Latest news with #CPPs
Business Recorder
19-05-2025
- Business
- Business Recorder
CPL Ordinance: Govt misses legislation adoption target: IMF
ISLAMABAD: Federal government has missed the target of adopting legislation to make captive power levy (CPL) Ordinance permanent by the end of May, according to the IMF. The shifting of CPPs to the electricity grid to boost grid demand while preserving scarce gas resources to more efficient gas-based power generators remains a reform priority for the sector. The cutoff of CPPs from gas supplies did not happen at end-January 2025 as planned, partly because approximately a quarter of CPPs were not operationally ready to move to the grid. As an alternative, the authorities decided to use the price mechanism to incentivize the shift to the grid. Specifically, a CPL was introduced on February 1, 2025, which set the price of all gas for CPPs equivalent to the industrial grid plus a 5 percent levy; the levy will increase by an additional 5 percent every six months until it reaches 20 percent in August 2026. Levy proceeds — the difference between the actual price (levy included) and the OGRA-determined CPP gas price — will be transferred to the electricity grid to reduce the average effective grid tariff (evenly across the existing tariff structure). In support this effort, the authorities have made progress in facilitating service-level agreements between Discos and CPPs, and this should continue as quickly as possible so that CPPs can reliably use the grid. The government stated that it did not immediately end captive power usage by end-January 2025 as large take-or-pay RLNG import contracts would have led to significant adverse impacts on gas CD. The government has finalised and shared with all CPPs a service level agreement which sets a performance standard, as prescribed by the NEPRA, of uninterrupted electricity supply for CPPs that connect to the grid, including penalties for Discos that are not able to meet this standard. Copyright Business Recorder, 2025
Business Recorder
15-05-2025
- Business
- Business Recorder
Textile sector may return to costlier CPPs: PD's PPP projections to Nepra draw sharp criticism
ISLAMABAD: The Power Division came under heavy criticism on Thursday for submitting what were termed unsubstantiated Power Purchase Price (PPP) projections for FY 2025-26 to Nepra and for the continuing unreliable power supply by distribution companies (Discos). Concerns were raised that these issues could drive the textile sector back to costlier Captive Power Plants (CPPs), despite grid electricity being comparatively cheaper. The National Electric Power Regulatory Authority (NEPRA) held a public hearing chaired by Waseem Mukhtar, with participation from Member (Technical) Sindh Rafique Ahmad Shaikh, Member (Technical) KPK Maqsood Anwar Khan, and Member (Law) Amina Ahmed. Discussions revolved low hydrology levels, inflation, interest rate forecasts, GDP growth, solar tariffs, and fuel price assumptions. The Power Division team, led by Additional Secretary Mehfooz Bhatti and CPPA-G's Naveed Qaiser, presented seven scenarios using sensitivity analysis based on demand, hydrology, fuel prices, and exchange rates. In scenario one, CPPA-G has projected PPP at Rs 24.75 per unit, scenario 2- Rs 26.04 per unit, scenario 3- Rs 25.88 per unit, scenario 4- Rs 26.33 per unit, scenario 5- Rs 26.70 per unit, scenario 7- Rs 26.55 per unit and scenario 7, Rs 26.22 per unit. In response to a question, the representative of CPPA-G said that scenario 4 and 5 are likely to be implemented next year. Across the analyzed scenarios, indigenous fuels constitute 55% to 58% of the overall energy mix, while clean fuels contribute between 52% and 56%. Scenario 5 — marked by a high exchange rate of Rs 300/$, low hydrology, standard fuel prices, and normal demand—yields the highest projected PPP at Rs. 26.70/kWh. In contrast, Scenario 4 which assumes normal demand and an exchange rate of Rs 280/$, results in the lowest PPP at Rs. 24.75/kWh, primarily due to reduced capacity charges. Policy overhaul needed for textile sector CPPA-G representative Naveed Qaiser noted that the GDP growth, inflation and interest rates were projected on the information from IFIs, Finance Ministry and domestic financial experts. Amir Sheikh from Lahore stated that industry demands that electricity tariff decreases and in no way increases from July onwards as compared to the April/May/June quarter. 'Already the quality of power from grid is very poor resulting in up to 10% production loss as compared to captive generation and industry is considering switching back to captive. If tariff also increases, then it would lead to big fall in consumption,' he said adding that despite major renegotiations with IPPs, industry is amazed that the proposed tariff for next year is almost the same as last year and the benefit from renegotiations is nowhere to be seen. 