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POLICY FOR POWER GENERATION PROJECTS-2002

The Power Policy, currently in vogue in the country is policy for Power Generation 2002.  It provides handsome incentives to the private sector.  The salient features of the policy are:

Salient Features of THE Power Policy 2002

ADDITIONAL CONCESSIONS/AMENDMENTS IN POWER POLICY-2002

1)         Income Tax Exemption for Dual-Fuel / Exclusively Oil-Fired Projects

2)         Indexation of Foreign O&M Cost (variable and fixed) with US CPI

The foreign component of O&M Cost (variable and fixed) would be indexed with US CPI, effective from the month of application by the IPP to NEPRA for tariff determination, if it is demonstrated by the IPP to NEPRA that the inflation indexation is not already covered in the O&M contract.

3)         EPC Cost Escalation

IPPs are expected to apply for tariff to NEPRA on the basis of reasonable assurance of ‘fixed price EPC contract’, while taking into account all timelines and milestones up to the Financial Closing. However, any legitimate cost escalation between the date of application to NEPRA (for tariff determination) and the Financial Closing, would be accounted for in the NEPRA-determined tariff by taking into consideration the period in which prices of EPC contract are fixed, and the timelines and milestones up to the Financial Closing (which are known to both the IPP & NEPRA at that time). These timelines and milestones would be recorded in the tariff determination. If any delay in meeting the milestones can be legitimately attributed to the Government, then justifiable escalation in tariff would be allowed by NEPRA.

4)         Concession Period for Hydropower projects

The term of the concession period for hydropower projects in the private sector will be up to fifty (50) years.

5)         GOP Guarantee for up to 50 MW Projects

The Guarantee being extended to projects above 50 MW will also be provided to projects up to 50 MW provided that the Power Purchaser is a Federal entity and the tariff is approved by the National Electric Power Regulatory Authority (NEPRA).

6)         Solicitation of Hydel / Coal Proposals through Advertisement in Press

For raw hydel and coals site projects, expression of interest will be invited through advertisement in the press and the Sponsors who submit the best proposal, as decided by the PPIB Board, will be issued LOI for feasibility study.

7)         GOP Approval for Gas/Oil Based Thermal Projects

In view of the worsening fuel mix, no further gas or oil based thermal power proposals will be entertained by PPIB without the approval of the GOP.

8)         Award of Gas/Oil/Dual-Fuel based Thermal Projects only through ICB

The projects will only be awarded on ICB basis wherever gas is made available by the producers to the Government and the Government allocates it for Power sector. Same will apply to oil or dual-fuel projects. Similarly, all projects for which feasibility has been prepared will be offered to the private sector on ICB basis.

9)         Improved Procedure for Tariff Negotiations

If an IPP wishes to submit an unsolicited bid and wants to settle tariff through negotiations, NEPRA will determine tariff in consultation with the IPP and the power purchaser; instead of the IPP first negotiating tariff with the power purchaser.

10)       Elimination of Secretary’s Committee

Secretary’s Committee stands eliminated and proposals will now be submitted directly to the Board of PPIB.

11)       Revised Composition of the Board with Co-opted Members

The composition of the Board of PPIB has been revised, including amendments to reflect the co-option of the Provincial Minister or Secretary Irrigation and Power (proposed by the Provincial Government) as member of the PPIB for such meetings where items /projects pertinent to the particular Province /AJK form part of the Agenda.

(i)         To enable maximum competition from Suppliers and Contractors, the IPPs should not be exposed to impact of exchange rate variation between US dollars, Euros, Pounds Sterling and Japanese Yen upto Commercial Operation Date (COD).  Consequences of this variation, whether resulting in increase or decrease in tariff, should be reflected in final tariff to be fixed at COD. EPC contracts denominated in these four currencies besides rupees should thus be accepted by NEPRA. 

(ii)               At the COD, the capital cost be fixed in US dollars based on actual currencies of EPC Contract accepted by NEPRA at the time of tariff determination, sources of financing, payments and actual exchange rates against rupee for the four currencies (US dollars, Euro, Pound Sterling and Japanese Yen) on the relevant dates.  Towards this end IPPs should establish the relevant cost details to NEPRA with actual documents and proofs regarding EPC contract, sourcing of equipment and finances. 

(iii)             To broaden the access for debt financing, debt can be obtained by IPP in US Dollar, Pound Sterling, Euro and Yen. This should receive the same treatment as currently available for US dollar denominated debt.  

(iv)              As O&M costs are incurred subsequent to COD, O&M Cost Adjustment should continue to be based on exchange rate variations between Pak Rupee and US dollars. 

(v)                NEPRA should stop the practice of accepting EPC costs on the basis of quotations etc.  Instead, they should base their determination on firm (non-reopenable) competitive price duly initialed/signed by the IPP/EPC contractors. 

(vi)              The Performance Guarantees to PPIB/GOP and Letter of Credits in favour of Power Purchaser may be accepted in Euro, Pound Sterling and Yen in addition to US$. 

(vii)            The Return on Equity should be allowed in one currency i.e. US dollars.  All Return on Equity (for foreign exchange and rupee based equity) be converted to equivalent US dollars amount at reference exchange rate (as noted in NEPRA’s determination) and adjusted for variations in US$/Rs rates as presently being done for return on foreign component of equity.  

As per ECC decision dated 08-04-2008, the exemption from income tax under clause 132 of Part-1 of  Second Schedule to the Income Tax Ordinance, 2001 shall also be available to the expansion projects of existing IPPs already in operation.