National Electric Power Regulatory Authority

Transcription

1 National Electric Power Regulatory Authority Islamic Republic of Pakistan Registrar NEPRA Tower, Ataturk Avenue (East) G-511, Islamabad, Ph: , Fax: tl Web: No. NEPRA:TRF-85/HPGCL-2007/ January 8, 2014 Subject: Decision of the Authority in the Matter of Tariff Adjustments at Commercial Operations Date (Case No. NEPRA/TRF-85/HPGCL-2007) Dear Sir, Please find enclosed the decision of the Authority along with Annex-I, II & III (21 pages) in respect of Halmore Power Generation Company Ltd. (IIPGCL) tariff adjustments at Commercial Operation Date in Case No. NEPRAIMF-85/11P6C1, The decision is being intimated to the Federal Government for the purpose of notification of adjustment in the approved tariff through the official Gazette pursuant to Section 31 (4) of the Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997) and Rule 16(11) of the National Electric Power Regulatory Authority Tariff (Standards and Procedure) Rules, Please note that the order of the Authority at para 17 along with Annex-I, II & Ill is required to be notified in the official Gazette which shall supersede the Authority's Decision communicated vide letter No. NEPRA/TRF-85/HPGCL-2007/ dated Enclosure: As above The Secretary Cabinet Division Government of Pakistan Cabinet Secretariat Islamabad ( Syed Safeer Hussain ) CC: 1. Secretary, Ministry of Water & Power, 'A' Block, Pak Secretariat, Islamabad. 2. Secretary, Ministry of Finance, 'Q' Block, Pak Secretariat, Islamabad.

2 ttriggil DECISION OF THE AUTHORITY IN THE MATTER OF TARIFF ADJUSTMENTS AT COMMERCIAL OPERATIONS DATE OF HALMORE POWER GENERATION COMPANY LIMITED 1. Introduction 1.1 Pursuant to the Authority's determinations dated September 01, 2006; November 08, 2007 and review decision dated December 26, 2007 (hereinafter referred to as the "determination") the reference tariff (hereinafter referred to as "HPGCL") was required to be adjusted at the commercial operations date (hereinafter referred to as "COD"). HPGCL having successfully commenced commercial operations with effect from June 15, 2011, filed a request vide letter dated November 22, 2011 for adjustment in its reference tariff, in accordance with the Authority's determination. 1.2 Copies of the following documents were submitted by HPGCL, in support of its request for adjustment in reference tariff at COD: Engineering, procurement and construction contracts Agreements with the banks Capacity test certificate and certificate of commissioning from Independent Engineers Audited Financial statements up to the year ended 30 June, 2011 Report of factual findings of Auditors in respect of verification of project cost of HPGCL Relevant bank statements and advices EPC invoices Payment challans of duties, pay orders through which these duties were paid and goods declarations Contracts and Invoices of Insurance during construction and after COD etc. Equity/debt draw downs schedules reconciled with the bank statements Other relevant source documents and related schedules 1.3 In the initial stages the case was processed as a normal case, however, during the verification of the submitted documents, various issues, which were unique and unprecedented such as Off-shore EPC cost claimed by HPGCL was not reconciled with the related Import Documents and Custom duties as submitted by HPGCL, o rlapping of scope of work of different EPC contractors in the submitted contracts etc.

