National Electric Power Regulatory Authority

Transcription

1 4 National Electric Power Regulatory Authority Islamic Republic of Pakistan Registrar NEPRA Tower, Ataturk Avenue (East) G-511, Islamabad Ph: , Fax: Web: No. NEPRA/TRF-TCUT/2014/ July 9, c)I Subject: Determination of the Authority in the Matter of Thar Coal Upfront Tariff Dear Sir, Please find enclosed herewith the subject Determination of the Authority along with Annex-1, 1A, 2, 2A, 3, 3A, 4, 4A, 5, 5A, 6, 6A & 7 (43 pages). 2. The Determination is being intimated to the Federal Government for the purpose of notification of the approved tariff in the official gazette pursuant to Section 31(4) of the Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997). 3. Please note that Order of the Authority at para 51 of the Determination along with Annex-1, 1A, 2, 2A, 3, 3A, 4, 4A, 5, 5A, 6, 6A & 7 needs to be notified in the official Gazette. Enclosure: As above ( Syed Safeer Hussain ) Secretary Ministry of Water & Power `A' Block, Pak Secretariat Islamabad CC: 1. Secretary, Cabinet Division, Cabinet Secretariat, Islamabad. 2. Secretary, Ministry of Finance, 'Q' Block, Pak Secretariat, Islamabad.

2 National Electric Power Regulatory Authority (NEPRA) ************* Determination of the Authority In the matter of Thar Coal Upfront Tariff July, 2014 Commentators 1. Riala Hydro Power 2. Mr. Muhammad Arif Bilvani 3. Custom Syndicate

3 Background 1. Thar Power Company Limited (the "Company") is a subsidiary of Sindh Engro Coal Mining Company Limited (the "SECMC") which is a joint venture between Government of Sindh (the "GoS") and Engro Group. According to the Company, SECMC was incorporated in 2009 with the aim of exploring and developing the yet untapped coal reserves in Thar Coal Block II. The Mine and Minerals Development Department of Sindh has issued a 30 year lease to SECMC for Block II, which is an area of nearly 96 square km. 2. NEPRA notified an upfront tariff for power projects based on local and imported coal other than Thar coal vide its determination dated June 6th The Upfront Tariff for the projects based on Thar coal was not determined by the Authority due to its unique issues such as water availability, quality of Thar coal etc. 3. The Company through its letter dated January 24, 2014 requested the Authority to announce upfront tariff for Thar coal based power plants. The Company submitted relevant data/information to assist the Authority in arriving at an informed decision. The Authority, being cognizant of the importance of the development of Thar coal and its associated power plants, decided to initiate Suo moto proceedings on the basis of information / data / documentary evidences submitted by company in exercise of its powers under rule 3 of the NEPRA (Tariff Standards and Procedure) Rules, 1998 read with regulation 3 of the NEPRA Upfront Tariff (Approval & Procedure) Regulations, In order to provide opportunity to the stakeholders for meaningful participation, the Authority decided to hold a hearing on April 02, 2014 at the Marriott Hotel, Karachi. Accordingly, notices of hearing were published in leading newspapers highlighting the salient features and the proposed figures. In addition to that individual notices were also sent to key stakeholders who, in the opinion of the Authority, were interested or likely to be affected by the outcome of the proceedings. 4. Subsequent to the publication of the key features of the Company's proposal, two comments/clarifications were received from Custom Syndicates and Riala Hydro Power and one intervention request from Muhammad Arif Bilvani. 1

4 NEPRA u. AUTHORITY Determination of the Authority Comments / Intervention 5. The intervener, Mr. Muhammad Arif Bilvani objected to the proposed net thermal efficiency of 37% and proposed that the efficiency should be at least 41% by installing super critical boilers instead of the older version of boiler i.e. subcritical. He stressed upon the Government of Sindh to provide the necessary infrastructure for the development of Thar coal based power plants. The intervener objected to the proposal of allowing RoE of 32% as he considered it the highest ever allowed by the Authority for all technologies and stressed that consumers should be allowed to have affordable electricity. To attract investors, the intervener proposed 5% spread over LIBOR instead of the proposed 5.5%. Subsequently, the intervener withdrew its proposal for allowing a spread of 5% when it came to his knowledge during the hearing that Chinese banks have shown interest in lending to the project rate of LIBOR + 4.5% spread. 6. The representative of Custom Syndicate (a coal transportation Company) requested certain information with regards to; 1) break up of coal transportation cost and; 2) coal pricing mechanism. Riala Hydro Power while emphasizing a preference of Hydro over Coal opposed to allowing a higher return to coal over Hydro as the later entail more risk therefore, demand higher returns. 7. Most of the participants appreciated Thar coal based power projects and NEPRA's effort to determine tariff through a judicious and transparent process. Some sought clarification written/verbal from the project sponsor and NEPRA which were either provided at the time of the hearing or through a letter sent to the relevant parties. The feedback of the intervener and the comments of commentators have been considered and have been discussed, where appropriate in the relevant paragraphs of the determination. 8. During the hearing, The Company advocated that Thar coal power project is not merely a power generation scheme but a lifesaver for Thar region. The Company stated that Political leadership of Pakistan reached a consensus to jointly support this Project and declared it a "Project of National Importance". The Company informed that although Chinese banks have shown their willingness to finance the project with LIBOR + 4.5% but in its opinion the spread should be finalized at the time of financial close subject to a maximum of 5.5%. Due to lack of experience of the Chinese boiler manufacturer with Lignite coal, the Company stressed that the cost of European boiler like FW, 2

5 Alstom should be allowed as it is most suitable for the Thar lignite coal power generation. The Company requested an increase of US$ million 0.1 per MW for this purpose. The Company requested to increase fixed O&M cost by US$ cent 0.1/Kw/h to cater for additional administrative and manpower requirement due to the reason that there is going to be two separate power plants each with 330 MW capacity to be financed by two separate companies with two different owners. Issues Framed for Authority's Consideration 9. The following issues were framed for consideration of the Authority considering the information provided by the company, comments of stakeholders/general public, intervention request and the proceedings of the case. i. Whether Changes in the Approved Net Thermal efficiencies requested by the Company is Justified? ii. iii. Whether a request for revision in project cost is justified? Whether Allowing Return on Equity During Construction (ROEDC) and Change in Project Drawdowns with 80% Upfront Equity Injection is justified? iv. Whether an increase in operations and maintenance costs is justified? v. Whether Water Charge to be paid to GoS is justified? vi. Whether introducing Two Parts Fuel Cost Component (FCC) for Covering Mine Costs is justified? vii. Whether an increase in the spread over LIBOR from 4.5% to 5.5% is justified? Other issues a. Whether There Is a Need for One or More Upfront Tariff Announcements for Thar Coal? b. Whether Allowing 1% Transportation Loss on Thar Coal is justified? Changes in the Approved Net Thermal efficiencies re uested by Thar Power Com an The Company proposed 37% LHV (net) efficiency given high moisture of Thar coal and due to additional crushing requirement against 39.5% LHV (net) allowed by the Authority in upfront tariff 3

6 0 t1 E R Re r (...) LU _, NEPRA j7hority dtt i C)/4.4, Determination of the Authority determination for 220 MW plant. The Company further informed that most of the bids received have around 37% efficiency with sub-critical technology. However, the Company suggested that the efficiency should be determined on the basis of tests to be carried out during the commissioning. Mr. Muhammad Arif Bilvani objected to low efficiency of 37% on sub-critical and argued in favor of newer technology, i.e. supercritical to achieve increased net thermal efficiency. 11. The Company in response to the Intervener's objection, stated that as compared to subbituminous coal, Thar lignite has lower carbon content and higher moisture, therefore it leads to lower thermal efficiency. The Company requested an efficiency of 37%, which is in line with subcritical technology as recommended by consultants and as also indicated by the EPC market. To support its point of view on the proposed efficiency figures, the company also provided a report of technical consultant RWE indicating an efficiency of 37%. 12. The Company suggested that the efficiency should be adjusted based on net efficiency tests carried out at the time of COD only in case the efficiency is established higher than the reference minimum net efficiency of 37% LHV. The Company further stated that the Variable Fuel Cost Component of the Proposed Upfront Tariff will be adjusted at the time of Commercial Operations Date based upon a heat rate test to be carried out at the time of commissioning. 13. The Authority has seen that the issue of revision in the approved efficiency was also raised by the Government of Pakistan in its reconsideration request pertaining to the Authority announced coal upfront tariff. While being aware of the importance of thermal efficiency in any power plant's tariff, the Authority carried out in depth analysis of efficiencies that are being achieved for similar technology and coal specification in Europe and US including neighboring India where a large part of electricity is generated using lignite coal. The benchmark analysis of efficiency was carried out to review not only the Thar Power Company' suggested efficiencies for 330 MW units, but also to analyze the revision of efficiencies sought by GoP for 220/660/1099 MW sets. 14. The Authority understands that the actual efficiencies may vary and will be dependent on coal quality, operations and design parameters, and location etc. However, the Authority also realizes that for upfront tariff determination, the technical benchmark to be established is not supposed to be specific plant/location, but a generic number, which the investors can achieve without compromising the cost/efficiency tradeoff. The Authority analyzed numerous studies on the subject, some of which are summarized in the table below: 4

