PR No.77 Islamabad

Ministry of Water & Power said that the Nandipur Power Plant project has been put into generation against all odds in order to bring in world class efficiencies, the project operation was designed and decided to be given in private sector through O&M contracting. The decision to outsource the operation and maintenance of the Nandipur Power Plant is in pursuance of the recommendations of the Regulator, and a policy decision by the government to outsource the operation and maintenance of new power plants to experienced international operators in line with prevalent industry practice in order to reduce expenditures, and to bring about latest and efficient practices in power plant management, in public sector as well.

After a transparent public procurement process carried out in line with the PPRA rules, the agreement for long-term operation and maintenance of the 425 Megawatt Nandipur Power Plant was signed at Nandipur on 6th February between Northern Power Generation Company Limited (NPGCL), (a government owned corporate entity working under the management of the GENCO Holding Company Limited), and M/s Hydro Electric Power System Engineering Company of China (HEPSEC) for a period of ten years. After evaluation and scrutiny of the bids, HEPSEC’s bid was found to be the lowest responsive bid out of the four bidders. HEPSEC is a subsidiary of Power China Group, and has wide-ranging experience of providing operations and maintenance services for power plants all over the world.

The Nandipur Power Plant has been fully operational since its COD in July 2015 and it is currently operating on furnace oil. The plant is destined to run on gas and work is already underway to convert the Plant’s operation to natural gas. With this conversion, the generation capacity of the Plant will increase from 425 Megawatt to 525 Megawatt.

NEPRA has given tariff to the plant, including the O&M costs, both on furnace oil and gas as fuels.  The costs related to fixed and variables components of the costs along with the application of indexation, as per NEPRA determination for operations on gas is reasonable and workable. For the Furnace Oil part although the fixed tariff is also within limit after indexation however, the variable part is lower and could have apparently resulted in cash loss had the plant continued to run on Furnace Oil. But this has been addressed by conversion of plant on gas which is in progress and expected to complete by end April 2017. Total O&M tariff allowed by NEPRA, on gas operation is Rs 0.543/unit and lowest bid received was Rs. 0.4873/unit and thus there is saving Rs. 0.0557 per kWh. This will provide additional room to the GENCO to cover any unforeseen expenses. On RFO operation, NEPRA has allowed Rs 0.697/unit O&M costs and bid price was Rs 0.8595/unit. It is worth noting that on annual basis, total O&M cost allowed by NEPRA on gas operation is Rs. 2.113 billion/year and the contracted amount is Rs 1.896 billion/year which will provide positive cash flows. In order to avoid losses on Furnace oil operation, it has been ensured that the O&M contractor’s taking over of the plant and the gas conversion is synchronized. So the conclusion in the news item is incorrect that contracted costs are higher than NEPRA allowed costs. In fact, the contract will be carried out within the allowed tariff.