3 1.4 In view of the complexity of the above-mentioned issues the Authority decided to appoint an independent Auditor to have a financial and technical audit of HPGCL's claims for COD adjustments. Accordingly HPGCL was advised to appoint any of the Auditors from the Approved penal of Auditors. 1.5 HPGCL appointed M/s. Anjum Asim Shahid, Chartered Accountants, (member firm of Grant Thornten International Limited) as independent auditor along with M/s. Elan Partners (Pvt ) Limited as technical auditors for this audit. The Independent auditors submitted their financial and technical audit report on July 04, Contents of this audit report where relevant and necessary have been discussed in the relevant paragraphs of this decision. 1.6 On the basis of information/documentary evidence submitted by HPGCL and the Auditors' report, the following adjustments are being made in the reference tariff of HPGCL in accordance with the adjustment mechanism provided in the determinations. 2. Engineering, Procurement And Construction Cost 2.1 Off shore engineering, procurement and construction cost The Authority had assessed offshore engineering, procurement and construction (hereinafter referred to as "offshore EPC") cost of million. The reference exchange rate parity for Rs/US$ was 60 and /US$ was HPGCL requested the Authority to allow it offshore EPC cost of million (Rs. 14, million) while allowing tariff adjustments at the COD stage and in support of its claim submitted copies of relevant documentary evidences The Authority examined the HPGCL request in the light of its determinations made and noted that HPGCL's request was not consistent with the undertaking given by HPGCL. In this regard the Authority considers that the Para 2.4 of the Authority's Determination dated December 26, 2007 read as follows: "2.4 Based on HPGCL's assurances, documentary evidence and giving due consideration to stakeholders view point especially PPM, the Authority accepts HPGCL's EPC price of 1 10 million. This price, in all respects, is firm and more importantly, non-reopenable." The abovementioned decision was based on the confirmation from HPGCL vide its Fax dated December 18, The relevant extract of this fax is reproduce hereunder : "We confirm that our Tariff Petition is based on firm figures of Supply Contract of Euro 110 Million + Construction of US$ 20 Million with construction period of 32.5 months and is not subject to reopening on account of any reason, including but not limited to, clearance of political tensions in Pakistan, Delay in achieving Financial close or delay on account of obtaining EC's approval for having English Law in Lender's Direct Agreement etc." 2

4 Decision of the Authorihy in the matter of tariff adjustments at COD HPGCL in its COD adjustment informed the Authority that its EPC contractor, SKODA, went bankrupt and it entered into new contracts with General Electric (GE) and Descon FZE and Descon Pakistan. The Authority noted that this issue was never brought in to the notice of the Authority. The Authority considers that HPGCL was allowed EPC cost on the basis of assurance and undertaking given by HPGCL in accordance with the GOP Policy since this has great impact on the capacity component of tariff, that has to be fully justified through the tariff petition, which in the instant case was not done; therefore the same cannot be considered at this stage. The Authority is also of the opinion that the COD adjustment has a very limited scope and such claims are outside the premise of instant adjustment The Authority noted that in the cases of Orient Power and Sapphire Electric, the same EPC Contractor went bankrupt and both Orient and Sapphire brought this issue in the knowledge of the Authority which was discussed in a public hearing and was declined Keeping in view the peculiar circumstances of HPGCL, the Authority considered it appropriate to obtain opinion of independent auditor in the matter of reliability of the information and documentary evidence provided by HPGCL. As per the Auditor, the following cost have been verified: Particulars Original Contract Cost overruns, Change Orders, bonus etc. in Millions Sub Total GE Belfort France - (For Gas Turbines) GE Oil & Gas Italy - (For Steam Turbine including Technical Advisory) Descon FZE Sharjah Balance of Plant & Allied services Total Gas Turbines: HPGCL claimed million on account of gas turbines, which included million on account of change orders. This amount has been verified by the auditors through Contracts, invoices, payments and imports Although the auditors have verified the amount of million on account of changed orders but the Authority has to remain strictly within the scope of COD adjustments provided in the determinations. Since the amount of million is out of scope of instant adjustment therefore the Authority finds no justification for allowing the amount of change orders, while allowing tariff adjustments at the COD stage; accordingly the adjustment is restricted to the cost of Gas turbine as per the original contracted amount of million. Steam Turbine: HPGCL claimed million on account of cost of Steam Turbines as against the million originally agreed in the original contract. According to the Authority's 3

