs.14.92/kWh as compared with generation based on local coal which is Rs.14.36/kWh. In my opinion, allowing the fixed cost to Lucky Electric which has not been incurred, is adding Rs.5.10/kWh to the fuel cost of Lucky Electric which is not only non-prudent under Tariff Rules but will also make the generation on local coal at par with the imported coal and adversely impact the consumers denying the benefit of indigenous fuel resource, ” Member Tariff said.
After explaining the facts, he said ” I do not agree with including the fixed cost component of phase-II in FCC decisions of Lucky Electric as this cost is already being fully recovered from Engro, Thar Energy and Thai Nova and bring this matter in the notice of Ministry of Energy after resolution in view of consumer interest,”.
The Authority in its decision stated that ” based on the submissions, documentary evidence and information submitted by LEPCL, the fuel cost components for the months of May to June 2023 and October 2024 have been adjusted in accordance with the prescribed mechanism and as per the TCEB s determined Thar coal price, comprising fixed and variable components for all coal supplies to LEPCL from February 17, 2023, classified as Pre-COD sales of Phase-Ill, in accordance with the TCEB decision dated November 17, 2023.
According to the decision, revised FCC will be Rs 12.070 per unit for May 2023, Rs 13.2657 per unit for June 2023 and Rs 14.0167 per unit for October 2024 against the reference FCC of Rs 3.9768 per unit.
The revised coal price for each shipment of imported coal and Thar coal supplies have been provided as Annexure to this decision superseded its previous decisions of July 20, 2023, August 8, 2023 and December 4, 2024 for the months of May 2023, June 2023 and October 2024, respectively.
Ends