7 cr oiler RFC, --/(1, O c.) 14 NEPRA 72( 2 AUTHORITY 4.1' --I 14 6 *IiriV * 0. Determination of the Authority Reports/Studies SubC/CFBC Efficiency LHV Table - I SC PCC lea Coal Advisory Council - 38% 41% lea 2012 Technology Roadmap High-Efficiency, Low- 38% 42%-43% Emissions Coal-Fired Power Generation the Future of Coal MiT %-39% 39%-42% lea Clean Coal Tech Centre 39% 43%-45% Energy Information Administration 2013 Energy N/A 40.70% Information Administration (EIA) Updated Capital Cost Estimates for Utility Scale Electricity Generating Plants, April 2013 CERC Tariff Norms 35.5%-36.8% 38.3%-41.8% Technology Action plan HELE, Major Economies Forum On 40.20% 1 42% Energy and Climate December The Authority also considered 37% efficiency for CFBC/SubC technology approved for 220 MW project in its decision with respect to the Government of Pakistan reconsideration request in the matter of coal upfront tariff. Keeping in view the information gathered from different sources, including the comparative studies quoted above, the Authority is of the opinion that the efficiency of 37% LHV net offered by the Company for CFBC technology is reasonable and can be achieved using Thar coal, hence approved. For 660MW and 1099 MW category based on Thar coal, the Authority decided to maintain the efficiency of 39% and 40% respectively as recently revised in the decision of the Authority regarding reconsideration request filed by the Government of Pakistan in the matter of Upfront Tariff for Coal Power Projects dated June 26, The following are approved efficiencies for Thar coal based power plants. Table - II Efficiency LHV (net) 330MW 660MW 1099MW Thar Coal 37% 39% 40% 16. No adjustment; however will be allowed if the efficiency is established lower than the approved minimum benchmark efficiencies. To encourage efficiency in the sector, the Authority has decided to devise a sharing mechanism through which investors will be incentivized and will share the benefit if they bring plants with an efficiency, higher than the benchmark efficiency approved by the Authority as indicated in Table - II above. The Authority has already provided such mechanism to the investors who are willing to build power plants based on imported and local coal (other than Thar) in the decision of the Authority regarding reconsideration request filed by Government 5

8 of Pakistan in the matter of Upfront Tariff for Coal Power Projects dated June 26, The sharing mechanism as provided herein below, will be applicable only in case the efficiency, approved by the Authority for different capacities is established higher as a result of heat rate tests carried out at the time of COD. Table - Ill Gross MW Efficiency net (LHV) Sharing Ratio achieved At COD Power Purchaser : Sponsor % (min) 100% : 0% % (min) 100% : 0% % (min) 100% : 0% % % 70% : 30% % % 70% : 30% % % 70% : 30% % % 50% : 50% % % 50% : 50% % % 50% : 50% % % 30% : 70% % % 30% : 70% % % 30% : 70% 330 >38.5% 0% : 100% 660 >40.5% 0% : 100% 1099 >41.5% 0% : 100% Whether Request For Revision In Project Cost Is Justified? 17. The Company requested US$ million for the plant size of 330 MW, or US$ million 1.25 per MW, which is the same per MW cost allowed by the Authority for 220MW units. According to the Company, this will include the cost of the Main Plant Equipment System, Boiler including Auxiliaries, STG &Auxiliaries, Balance of Plant Equipment System, Other Mechanical Equipment System, Electrical Equipment System and C&I, Engineering & Project Management, Erection &Commissioning, land, site development and civil works, transportation and evacuation cost up to interconnection point and soft costs like IDC and financing fee. 6

9 18. The Company stated that plant and machinery will be sourced from China. However, Chinese boiler vendors do not have adequate experience to handle lignite fuel containing high moisture and low ash like Thar. Whereas, European vendors have proven experience of designing and delivering reliable boilers for similar lignite. According to the Company, the boiler is the heart of any thermal power plant, and that the reliability of power plants is extremely important for the bankability of the power plant and ultimately, the mine. The experience of boiler vendors is of significant importance and therefore, has to be considered especially for Thar based projects. Therefore, according to the Company, sourcing the critical parts of the boiler from a European vendor would result in a significant, though justifiable increase in the capital cost. 19. In view of all this, the Company requested to allow additional cost of US$ million 0.1 per MW in capital cost of the power project to absorb the impact from a Chinese vendor to experienced European boiler vendor (though based in China). This translated the Company's total claim for a 330 MW unit from US$ million 1.25 per MW to US$ 1.35 MW per million. 20. The Authority observed that Thar Power Company has principally agreed to accept $ million 1.25 per MW cost allowed for 220 MW Gross on local coal/foreign financing category for its proposed 330 MW sets. The Company was asked to provide justification for requesting additional US$36 million (IDC + financing fee included) or US$ million 0.1 per MW in the project cost for opting European boiler that is considered to be expensive as against the Chinese. In support, the Company submitted a Vendor Audit Report dated April 14, 2014 prepared by a well-known Consultant RWE Power who proposed that "Regarding the long-term experiences and the knowhow of utilizing high moisture lignite, the interviewed European Vendors seem to be a good choice for the project as process owner and the boiler manufacturer". The Company further submitted a letter from one of its EPC bidder, China Machinery Engineering Corporation, which indicated boiler hard cost of US$ 33 million if European boiler is included instead of Chinese. 21. The Authority is aware that RWE is the world leading operator and consultant in the field of coal power technologies and the Authority values RWE's suggestions/recommendations to incorporate European boiler technology for Thar coal based power generation. The Authority feels that this is going to be a first project on Thar coal, which is in advance stage of development, therefore, every effort must be taken to ensure its reliability and smooth functioning. If this fails, it will have a negative effect on the other projects proposed to be built on Thar Coal. The government is also 7

10 expecting big contribution of power generation from Thar to cope with economic/energy issues in the medium to long term. The Authority also realizes that European boiler technology will bring decades of experience and knowledge which in the long-run, will most likely increase the probability of success of Thar Projects. In view of the above, the Authority has decided to approve an additional allowance of US$ million 0.1 per MW (which includes IDC and corresponding financing charge) in case a sponsor desire to include European boilers. 22. The Authority, in its determination dated June 06, 2014 of upfront tariff for coal power projects allowed certain items as pass-through including Sinosure fee (in case the investors avail Chinese financing) and custom duties. Similarly to provide comfort to the investors the Authority has decided to include the impact of Sinosure 7 % of total debt and interest payment along with the customs 6% of EPC and thus decided to approve the following cost for different capacity of Thar coal projects. Table - IV 330 MW 659 MW 1099 MW Description MW (Gross) Thar Coal F. Financing L. Financing US$M per MW 23. In order to claim the cost of Sinosure, customs duties and additional cost of European boiler, the verifiable documentary evidence shall have to be provided to the satisfaction of the Authority. The investor, however, shall not be allowed the costs, above the allowed limits as accounted for in the upfront tariff. Whether Allowing Return on Equity During Construction (ROEDC) Is Justified and Change in Project Drawdowns with 80% Upfront Equity Injection is justified 24. The Company has requested NEPRA to allow fiscal incentive package for indigenous coal mining and power generation project on the basis of following ECC decision dated October 15, 2010, which is reproduced as under: "20% ($based) IRR to firms which achieve Financial Close before 31st December 2015 for mining and Power Projects based on indigenous coal and additional half a percentage i.e. 20.5% IRR for firms which achieve financial Close by or before 31st December 2014". 8