5 of Halnwre Power Generation Company Limited determination HPGCL cannot claim additional cost over and above allowed by the Authority in the determination, for whatever reason, as per the undertaking given by HPGCL. The Authority has considered the HPGCL's request in the light of original determination The Authority considers that although the Auditors have verified the amounts through Contracts, invoices, payments and imports, but the amounts of account of change orders have not been allowed to any other comparable cases In view of this, the Authority finds no justification for allowing the amount of cost overruns, change orders, bonus etc., while allowing tariff adjustments at the COD stage and has decided to restrict the cost of Steam turbine up to its original contracted amount million. Balance of Plant: HPGCL claimed million on account of Balance of Plant. Auditors have verified and reported that this contract was between HPGCL and Descon FZE, Sharjah for million. The Authority while examining the information provided by HPGCL noted that part of the cost claimed by HPGCL could be verified through import documents. In order to arrive at the informed decision, the Authority directed HPGCL to get all the costs verified through an independent auditor. HPGCL accordingly got all the costs verified through independent auditor and submitted audited report in this regard. The Auditor's report has been carefully examined and relied upon for making COD adjustments. According to the Auditor's report out of total million only million could be verified through the import documents, whereas million were verified through contracts, invoices and payment. In the Auditor's opinion these have either been sourced from the local vendors or fabricated or assembled at Lahore Manufacturing workshop or contracted to companies having offices in Pakistan The Auditors have also confirmed that: HPGCL entered into a turn key contract with DESCON FZE, Sharjah for provision of the required supplies and certain services for the completion of project titled "Supply Plant and Materials" with the exclusion of two gas turbines (Supplied by GE Power Systems (Inc)) and one steam turbine (Supplied by GE Oil and Gas Nuovo Pignone SPA) under two separate contacts. the payment for the contract with DESCON FZE Sharjah for supply of plant and material has been made as per contract to the foreign contractor in the foreign currency identified as per the contract. the said payments have been made after fulfillment of all regulatory requirements including permissions from the State Bank of Pakistan and the transfer through the banking channel identified through SWIFT. the equipment selected and identified in the contract was procured and supplied by DESCON FZE Sharjah from reputa e International vendors providing uniform specifications and after sale warranties. N 4

6 - as per the terms of the contract the import incidentals were the responsibility of HPGCL for items imported directly in the name of HPGCL. - under the said arrangement plant directly imported amounted to Euros million and import incidental for the said plant was paid by HPGCL. - the balance of plant materials and certain services were procured and supplied to HPGCL locally, which was in accordance to the contract and in line with the contract including equipment specifications and warranties. - the total payment of the said contract amounting to Euro million was paid to the supplier DESCON FZE Sharjah in foreign currency as per the milestones and in compliance to the payment terms indentified in the contract Since auditor has verified and confirmed that HPGCL has made payments of million to DESCON FZE in accordance with the agreement, therefore the Authority has decided to allow adjustment for exchange rate variation on million with respect to balance of plant on confirmation and information provided by the auditor, based on the weighted average exchange rate Further, the Auditors have reported that an amount of was payable at the time of COD. The Authority considers that since this amount has not been paid to date; therefore cannot be considered at this point of time. HPGCL can claim this amount after this has been paid with verifiable documentary evidences to the satisfaction of the Authority In view of the above, the Authority has assessed Off-shore EPC cost of 110.million and out of which million is allowed at this point of time, which at weighted average exchange rate works out to be US$ million (PKR 12, million). Whereas, remaining amount of will be considered once this has been paid and claimed by the Petitioner with verifiable documentary evidences to the satisfaction of the Authority. 2.2 On shore EPC- construction cost The Authority had assessed onshore engineering, procurement and construction (hereinafter referred to as "onshore EPC") cost of US $ million in the determination. HPGCL requested the Authority to allow it onshore EPC cost US $ million while allowing tariff adjustments at the COD stage and in support of its claim submitted copies of relevant documentary evidences The Auditors have verified the payment of US$ 16 Million against the construction contract with DESCON Engineering Limited Pakistan and US$ million as on-shore cost for provision of Technical services by GE for Gas turbines. In support of its claim HPGCL provided construction contract for payment of Technical Services to be provided by GE for Gas turbines The Authority considered the said agreement and relied on Article 2 of Appendix No.1 pertaining to price adjustment. Although the auditor has verified US$ million but the Authority is constrained to remain within the scope of Authority's original determination for making the instant adjustment. 5

