Govt bans issuance of LOIs for hydropower projects


ISLAMABAD: The Federal government has reportedly slapped ban on issuance of Letters of Interest (LoIs) for hydropower projects with immediate effect and till issuance of guidelines for future, besides starting a probe of business of sale/ purchase of LoIs, sources close to Managing Director PPIB told Business Recorder.

Sharing the details, sources said, Executive Committee (EC) of the Special Investment Facilitation Council (SIFC) as constituted under the Board of Investment Ordinance, 2001 (amended through Board of Investment Act 2023), in its sixth meeting held on October 23-24, 2023 constituted a Working Group to inter alia review all provincial hydropower projects at Letter of Interest (LoI) stage, including Kalam Asrit 238-MW, Asrit Kadam, 229-MW and 470-MW Lower Spatgah in order to streamline their issues and policy parameters and submit recommendations with regard thereto in the next EC.

A meeting of the Working Group was held under Secretary Power Division on November 13, 2023 in which amongst others, it was decided that appropriate guidelines under the Power Generation Policy 2015 will be formulated at the earliest to streamline the process for development of provincial hydropower projects to be connected to the National Grid and electricity to be purchased by the federal entity.

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The meeting was informed that under the Policy, provinces have been given rights to issue LoIs. However, the Policy also provided for issuance of guidelines to regulate such process. It was decided that as per Policy, guidelines be prepared by PPIB for ensuring “ transparency and public value creation“ before issuance of LoI by the provinces, where the project is envisaged to sell power to federal entity and is proposed to be connected to National Grid.

Meanwhile, PPIB will issue an advice to all provinces that no new LoIs should be issued till formulation of the guidelines.

During the meeting, Chairman Nepra pointed out certain fundamental flaws in the criteria underlying operationalization of IGCEP for inclusion and exclusion of projects most specifically for hydropower projects. The meeting was given an impression that completion date of Diamer-Bhasha (DBD) was pushed to 2031 in the IGCEP without official confirmation of Wapda.

Chairman Wapda confirmed that Commercial Operation Date (COD) is likely to be June 2029 and has been changed without any logical reason. He also pointed out that IGCEP flaws are being exploited by private investors to get their projects included as evident from change in DBD completion data.

Managing Director PPIB also noted that certain assumptions/ criteria need proper review for inclusion or exclusion of power projects in IGCEP. It was mentioned that while optimising projects, IGCEP considers only parameters like Capex including IDC (Interest During Construction), fixed O&M cost, fixed discount rate of 10 per cent, discounting over full economic life of the project.

He further highlighted that IGCEP does not consider number of tariff components, allowed by NEPRA like: (i) Water Usage Charges (WUC); (ii) insurance during operation; (iii) variable O&M; (iv) life of project- economic verses 30 years, PPA; (v) ROEDC; (v) equity redemption after debt period and; (vi) interest rate fluctuation.

It was decided that a Working Group with members from following entities be constituted to revisit IGCEP criteria, in order to reflect actual cost of IGCEP; (i) CEO CPPA-G; (ii) MD PPIB; (iii) CEO NPCC and;( iv) MD NTDC.

The sources said that an important aspect of quality construction was highlighted by Chairman Wapda and Secretary Power Division. It was observed that no federal entity had oversight on the projects approved by the PPIB that go under construction.

It was also observed that even approval process through Panel of Experts (PoEs) is not ensuring proper safeguards. It was desired that as Wapda had institutional history and know how for hydel projects, an independent setup under Wapda may be created to help PPIB in supervision of design and execution of hydropower projects from quality point of view over future life of projects and to identify and report any shortcomings to PPIB for appropriate action.

It was desired that a Committee be constituted to recommend the way forward to monitor quality of work of hydropower projects with the following members ; (i) General Manager/ head of Water Resources Division, NESPAK- Lead; (ii) GM C&M, WAPDA;(iii) DG( Hydropower) PPIB;(iv) Manager Technical Hydel, CPPA-G; (v) GM( PSP) NTDC and; (vi) any co-opted Member.

It was further directed that PPIB shall devise a mechanism to increase visibility of construction activities during construction phase of the hydropower projects for ensuring completion of projects as per approved design and quality.

It was also decided that henceforth no further LoIs in relation to hydropower projects that intend to be connected to National Grid and electric power to be purchased by the federal entity, shall be issued by provincial/ AJ&K governments until such guidelines are formulated and duly approved by the Federal Government.

The sources said a Committee comprising the following members was also constituted; (i) Director General (Law) PPIB (Lead); (ii) Director General (hydropower), PPIB; (iii) General Manager (Coordination and Monitoring), Wapda; (iv) representative of SECP; (v) representative of Intelligence Bureau (IB) and (vi) representative of FIA.

As per the notification of November 28, 2023, the Committee has been given the following terms of reference; (i) to check the mechanism/ framework under provincial policies in relation with issuance of LoIs and that at what stage, legal obligations of Federal Government are created; (ii) identify the companies, holding LoI where land has already been allocated for the project before issuance of LoI and to probe into issues of sale/ purchase of LoIs and; (iii) check and compile a list of beneficial owners of the companies/ entities holding LoIs.

The Committee held its meeting on November 28, 2023 wherein initial deliberations were made for way forward on the issue of LoIs.

Accordingly, it was decided that as a first step Provincial/ AJ&K Governments should be requested to provide all relevant information/ data/ documents related to each LoI issued for hydropower projects by them or their respective entities.

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