ISLAMABAD: From Thursday NEPRA (National Electric Power Regulatory Authority) has permitted power producers to charge consumers through tariff one per cent cost of 19 power projects worth $15.56 billion under the China-Pakistan Economic Corridor (CPEC). The consumers will be charged for the coming 20-30 years on account of security cost .

The power sector regulator revealed that the federal government had ordered to build the additional security cost in tariff and had given an estimated at $155.6m (about 17 billion) for all 19 power plants under CPEC. Annually it would cost upto $2.92m (Rs. 315m) according to NEPRA.

According to the order, the federal government reached a decision through the Economic Coordination Committee of the cabinet on September 22nd. The government thus instructed that the CPEC projects that have achieved financial close or early harvest projects where financial close was still pending as well as new the new CPEC projects that had been launched under implementation agreement would be allowed one per cent of capital net cost of $150,000 on account of security which would be distributed annually starting from the construction period till the term of the project.

Tthe regulator said in its order, “NEPRA has decided to allow 1 percent capital cost of the project reduced by $150,000/annum (subject to 3pc indexation for each year after the first year from COD) as security cost in respect of each CPEC power project in accordance with the approved payment mechanism and the same shall be treated as pass-through item,”

Stakeholders and sponsors of the power projects and consumer groups objected by saying that the provision of security was the responsibility of the state and electricity consumers should not be charged for it since they were already paying immense taxes to the state to meet its expenses along with additional security cost . However, NEPRA didn’t entertain any of these objections.

NEPRA further explained that under Article 10 of the CPEC Agreement it was said that “the Pakistani party shall take the necessary measures to ensure the safety of Chinese personnel and projects”. It also stated that a special security force of the armed forces was established to guarantee the safety of the CPEC projects.

If the government were to bear the cost of extra security arrangements, the money would consequently come from the budget which is public money after all. This would cause the development budget to be cut short accordingly.

NEPRA claimed, “Since this cost is specific to the CPEC projects, it is more appropriate to charge this cost to the respective project. The preventive security measures are being taken to enable the smooth operation of the CPEC energy projects and shall better protect the interest of the electricity consumers.”

The regulator claimed that 10 out of 19 projects would suffer zero financial blows. Whereas three were expected to suffer a financial impact of less than one paisa per unit and six projects 1-2 paisa per unit.

NEPRA approved another payment method under which $150,000 per annum, subject to 3pc indexation for each year after the first year from COD (commercial operation date) would be paid to the relevant government-designated agency or the ministry by IPPs (independent power producers) of CPEC projects during the construction and operation period.

A separate security charge will be included by CPEC-IPPs in the monthly capacity invoice as a security charge during the functional period.  For the first year from COD, the capacity charge for security cost will be calculated on the basis of determined annual security cost of the respective project reduced by $150,000/annum and then with 3pc indexation for each succeeding year, divided by net annual output in kilowatt hours assuming reference exchange rate of Rs105 per dollar.

The subject security cost component of capacity charge will be indexed on the basis of exchange rate of the last available day of the preceding quarter. IPPs will seek its approval from NAPRA quarterly in accordance with other tariff components of the capacity charge.

The Central Power Purchase Agency (CPPA) will pay the invoiced amount in accordance with other components of capacity charge. In case the annual security cost of a project is less than $150,000 subject to applicable indexation, IPPs will not include security cost in the capacity charge invoice and the CPPA will not pay any amount on account of security cost for the respective project.

The government believes that if the overall security situation improves in the future and special security arrangements are no longer needed as well as the special security force/division is disbanded; the power purchasers will not be required to make any payments for the special security arrangement.

Currently, four special surcharges of about Rs4.7 per unit is being charged in consumer tariff by the government to cover the low recoveries, high losses, special debt servicing, tariff equalization across various distribution companies and so on.

Originally only one per cent additional cost of all CPEC projects was allowed to the Planning Commission by the Prime Minister to be dedicated for the special security division of the army being raised to protect the corridor. Rs30bn in the budget were allotted by the government to meet the initial expenditure. Further more only one per cent increase in capital cost of all projects under the Public Sector Development Programme was allowed.