11 25. As per the Company, it is important to incorporate the ROEDC component in the tariff for Thar based IPPs. The Company further stated that without this adjustment, IRR comes out to be less than 13%. This is due to the fact that construction period is significantly longer in coal fired power plants ranging from months, depending on the size and complexity of the project. ROEDC is a material and significant cost to the project. In view thereof, the company added ROEDC component to achieve IRR of 20%. The Company has assumed a project cost drawdown of 47%, 23%, 16%, and 14% during the 40 month construction period based on milestone payment schedule as given by the EPC bidders. The approved tariff has drawdown in a ratio of 20%, 30%, 35% and 15% for 220 MW projects and 20%, 20%, 25% and 35% for 660MW and 1099 MW project. According to the Company, the reason for the difference in drawdown is that most of the machinery and equipment will be imported by the contractor during the first years against which payment will have to be made to the contractor and the sub-contractor. 26. Pursuant to the GoP's reconsideration request pertaining to upfront coal tariff, the Authority has already revised RoE number as indicated in the table below in its decision dated June 26, The deliberations, including the reasons for maintaining ROE based return against IRR are detailed in the same decision. Description 220 MW 40 months construction time 660/1099 MW 48 months Table - V RoE Allowed Local Coal Imported Coal 26.5% 24.5% 29.5% 27.2% 27. The Authority is cognizant of the fact that Thar coal is a strategic energy resource, and investment in Thar has to be incentivized in order to expedite Thar coal development. The Authority acknowledges that RoE for Thar coal has to be more than the RoE offered to import/local coal (non-thar). In view of the above, the Authority has decided to approve the following RoE (based on reference parameters including IRR of 20%) for Thar coal based mine mouth power projects: Description 330 MW 40 months construction time 660/1099 MW 48 months construction time Table - VI RoE Allowed Thar Coal 30.65% 34.49% I/ 9

12 28. It is however, clarified that these returns will only be allowed for mine mouth based power plant. For projects utilizing Thar coal for non-mine mouth plants, RoE shall be of local coal, which in the instant case is 26.5% for 220MW (40 month construction period) and 29.5% for 660/1099 MW (48 month construction period). Whether Increase In Operations And Maintenance Costs Is Justified 29. While principally agreeing with O&M allowed by the Authority for 220 MW projects in the upfront tariff determination dated June 06, 2013, the Thar Power Company requested additional Rs per kwh at 85% plant factor in the fixed O&M component due to expected higher fixed costs of human and other resources in remote and undeveloped areas of Thar. 30. The Authority considered the argument put forward by the Company and is of the view that the company's contention in this regard is not valid because area development cost such as land leveling, access road, housing colony utilities connection etc. has already been compensated in the Authority's approved project cost. Secondly, everywhere in the World, large scale coal power plants are expected to be built in remote areas, away from the general population, so that, the general public is not affected by the plant' environmental side effects. 31. The Authority further noted that in neighboring India, total O&M cost recently allowed by its central regulator, CERC, for 330 MW units is equivalent to Pak Rs 0.55 per kwh after accounting for 30% escalation (giving allowance for India's technological advantage and experience in running lignite based power plants). The CERC's approved O&M benchmark for 330MW units is significantly less when compared to the total allowed O&M cost of Pak Rs 0.79 per kwh allowed for 220 MW units 84% plant factor, Ash handling + Limestone cost included). In view of the above, the Company's argument in support of increase in O&M cost does not hold ground; so, the already allowed O&M is more than sufficient to meet O&M expense. Therefore, the Authority has decided not to consider the additional O&M cost of Rs per kwh as requested by the Company and decided to maintain its O&M cost already approved for 220 MW set. Whether Water Charge to be Paid To GoS Is Justified 32. The Company stated that for Thar power projects, Government of Sindh (GoS) has developed a water supply scheme from Left Bank Outfall Drain (LBOD) to Vajihar which is located outside the coal block. This scheme can meet water requirement of up to 3600 MW. The GoS has given a 10

13 water cost of Rs. 0.32/ Gallon. This cost will be charged to SECMC and will be paid by the Company. 33. According to the Company, Vajihar is outside the coal blocks and to make the water available to the mine-mouth power plant, the Company will also set up a Pumping Station at Vajihar and a Pipeline from Vajihar to Block II. For this purpose, a capital investment of U$ million for 660 MW (330 x 2) or USD million for 330 MW will have to be made by the Company for the pumping station and the pipeline. In addition to this, it would also incur operations and maintenance expenses on an annual basis for running the pumping station (cost of electricity, manpower and maintenance). The detailed computation of the Water Cost component (all levelized) provided by the Company is as follows: Table - VII Water Charge to be paid to GoS by SECMC Rs/Gallon 0.32 A Water Charge to GoS Cents/kWh Capital Expenditure incurred by SECMC for setting up a Pumping Station at USD MN Vajihar & Pipeline from Vajihar to Block II for Transmission of LBOD Water Investment in the Vajihar to Block II Project Rs/Gallon B Tariff Component for Capital Investment 85%PF Cents/kWh O&M Cost of the Pumping Station at Vajihar, incurred by SECMC Total Electricity cost from B-3 HESCO PKR/annum 103,941,000 Maintenance cost of pumping station at Vajihar PKR/annum 25,000,000 Cost of manpower for pumping station PKR/annum 25,000,000 Total Annual O&M cost for Vajihar project PKR/annum 153,941,000 O&M Cost Rs/Gallon C O&M Cost Cents/kWh Tariff Component for Water Cost (A+B+C) cents/kwh The Company has proposed the following indexation of different components of the Water Cost: i. Component of GoS Charge will be adjusted for the revised water charge as announced by GoS. ii. iii. Component of Capital Investment to be indexed with USD to PKR Rupee devaluation. Component of O&M would be adjusted for Power (as this would be one of the variable cost for the Pumping station at Vajihar), and with local CPI or USD CPI + PKR/USD parity for manpower and maintenance. 11

14 35. However, in support of the Capex cost of US$ million, the Company submitted excerpt related to the feasibility report prepared by EA consulting Pvt. Ltd titled "Water Carrier from Vajihar Reservoir to Thar Coal Field", dated February The Engineer's estimate for 4 x 330 MW water Capex was indicated in the report as PKR 8,349 million. The Company further discounted the cost estimate by 10%, indexed it by 2% p.a. for inflation and divided it by 4 to work out US$ million estimate for water carrier cost from Vajihar to Thar field for each unit of 330 MW power project. As per the Company's estimation, the tariff component for Capex part of water supply works out to be US cent per kwh. After reviewing the submitted documents, the Authority is of the opinion that the Capex cost of US$ million is reasonably estimated and backed by a feasibility study therefore, the Authority decided to approve the cost as such. The Authority also decided to index that portion of the cost with the exchange rate variation that has been incurred in a currency, other than Pak Rupees. 36. In support of the O&M cost of US Cent /kWh, the Company provided assumptions and background calculations. The Authority carefully analyzed and rationalized certain assumptions with regard to projected diesel price per liter, average load shedding for B-3 consumer category in HESCO area and annual O&M cost per year, the resultant O&M cost works out to be Rs per kwh against Rs per kwh requested and the same is therefore, approved. Depending upon the nature of the O&M expense that will be finalized at the time of COD, the Authority also decided to allow indexation with local WPI and/or US$/PKR exchange rate variation as the case may be. 37. The Government of Sindh was subsequently asked to provide detailed working and background assumptions of the water supply scheme cost estimated to be US Cent 0.30 Per kwh (Rs per Gallon) from Left Bank Outfall Drain (LBOD) to Vajihar vide letter dated April 16, The GoS reply in the matter is still pending. The Authority is aware that Thar regions do not have indigenous water resources enough to sustain thousands of MW of possible power generation and realizes that infrastructure investment will have to be incurred in order to supply millions of gallons of water p.a. to feed the large coal fired units. The Authority also appreciates GoS's efforts of heavy investment to ensure a reliable supply of water without recovering the Capex and only recovering O&M cost. In view of the above, the Authority decided to allow water use cost of US cent 0.30 per kwh to be paid to GoS subject to indexation as and when GoS revise the rate :1

