Punjab Power Development Board (PPDB) - Energy Department ...

FREQUENTLYASKED QUESTIONS
1. What do you know about Pakistan
Pakistan is situated between latitude North and longitude East.
On the west border of the country is Iran, India is on the east, Afghanistan in the
north-west, China in the north and the Arabian Sea is on the south.
Pakistan has a strategically advantageous location vis-à-vis being a geographical
centre of the Asian Continent. Forming a bridge between the Middle East and the
Far East, Pakistan can be a hub for trade and communication. A wide
transportation network complements this strategic placement. With three major
international airports and 38 domestic airports, Pakistan serves more than 50
international airlines. Pakistan also has Karachi, Port-Qasim and Gawadar sea
ports.
Pakistan has a continental type of climate, characterized by extreme variations of
temperature. Very high altitudes modify the climate in the cold, snow-covered
northern mountains. Temperatures on the Balochistan Plateau are somewhat
higher. Along the coastal strip the climate is tempered by sea breezes. In the rest
of the country temperatures rise steeply in the summer and hot winds blow across
the plains during the day. The daily variation in temperature may be as much as
11 degree C to 17 degree centigrade. Winters are cold with minimum mean
temperature of about 4 degree centigrade in January.
BASIC FACTS
Official Name
Capital
Area
Location
Islamic Republic of Pakistan
Islamabad
796,096 sq. kilometers
South Asia
Geographic Co-ordinates latitude North and longitude East
Climate
Population
Hot & humid summer, dry & cold winter
170 millions
Religion Islam (Muslims 97%)
Languages
English/Urdu
Currency Rupee (US$ 1 = 94.46, 11 th October 2012)
Sea ports
Dry ports
Karachi, Port-Qasim, Gawadar
Lahore, Rawalpindi, Sialkot, Faisalabad, Peshawar
and Quetta

International Airports
Installed Generation Capacity
No of Electricity Consumer
Per Capita Electricity
Consumption in Pakistan
Karachi, Lahore, Islamabad, Peshawar, Sialkot and
Quetta
23412 MW
22.42 million
approx. 465kWh/annum
2. What do you know about the Punjab province of Pakistan
Punjab also spelled Panjab, is the most populous province of Pakistan, with
approximately 55.06% of the country's total population. Forming most of the Punjab
region, the province is bordered by Kashmir (Azad Kashmir, Pakistan and Indian
occupied Jammu & Kashmir) to the north-east, the Indian states of Punjab, Rajasthan,
and Gujarat to the east, the Pakistani province of Sindh to the south, the province of
Balochistan to the southwest, the province of Khyber Pakhtunkhwa to the west, and
the Islamabad Capital Territory to the north. The Punjab is home to the Punjabis and
various other groups. The main languages are Punjabi and Saraiki and the dialects of
Mewati and Potohari. The name Punjab derives from the Persian words Panj (Five),
and Āb (Water), i.e. (the) Five Waters - referring to five tributaries of the Indus River
from which is also the origin of the name of "India" - these being Jhelum, Chenab,
Ravi, Beas and Sutlej, that flow through the larger Punjab.
Punjab is the most developed, most populous, and most prosperous province of
Pakistan. Lahore has traditionally been the capital of Punjab for a thousand years; it is
Punjab's main cultural, historical, administrative and economic center. Historically, the
Punjab region has been the gateway to the Indian subcontinent for people from
Greece, Central Asia, Iran and Afghanistan and Vice-versa. Due to its strategic
location, it has been part of various empires and civilizations throughout history,
including the Indus Valley Civilization, Vedic civilization, Mauryans, Kushans,
Scythians, Guptas, Greeks, Persians, Arabs, Turks, Mongols, Timurids, Mughals,
Afghans, Sikhs and the British.
3. What is the organizational structure of Pakistan’s Power Sector
i) WAPDA (Water & Power Development Authority) Power Wing: Pursuant to
WAPDA Power wing restructuring Program-1992, Power wing of WAPDA has been
unbundled into following segments:
A) Generation:
o WAPDA Hydroelectric comprising hydro power stations (Tarbela,
Mangla, Warsak, Ghazi Barotha etc.) located all over the country with
installed capacity of 6443.16 MW. National Electric Power Regulatory
Authority (NEPRA) grants blanket/collective Generation Tariff for all of
these hydropower stations.
o WAPDA owned thermal power stations have been configured into four
independent generation companies commonly named as GENCO-I,
GENCO-II, GENCO-III and GENCO-IV (XWAPDA GENCOs).

