The Ministry of Water and Power had proposed that once tariff is finalised, either through bidding or offering on up-front benchmark tariff, it should not be subject to further review by Nepra.
This was accepted by the ECC, sources said, adding that the bidding process would now be structured and administrated together by Finance Ministry, PPIB, NTDC and Nepra.
The bidding documents (including various formulae, formats etc) along with evaluation criteria, would be also finalised by PPIB, in consultation with these agencies. The lowest evaluated levelised tariff would be recommended to the government for notification, sources added.
The bidding process of tariff would be structured with (a) bidding for a tariff and (b) offering on up-front benchmark tariff and bidders to quote a discount on the benchmark price.
The Ministry of Water and Power in its summary said that in performing its functions under the Act, the Authority, as far as practicable, would protect the interests of consumers and companies providing electric power services in accordance with guidelines, not inconsistent with the provisions of the Act, laid down by the federal government.
The main features of newly approved guidelines are as under:
COMPLIANCE WITH GOVT POLICIES Nepra should fully comply with policies and guidelines as modified, supplemented and revised from time to time by the government.
UPFRONT TARIFF Nepra should determine an upfront tariff, along with complete reference tariff table, and announce it on six-monthly basis. IPPs opting for this tariff be deemed to have Nepra's approval and can be issued Letter of Support (LoS) by the competent agency. This will save a lot of time of individual IPPs. This will also save Nepra from the repetitive process of hearings.
It was also decided that Nepra will give upfront tariff separately for each technology eg CC plants, conventional steam and diesel engines after accounting for the financial issues of ROE, interest rate etc.
NEGOTIATION FOR TARIFF-AVOIDANCE OF MULTIPLICITY OF ENTITIES AND STAGES OF NEGOTIATIONS It was decided that if an IPP wishes to submit an unsolicited bid according to power policy of 2002 and wants to settle tariff through negotiations, Nepra should determine the tariff in consultation with the IPP and the power purchasers.
FINANCIAL ASSUMPTIONS PARAMETERS The government has also decided that tariff should be determined allowing reasonable Internal Rate of Returns (IRR) on equity investment.
IRR be calculated over the life of the implementation agreement starting from the date of construction start (ie start of payments to contractors).
IRR should be equal to the long-term interest rates base on auction of ten-year PIB held during the last six months, plus a premium of "X" % to be determined by Nepra.
For BOOT projects the investor's equity will be allowed to be redeemed after completion of debt servicing. The redemption in equity would be in equal instalments from the time debt servicing has been completed till the end of the concessions period. Effect of exchange rate variation will be compensated for equity redemption. The projects will be transferred to GoP at the end of concession period at a notional cost of Rs 1. For BOO projects there should be no redemption of equity.
INTEREST ON LOANS For determination of tariff by Nepra for the fiscal year 2005-2006, the benchmark rate of interest be taken as KIBOR plus 300 basis points for a 10-year loan with 2-year grace period as has been agreed in recent negotiations. The IPPs be given an incentive to arrange better terms of debt financing. If the IPPs arrange better terms by the time of financial close, the overall impact of reduction in debt servicing be shared on yearly basis in the following ratio: Govt: IPP=60:40.
It was decided that wherever floating interest rate regime is adopted, local loans may be indexed to changes in benchmark interest rate, such as KIBOR, etc. Likewise, foreign loans may be indexed to changes in benchmark interest rates, such as LIBOR, etc, and variation in rupee to dollar.
TAX ON DIVIDEND To resolve the dispute on taxation mechanism, it was decided that that the application of withholding tax or mechanism for its collection should not be a subject of any review or alternation by Nepra. Tax on dividend will be treated as a normal tax for the purposes of determination of tariff.
INDEXATION OF VARIOUS COMPONENTS OF TARIFF It was decided that indexation of various components of tariff and adjustment for foreign exchange rates (true up) be automatic based on pre-determined formula and reference parameters. IPPs should not have to approach Nepra once a year for yearly submissions.
TARIFF THROUGH COMPETITIVE PROCESS TRANSPARENCY AND VISIBILITY OF CALCULATIONS OF TARIFF It was decided that Nepra should provide complete soft and hard copies of its assumption, inputs and calculation of tariffs along with tariff model while announcing determinations to the concerned IPPs. This would enable better understanding of tariff decision.
TRANSMISSION AND INTERCONNECTION The ECC decided that the construction of transmission line should be the responsibility of the power purchaser/NTDC unless the IPP, at its own choice, wants to undertaken it on mutually agreed transmission charge with the power purchaser/NTDC.
EVALUAITON OF TARIFFS The ECC also decided that as fuel cost is a passthrough, prices of different fuels eg gas, oil, coal, etc, tend to distort the evaluation. Therefore, levelised tariff be evaluated on the basis of capacity purchase price, efficiency (taking into account fuel cost) and O & M costs.
Sources said that the ECC considered the views of all concerned ministries and agencies before reaching the conclusion.