15 N Determination of the Authority Whether Introducing Two Parts Fuel Cost Component (FCC) for Covering Mine Costs is justified? 38. Thar Power Company informed that under ECC Incentives dated October 15th 2010, TCEB is the designated authority to determine the coal price for Thar coal based power plants. Therefore, final price of coal for each power plant based on Thar coal will be determined once TCEB complete a review of submitted costs by leaseholders of blocks undertaking mining project. According to the Company, the coal tariff will be a determined tariff and will be trued up at the time of CoD of the Mining Project. As the mining project is also based on guaranteed IRR and cost-pass through structure like the current IPP structure, therefore, the cost of the mine will be fully accommodated in the coal price tariff, which in turn will comprise of the variable and fixed portion. 39. According to the Company, this mechanism will ensure that fixed costs of the mine are fully and timely paid whenever the mine is available for coal supply in order to ensure that it can meet its obligations to lenders and contractors and without this mechanism, no mining or Thar based Power Project will be bankable. The coverage of the costs incurred for running the Mining Project is to be under the power tariff. This is already contemplated in Power Policy 2002 under Section 6.2 (54), which states: "For projects requiring substantial investment in dedicated production and/or transportation facilities for indigenous fuel, expenses would be accounted for in the power tariff in the form of capacity and energy charges". 40. The Company also informed that once a mine signs a Coal Supply Agreement (CSA) with a company operating power plant, entire throughput of the mine will be dedicated to that power plant. Moreover, TCEB will periodically announce revised coal price of mine associated with a Thar coal based IPP due to variation in Coal Price on account of indexations and adjustments during mine operations, which is similar to as determined by NEPRA for IPPs operating under their respective Power Policy framework. 41. The Company informed that TCEB will also periodically adjust prices downward with each expansion of mine to reflect higher scales and consequent lower fixed costs per ton. The Company further informed that, it will be amply clear in CSA and in a coal tariff determination by TCEB that any benefit of incremental coal production for a new power plant & consequent reduction in coal costs per ton will require downward adjustment in coal tariff. The Company nticipates that NEPRA will use fixed and variable component of the Coal Tariff as determined by NEPRA :. 7y AUTHORITY 13

16 TCEB at COD of the Mining Project for the purpose of determining fixed and variable Fuel Cost Component for Thar coal based IPP, which will be revised as and when TCEB revises Coal Price. 42. For the purpose of this proposed upfront tariff, the Company used a coal price as determined by SECMC after firming up of project cost estimates for a mine capacity of 6.5 million tons per annum (mtpa) which is projected to cost around US $46 per ton. According to the Company, the price of coal and hence power tariff will keep declining as the mine further scales up, which the Company believes will set a trend once the first project breaks ground. In support, the Company provided the following illustration: Size of the Mine - Mtpa Table - VIII No. of Years after Coal Price - Levelized Power Completion of Mine USD/Ton 85% LF - cents/kwh Above assumes that Mine size remains constant at the respective capacity (in mtpa) throughout 30 years. 43. The Company was asked to provide detail working and background assumption of Thar coal proposed fuel cost component including its two parts i.e. variable and fixed charge. The Company subsequently submitted certain numbers but the detail working on different capacity mining was not submitted. However, the company gave a presentation to the NEPRA's tariff professionals on proposed power plant in general and mining project in particular. The company submitted the following breakup and constituent of the possible Thar coal price: Coal 6.5 Mt/a Mine Cost Component VARIABLE CHARGE Fuel Cost Maintenance Cost Royalty Total Average (1-10 Years) USD/Ton Average (11-30 Years) USD/Ton Table - IX Levelized (1-30 Years) USD/Ton FIXED CHARGE Fixed Operation & Maintenance - Foreign Local

17 Coal 6.5 Mt/a Mine Cost Component VARIABLE CHARGE Power Cost Maintenance Reserve Cost of Working Capital Total DEBT & ROE Debt Servicing Return on Equity Sub Total Average (1-10 Years) USD/Ton Table - IX Average Levelized (11-30 Years) (1-30 Years) USD/TonUSD/Ton The Authority observed that pursuant to the Thar Coal Energy Board Act, 2011 TCEB is mandated by Government of Sindh to determine and control the price of coal. TCEB was asked to provide the status of development of fuel price mechanism for Thar coal. As of now, TCEB has not replied. The Authority was informed by Thar Power Company that TCEB will engage an internationally reputed consultant to develop the pricing mechanism. While developing whatever mechanism for Thar coal pricing, the Authority expects TCEB to be cognizant to ensure the process of determining Thar coal price determination is participatory and based on principle of fairness and justice while taking on board all the stakeholders including NEPRA. Therefore, keeping in view the relevant provision of Power Policy 2002 and the fact the a separate body (TCEB) has been constituted by the Government to fix coal price, the Authority has decided to accept the proposed mechanism of dual part fuel cost component as requested by the company and subsequent changes will be made after TCEB finalizes coal pricing mechanism. Whether In Increase in LIBOR from 4.5% to 5.5% is justified? 45. The Company has submitted that due to uncertainty shrouding Pakistan, given the present market conditions, the spread over LIBOR should be 5.5% against 4.5% allowed by the Authority. The company further stated that the spread could be adjusted once the actual Term Sheet is signed with the lenders, based on which the debt component in tariff and IDC component in project cost will be revised accordingly. Mr., Arif Bilvani, an intervener proposed that the spread should not be more than 5% to attract foreign investors. 15

18 46. During the hearing, CEO of the Company indicated that Chinese lenders have shown willingness to fund the project with a 4.5% LIBOR spread. However, he was of the opinion that since the spread was based on initial understanding, therefore, it should not be fixed at 4.5%. In fact, the Company requested to assume LIBOR spread of 4.5% spread for tariff calculation with a cap of up to 5.5%. 47. The Authority appreciates that the company has made an effort to reach an understanding with lenders to bring the spread to the Authority's approved spread of 4.5%. The Authority is of the opinion, that if investors show strong commitment to the project development, as SECMC has shown, lenders will most likely reduce the spread even further especially, when the negotiation will be in the advanced stage. The Authority feels that considering the strong GoP/GoS backing for Thar coal projects and after inclusion of this project in the $38 billion worth China-Pakistan Economic Corridor prioritized/early harvest projects, Chinese lenders are most likely to further reduce the spread. In view of the above, the Authority sees no reason to increase the approved spread to 5.5% and therefore, has decided to maintain the spread of 4.5% over LIBOR. Furthermore to encourage the company to reduce spread, and pursuant to para 1.5 of the "Guidelines for Determination of Tariff for IPPs" the Authority also decided to share the benefit of better margin negotiation between power purchaser and IPPs in the ratio of 60:40. Other Issues Whether There is a Need for one or more Upfront Tariff Announcements for Thar Coal 48. This issue came to the Authority's attention after discussion with various stakeholders. Thar coal is spread over a vast area of Sindh and different blocks may not necessarily share the same characteristic with each other. The question was that should there be a unified upfront tariff for all the block of Thar coal or different tariff for different blocks, keeping in view individual block peculiarities? 49. TCEB, being the relevant agency, was asked to assist the Authority in determining what issues and key assumptions needs to be kept in mind while determining block-wise Thar coal tariff. TCEB reply in the matter is still pending. The Authority noted that only Thar Power Company/SECMC approached NEPRA with tariff proposal with advance stage project development for BLOCK-II of Thar Mine. Neither has TCEB nor any other investors have shared any data/information regarding differences among various Thar blocks. After discussion with the stakeholder, the Authority is of the opinion that in all likely hood, peculiarities within Thar blocks will impact fuel cost component which itself is to be determined by TCEB. With regards to the water related costs, the Authority further considered that half of the cost 16