B) Transmission: In order to own, operate and maintain 220 kV and 500 kV Grid
Stations and Transmission Lines/Network previously owned by WAPDA, a company
named as National Transmission & Despatch Company Limited (NTDC) was
established. NEPRA granted Transmission License to NTDC on 31 st December 2002.
Under the regime set out in the License, the NTDC is entrusted to act as:
a. Central Power Purchasing Agency (CPPA): As CPPA, the
Company is responsible to procure power from XWAPDA GNECOs,
WAPDA Hydroelectric and Independent Power Producers-IPPs (under
Federal Power Generation Policies of 1994 and 2002) on behalf of
Distribution Companies (XWAPDA DISCOs), for delivery through 500
kV, 220 kV and 132 kV network.
b. System Operator: For secure, safe and reliable operation, control
and despatch; generation facilities located all over the country have
been connected with the National Grid. Commonly, it is also referred
to as National Power Control Center (NPCC) located at Islamabad.
c. Transmission Network Operator: For operation, maintenance,
planning design and expansion of the 500 kV and 220 kV
transmission network.
d. Central Contract Registrar and Power Exchange
Administrator (CRPEA): As CRPEA, the NTDC is responsible to
record and monitor contracts relating to bilateral trading system.
Besides, above mentioned organization structure of NTDC, WAPDA
Power Privatization Organization (WPPO) is also functioning under
the administrative control of NTDC. Primarily, it deals with IPPs
under Federal Power Policy-1994 and is also responsible for
negotiating and finalizing the Power Purchase Agreement (of above
50 MW capacities) between NTDC and Private Power Producers
falling under the ambit of Federal Power Generation Policy-2002.
For inference, NTDC may be referred to as a Vehicle for acquisition of power
generated by generation facilities (under public and private sector) and delivery
thereof to distribution companies for ultimate dissemination of electricity to
different categories of end consumers.
C) Distribution: WAPDA owned eight (08) distribution units (named as Area
Electricity Boards) have been configured into independent Distribution Companies-
XWAPDA DISCOs (duly incorporated by Securities and Exchange Commission of
Pakistan). Two additional DISCOs, namely Sukkur Electric Supply Company
(SEPCO) and Tribal Areas Electric Supply Company (TESCO) have also been carved
out of these XWAPDA DISCOs. These DISCOs are responsible for channeling
electricity from the transmission substations below 220 kV to the consumers at
different distribution voltages. The end users are classified as residential,
commercial, industrial, agriculture, bulk supply and street lighting etc. The
distribution network is composed of lines and grid stations of 132 kV and lower
voltage capacities, and each DISCO is responsible for constructing, operating, and
maintaining the power distribution facilities within its dedicated geographic area.

(ii)
One-Window Facilitators for Private Power Producers:
o Private Power & Infrastructure Board (PPIB) at federal level is
responsible for promoting, evaluating and negotiating private
investments in the electric power sector all over the country. It also
reviews Feasibility Studies and Implementation Time Tables.
o Similar to PPIB, Alternative Energy Development Board (AEDB) plays
the role of One-Window facility with respect to renewable energy
based power projects in the country.
o Likewise PPIB and AEDB, One-Window facilities have also been
established at provincial levels like PPDB and SHYDO etc. in Punjab
and KPK respectively.
(iii) National Electric Power Regulatory Authority (NEPRA): As evident from
the name, NEPRA plays the role of regulator (established under the NEPRA
Act, 1997) with respect to power sector of the country as a whole. NEPRA,
interalia, has been mandated to regulate the provision of electric power
services including determinations of electricity tariff, rates, charges and other
terms and conditions for supply of electric power services by the generation,
transmission and distribution companies.
(iv)
Independent Power Producers (IPPs): Generation facilities based on
different fuels have been established in Pakistan under federal power
generation policies issued from time to time.
4. What is the total installed generation capacity in Pakistan
Total installed generation capacity in the country is 23,412 MW.
5. How many IPPs are functional in Pakistan
At present there are 27 private power projects with an installed capacity of
about 6870 MW which are in operation. In addition Kot Addu Power Company
(1650MW) and KESC power plants (1946 MW) are also operating in the private
sector.
6. Why has private sector been inducted in power generation
Power shortage had been one of the chronic problems hampering Pakistan's
socio-economic growth since late 1980s; the problem had assumed such acute
dimensions that power supply fell short of demand by almost 2000 MW during
peak load hours. On a routine basis, this resulted in forced interruptions in the
supply of electricity to consumers during peak hours resulting in load shedding.
The unreliable power supply shattered the industrial progress. There was a gap
between demand and supply due to the rapid increase in electricity demand
(estimated to be growing at a rate of 7-8 % per annum at that time).
This situation called for immediate intervention by the GOP through adoption of
policy measures aimed at massive resource mobilization for investment in the
power/energy sector. The enormous quantum of required investment compared
with the constrained funding potential of the national exchequer, was not
conducive to allocation of scarce GOP funds for power/energy. Therefore, the

