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60 pc capacity hours purchase Wapda made no commitment to IPPs

RECORDER REPORT

KARACHI: The Water and Power Development Authority (Wapda) has made no commitment to IPPs that it would purchase at least 60 percent capacity hours, rather it can purchase any amount ranging from 0 percent to 100 percent, Dr. Anjum Siddiqi, Senior Adviser and Economist of Hubco, said here on Friday.

It has been repeatedly alleged by analysts that Wapda is being rendered bankrupt because under the power purchase agreements the state-run company has to purchase at least 60 percent capacity hours of IPP plants. Analysts also thought that this caveat of the IPP contracts was unfair because Wapda had to pay for at least 60 percent capacity hours, although actual purchases could be less, due to demand deficiency in the country.

Siddiqi said that the 60 percent capacity charge allegation was the biggest misunderstanding as Wapda only paid for the capacity that it utilised.

The proof that the 60 percent capacity charge is a total misunderstanding is there in the invoices sent to Wapda which have only two components, the capacity payments (CPP) and the energy payments.

Elaborating, he said that CPP is not paid for capacity usage, it is just another name for the Fixed Costs of IPP and nothing else. These are project debt payments, other fixed operating costs including insurance and return to equity investors. Since capacity charges are fixed costs, this means that Wapda has to pay these fixed costs to IPPs, irrespective of the number of hours it actually purchases.

He added that the 60 percent capacity hours is simply a benchmark used by Wapda to compare the base tariffs of all IPPs against a common capacity usage. IPP projects differ in terms of project costs, fuel type, technology and plant utilisation which vary according to the requirements of Wapda. Consequently, IPPs actual tariffs are not comparable. Comparison of base tariffs is however still possible by choosing a common utilisation factor of 60 percent capacity.

Wapda's actual payments to IPPs are in Rs and not in Rs/kWh. The tariff charged by Hubco is charged as per the tables of the Power Purchase Agreement for various Fixed and Variable Cost heads. The PPA lists these costs for each year of the 30 year life of the project. In dollar terms (real terms) costs have been locked in the PPA and cannot increase except allowed escalations. However in rupee terms costs can increase due to variation in fuel price, inflation and rupee depreciation etc.

Dr Siddiqui said that the "second major confusion about IPP tariffs pertains to total payments and per kilowatt payments". Wapda says that it does not have money to buy "expensive" electricity from IPPs. On the other hand, IPPs state that, larger purchases of electrical output by Wapda, while increasing total payments, would reduce the per kilowatt tariff paid by Wapda to IPPs. The fall in the tariff per kWh is due to the fixed costs being spread over more units of purchased power.