'The various price deductions that were announced by Nepra were all time-bound till June. Therefore, if base tariff is not decreased from July 1, 2025 the tariff may increase by Rs 5-6 after the benefit of negative QTA and FCA will be over,' Amir Sheikh said. Chairman Nepra Waseem Mukhar directed Power Division to look into the viewpoint of industry, especially with recent poor quality of power supply from Discos, which is an irritant for industry and to provide future projections of power rates so that industry can make its plans accordingly. Mehfooz Bhatti, Additional Secretary Power said that abrupt suspension of supply is a serious issue and he would look into it through Power Planning and Monetary Company (PPMC). Arif Bilwani said that hydrology assumptions are very critical as we are facing substantially reduced water flows because of draught like conditions. Nepra has already directed the CPPA to prepare report and share and requested that the report be displayed on Nepra website. 'GDP growth figure is also on higher side as the World Bank has revised its projections downward from 2.8% to 2.7%. Demand growth is also not reflecting ground realities. Consistent decline in industrial demand particularly from LSM is being reported for the last 1 1/2 years, he added. 'Benefits of renegotiation with IPPs and GENCOS is not being reflected in Capacity Payments. Further increase in CPP (Rs. 60 billion) will accrue due to Jamshoro imported coal power plant. There is no mention/impact of renegotiation with the left out IPPs, GENCOs & Chinese power plants,' Bilwani argued. Kibor has been assumed at 11.9% although it is expected to be further reduced during the year reaching single digit. Inflation has been assumed at 8.65% which is extremely high, although the country is already witnessing, as per GOP, the lowest inflation in decades. There is a need to readjust the two figures. Bilwani further stated that the impact of solar Net Metering has not been properly accounted for in the assumption and requires to be looked at. The representative of Punjab Power Board enquired as to what was the financial impact of renegotiated IPPs and have the PPAs been made part of the assumption as projections of capacity payments are the same as last year. Naveed Qaiser responded that government had projected Rs 4 trillion reduction in capacity but reduced it to Rs 2 trillion to 2.4 trillion due to COD of Jamshoro Power Plant which will cost Rs 60 billion and Shahtaj Sugar Mills. Member KPK, enquired as to how much will the industrial tariff be reduced? The representative of CPPA-G stated that electricity rates can be reduced from 1 per cent to 8 per cent. According to Qaiser, projections for GDP growth, inflation, and interest rates are based on input from IFIs, Finance Division and other relevant entities. Nepra Chairman Waseem Mukhtar instructed the Power Division to take the concerns of industry seriously, particularly regarding poor service quality from Discos and future power pricing so industries can plan accordingly. Bhatti acknowledged that sudden power interruptions are a major issue and added that there is a commitment to addressing them through the PPMC. Tanveer Barry, representative from KCCI Karachi said that the projected power purchases ranges between Rs 24.75/kWh and Rs 26.22/kWh is still very high. This level of tariff undermines industrial competitiveness and increases the cost of doing business and may deter export growth. He further argued that the government claimed that it has saved trillions of rupees through negotiated agreement but capacity charges are still very high. In Pakistan industrial sector is paying almost double the electricity price as compared to other regional countries. Time of Use power tariff structure for industrial consumers should be abolished. Industrial consumption is declining because of expensive electricity. Expensive power plants should be shut down and replaced with efficient power plants and renewable energy. Rehan Jawed stated that the government should take a decision on net metering otherwise it will be become a big issue for the power sector like IPPs issue. The representative of Aptma, Amir Riaz criticised the planners for making irrelevant decisions. He proposed integrated approach to reduce electricity rates for the industry. Copyright Business Recorder, 2025
Express Tribune
29-01-2025
- Business
- Express Tribune
Gas price hike may result in misuse
Listen to article ISLAMABAD: A cabinet minister has feared misuse of 63% of cheaper industrial gas in power generation by factories, stating that owners of captive power plants (CPPs) may exploit any lacuna and can also try to seek stay orders from courts against price hike. Minister of State for Finance Ali Pervaiz Malik has urged the government to notify a transparent mechanism so that gas priced at Rs2,150 per million British thermal units (mmBtu) and meant for industries was not used in place of Rs3,500-per-mmBtu gas for CPPs. The current mechanism can facilitate this misuse. The development comes amid disclosure that in Sindh and Balochistan nearly 2,100 industrialists already have stay orders and they did not pay a whopping Rs172.5 billion on account of gas infrastructure development cess (GIDC), despite recovering it from consumers years ago, including from farmers. Malik has written to Finance Minister Muhammad Aurangzeb, who is also the chairman of Economic Coordination Committee (ECC) and to the Cabinet Division secretary, asking them to stop the misuse of recent price hike through a new transparent mechanism. The ECC last week approved an increase in gas tariff for