GOP took a bold initiative in late 80s to induct private sector investment in the
power sector.
7. Why were One-Window facilities created at federal and provincial levels
as dedicated institutions to handle Private Power Projects
Developing power generation capacity is very capital intensive. Such amounts
cannot be carved out from the annual budget of federal government. As such in
late eighties the Government of Pakistan made in principle decision to seek
private sector investment in power generation. Attracting investment of that big
magnitude require a team of highly qualified professionals who are trained in
project, financial and contract management / analysis beside being courteous
and imbued in corporate culture. Long and tedious experimentations by various
governmental agencies on part time basis with HUBCO (the first private sector
power generation project) and other prospective Independent power Producers
(IPPs) in late 1980's convinced the government to create a dedicated
organization having roots in government but having a corporate look that could
provide a suitable interface to private sector entrepreneurs, their consultants,
lawyers, and lenders feel easy to approach, Private Power and Infrastructure
Board(PPIB) was created as a dedicated one window facilitator for attracting
private investments in power sector. Similarly, One-Window facilities like Punjab
Power Development Board (PPDB) and Sarhad Hydro Development Organization
(SHDO) were also established at provincial levels.
8. What is the institutional structure of power sector in the Province of
Punjab
Government of the Punjab established Energy Department so that the province
could contribute in the generation, transmission, distribution and conservation of
power. Punjab Power Development Board (PPDB), working under Energy
Department, provides a ‘One-Window Facility’ to private investors for
implementation of IPPs in the Province under Punjab Power Generation Policy,
2009. Punjab Power Development Board Act, 2011 has been promulgated to
provide legal cover to the activities of PPDB. To stimulate development of power
projects in public and public-private partnership modes, Punjab Power
Development Company Limited (PPDCL), has been constituted. Moreover,
Punjab Minerals Company (PMC), with the objective, interalia, of ensuring
supply of coal to the coal based power projects in the province, has also been
established in the Provincial Mines and Minerals Department.
9. Why to invest in energy sector of Punjab
a) The Extremely Attractive/ investor-friendly Punjab Power Generation Policy-
2009; ensuring:
Risk (hydrology, wind & solar) Coverage
Buy Back Guarantee
Liberal Political Risk Coverage
Liberal Fiscal / Financial Incentives
Attractive IRR

) Facilitation for procurement / lease of land for projects provided by PPDB
(unheard of in other territories around the world).
c) Earmarking of 5000 acres of land in Cholistan for Solar Farms
d) Extremely cheap rates offered for land lease for hydro and solar power
projects.
e) Environmental issues dealt with by PPDB on behalf of investors.
f) Attractive tariff offered.
10. What is the minimum equity requirement to finance IPPs in Pakistan
The minimum equity requirement for an IPP in Pakistan is 20% of the total
Project Cost.
11. What is the rate of return on equity investment in Pakistan
During recent past, NEPRA has allowed ‘Internal Rate of Return’ based ‘Rate of
Return’ on ‘Equity’ portion of Project’s Capital Cost ranging from 5% (thermal)
to 18% (RE and hydro) net of with-holding tax. Federal government has also
offered higher rate of return up to 20% for indigenous coal based power
projects.
12. What is the structure of projects’ capital cost for power projects in
Pakistan
Normally, NEPRA allows capital structure with Debt: Equity ratio of 80:20 and
in some cases up to maximum of 70:30.
13. What is meant by ‘Financial Charges’ component of projects’ capital cost
for power projects in Pakistan
This component comprises bank charges, commission and fees of the lender,
such as arrangement fee, commitment fee and L/C commission etc. In this
regard, NEPRA has imposed limit of 3% of debt portion of total project capital
cost.
14. What is the repayment period of debt in the tariff structure of
‘Reference Generation Tariff’
Customarily, for IPPs, debt is made available with re-payment period up to 10
years with quarterly installments. Grace period of the loan facility is settled by
keeping in view ‘Construction Period’ of the project with capitalization of
interest/mark-up during said period.
15. What is the ‘Financing Cost’ reckoned in the tariff structure of
‘Reference Generation Tariff’
Normal practice of NEPRA for our IPPs is as under:
Foreign Debt
Local Debt
3 months LIBOR with spread up to 450 bps
3 months KIBOR with spread up to 300 bps

