• CCoE approves petroleum refining policy
• The committee authorizes the payment of 131 billion rupees to 11 IPPs

ISLAMABAD: The Cabinet Committee on Energy (CCoE) on Monday approved a cheaper winter tariff for electricity consumers on additional consumption and authorized a controversial payment of around 131 billion rupees to 11 power producers. independent electricity (IPP) of the 2002 energy policy, with the exception of Nishat Chunian.

The meeting, chaired by Planning Minister Asad Umar, also authorized Pakistan’s oil refining policy, 2021, with certain conditions to reduce incentives for existing refineries due to strong observations from planning and finance ministers. and did not make a decision on Asian development. Bank-financed smart meter project.

He alluded to an increase in gas prices in the winter to encourage domestic and commercial consumers to switch to electricity.

The payment of dues to 12 PPIs put in place as part of the 2002 policy had become controversial after the National Accountability Bureau (NAB) became aware of the matter and all government forums and ministries refrained from taking the decision. responsibility for settling overdue amounts agreed after a long process of negotiations and settlements. It has been recorded that a surplus gain of over Rs 8.36 billion has been proven against Nishat Chunian set up as part of the 2002 policy. Eleven other projects of the same policy have come under suspicion. similar.

As a result, payments to almost all IPPs (policies prior to 1994, 1994 and 2006) as the first 40% payment were made, except 12 IPPs from the 2002 policy. All of these projects agreed to have local arbitration procedures but the controversies did not allow the formal signing of arbitration agreements.

It took more than six months for an inter-ministerial committee and a negotiating committee to process and pay for 11 2002 police PPIs (other than Nishat Chunian) to the tune of the first installment of 40pc. It was also agreed that the issue of alleged excess profits / illegal gains / excess savings is currently being dealt with under the Arbitration Submission Agreement, it is expected that the arbitration will be decided prior to the payment of the second installment. of 60pc which is due within six months of the first payment.

“In the event of a delay in the completion of the arbitral proceedings, the 70-day healing period could also be used in the event that an adjustment has to be made from the second installment. However, in the event that the arbitration procedure is not concluded during the healing period, the remaining 60pc should be released for these 11 PPIs in order to benefit from the applicable tariff discounts and recovery – if any – on the basis of the result. of arbitration. should rather consist of future claims on said PPIs ”.

However, on the issue of Nishat Chunian, it was decided that negotiations should continue with his leadership to secure the amount of the alleged illegal gains. The decision would now be presented to the cabinet’s economic coordination committee for an additional Rs 131.08 billion grant to be paid to 11 IPPs.

The CCoE also approved a flat rate of Rs12.66 per unit as the winter tariff for all domestic and commercial consumers across the country, including K-Electric, on additional consumption for four months – from November 1, 2021 to February 28, 2022. The benchmark for additional consumption would be the same months of the previous year – from November 2020 to February 2021.

This does not imply any subsidy as it is the average cost of electricity at the grid level. This decision aims to shift the consumption of gas for space heating to electricity given the limited availability of natural gas during winters and the excess electrical capacity of the system which drops considerably during the winter months to 12,000. at 14,000 MW compared to a peak demand exceeding 26,000 MW in summer.

The flat rate on additional consumption would effectively apply to those who consume more than 300 units per month currently billed at Rs 20-23 per unit, excluding tax. Those under 300 units and nearly 70% of total consumers are billed at a maximum of Rs12.15 per unit.

The program builds on the experience of 2019 – from November 2019 to February 2020 – when a flat rate of 11.97 rupees per unit was proposed on incremental consumption and resulted in 16% growth in consumption.

The electricity division had proposed the winter tariff for the ex-Wapda distribution companies. However, “the CCoE has ordered the Power division that KE consumers should also be included in this package,” an official statement said. The announcement says the CCoE “also ordered the petroleum division to submit a reverse gas pricing mechanism for the same months during this week.”

Refining policy

The CCoE approved in principle the Pakistan Oil Refinery Policy 2021. However, on strong reservations from the Ministers of Planning and Finance, the committee asked the petroleum division to review the initial incentive program offered to existing refineries in the country, according to an official statement.

“Why are you offering 40% capital through a tax regime, whether for two and a half or five years?” Said one of the ministers. “What return would the government get on such a lucrative incentive?” Are we not comfortable with this? another joked.

The draft policy provided for a “special reserve account” for upgrade, modernization or expansion to be maintained by each local refinery in a separate bank account to be opened at the National Bank of Pakistan. Any additional income (net of taxes) earned by refineries on the basis of the revised tariff structure (in addition to the existing pricing mechanism for refineries), has been proposed to be transferred to the special reserve bank account and to appear separately in the Company’s books for exclusive use on upgrade, modernization or extension projects.

This reserve account was required to be used exclusively for the above purposes and not to constitute more than 40pc (net of taxes) of the total project cost, while the remaining 60pc was to be financed by the refineries on their own balance sheets in in the form of corporate debt or sponsor equity, or a mixture of both.

The meeting also discussed a multi-million dollar AfDB program for advance metering instruments for three distribution companies – Lesco, Fesco and Iesco – on which the power division had some reserves and the project had dragged on for more than four years.

The CCoE concluded that decision making for the project should be the exclusive right of the power division.

Posted in Dawn, le 14 September 2021

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