CPPs from Rs3,000 to Rs3,500 per mmBtu to provide energy at actual price. It also instructed the Petroleum Division to take necessary measures for imposing a grid transition levy on CPPs to enhance energy sector efficiency. It was done to implement the International Monetary Fund (IMF) condition to either disconnect CPPs' gas connection or make it more expensive than grid electricity to discourage its use. The government has decided not to discontinue gas supplies but will raise rates to the level where gas-based power generation will be at least 5% expensive than grid electricity. The IMF condition to disconnect gas connections of industrial units, known as CPPs, was imposed on the assumption that those plants were running at 30% efficiency and gas should be diverted to more efficient liquefied natural gas (LNG)-based power plants. "Further to the ECC decision taken on gas supply to captive power generators, as stressed in the meeting, it is of paramount importance now that Petroleum Division notify a fair transparent process whereby it would be ensured that no open-cycle captive power plant is operated on an industrial connection allowed for process only," wrote Malik to the ECC chairman. After the price hike, the gas rate for CPPs is Rs3,500 per mmBtu, excluding levy, which is 63% expensive than the price of Rs2,150 for industrial connections. This provides an incentive to misuse gas. Industrialists in Sindh easily get stay orders from courts and there are concerns that the new price hike may also be challenged. Malik wrote that the Attorney General of Pakistan Office must be engaged for timely disposal of all pending litigations prior to the gas price revision. It was essential to ensure a level playing field and punish delinquency across Pakistan, he stated. In Sindh, the industrialists have challenged the government's decision to charge a mixed price for local and imported gas, and obtained stay orders. In this backdrop, the minister of state for finance has expressed fears that the new price hike may lead to the misuse of industrial gas and can also be challenged in courts. This will put Punjab-based industries at a disadvantage. Salman Siddiqui, a spokesman for Sui Southern Gas Company (SSGC), which supplies gas to Sindh and Balochistan, said that some CPPs had challenged the blended price mechanism, which was pending adjudication in the Sindh High Court. The government is currently charging CPPs a blended ratio for indigenous gas and re-gasified LNG at 60:40 for winters and 80:20 for summers. The spokesman clarified that there was no litigation against price notifications of February 2024 and July 2024 and industrialists had challenged only the blended gas price formula. He said that on SSGC network, there were 828 CPPs, of which 148 had already been closed due to default on payments, with average daily consumption of around 200 million cubic feet (mmcf). The company is recovering litigation cost from consumers through its revenue requirement. Due to stay orders, the company suffers cost in terms of additional legal expenses and legal costs are claimed in revenue requirement and Ogra after proper due diligence allows it, he added. The spokesman said that a case regarding GIDC was also pending before the Sindh High Court, which reserved its judgement on September 21, 2024. Total outstanding dues on account of GIDC stand at Rs184.7 billion on SSGC network and Rs172.6 billion is stuck in stay orders, said the spokesman, adding that 2,092 customers had obtained stay orders out of 2,336 clients. He said that SSGC's role for GIDC, under the GIDC Act 2015, was of a collecting agent on behalf of the federal government.
Express Tribune
29-01-2025
- Business
- Express Tribune
Rs55b windfall expected from gas tariff hike
Listen to article In line with International Monetary Fund (IMF) commitments, the government is projected to collect over Rs55 billion in prior year adjustments (PYA) during FY25, following an increase in gas tariffs for captive power plants (CPPs). The tariff was raised from Rs3,000/mmbtu to Rs3,500/mmbtu for CPPs, pushing the weighted average gas tariff to Rs1,722/mmbtu, with an expected annual average of Rs1,689/mmbtu, said Hamdan Ahmed, an analyst at Optimus Capital Management. Additionally, the Oil and Gas Regulatory Authority's (OGRA) oil price assumption of $81.8/bbl, compared to FYTD25 prices of $76.5/bbl, suggests an upside potential to revenue estimates. The power sector stands to benefit from this shift. If CPPs transition to the national grid, a net tariff reduction of Rs0.2-0.5/KWh could be achieved across all consumer segments. "A net tariff reduction of Rs0.2-0.5/KWh for all consumers is achievable if CPPs shift to the grid," said Ahmed. Additionally, capacity charges may decrease by Rs0.6/KWh, particularly as the majority of CPPs — around 3,676 GWh — are concentrated in the South. Increased reliance on low-cost nuclear and Thar coal plants would further aid in lowering electricity tariffs, he wrote in a research report. On the other hand, the gas sector faces limited direct impact, though a complete shift of CPPs to the grid could lead to a Rs35 billion under-collection, necessitating a modest 5% gas tariff hike to meet revenue requirements. However, short-term challenges