16. Induction of IPPs has resulted in increase in consumer tariff. Is it true
The Bulk Power Tariff (BPT) offered by Pakistan to the IPPs inducted under the
1994 Power Policy was comparable to the IPP tariffs in other Asian countries.
The increase in tariff with time is mainly due to increase in the prices of furnace
oil, gas, and devaluation of the Pak Rupee. The table below depicts a 495% rise
in furnace oil prices, a 208% increase in gas prices, and a 46.88% devaluation
of the Pak Rupee against the US Dollar during the last eleven years.
2001 2012 %age Increase
RFO Price (Rs./M.ton) 11,569 68,874 495
Gas Price (Rs./MMBtu) 182 560 208
Devaluation of Pak Rupee vs. US Dollar 64 94 46.88
17. What is the average residential and industrial tariff in Pakistan
Average residential and industrial tariff in Pakistan has remained Rs. 9.84/kWh
and Rs. 8/kWh during FY 2010-11.
18. Is the average residential and industrial tariff in Pakistan is higher than
other Asian oil-importing countries
Average residential and industrial tariff in Pakistan was Rs. 5.62/kWh and Rs.
7.12/kWh during FY 2009-10 vis-à-vis Korea (Rs.9.94/kWh & Rs.5.38/kWh),
Japan (Rs.15.05/kWh & Rs.9.32/kWh), Singapore (Rs.12.85/kWh & Rs.
9.51/kWh) Malaysia (Rs.7.46/kWh & Rs. 5.58/kWh), India (Rs.9.16/kWh % -)
and Bangladesh (Rs.6.62/kWh & -).
19. Are IPPs in Pakistan getting their invoices settled in time from Power
Purchaser (NTDC/DISCO)
Currently, our power sector is beset with huge circular debt; limiting further
investment in the sector. Project sponsors along with debt providers are wary of
the exposure that the power sector presents because of the delayed payments
and cash flow issues. However, the ‘Security Documents’ (Power Purchase
Agreement and Implementation Agreement) incidental to development and
operation phases of an IPP inherently provides certain level of comforts to
private power producers (both equity and debt participants) in the form of
guaranteed payments structured in the respective ‘Reference Generation
Tariff(s)’. Power Purchaser is obliged to pay ‘Late Payment Charged’ for delayed
payments at the prevalent KIBOR plus four and one-half percent (4.5%) per
annum, compounded semi-annually, calculated for the actual number of Days
for which the relevant amount remains unpaid on the basis of a three hundred
and sixty-five (365) Day year. Under this regime, despite prevalent financial
crunch emanating from higher input cost of electricity generation, IPPs are
getting their invoices settled from the Power Purchaser.

20. What type of Security Documents shall be available for Punjab based
On-Grid IPPs
With respect to On-grid IPPs, there shall be a:
o Power Purchase Agreement between IPP and Power Purchaser
(NTDC/CPPA/DISCO)
o Implementation Agreement between IPP and Government of
Pakistan (directly or through Government of Punjab)
o Fuel Supply Agreement between IPP and fuel supplier (depending
upon form of fuel)
o Water Use Agreement between IPP and Government of Punjab, only
in case of hydropower projects
o Land lease Agreement between IPP and Government of Punjab,
where government owned land is under use of the Complex.
21. What are the problems of setting up Power Projects in Private Sector
Private sector has been facing multifarious problems in practical terms in setting
up power generation plants in the country. Among others, few of them have
been enumerated as follows:
o Lack of Local Manufacturing Facilities and Capabilities: Presently
most of the equipment and machinery required for the power
generation is being imported from foreign countries. The local
manufacturing capability is very limited.
o High Cost of Imported Equipments: Since the power project
involves multifarious type of imported heavy equipments and
machinery, therefore, the cost of the same is substantially high.
o Much Higher Project Capital Cost: Power projects are considered
very large projects. A number of components/variables formulate the
total cost of project. They inter-alia encompass project development
cost, cost of land and land development, civil works, plant and
equipment, spare parts, soil testing, engineering, consultancy, erection
and supervision, importation charges, working capital and financial
charges. Private investors face problem how to match the cost of
project with means of financing.
o Long Implementation and Completion Period: Power projects in
private sector normally involve long period for project implementation
and completion. Due to substantial completion time many costs are
escalated/enhanced, ultimately total cost is also increased.
o Difficulty in Finding Foreign Equity and Joint Venture Partners:
Local private investors who desire to establish power generation
projects are also facing difficulties in searching foreign equity or joint
venture partners for the projects.
o Difficulties in Arrangement of Finances: Sponsors of private power
projects are facing problems in obtaining local and foreign currency

loans for their projects. The negotiations with local and foreign loan
giving agencies involve much time due to which it is difficult to achieve
financial close in time. On the other hand many foreign loan giving
agencies require various types of guarantees. It is also difficult to
obtain Supplier's Credit facilities in view of prevailing situation in the
country.
o Most Projects are Based on Imported Fuel: Most of the power
projects are based on imported oil; this in fact is a major component of
the ultimate tariff.
o Lengthy and Complicated Procedures: Presently there exist a
number of lengthy time and money consuming complicated procedures
due to which private investors are facing problems. These include the
provision of bank guarantees, finalization of many Project
Agreement(s) with a number of Agencies etc.
22. What type of efforts is being made by Government of the Punjab in
providing financial assistance for speedy development of power projects
in private sector
Development of power projects requires heavy funding. Difficulty of accessing
long-term international finance is proving to be a serious obstacle in raising debt
for establishment of power projects. This necessitates efforts to be made by
government in order to encourage private sector to come forward for
investment in power generation. Consequently, in order to gain confidence of
private power producers, Government of the Punjab has approved creation of
following two funds:
a) Punjab Power Development Fund: Fund will be dedicated for ‘Equity
Participation’ with the ‘Private Sector’ Equity Partners’ towards capital cost of
the power projects. Initially, Government of the Punjab will inject an amount of
Rs. 6 billion in to the Fund with the hope that the Fund Manager will be able to
attract an equal amount in to the Fund from international investors. The Fund
will be supervised and monitored through a General Partnership (the “Fund
Manager”), which will act as a Management Team as well as an Investment
Committee, with investments being injected in Rupees from Government of the
Punjab (Onshore Partner) and in US Dollar from international investors (Offshore
Partner) through respective mutual Subscription Agreement(s). The Fund
Manager will be responsible for all investment and divestment decisions and
operations of investees during the investment period in accordance with the predefined
terms and conditions. Besides, the Fund Manager may also be assigned
the responsibility to facilitate Independent Power Producers in arrangement of
Debt Component from local and international lending agencies / institutions.
b) Punjab Power Guarantee Fund: This Fund is being created with the
objective to give assurance by Government of the Punjab to the developers of
Off-Grid power projects for payment defaults, if any, by the ultimate Power
Purchasers (Industrial Estate/Individual Industrial Units etc). Provision of money
into this Fund will be the sole responsibility of Government of the Punjab. The
afore-mentioned Fund Manager may also be assigned the responsibility to
administer this Fund as well through pre-defined terms and conditions under a
bilateral contract with Government of the Punjab.