7 2.2.4 Further, the Auditors have also reported that last two invoices US$ million and US$ million were outstanding, which are not being allowed at this point of time. These can be considered by the Authority once these have been paid and claimed by HPGCL on the basis of verifiable documentary evidences to the satisfaction of the Authority In view of the above, the Authority has decided to allow onshore EPC cost of US$ million (PKR 1, million). Whereas, remaining amount of US$ will be considered after this has been paid and claimed with verifiable documentary evidences to the satisfaction of the Authority. 3. Duties and Taxes 3.1 The Authority had assessed US $ million as duties and taxes in the determination. HPGCL has claimed Rs. 464,472 million (US $ million) as duties and taxes at the COD stage. In support of its claim, HPGCL has submitted copies of goods declarations, payment challans of duties, pay orders of different banks through which duties were paid, EPC invoices, etc. 3.2 The Auditors' have verified and reported payment of duties and taxes amounting to PKR million, which includes Rs million on account of duties paid for O&M Initial spare parts and Rs million on account of supply of duties paid for Other Parts. 3.3 The Authority considers that the duties on O&M initial spare parts is part of the O&M tariff component, therefore, cannot be considered under this head as the cost of spare parts for O&M was not part of EPC cost. The instant adjustment pertains to EPC contract; therefore the adjustment to the extent of Rs million and Rs million is being disallowed. Similarly, the other parts were not considered under EPC cost or Non- EPC cost, therefore the custom duties pertaining to these parts being outside the scope of instant adjustment is also not being considered. 3.4 The aggregate duties and taxes has been assessed by the Authority, on the basis of Auditor's report and in the light of the determination, to the tune of Rs million (US $ million) on this account. 4. Interest During Construction 4.1 HPGCL was allowed interest during construction (hereinafter referred to as "IDC") of US $ million in the determination which was subject to adjustment at the COD. HPGCL has requested the Authority to allow it IDC up to its actual construction period that is 37.5 months, amounting to Rs. 4, million (US $ million) and has submitted copies of term agreements with the lenders, bank statements, bank advices, etc. to substantiate its claim of IDC. 4.2 The Auditors have reported the verified amount of IDC, net of interest income as follows: 6

8 Up to Actual COD, the IDC works out to be PKR 4, (US$ )million; and Up to Required COD(R-COD) the IDC works out to be PKR 3, (US$ ) million. 4.3 The Authority has examined and evaluated the HPGCL's request in the light of determination dated December 26, 2007, and terms of PPA with respect to construction period. 4.4 The Authority in view of the treatment adopted for all the comparable cases of COD adjustments, has decided to restrict the IDC up to R-COD, as defined in the Power Purchase Agreement (PPA), which has been mutually agreed between HPGCL and power purchaser on the basis of back to back agreements with EPC contractors and Power Purchaser and thus has decided to allow the IDC on the basis of verified numbers to this extent confirmed by the Auditors' amounting to PKR 3, (US$ ) million. 5. Financing Fees / Financial advisory Fee 5.1 The Authority had assessed US $ million as financing fees and adjustments of financial advisory fee up to a maximum limit of 1.2% of borrowing, in the determination on the basis of financing arrangement proposed by the petitioner from the foreign lenders. However, due to subsequent changes in financing arrangement from foreign lenders to local lenders and resulting changes in terms of financing, HPGCL has claimed Rs million (US $ million) as financing fees at the COD stage, which has also been verified by the Auditors. 5.2 The Authority in all the other comparable cases have allowed the financing fee on the basis of actual verifiable expenditure restricted up to 3% of borrowings. Therefore, on the principle of fairness, equity and justice the Authority has decided to give same treatment in the instant case, which on the basis of revised allowed project cost, has been works out as PKR million (US$ million) 6. Insurance during construction 6.1 The Authority had assessed US $ million as insurance during construction in the determination, which was not subject to any adjustment at the time of COD. Against which HPGCL has claimed an actual cost amounting to PKR million (US$ million), which has been verified by the Auditors. However, the Authority has allowed the Insurance During construction in all the comparable cases on the basis of actual expenditure, subject to a maximum limit of 1.35% of allowed EPC cost. Therefore, on basis of fairness, equity and justice the Authority has decided to restrict the amount of actual insurance during construction up to maximum of 1.35% of allowed EPC cost which works out to be US$2.333 (PKR ) million 7. Other Non-EPC Project Costs 7.1 The Authority had allowed aggregate cost of US $ (PKR ) million on account of project development, land, local taxes, Admin charges during construction 7

