ISLAMABAD - The National Electric Power Regulatory Authority (NEPRA) Friday granted Re 0.70/unit (kWh) electricity tariff to 878-km Matiari-Lahore high-voltage direct current (HVDC) transmission line.

Matiari-Lahore line will evacuate more than 4000 megawatts of coal-based electricity from projects in Sindh.

The government demand was Re0.95/unit for 25-year life of the project having debt-equity ratio of 80:20. Over the span of 25 years, the total collection from consumers through this tariff will be around Rs200 billion.

As per estimate, the consumers in entire Pakistan will have to pay this tariff in their monthly bills once the commercial operation date (COD) is reached. Although, this Re 0.7/unit will be charged on these 4000MWs transportation, however on the end consumers, the impact will be less than 10 paisas a unit in their bills over the 25 years.

The project is included in the priority projects under China-Pakistan Economic Corridor (CPEC). A subsidiary of the State Grid Corporation of China (SGCC) i.e. China Electric Power Equipment and Technical Company Limited (CET) will lay the transmission line on a build, own, operate and transfer (BOOT) basis in 27 months.

For this purpose, National Transmission and Dispatch Company Limited (NTDCL) and the Chinese SGCC had already signed a cooperation agreement in April 2015.

As the NTDCL wanted to execute the project through private sector, on its behalf, the Private Power and Infrastructure Board (PPIB) in February 2016 filed a petition before NEPRA seeking tariff. This is the first transmission line project in private sector.

The projects which will be connected with Matiari switching stations for power transmission through this HVDC transmission line include Engro Thar Unit I & II (660MWs), Thar Coal Block-1(Shangai) (1320MWs), Port Qasim (1320MWs) and Hub Power at Port Qasim (1320MWs).

The petitioner asked for the project total cost of $2.1 billion including $1.76 billion engineering procurement and construction (EPC) cost, but the authority allowed its cost at $1.578 billion (inclusive of $1.307 billion EPC cost).

Of the total cost, non-ECP cost has been approved at $29.54 million against the petitioner demand of $32.92 million. Financial charges have been allowed at $34.58 million against the demand of $58.81 million. The petitioner had also asked for $15.21 million as NTDC development cost, while the authority allowed it at $12 million. The amount of insurance during construction has been approved at $13.07 million, sinosure fee at $13.81 million and taxes at $79.07 million, whereas demands were $19.3 million, $21.26 million and $106.31 million respectively.

Besides, NEPRA has approved Interest During Construction (IDC) for the project at $88.62 million against the petitioner’s demand of $108.67 million.

The referred IDC amount will be adjusted at commercial operation date (COD) on the basis of actual debt draw downs (within the overall debt allowed by the Authority at COD), actual PKR/US$ exchange rate variation for foreign loan denominated in US$ and actual interest rates not exceeding the limit of 6-months LIBOR per annum plus 4.50 percent for foreign financing and 6-months KIBOR plus three percent for local financing, during the project construction period being allowed by the Authority.

It is worth mentioning that the petitioner has also asked for 76.81 million operation and management (O&M) cost, but NEPRA, after close deliberation, decided to allow O&M cost of $41.9 million with the maximum ceiling 2.5 percent of total assessed project cost. This approved cost is with the direction that petitioner should ensure maximum local employment cost for converter stations over the entire BOOT period of 25 years. Authority also directed the O&M contracts to be submitted as soon as these are formally entered into.

The internal rate of return (IRR) has been worked out and approved by the authority at 17pc after the authority observed that globally the risk profile of the transmission line is considered more similar to that of distribution business. The authority noted that presently equity returns being allowed to the distribution companies is 16.6%.

Accordingly after due deliberation, the authority decided to allow a 17pc return considering this project is the first HVDC transmission line venture in Pakistan and can be allowed a return slightly above the return offered to already running setup of DISCOs.