23. Who determines generation tariffs for IPPs
In order to promote fair competition in the electricity industry and to protect the
interests of consumers, producers and sellers of electric power, the GOP has
enacted the Regulation of Generation, Transmission and Distribution of Electric
Power Act, 1997. Under this Act, the National Electric Power Regulatory
Authority (NEPRA) has been created to introduce transparent and judicious
economic regulation, based on sound commercial principles, to the power sector
of Pakistan. One primary responsibility of the regulator is determination of tariff
for the various generation, transmission, and distribution companies including
the IPPs. NEPRA follows a standard and transparent procedure for tariff
determination, which includes public hearing and views from all stakeholders.
24. What are the basic principles of structuring generation tariff
Tariff structure for different electricity generating companies is different.
Accordingly, selection of tariff structure depends on the power sector
requirements and on the capacities (which can include generation of electric
energy, ensuring availability of capacity, operation under synchronous
compensator mode, frequency regulation and etc.) to render necessary services
by the given company for meeting those requirements.
Taking into consideration the type of services to be rendered to the power
system by the generating companies, as well as their metering capacities and
preferences, Single-Part or Two-Part tariffs may be applied to those services.
Basis for the tariff rates calculation are the classified amounts: fixed and
variable expenses allocated between different services. Keeping in view, power
system requirements of the country, NEPRA normally structures Reference
Generation Tariff based on Two-Part regime comprising following components:
a) Energy Purchase Price expressed in Rs./kWh;
(Annual Revenue Requirement divided by Annual Plant Generation)
b) Capacity Purchase Price expressed in Rs./kW/Month
(Annual Revenue Requirement divided by Net Capacity in kW)/12
a) Energy Purchase Price:
Energy Purchase Price (the “EPP”) is the operating cost of a unit of electrical
energy (kWh). It is payable for the energy generated and delivered to the power
purchaser. This has been further bifurcated into following components:
i. Fuel Cost Component: This component of tariff is meant for
the cost of fuel consumed for generation of electricity.
ii. Variable Operation and Maintenance Cost Component: This
component caters for the cost of services of the O&M operator for
routine management of the power plant. It covers operating cost of
lubricants, chemicals etc. as well as maintenance cost such as
replacement of parts and over-hauling of the plant as and when
required.

iii. Water Use Charge (only for Hydropower Projects): This
component is payable to the respective federating unit for each unit
of energy generated by the plant and delivered to the power
purchaser under ‘Water Use Agreement’ to be executed between IPP
and the respective federating unit.
b) Capacity Purchase Price:
Capacity Purchase Price (the “CPP”) is a fixed monthly payment to IPP for each
kilowatt (kW) of the available capacity of the plant to cater for the fixed costs of
the project. It is payable provided the plant is available for dispatch to standards
defined in the Power Purchase Agreement to be executed between IPP and
power purchaser. The CPP has been further segregated into following
components:
i. Fixed Operation and Maintenance Cost Component: This
component represents the fixed costs incidental to plant operation
and maintenance. It covers management fee, remuneration to the
personnel, rent, utilities, fee for maintaining consents,
environmental monitoring, local taxes and cost of expatriate services
to be engaged for O&M of the pant.
ii. Insurance Cost Component: This component caters for the
premium in relation to insurance policies required to be maintained
for the plant as specified in the PPA and as required by the lenders.
The risks to be covered through insurance include machinery
breakdown, natural calamities, sabotage and consequential business
interruption etc.
iii.Return on Equity and Return on Equity during Construction:
This component is meant to provide return on the equity invested by
the project sponsors as well as redemption (only for projects on
BOOT basis) thereof during tariff control period.
iv.Debt Servicing: This component caters for repayment of principal
and interest charges to the lenders of the project. It matches the
loan repayment stream. Debt is proposed to be repaid in ten (10)
years after achieving Commercial Operation Date of the plant.
Project Capital Cost: Normally, capital cost of the project can be divided into
following main heads:
o Engineering, Procurement & Construction (EPC) Cost: This takes
into account cost incurred by the project sponsors relating to
preliminary work, civil works, electro-mechanical equipment including
engineering & supervision.
o Costs other than EPC Cost: Besides EPC Cost, project sponsor also
incurs expenses relating to insurance during construction, project
company costs, financing charges and interest during construction
(IDC).
Based on the above premise, Reference Tariff Table is established for 20 to 30
years period (keeping in view technology involved). During tariff control period,

