Who will bear the brunt of power?

 

With quite half the country’s total capacity charges payable to state-owned power projects, the govt has decided in theory to chop the return on equity (ROE) for all public-sector plants, including hydro, nuclear, old thermal and new regasified liquefied gas (RLNG)-based projects.

The combined impact of the reduction in ROE for these projects has been estimated to be Rs28 billion once a year supported current prices. While this may reduce the general electricity prices with a big contribution to the economy and lower production costs, a serious chunk of the financial burden will shift to the federal budget.

For example, the reduction in ROE form 15-17 per cent to the proposed 10pc in rupee (instead of the dollar at present) will impact Wapda’s revenue by Rs16bn once a year at a time when it's executing a number of the foremost critical development initiatives like Diamer-Bhasha Dam, Mohmand Dam and Dasu Hydropower project. Wapda has also highlighted key problem areas, including debt servicing, upcoming megaprojects and net hydropower profit.

On the opposite hand, Wapda’s receivables of over Rs210bn are stuck within the circular debt. So it'll be hit on two fronts — the longer term revenue stream and adjustments against past receivables. to form up for Wapda’s loss and protect critical projects, the govt will need to make available a minimum of Rs160bn over subsequent 10 years out of the federal budget, most likely through the general public Sector Development Programme (PSDP).

To make up for Wapda’s loss and protect its critical projects, the govt will need to make available a minimum of Rs160bn over subsequent 10 years

Almost similar is that the case with atomic power plants (NPP) travel by the Pakistan nuclear energy Commission (PAEC), government-owned RLNG power projects and, to some extent, old public-sector generation companies (Gencos). This also means the federal will need to sacrifice a serious a part of its guaranteed revenue on account of its equity share and dividend.

The top management of PAEC has not given its final commitment due to the anticipated loss . But the civilian authorities are operating through proper channels to make sure that the build-up of the circular debt is bogged down given the increasing share of NPPs. The PAEC is taking care of all matters concerning the prevailing and under-construction NPPs. The per-unit capacity charge of existing NPPs is quite Rs3.40 and can almost be double for upcoming NPPs of 1,100 megawatts each.

The reduction in ROE to 10pc for Gencos will save about Rs3.5bn once a year . ROE for NPPs may come right down to about 14-15pc at a hard and fast rate of exchange of Rs148 per dollar (in line with MOUs signed with private-sector entities) for existing plants with the reduction in electricity cost of Rs2.1bn.

Also, LNG-based GPPs’ return on equity is being brought right down to 12pc with the annual cost reduction of about Rs7bn a year. the present outstanding receivables of nuclear plants stand at Rs60bn, followed by Rs50bn of Gencos and Rs40bn of LNG-GPPs. Meanwhile, about Gencos of two ,900MW are going to be closed down in two phases in two years.

Coupled with the reduction in ROE, doing away with the guaranteed 66pc “take-or-pay” condition for gas supplies will have an adverse impact on proposed privatisation proceeds. But it'll be worthwhile to think about the lasting implications of locking such guarantees into long-term contracts with the private sector instead of the short-term objective of upper proceeds.

The move is a component of the trouble to contain the pace of increase within the circular debt and therefore the consumer tariff given the subdued energy demand following the economic slowdown over the past two years. The circular debt as of June 30 was Rs2.15 trillion against Rs1.612tr a year earlier, a rise of Rs538bn or Rs45bn per month. the rise within the circular debt in 2018-19 was Rs465bn. Put together, the 2 fiscal years added quite a trillion rupees to the facility sector debt.

Also, the authorities are looking into options to vary the terms of gas and power off-take contracts of three RLNG-based power plants to scale back liabilities before long-term contracts with private investors are locked in through privatisation. Simultaneously, an invitation is pending with the Chinese authorities for extension within the debt repayment period from 10 years at the present to twenty years and a markup reduction to Libor plus 2pc rather than Libor plus 4.5pc at the present .

Under existing arrangements, almost half (Rs550bn) of the quite Rs1tr capacity payments due in 2021 belongs to the general public sector. This includes projects under the China-Pakistan Economic Corridor (CPEC) with Rs180bn, Wapda’s old plants (Rs110bn), new Wapda projects (Rs170bn) and LNG projects (Rs100bn).

The total public-sector CPP is estimated to travel beyond Rs700bn in 2022 and almost Rs850bn in 2023 against the entire CPP of Rs1.5tr in 2022 due to the materialisation of CPEC and NPPs. it's estimated that capacity payments of all NPPs will increase from Rs90bn in 2020-21 to Rs280bn in 2021-22 and beyond for a couple of years due to the initial debt cost payable.

The CPP of CPEC projects is estimated to extend from but Rs200bn in 2021 to Rs350bn a year later under existing circumstances.

Based on the finalisation of fresh arrangements followed by necessary government approvals, the relevant ministries will ask Wapda, PAEC and managements and boards of GPPs and Gencos to file petitions with the National electrical power regulatory agency for revised ROE-based tariff approvals.