19 relates to water charges to be fixed by GoS, which leaves only Capex and O&M cost of water supply from GoS managed water supply scheme to the power plant which may vary from block to block. The Capex cost to be incurred by the investors are already to be adjusted on actual and reasonable O&M cost with periodic indexation has already been allowed by the Authority. Therefore, the Authority decides that the Thar upfront tariff be broad based and generic, without specifying block as provisions have already been made to account for block to block variations. Whether Allowing 1% Transportation Loss on Thar Coal is Justified? 50. The Company has indicated transportation loss (from mine mouth to Plant) of 1%. The company was asked to provide justification for loss ratio. TPC informed that 1% transportation loss was taken from the Authority's determination for tariff based on Local coal. The Company further informed that they understand that for mine mouth plant it should be lower. The Authority considered that the 1% loss figure was allowed for local coal transportation and not for Thar coal mine-mouth based power plant. The Company plans to build the plant within 40 km proximity of the mine for which the transportation loss cannot be 1%. However, the Authority realizes that at this stage, when the Company doesn't have a background working it is very hard to fix a transportation loss percentage at this stage. Further, this issue concern fuel cost component for which TCEB is the competent Authority. Therefore, the Authority has decided that the Company along with all the prospective investors should approach TCEB to determine a reasonable and prudent transportation loss on block to block basis. 51. Order The Authority hereby determines and approves the following upfront tariff and adjustments/indexations for Thar coal power generation projects for delivery of electricity to the power purchaser: Table - X Capacity Charge 1-10 Years 330 MW 660 MW 1100 MW Capacity Charge Years 330 MW 660 MW 1100 MW F. Financing L. Financing Rs./kW/Hour Rs./kW/Hour MR Table - XI F. Financing L. Financing Rs./kW/Hour Rs./kW/Hour

20 F./L. Financing Table - XII Energy Charge 1-10 Years Variable Fixed 330 MW 660 MW 1100 MW I. Rs./kWh Rs./kW/Hour Energy Charge Years 330 MW 660 MW 1100 MW Energy Charge Years 330 MW 660 MW 1100 MW F./L. Financing Variable Fixed Rs./kWh Rs./kW/Hour Table - XIV F./L. Financing Variable Fixed Rs./kWh Rs./kW/Hour i. The Tariff Tables & Debt Service Schedules for each project are attached as Annexes to this determination. ii. The tariff period is 30 Years. iii. In case of power complex of 660 MW (330 MWx2), the tariff of 330 MW will apply however, the heat rate and IDC tests will be conducted on the basis of complex as a whole and relevant tariff components will be adjusted accordingly. Same will be applicable for other combinations. II. Basis for Determination The above tariff is worked out on the following basis: i. Design Coal (Quality of Coal) The Reference LHV calorific value of 11,005 Btus/Kg. for Thar coal has been assumed for the calculation of fuel cost component which will be subject to adjustment on the basis of actual calorific value. ii. Plant Size (<0R Re "j _() C.) 0..., 41 NEPRA A -< u.1 a. The upfront tariff has been determined for the plants of following sizes; 330 MW Gross 660 MW Gross 1,099 MW Gross 300 MW Net 607 MW Net 1,011 MW Net 18

21 b. The actual net capacity of the complex will be determined on the basis of Initial Dependable Capacity (IDC) Test at the time of COD and the relevant tariff components will be adjusted downward. However, the upward adjustment in tariff will not be allowed if the IDC established lower than the benchmarks stated above. The minimum net capacity will be gross capacity minus the maximum allowed auxiliary consumption. iii. Site of Plant This tariff will be applicable only for the mine mouth projects in Thar area. iv. Plant Specifications The sponsors of the plant will be at liberty to select plant of any technology based on the quality of coal as far as the minimum efficiency thresholds are ensured. v. Auxiliary Consumption The auxiliary power consumption factor shall be 9% for 330MW and 8% for 660 MW and above. vi. Exchange Rate Reference exchange rate of Rs /US$ has been used in calculating the reference tariff and the same shall be used for indexations/adjustments where applicable. vii. Capital Cost including EPC Cost a. The capital cost for coal based power project includes cost of Main Plant Equipment System, Boiler including Auxiliaries, STG &Auxiliaries, Balance of Plant Equipment System, Other Mechanical Equipment System, Electrical Equipment System and C&I, Coal Handling Infrastructure, Engineering & Project Management, Erection & Commissioning, land, site development and civil works, transportation and evacuation cost up to inter-connection point. b. The following capital cost for coal based power projects has been determined by the Authority; FY will be the first year of validity period. The capital cost shall be linked to the specified indexation mechanism. 330 MW US$ Million 660 MW US$ Million 1,099 MW & above US$ 1, Million c. The incremental cost of European US$ 0.1 million per MW has been assumed in the overall project cost on account of capital cost, financing fees & IDC. The sponsor will submit verifiable documentary evidence at the time of COD regarding installation of European boiler for entitlement of this cost. The projects which do not install European boiler will not be eligible for this cost. d. Any boiler will be categorized as European boiler regardless of its place of 19

22 manufacture if it is designed and supplied by European boiler manufacturer and installed under its warranty. e. In case of variation in installed capacity to standard modules assumed above, the capital cost will be adjusted accordingly on a pro rata basis. viii. Capital Cost Indexation Mechanism The following indexation mechanism shall be applicable for adjustments in capital cost during the validity period with the changes in Producers Price Index (PPI) for Steel and Electrical Machinery. CC(n) (CC(o) * 51% * ASI) + (CC(o) * 38% * AEI) + (CC(o) * 11% ) Where: CC(n) CC(o) Capital Cost at the time of opting the tariff during the validity period Capital Cost at the beginning of the validity period ASI Variation in US PPI for Steel i.e. SI(n)/S1(0) Sl(n) = PPI Steel at the time of opting the tariff = PPI Steel for the month of June 2014 AEI Variation in US PPI for Electrical Machinery i.e. El(nvE1(0) El(n) PPI Electrical Machinery at the time of opting the tariff El(0) PPI Electrical Machinery for the month of June 2014 Note: Breakup of capital cost indicated in the above formula has been taken from New Coal-Fired Power Plant Performance and Cost Estimates (SI ) by Sargent & Lundy and International Energy Agency; Coal Industry Advisory Board (Ian M. Torrens & William C. Stenzel) ix. Customs Duties, Cess and Withholding Tax Customs duties & 5.95% of the 66.75% of the capital cost has been assumed in the project cost which will be adjusted at the time of COD on actual basis. No withholding tax on local foreign contractors, sub-contractors, supervisory services and technical services provided by foreign (non-residents) entities has been assumed. Actual expenditure, if any, on this account will be included in the project cost at the time of COD on the basis of verifiable documentary evidence. x. Construction Period a. Construction period for the generation facility having a capacity up to 330MW shall be 40 months. 20

23 b. Construction period for the generation facility having a capacity of 660MW and above shall be 48 months. xi. Financing of Coal Projects a. The sponsor of the project can arrange foreign financing in American Dollar ($), British Pound Sterling (E), Euro ( ), Japanese Yen (Y) and Chinese Yuan (Y) or in any currency as the Government of Pakistan may allow. b. The upfront tariff has been determined on the basis of debt equity ratio of 75:25; c. The minimum equity shall be 20% and the maximum equity shall be 30%; if the equity actually deployed is more than 30% of the capital cost, equity in excess of 30% shall be treated as loan; xii. Financial Charges a. For the purpose of determination of upfront tariff loan tenure of 10 years plus grace period equivalent to construction period has been considered. b. Interest Rate A. The reference Karachi Inter Bank Offer Rate (KIBOR) of 11.91% plus 350 basis points has been used for calculating the financial charges. B. The reference London Inter Bank Offer Rate (LIBOR) of 0.45% plus 450 basis points has been used for calculating the financial charges. C. The interest calculated in the reference debt service schedule shall be subjected to adjustment for variation in quarterly-kibor in the case of local loan and quarterly-libor in the case of foreign loan on a quarterly basis. The adjustment shall be made on 1st July, 1st October, 1st January and 1st April based on latest available TT&OD selling rate and KIBOR notified by the National Bank of Pakistan and Reuters for the purpose of LIBOR. D. The maximum allowed premium on LIBOR and KIBOR is 4.5% and 3.5% respectively and there will be no adjustment on the basis of actual higher premium than the maximum allowed limit. In case spread negotiated is less than the said limit, the saving will be shared in the ratio of 60:40 between the power purchaser and the power producer respectively. E. The repayment of loan shall be considered from the first year of commercial operation. xiii. Financing Fees & Charges Financing fee & charges are of the borrowing to cater for the upfront fee, commitment fee, lenders' technical, financial and legal consultants' fee etc. xiv. Sino sure Fee Under the foreign financing originating from Chinese banks, upfront Sino sure on the total debt servicing (including principal and mark-up for the entire loan tenor) has been included in the project cost. The project cost will be adjusted at the time of COD on the basis of actual Sino sure fee subject to maximum of 7%. In case the sponsor managed