Generation Company (WAPDA Hydroelectric, XWAPDA GENCOs and IPPs) submits
invoices to NTDC with respect to Energy Purchase Price and Capacity Purchase
Price on monthly basis after applying already established indexation provisions on
Reference Tariff (detail follows). Besides, Generation Company is also allowed to
submit supplemental charges (expenses not covered in the Reference Tariff)
invoices in line with the provisions of Power Purchase Agreement.
Tariff Components
Fuel Cost Component
Variable O&M
(Foreign Currency Portion)
Variable O&M
(Local Currency Portion)
Fixed O&M
(Foreign Currency Portion)
Fixed O&M
(Local Currency Portion)
Insurance
Water Use Charges (hydropower
projects)
Return on Equity
Withholding Tax on Dividend
Principal Repayment (Foreign Currency
Loan)
Principal Repayment (Local Currency
Loan)
Interest/Mark-up Payments (Foreign
Currency Loan)
Interest /Mark-up Payments (Local
Currency Loan)
Tariff Indexation & Adjustment
Dependent on type of fuel used
US$ to Pak Rupees & US CPI
Pakistan WPI
US$ to Pak Rupees & US CPI
Pakistan WPI
US$ to Pak Rupees, in case of foreign
currency denominated insurance cost
evidenced with documents
Pakistan WPI
US$ to Pak Rupees
Nil
US$ / Pak Rupees
Nil
Adjustments for relevant LIBOR variations.
Adjustments for relevant KIBOR variations.
25. What are the basic principles of structuring transmission tariff
NTDC through transmission tariff (duly determined by NEPRA and notified by
federal Government) submits invoices to each of the DISCOs formed consequent
to the unbundling of WAPDA (termed as XWAPDA DISCOs) on account of
‘Transfer Charge’ for procuring power from approved generating companies
(having approved generation tariff from NEPRA) and its delivery to XWAPDA
DISCOs for a billing period as under (the “Transfer Price”):
Transfer Charge = Capacity Transfer Charge + Energy Transfer Charge
Where:
a) Capacity Transfer Charge comprises:
1) Summation of the Capacity Purchase Price invoices rendered to
NTDC by all the generation companies during the month divided
by the sum of the maximum demand of the XWAPDA DISCOs in

kW recorded at all the delivery metering points at which power is
received by the XWAPDA DISCOs.
2) Use of System Charge (Fixed): the fixed charge part of the Use of
System Charges in Rs. /kW/Month
b) Energy Transfer Charge comprises
Summation of the Energy Purchase Price invoices rendered to
NTDC by all the generation companies during the month divided
by summation of the Net Electrical Output (kWh) recorded at all
the delivery metering points at which power is received by the
XWAPDA DISCOs.
As evident, primarily, the Transfer Price of NTDC being charged to XWAPDA
DISCOs consists of two components; firstly impact of invoices (Capacity
Purchase Price and Energy Purchase Price) received from generating facilities
(duly approved by NEPRA) and secondly Use of System Charge meant for
recovery of cost of service/revenue requirement of NTDC for provision of
transmission services to XWAPDA DISCOs.
The general revenue, which the NTDC is allowed to receive through tariff (Use of
System Charge) from XWAPDA DISCOs, is called revenue requirement or cost of
service. It should be sufficient to cover all costs required for reliable, safe and
uninterrupted operation of the company and to receive a reasonable profit on
invested capital to cater the future expansion of the transmission related
facilities. As a matter of principle, revenue requirement (RR) is calculated by
applying the below given formula:
RR = AC + D + FC + AP
Where
AC– Allowed annual costs, and includes general establishment & administrative
expenses
D– Annual depreciation of fixed assets
FC– Financial charges relating to long term loans obtained by the company
AP– Allowed profit rate (assessed by the NEPRA) on Equity Base
(Fixed Assets + Current Assets – outsiders’ liabilities) of NTDC
The above matrix results after applying below given formula gives Use of
System Charge in terms of Rs./kW/Month.
(RR in Rs divided by XWAPDA DISCOs Demand in MW x 1000)/12
Besides Use of System Charge (Fixed), NEPRA also determines Use of System
Charge (Variable) dependent upon Energy Transfer Charge component of the
Transfer Price. However, it is not applicable to XWAPDA DISCOs because the
Transfer Charge is inclusive of the transmission loss charge as the same is rolled
in on account of the costs divided on units delivered basis to arrive at the

