Pakistan. Rs 7.82 per unit upfront tariff approved for sugar mills

03.01.2017

While rejecting the requests of existing sugar mills for an upward revision of bagasse- fired electricity, National Electric Power Regulatory Authority (Nepra) has formally approved upfront tariff of Rs 7.82 per unit for sugar mills which is already applicable under Nepra''''s Interim Power Procurement (Procedure & Standards) Regulations - 2005.

There is a potential of 600-700MW from sugar mills which start crushing in the country during November to February - the period when hydel is on lower side. As per Pakistan Sugar Mills, currently 86 sugar mills are working in Pakistan. The government of Pakistan, in order to encourage generation on bagasse, approved the framework in 2013 by including the bagasse / biomass in the renewable policy 2006. The Nepra has already announced the upfront tariff for co-generation power projects which are required to establish their power plants on new machines and as per terms and conditions laid down in the decision of May 29, 2013. Almost seven companies have opted for an upfront tariff having a capacity of 231MW out of which 139.7MW are operational and around 92MW is expected to be added to the system in 2016-17.

According to the decision of the Authority, most of the sugar mills have their basic core business of sugar production. During this process, electricity is generated which is not only sufficient to meet their own requirements but surplus energy can be added to the system. Keeping in view this potential which is expected to be around 600-700 MW, Nepra has already allowed the Distribution Companies (Discos) to procure electricity from the existing sugar mills in accordance with the procedure laid down in the law. Nepra in this regard has already approved the power acquisition contract of different companies, ie, HESCO, PESCO, SEPCO, LESCO and MEPCO. Almost 24 sugar mills are providing around 125MW of electricity through the existing mechanism as per Nepra''''s approved tariff and terms and conditions. The generation tariff approved by the Authority is as follows: Fuel cost component Rs 6.29 per unit and fixed cost component Rs 1.53 per unit, totalling Rs 7.82 per unit.

In order to encourage the existing sugar mills to provide surplus energy to the system, the Authority in exercise of its powers under the Act, initiated proceedings for the development and determination of upfront tariff for existing sugar mills. The Authority on February 11, 2016 decided to initiate suo motu proceedings for determination of upfront tariff for existing sugar mills. Accordingly, the advertisement was published on April 17, 2016 wherein the salient features along with the date of May 9, 2016 of hearing were published. Individual letters were communicated to the stakeholders for meaningful participation in the hearing. In response, comments from Al-Noor Sugar Mills and Ashraf Sugar Mills were received.

Al-Noor Sugar Mills raised the following issues: (a) efficiency: The Authority has calculated the power plant thermal efficiency of Al-Noor Sugar Mills as 22.4% whereas it is on the lower side. The highest efficiency of Tubro-Alternator is 16.04% and average is 13.12%.

(b) Price of bagasse- The Authority has fixed the tariff keeping in view the price of baggase at Rs 2,861/M.Ton. During the cane crushing season the price of bagasse remains approximately at Rs 2,861/M. Ton but after the season, the price varies upto Rs 4,000/M.Ton. So average recommended bagasse price is Rs 3,375/M.Ton which is justified. (c) Baggase price mechanism rates of coal are declining in the international market as coal based power generation is discouraged being polluted fuel. Bagasse-based power generation is encouraged being environment friendly and its rates are increasing day by day. Therefore, linkage of tariff of bagasse based power with coal is not justified. It is therefore, requested that rates of bagasse should be re-linked with natural gas which is justified because both fuels are environment friendly. (d) Linkage of bagasse price mechanism with upfront tariff. The Authority has linked up bagasse based power generation with a coal price mechanism which is already decided in upfront bagasse-based power plants. The government is supporting the organisations against investment and have guaranty of power dispatch to the national grid. The mill claimed that it has invested from own resources and is not getting any financial benefits against its investments. Therefore linkage with an upfront tariff is not justified. (e) Fixed Cost Component- fixed cost component was revised in the late 2008 at Rs 1.26/kWh to Rs 1.53/kWh ie at that time the minimum wage was Rs 8,000/month but currently minimum wage is Rs 13,000/month, ie, about a 62.5% increase. Fixed cost component is basically cost of operation and maintenance. Therefore with the passage of time fixed cost component should be revised accordingly.

ASHRAF SUGAR MILLS (a) Fuel Cost Component - The fuel cost component has been worked out on the basis of $/PKR exchange rate of Rs 98/$ whereas the current $/PKR exchange rate is around Rs 108 and the same has to be utilised. (b) Fixed Cost Component- The fixed cost component has been retained and no indexation is allowed on account of Consumer Price Index (CPI). The mill requested that the CPI be incorporated in the fixed cost component. (c) Indexation and Methodology In line with the upfront tariff wherein the Authority on its own determines and announces the indexation to fuel cost component and fixed cost component on periodic basis, the same approach be opted in the instant case. (d) Plant Efficiency- Authority under high pressure upfront tariff, has allowed an efficiency of 24.50%. The efficiency under the proposed upfront tariff is set at 22.49%. The efficiency of low pressure boilers and existing sugar mills is around 7-11%. The efficiency is unfeasible for the power purchaser. The mill requested that the efficiency be allowed at 16% instead of 22.49%. 3. The hearing in the matter was also conducted on May 9, 2016 wherein the stakeholders did participate.

The authority considered that there is a great potential of the surplus energy during the crushing season from different sugar mills. However, the process requires much more time to enter into bilateral agreements between the power producer and power purchaser. Keeping in view the entire procedure suo moto proceedings were initiated by the Authority in order to facilitate the existing sugar mills for opting for upfront tariff and to avoid the delay due to the time taken in proceedings. The Authority maintains that the sugar mills who objected to the efficiency and fixed O&M are already providing the electricity under Nepra''''s Interim Power Procurement (Procedure & Standards) Regulations - 2005 regime to their respective Distribution Companies. Therefore the issues indicated by the Sugar Mills are irrelevant in the instant case.


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