24 better alternative Sino sure fee arrangement, the same will be considered at the time of COD. xv. Interest During Construction (IDC) a. Interest During Construction (IDC) has been calculated on the basis of 75% of the CAPEX including customs duties as per the following reference parameters; Year 15t Year 2nd Year 3rd Year 4th Year Table - XV 330 MW 660MW 1099 MW 33.33% 33.33% 33.33% 33.33% 33.33% 33.33% 20.00% 13.33% 13.33% 13.33% 20.00% 20.00%.- Ai 0:, c'' c),onner R LI NEPRA 7_Z w..., AUTHORITY 4.- b. IDC shall not be adjusted for any variation on account of actual expenditure percentage during the construction period. c. At the time of COD, IDC shall be reestablished on the basis of indexed capital cost, actual custom duties & cess, withholding tax on contracts/services, actual premium on LIBOR & KIBOR subject to maximum of 4.5% and 3.5% respectively and the impact of Sino sure fee, if any. d. In case of more than one financing plans, separate IDC shall be calculated for each plan on reference parameters. e. IDC shall be recalculated on the basis of weighted average quarterly LIBOR/KIBOR during the construction period plus actual premium subject to the maximum limit on reference parameters. xvi. Summary of Project Cost The following project costs have been assumed for different projects in the upfront coal tariff, which will be subject to adjustments at the time of COD in accordance with the methodology prescribed in the preceding paragraphs: Table - XVI 330MW 660MW 1099MW Description F. Fin. L. Fin. F. Fin. L. Fin. F. Fin. L. Fin. US$ US$ US$ US$ US$ US$ Mins Mins Mins Mins Mins Mins Capital Cost , ,191.7 Custom Duties & Cess Sub-Total , ,239.0 Financial Charges: Financing Fees & Charges Sinosure Fee IDC Sub-Total A Total , , ,

25 xvii. Return on Equity (ROE) The Return on Equity shall be: a % per annum for the projects having construction period of 40 months. b % per annum for the projects having a construction period of 48 months. c. In case there is a time lag between the construction of power complex and coal mine and the power complex becomes available earlier than the mine, the responsibility to provide coal will be of the sponsor and the ROE component of tariff will be adjusted accordingly depending on ROE allowed on imported/local coal usage. xviii. Thermal Efficiency a. The following minimum reference net LHV thermal efficiencies have been established for calculating reference fuel cost component; 300MW net capacity (at mean site conditions) 37% 607MW net capacity (at mean site conditions) 39% 1011MW net capacity (at mean site conditions) 40% b. The fuel cost component will be subject to downward revision on the basis of actual heat rates established as a result of heat rate test conducted at the time of COD in accordance with the established benchmarks in the presence of the representatives of the power purchaser. For acceptance of the test, approval of the power purchaser will be mandatory. Upward revision in the fuel cost component will not be allowed in case the net LHV heat rates are established lower than the minimum thermal efficiency specified above and the financial impact, if any, of lower thermal efficiency over the term of the Agreement will be borne by the power producer. However the following sharing mechanism will be applicable only in case the efficiency, approved by the Authority for different capacities is established higher as a result of heat rate tests carried out at the time of COD. Table - XVII Gross MW Efficiency net (LHV) Sharing Ratio achieved At COD Power Purchaser : Sponsor % (min) 100% : 0% % (min) 100% : 0% % (min) 100% : 0% % % 70% : 30% % % 70% : 30% % % 70% : 30% % % 50% : 50% % % 50% : 50% % % 50% : 50% 23

26 Gross MW Efficiency net (LHV) achieved At COD Table - XVII Sharing Ratio Power Purchaser : Sponsor % % 30% : 70% % % 30% : 70% % % 30% : 70% xix. Price of Coal 330 >38.5% 0% : 100% 660 >40.5% 0% : 100% 1099 >41.5% 0% : 100% a. The following two part reference coal price has been used for determining the upfront tariff for Thar Coal Projects: Table - XVIII Year Variable Price Fixed Price Total Price US$/Ton US$/Ton US$/Ton b. The actual coal price of each block of Thar Coal will be determined by Thar Coal Energy Board (TCEB)/Competent Authority and the reference fuel cost components will be adjusted accordingly. c. The basis of coal price shall be provided in the Power Purchase Agreement. xx. Water Charges a. Component of Government of Sindh water charge will be adjusted for the revised water charge as announced by GoS. b. Capital cost of million has been assumed for water pumping station/pipelines from Vajihar to the project site. At the time of COD, this cost will be indexed in whole or in parts for the exchange rate variation for the portion of cost that has been occurred in foreign currency. Pumping station and pipelines cost from Vajihar to different Thar blocks will vary, therefore, reasonable cost will be allowed for mine mouth power plant for Thar Blocks other than Block-II. c. The O&M cost of Rs 0.06 per kwh for pumping station at Vajihar will be indexed with Local WPI or US CPI as the case may be, at the time of COD along with timing and mode of indexation. Insurance Cost During Operation During the term of the Agreement, insurance component of tariff will be adjusted on the basis of actual insurance cost with maximum of 1% of the 70% of Capital Cost 24

27 determined under (vii) above converted into Pak Rupees on the basis of Rs.-US$ parity prevailing on the 1st day of the start of each Agreement Year. The reference insurance premiums used in the calculation of the insurance component of tariff are as under: Table - XIX Description 330MW 660 MW 1099 MW Ref. Insurance Premium (Rs. Mins) xxii. Interest on Working Capital a. The Working Capital requirement has been worked out in accordance with the following: A. 30 days coal inventory at 100% plant load. B. Receivables equivalent to one month of fuel charges at 100% plant load. b. Interest on Working Capital has been calculated on the basis of quarterly-kibor of 11.91% plus 200 basis point, which will be adjusted for variation in quarterly-kibor and weighted average cost of coal inventory. xxiii. Operation and Maintenance (0 & M) Expenses a. Operation and Maintenance or O&M expenses comprise of repair and maintenance, establishment including employee expenses, administrative & general expenses. b. Reference O&M expenses shall be; Rs.421 per MWh for a plant of 330MW Rs.401 per MWh for a plant of 660MW Rs.380 per MWh for a plant of 1099MW c. The following shall be the breakup of O&M expenses for the different plant size: Plant Size Fixed O&M Variable O&M 330 MW Rs.0.307/kW/h Rs.0.114/kWh 660 MW Rs.0.287/kW/h Rs.0.114/kWh 1099 MW Rs.0.266/kW/h Rs.0.114/kWh d. 50% of the fixed O&M expenses shall be indexed with local CPI whereas 50% shall be indexed with USCPI and Exchange rate (PKR/US$) variation. e. 40% of the variable O&M shall be indexed with local CPI whereas 60% shall be indexed with USCPI and exchange rate (PKR/US$) variation. f. The reference WPI and US CPI will be of June d. The following costs with respect to limestone and ash handling have been determined, which are shown separately in the reference tariff table; 25