Transfer Charge. Consequently, NEPRA determined Use of System Charge
(Variable) is applicable only to Bulk Power Consumers (BPC).
Based on the above premise, NTDC submits monthly invoices to XWAPDA
DISCOs on account of Transfer Price, which becomes Power Purchase Price (PPP)
for these XWAPDA DISCOs.
26. What are the basic principles of structuring distribution tariff
For assessing the revenue requirement (cost of service) of a XWAPDA DISCO,
NEPRA carries out due diligence process based on tariff petition submitted by
the Distribution Company. In order to make the Distribution Company viable,
recovery of its total revenue requirement (cost of service) is required to be
assured paving the way towards rehabilitation of its system and improvement of
efficiency for safe and reliable provision of electric power. Revenue requirement
of a XWAPDA DISCO comprises:
o Power Purchase Price; as discussed under head ‘Transmission Tariff’
the invoices of NTDC to XWAPDA DISCO on account of Transfer Price
becomes the Power Purchase Price of the DISCO.
o Distribution Margin; includes general establishment & administrative
expenses, depreciation of fixed assets and Return on Rate Base.
Average sale rate is calculated from the above determined revenue requirement
(cost of service) by applying below given formula:
Average Sale Rate = Revenue Requirement divided by Units sold by the
DISCOs
The above determined revenue requirement (cost of service) in terms of
‘Average Sale Rate’ after application of below mentioned adjustment, is
recovered from different categories of end-consumers through Tariff.
o Adjustment Mechanism for Power Purchase Price:
Δ PPP = + (PPP (Act) – PPP (Ref))
(I – L)
Where:
Δ PPP
PPP (Act)
= Variation in Power Purchase Price including fuel
price variation in terms of Rs./kWh purchased
occurred in a month against the reference PPP
= Actual PPP (Rs. /kWh purchased) during the
month for which the adjustment is required to be
made

PPP (Ref)
L
= Reference Power Purchase Price (PPP) in terms
of Rs. /kWh
= Target losses in percentage
The impact of change in the PPP in the bill of individual consumer will be
calculated according to the following formula:
Δ PPP Adjustment =
+ PPP x U (c)
Where:
U (c) means units consumed by the consumer during the month
for which adjustment is required to be made.
27. What are the main categories of electricity consumers of distribution
companies
End-consumers of XWAPDA DISCOs have been divided into different categories.
The main categories of end-consumers are as under:
A-1 General Supply Tariff – Residential
A-2 General Supply Tariff – Commercial
B Industrial Supply Tariff
C Single Point Supply for Purchase in Bulk by a Distribution Licensee
and mixed load consumers not falling in any other consumer class
D Agriculture Tariff
E Temporary Supply Tariff
F Seasonal Industrial Supply Tariff
G Public Lighting
H Residential Colonies Attached to Industrial premises
I Railway Traction
28. What is the situation of power generation potential resources of Punjab
Province
Punjab has limited indigenous resources for generation of electricity. It does
have coal reserves that are yet to be tapped and exploited. The potential for
hydro based generation exists on some barrages and canals but could only be
fully harnessed if low-head technology is perfected. Biomass including
agriculture waste, bagasse based co-generation at sugar mills, and municipal
solid waste power projects can be installed with significant generation. Solar
source is indeed practically unlimited but the cost of solar generation is still high
compared to other technologies. Wind resources of the province are minimal,
assessment of which for power generation is underway. The international power
generation scene indicates that base load can only be met through residual
furnace oil, gas, and coal fired power generation. Hydro generation has seasonal
variations. Renewable power, despite the hype about environment and clean
energy, still is only one percent of total power generation in the world. Punjab,
therefore, has to rely on coal fired power generation with exploitation of all the
hydro sites while encouraging renewable energy as it becomes more affordable
and widespread.

29. What quantum of coal is required for a 50 MW coal based power
project
The quantity of coal required depends upon various factors like coal
specifications, thermal efficiency and plant availability. A typical 50 MW power
plant on Punjab coal specifications, as reported by Punjab Minerals Company
(PMC), requires around 0.2 Million Tons of coal per annum (700 Tons per day).
30. Where coal shall be imported from
More than 95% of world seaborne thermal coal exports originate from just six
countries, with the remainder being supplied from half a dozen others. The six
principal coal exporting countries are Indonesia, Australia, Russia, Columbia,
South Africa and USA with their 2009 coal exports as;
World Top Coal Exporters (2010)
Country
Indonesia 200
Australia 134
Russia 105
Columbia 69
South Africa 66
USA 20
Canada 7
Thermal Coal Exports (million
Ton)
31. What is the coal resource potential in the country
Numerous studies have been conducted all of which have concluded that all coal
reserves of Pakistan are suitable for power generation. Pakistan’s total coal
reserves are 186,007 million tons. The biggest coal reserve of Thar which lies in
Sindh has an estimated potential of 175,506 million tons and preliminary studies
suggest that Thar is capable of generating 100,000 MW for two centuries.
32. What are the difficulties in mining coal from THAR
THAR coal has many technical issues like it has thick overburden (150 m), high
stripping ratio (6.2 cu. m /ton), low heating value (calorific value 12.69 MJ/kg),
high moisture content (50%), unavailability of cooling water, unavailability of
basic infrastructure, brackish underground water, extremely hot climate, high
ambient temperature (51 degrees C), serious clinkering property of coal and
high mining cost.
33. What efforts are being made to develop power projects based on Thar
Coal
The Federal Government has announced a set of incentives for coal mining and
coal based power projects. Whereas the Government of Sindh (GoS) has created
a high power decision making agency i.e. Thar Coal & Energy Board (TCEB)
which has high level representation from both the federal and provincial
governments. GoS and TCEB have allocated Rs. 27 billion for the provision of
cooling water, Rs. 4.963 billion for the improvement of road network, Rs. 0.972