remain, including excess RLNG in the system, potential disruptions to domestic gas supply, and risks of exploration and production (E&P) curtailments. Despite this, the weighted average cost of gas remains below imported RLNG, favouring its reallocation to productive industrial use. In line with IMF commitments, the government is expected to accelerate the grid transition of CPPs through levies, which could weigh on energy-intensive industries such as chemicals, textiles, and cement. However, Ahmed anticipated that electricity tariff reductions may offset some of the financial strain on these industries. Additionally, exploration and production companies (E&Ps) and the PSO could benefit from a gradual recovery in circular debt stock, which is around Rs2.8 trillion. It is pertinent to mention that OGRA had notified an increase of Rs500/MMBtu in gas tariffs, effective February 1, 2025, for CPPs, with the primary beneficiary being the textile sector. Gas prices remained unchanged for all other consumer categories. Contrary to the Petroleum Division's proposal of a Rs100/MMBtu hike in unprotected residential consumer tariffs, the government opted to maintain the current rate. The Economic Coordination Committee also clarified its plans to gradually bring gas tariffs for CPPs at par with RLNG rates and instructed the Petroleum Ministry to take measures to impose a grid transition levy on CPPs. The revision in gas prices for CPPs would reduce the gap between CPP tariffs and RLNG prices to a minimum of $0.12/MMBtu, compared to an average of over $6.5/MMBtu over the past three years, thus meeting IMF guidelines for tariff alignment, wrote JS Global. However, contrary to common belief that companies using CPPs would shift to the national grid after the hike, they may choose to maintain CPP utilisation despite the increased price. The transition to the grid is estimated to take six months, and fluctuations in power supply could prove costly, said Ahmed. "The supply, even at the increased price, is a sigh of relief for CPPs," wrote Shagufta Irshad of JS Global in her report. A 17% or Rs500/MMBtu hike in gas tariffs, compared to a potential complete cut in gas supply, would still provide relief for CPPs, especially in the textile sector. Although the industry has arranged for alternative fuel and power sources — including multi-fuel-fired plants, increased solar power capacities, direct RLNG purchases from private companies, and power supply arrangements with respective power utilitiesa complete disconnection remains a threat. This is particularly concerning as an uninterrupted power supply from the grid throughout the year remains uncertain.
Express Tribune
27-01-2025
- Business
- Express Tribune
Textile millers term gas tariff hike 'disastrous'
KARACHI: All Pakistan Textile Mills Association (Aptma) Southern Zone Chairman Naveed Ahmed has described the Economic Coordination Committee's (ECC) recent decision to increase gas tariff for captive power plants (CPPs) from Rs3,000 per million British thermal units (mmBtu) to Rs3,500 per mmBtu as anti-export, which will be disastrous for the textile industry having 60% share in exports of the country. He demanded that the federal government reverse its decision of the unprecedented increase in gas tariff to make textile exports competitive in the international market, which had been continuously eroded by the surge in energy prices over the last two years. He said the government increased gas tariff for CPPs only while tariffs for all other sectors including fertiliser and processing firms as well as domestic consumers had been left unchanged. "This targeted discrimination is not acceptable." Naveed Ahmed said the recent 16.7% increase in tariff for industries having CPPs and using gas for electricity generation to operate mills was the final nail in the coffin of the export-oriented textile industry. He called textile sector the backbone of Pakistan's exports, which was not only earning much-needed foreign exchange but was also providing employment to millions of workers directly or indirectly. Owing to an astronomical hike of 311% in gas tariff in the last two years, he said, the textile industry was becoming uncompetitive in the international market as energy costs accounted for a large share in the cost of goods production. "With the highest energy cost in the region, highest cost of borrowing and taxes, Pakistani textiles will be uncompetitive in the international market." Hence, the recent increase in gas tariff would not only prove to be detrimental to the export growth target set by the prime minister in Uraan Pakistan but would also result in losing the hard-earned overseas markets. The Aptma southern zone chairman pointed out that the industry had invested billions of rupees in gas-based power generation for uninterrupted supplies for their own consumption as power distribution companies in Sindh and Balochistan did not have the capacity to provide the required load of electricity to the industry. The government was trying to encourage the use of grid electricity instead of power produced by CPPs, without realising that the policy was not implementable in Sindh and Balochistan due to poor capacity and inconsistency in supply of grid electricity, he added.