28 Cost of Lime Stone Cost of Lime Stone including Transportation Consumption Cost of Lime Stone Rs /M.Ton Kg.0.07/kWh Rs.0.09/kWh Cost of Ash Disposal Ash produced Ash Transportation cost Ash Disposal Cost Kg.0.22/kWh Rs /M.Ton Rs.0.22/kWh h. The cost of Lime Stone and Ash Disposal will be adjusted on actual basis at the time of COD. xxiv. Fuel Price Adjustment Mechanism During the tariff period, the fuel cost components shall be adjusted for actual variation in coal prices as and when announced by the competent Authority. The approved fuel price adjustment mechanism will be prescribed at the time of COD. xxv. If the plant has to operate on imported fuel due to unavailability of Thar Coal, the pricing mechanism for imported coal as described in the imported coal tariff determination will be applied to calculate fuel cost component. Ill. Monitoring Mechanism for the use of coal fuel The Power Producer shall furnish a monthly coal usage and coal procurement statement duly verified and certified by the Central Power Purchasing Agency (CPPA) for each month, along with the monthly energy bill. The statement shall cover details such as - i. Quantity of fuel (tons) consumed and procured along with a heating value during the month for power generation purposes, ii. Cumulative quantity (tons) of coal consumed and procured till the end of that month during the year, iii. Actual (gross and net) energy generation (denominated in units) during the month, iv. Cumulative actual (gross and net) energy generation (denominated in units) until the end of that month during the year, v. Opening fuel stock quantity (tons), vi. Receipt of fuel quantity (tons) at the power plant site and vii. Closing fuel stock quantity (tons) for available at the power plant site. IV. Tariff Structure The tariff for coal based generation technologies shall be two-part consisting of the following: i. Energy Purchase Price a. Fuel Cost Component; 26

29 b. Variable O&M Local; c. Variable Foreign; d. Cost of Lime Stone; and e. Cost of Ash Disposal ii. Capacity Purchase Price V. Tariff Design a. Fixed O&M (Local); b. Fixed O&M (Foreign); c. Insurance Cost d. Cost of Working Capital; e. Return on equity; and f. Debt Service (Principal Repayment and Interest Charges); i. The Capacity portion of upfront tariff has been determined for two periods i.e. for the period of first ten years when the project will be paying its debt and the remaining period of twenty years without debt servicing. ii. For the purpose of comparison, levelized tariff assuming 10% discount factor has also been worked out. iii. Levelization has been carried out for the "useful life" of the project which in the instant case is equivalent to "Tariff Period". VI. Dispatch Criteria: i. The sole criterion for dispatch of all the coal based power plants shall be the "merit order dispatch". ii. Variable fuel cost component will be the basis of dispatch. iii. The coal based generation facility shall be subjected to scheduling and dispatch code as specified under NEPRA Grid Code. iv. The generation plant having capacity up to 330MW shall be connected at 132/220kV and /or 500KV connection point and above shall be subjected to scheduling and dispatch code as specified under NEPRA Grid Code (IEGC) -2010, as amended from time to time. VII. Plant Availability The guaranteed availability of the plants will be 85%. VIII. General Conditions i. In case of mix financing, separate debt service schedules shall be developed using the annuity method at COD; ii. At the time of COD, project cost will be converted into Pak Rupees using the Average of the Exchange Rates prevailing on 1st day of each month during construction period. During life of the project operations, Quarterly adjustments/indexations for local 27

30 inflation, foreign inflation, exchange rate variations and interest rate variations will be made on 1st July, 1st October, 1st January and 1st April each year based on latest available date with respect to CPI notified by the Federal Board of Statistics (FBS), USCPI issued by US Bureau of Labor Statistics and revised TT&OD selling rate of foreign currencies (US Dollar, British Pound Sterling, Euro, Japanese Yen and Chinese Yuan or any other currency as the Government of Pakistan may allow) notified by the National Bank of Pakistan. The method of indexation will be as follows: Table - XX Tariff Components Fuel Cost component Variable O&M (Foreign) Variable O&M (Local Fixed O&M (Foreign) Fixed O&M (Local Cost of Working Capital Return on Equity Principal Repayment (Foreign Currency Loan) Interest//Mark-up Payments* (Foreign Currency Loan) Tariff Indexation & Adjustment Delivered Fuel Price (inclusive of transportation) at the Power Plant US$ to Pak Rupees & US CPI Pakistan PI US$ to Pak Rupees & US CPI Pakistan CPI Adjustments for relevant KIBOR variations US$ to Pak Rupees US$/Euro/Yen/Pound to Pak Rupees (based on borrowing by the Company) Adjustments for relevant LIBOR or other applicable Interest Rate benchmark Adjustment for variation in Rs./Foreign Currency (US$/Euro/Yen/Pound) rates as applicable Interest/Mark-up Payments* (Local Currency Loan) Adjustments for relevant KIBOR variations IX. Validity of Tariff This tariff shall remain in force for a period of 2 years from the date of notification in the official gazette. The revision in upfront tariff for next validity period shall be undertaken at least six months prior to the end of the validity period and in case upfront tariff for the next validity period is not notified until the commencement of next validity period, the reference tariff parameters as per this determination shall continue to remain applicable until notification of the revised upfront tariff. X. Scope and extent of application This tariff shall apply in all cases for a generating facility or a unit thereof based on imported/local coal other than Thar coal subject to fulfillment of eligibility criteria. XI. Eligibility Criteria The upfront tariff shall be only available for the brand new machinery only. 28

31 XII. Definitions and Interpretations i. "Auxiliary energy consumption" means the quantum of energy consumed by auxiliary equipment of the generating facility, and transformer losses within the generating facility, expressed in Megawatts as well as in percentage of the sum of gross output at the generator terminals of all the units of the generating plant; ii. "Capital cost" means the cost of all capital work including plant and machinery, civil work, erection and commissioning and evacuation infrastructure up to inter-connection point; iii. "Control Period" means the period required to achieve the financial close and complete the construction of generation facility. The Control Period shall be of six years starting from the date of unconditional opting of the upfront tariff. iv. "Design Coal" means the ideal type of coal or fuel that is selected to be used during performance testing of steam generators in power plant engineering; v. "Grace Period" means a period equivalent to the construction period of the coal project. vi. "Installed capacity" means the summation of the name plate capacities of all the units of the generating facility or the capacity of the generating facility (reckoned at the generator terminals), approved by the Authority from time to time as indicated in the generation license; vii. "Inter-connection Point" shall mean interface point of energy generating facility with the transmission system or distribution system, as the case may be: viii. "Operation and maintenance expenses" or 'O&M expenses' means the expenditure incurred on operation and maintenance of the project, or part thereof, and includes the expenditure on manpower, repairs, spares, consumables and overheads; ix. "Project" means a generating facility or the evacuation system up to inter-connection point; x. "Tariff period" means the period for which the upfront tariff has been determined by the Authority on the basis of reference parameters which in the instant case is 30 years. The tariff period shall commence from the date of commercial operation. xi. 'Useful Life' in relation to a unit of a generating facility including evacuation system shall mean the period during which the generating facility including evacuation system is expected to be usable for the purpose of generating electricity from the date of commercial operation (COD) of such generation facility, namely coal based power project is 30 years; xii. "Year" means a period of 12 months. XIII. The above order along with 13 annexes will be notified in the Official Gazette in accordance with Section 31(4) of the NEPRA Act. Annex-1 Annex-1A Reference Tariff Table 330MW Thar Coal Foreign Financing Debt Repayment Schedule Table - XXI (t, 29

32 Annex-2 Annex-2A Annex-3 Annex-3A Annex-4 Annex-4A Annex-5 Annex-5A Annex-6 Annex-6A Annex-7 Reference Tariff Table 330MW Thar Coal Local Financing Debt Repayment Schedule Reference Tariff Table 6600MW Thar Coal Foreign Financing Debt Repayment Schedule Reference Tariff Table 6600MW Thar Coal Local Financing Debt Repayment Schedule Reference Tariff Table 1100MW Thar Coal Foreign Financing Debt Repayment Schedule Reference Tariff Table 1100MW Thar Coal Local Financing Debt Repayment Schedule Summary of Upfront Coal Tariff Authority Khawaja Muhammad Naeem Member am: Major (Retd.) Haroon Rashid Member (Y/717-0/9 Habibullah Khilji Member / Vice Chairman 30

33 11 front Tariff for Thar Coal based Power Projects for 330 MW on Foreign Financing Energy Purchase Price (Rs. /kwh) Fixed FCC Year Capacity PurChase Price (PKR/kW/Hour) Capacity Var. FCC Ash Lime '. Water Var. O&M Total at 85% PF Charges, Disposal Rs/kW/hr. - Fixed Om '..,. Cost of. Debt Stone Foreign..... Local interest EPP Total Charge* (Rs/1(M) Local Foreign ROE '. W/C Insurance. Repayment Charges CPP 85% _ _ Averaae Annex -1 Total.. Total. Tariff. Tariff Rs. /kwh Cents/kWh Levelized _ _ ! Levelized Tariff = Rs./kWh Cents/kWh i