illion for construction of airport, while 50 acres land has been allocated for
effluent disposal. Accordingly for the development of transmission line and
broad-gauge rail link feasibility studies has been completed and their PC-I has
been approved. Once these facilities will be completed then Thar coal projects
will move smoothly.
34. Instead of conventional mining why underground coal gasification
projects are not being initiated
Underground Coal Gasification (UCG) technology is in development stage and a
pilot project at Thar block-V based on UCG is being implemented. After
ascertaining commercial viability of the pilot project, large scale projects would
be considered.
35. How much coal is being imported into Pakistan
Port Karachi currently handles around 4 Million Tons of Coal per year. An
overview of Coal handled by Karachi Port in the past five years is as below;
Year No of ships Coal handled/year (Tons)
2006-7 69 2,702,971
2007-8 90 3,556,246
2008-9 85 3,387,262
2009-10 93 3,658,368
2010-11 98 3,895,492
36. What is the prevalent Tariff for Industrial Units
Industrial Units fall under the category of ‘Tariff- C Bulk Supply’ as detailed
hereunder:
C-3(a)
For supply at 66 KV and & above and sanctioned load above 5000KW
Fixed Charges Rs. 360/Kw/Month and Variable Charges Rs.11/kWh
C-3 (b) For supply at 66 KV & above and sanctioned load above 5000 KW
Fixed Charges Rs. 360/Kw/Month and Variable Charges Rs.
14.50/kWh (Peak) Rs. 9.10/kWh (Off-Peak)
37. What is the Reference Tariff for different technologies
• Nishat Power (Private) Limited-Furnace Oil based 200 MW Plant
Variable Charge Rs. 5.2173/kWh (Fuel Cost Component Rs. 4.7811)
Capacity Charge Rs. 2.2240/kWh
Total
Rs. 7.4413/kWh (cents 12.1988/kWh)
• Orient Power (Private) Limited-Combined Cycle based 225 MW Plant
Variable Charge Rs. 2.2772/kWh (Fuel Cost Component Rs. 2.1782
for Gas)
Capacity Charge Rs. 1.7644/kWh
Total
Rs. 4.0416/kWh (cents 6.7360/kWh)

• Laraib Energy Limited-Hydro based 84 MW Plant
Variable Charge Rs. 0.1749/kWh
Capacity Charge Rs. 6.6614/kWh
Total
Rs. 6.8362/kWh (cents 8.5453/kWh)
• Up-front Tariff for Wind Power Projects
Rs. 17.2755/kWh ((cents 20.0878/kWh) 100% local financing
Rs. 12.6100/kWh (cents 14.6628/kWh) 100% foreign financing
• NEPRA (under consideration) 50 MW Local Coal based Plant
Local Financing Foreign Financing
Variable Charge Rs. 6.1127/kWh Rs. 6.1127/kWh
Capacity Charge Rs. 6.5302/kWh Rs. 5.0037/kWh
Total Rs. 12.6429/kWh Rs. 11.1168/kWh
Cents 13.9392/kWh Cents12.2567/kWh
Fuel Cost Component in both cases amounts to Rs.5.9286 with 27%
thermal efficiency and coal price of Rs. 5,169/M.ton
38. Where can one find data/information on status of power projects under
development in Punjab
Information on the status of power projects under development in Punjab can be
found from website (energy.punjab.gov.pk) of the Energy Department,
Government of the Punjab.
39. What is the model of hydropower project implementation in private
sector
Hydropower Projects in private sector are being implemented on Build- Own-
Operate-Transfer (BOOT) basis and the project based on this model shall be
transferred to the Government at the end of the concession period.
40. What is the construction time required for development of hydropower
project
Due to the site specific nature and being on remote locations, construction time
required for development of hydropower project is a bit longer as compared with
the thermal power projects. For a medium size run of river hydropower project
the development and construction time could be around 5 to 6 years whereas in
case of small hydropower projects, such period could be around 3 years.
41. What is the concession period for hydropower projects
The concession period for BOOT based hydropower projects is up to 30 years.
42. Which are the major hydropower plants in Pakistan
Tarbela (3478 MW), Ghazi-Barotha (1450 MW) and Mangla (1000 MW) are the
major hydropower plants in operation in Pakistan.