34 Upfront Tariff - Debt Servicing on Foreign Financing Gross Capacity MWs Parity PKR/US$ Net Capacity MWs Debt US$ Million LIBOR 0.45% Debt in Pak Rupees 36, PKR Million Spread over LIBOR 4.50% Total Interest Rate 4.95% Period Principal Principal Repayment Interest Balaance Debt Service Principal Repayment Rs./kW/hour Interest Rs./kW/ Hour Annex-1A Debt Servicing Rs./kW/h $ st Year : _ _ nd Year _ rd Year th Year _ th Year th Year _ _ _ _ th Year th Year _ _ th Year th Year _

35 Upfront Tariff for Thar Coal based Power Projects for 330 MW on Local Financing Annex - 2 Year Var. FCC. Energy Purchase Price(Rs./kWh). Fixed FCC ' Capacity Purchase Price _ (PKRAWA- our) Capacity Total. Total.....Water. :Ash : Lime Var. O&M Total., at 85% PF :.: Fixed O&M... Cost of. p rw. Debt '. Interest..: Total Charge@. Tariff. Tariff 'Charges :Disposal, : Stone foreign Local EPP "'''. (Rs./kWh) L I Foreign '.. WC insurance, ---. Repayment. Charges '..: CPP 85% Rs. /kwh.gantt/kwh _ vera e _ Levelized J eve ize = Rs./kWh Cents/kWh

36 Upfront Tariff - Debt Servicing on Local Financing Gross Capacity MWs Parity PKR/US$ Net Capacity MWs Debt US$ Million KIBOR 11.91% Debt in Pak Rupees 39, PKR Million Spread over KIBOR 3.50% Total Interest Rate 15.41% Period Principal Principal Repayment Interest Balaance Debt Service Principal Repayment Rs./kW/hour Interest Rs./kW/ Hour Annex-2A Debt Servicing Rs./kW/h $ _ _ st Year _ _ nd Year _ _ rd Year _ th Year _ th Year th Year th Year _ _ th Year _ _ th Year (0.00)_ _ th Year

37 Upfront Tariff for Thar Coal based Power Projects for 660 MW on Foreign Financing - Annex - 3 :Efleigy Purchase Price ffrs./kwh) Fixed FCC '.. Capacity Purchase PriCe (PKR/kW/Hour) Capacity.. '...T.Otal. Total Year Water.." Ash Lime Var. O&M Var. FCC Total at 85% PF Fixed O&M ft/kw/hr. Cost of, : Debt Interest Total Charge.:. Charges :. Disposal Stone. ROE Tariff. Tariff Foreign Local EPP ARs./kWh) '.. Local. Foreign W/C Insurance Rejsayment Charges CPP Rs. /kwh : Cents/kWh _ Average , _ _ Level ized evelized Tariff = Rs./kWh Cents/kWh S

38 Upfront Tariff - Debt Servicing on Foreign Financing Gross Capacity MWs Parity Net Capacity MWs Debt LIBOR 0.45% Debt in Pak Rupees Spread over LIBOR 4.50% Total Interest Rate 4.95% Period Principal Principal Repayment Interest Balaance Debt Service Principal Repayment Rs./kW/hour Interest Rs./kW/ Hour Annex-3A Debt Servicing Rs./kW/h $ , _ _ st Year _ nd Year rd Year _ _ th Year , _ th Year th Year _ _ th Year PKR/US$ US$ Million 69, PKR Million _ th Year _ _ th Year _ 0.28 (0.00) th Year

39 Upfront Tariff for Thar Coal based Power Projects for 660 MW on Local Financing Annex - Energy: Price (Rs./kWh) Fixed FCC. - Capacity Purchase Price (P.KikiliW Hour).... Capacity Total. Total.. '. :. Water. -'ASh Lime.. '.. Var. O&M - liar. FCC Total Charge@ Charges Disposal Stone Foreign at 85% PF.. Fixed O&M Rs./kW/hr.. (Ai jkwh.:.: Cost of Dahl' ROE Interest Total ", Local EPP. ) Local Foreign : Tarlfr:. Tatiff,'..: W/C Insurance Repayment Charges CRP 65% Ra /kwh.. Cents/kWh Average _ Level ized eve izea 1 arltt =.2894 Rs./kWh Cents/kWh

40 Annex-4A Upfront Tariff - Debt Servicing on Foreign Financing Gross Capacity MWs Parity PKR/US$ Net Capacity MWs Debt US$ Million KIBOR 11.91% Debt in Pak Rupees 78, PKR Million Spread over KIBOR 3.50% Total Interest Rate 15.41% Period Principal Principal Repayment Interest Balaance Debt Service Principal Repayment Rs./kW/hour Interest Rs./kW/ Hour Debt Servicing Rs./kW/h $ _ st Year nd Year rd Year _ _ _ _ th Year _ _ th Year _ th Year _ _ _ th Year _ th Year _ th Year (0.00) _ th Year

41 Year :. Var. FCC U front Tariff for Thar Coal based Power Pro'ects for MW on Forel n Financin Annex - 5 :. Energy Purchase Price (Rs:/kWh),Fixed FCC : Capacity Purchase Price (PKR/kW/Hour) Capacity _ Tdtel Total Water. Ash Lime. Var.' O&M Total Rsikimihr. at 85% PF - Fixed O&M Cost of : Debt Interest Total Charge(g) Tariff Charge& DiSposal 'F ROE ' Tariff Stone Foreign Local..: EPP 7 ' (Rs:/kWh) Local Foreign W/C Insurance... Repayment Charges CPP 85% Rs. /kwh Cents/kWh Average Levelized Levelized Tariff = Rs./kWh Cents/kWh

42 Gross Capacity Net Capacity LIBOR Spread over LIBOR Total Interest Rate Period Principal Upfront Tariff - Debt Servicing on Foreign Financing % 4.50% 4.95% Principal Repayment MWs Parity PKR/US$ MWs Debt 1, US$ Million Debt in Pak Rupees 108, PKR Million Interest Balaance Debt Service Principal Repayment Rs./kW/hour Interest Rs./kW/ Hour Annex-5A Debt Servicing Rs./kW/h 1 1, , $ , , , , , _ 1, st Year , , , nd Year _ rd Year _ th Year _ _ _ th Year _ th Year _ _ th Year _ _ th Year _ _ th Year _ (0.00): _ th Year

43 U front Tariff for Thar Coal based Power Pro'ects for M _ W on Local Financin Annex - 6 Energy PUichastPiice (Rs./kWh) FiZed FCC. Year. Capecity:PUrChase Price (PKR/kW How) Capacity Total Total Var. FCC Water =Lame Var. O&M Total at 66%. pp..:1.:.: Charge@ Charges Disposal. Axed O&M.' Cost of Stone Rs.lkWihr: (Rs./kWh) ROE Debt Interest. Total..i - Tariff Tariff Foreign. Local EPP. LaCal Fdreign WIC Insurance Repayment.. Charges. CPP 85% RS::: /kwh Ceints/kWh verage Levelized eve izea 1 antt =.8718 Rs./kWh Cents/kWh

44 Gross Capacity Net Capacity KIBOR Spread over KIBOR Total Interest Rate Period Principal Upfront Tariff - Debt Servicing on Local Financing MW Parity PKR/US$ MW s Debt 1, US$ Million 11.91% 3.50% 15.41% Debt in Pak Rupees 122, PKR Million Principal Repayment Interest Balaance Debt Service Principal Repayment Rs./kW/hour Interest Rs./kW/ Hour Annex-6A Debt Servicing Rs./kW/h 1 1, , $ , , , , , _ , _ st Year , , , , , , _ 1, , nd Year , , , , , , , , _ rd Year , , , , , _ th Year _ th Year _ _ _ th Year _ th Year _ _ th Year th Year _ _ 2.31 (0.00) th Year I- 2