9 NEPRA Fee, O&M during construction and Gas connection works. Against these costs HPGCL has claimed an aggregate amount of US $ million at the COD stage, in which in addition to above mentioned account heads it has also claimed unrecovered fuel costs, initial spare parts, Owners engineer's cost and shipping and transport etc. 7.2 The Authority noted that HPGCL has also claimed those costs which are beyond the scope of instant adjustment. Since the instant adjustment has very restricted scope i.e the adjustment for exchange rate variation in case of foreign cost, if any, or any other adjustment applicable in accordance with the Authority's determination; therefore the Authority has accordingly decided not to consider the amount in excess of determined amount of US$ million on account of non-epc cost. 7.3 Further, HPGCL has claimed the exchange rate parity on entire amount of Other Project Costs specified in the determination in US $ terms, even in the account heads, which have been actually incurred in PKR. The Authority noted that it will be against the principles of natural justice and fairness to allow exchange rate variations on costs incurred in PKR, which have not been allowed to any other comparable case. In accordance with the treatment allowed to other IPPs, the Authority has restricted HPGCL claim on this account and has allowed actual exchange rate variation for costs incurred in foreign currency only, without allowing any cost overruns in US$ terms. Accordingly, the originally determined aggregate amount of US $ million under this head works out to Rs. 1, million is hereby allowed. 8. Summary of Adjustments in Project Cost 8.1 The Authority had originally determined project cost of US $ million (PKR 13, million). HPGCL has claimed project cost of Rs. 22, million (US $ million) at the COD stage. Based on decisions in the preceding paragraphs, the overall project cost allowed to HPGCL, works out to Rs. 18, million (US $ million). 8.2 Subsequent to submission of COD adjustment request, vide letter dated October19, 2012; HPGCL has requested the Authority to freeze its debt portion for the purpose of calculation of tariff. The Authority considered the request of the petitioner reasonable and has decided to freeze the debt portion up to actual loan Rs. 14, million. Accordingly for the purpose of calculation of tariff, revised debt equity ratio works out to be : Net Capacity 9.1 The reference tariff in the determination was calculated on the basis of net contracted capacity of 209 MW. Consequent to the Initial Dependable Capacity (IDC) test, the actual net capacity has been established as MW. The determination specified that the tariff adjustment will be made only if net capacity is established higher than 209MW. As in the IDC test, the capacity of HPGCL has been established lower than 209 MW. Accordingly, no adjustm,nt in the reference tariff on account of actual established capacity has been made. 8

10 gyp..1) & M Costs 10.1 The revised 0 & M tariff components applicable to the units delivered, post COD, are as follows: Tariff Components Reference Revised Fixed 0 & M Foreign (Rs./kw/hour) Fixed 0 & M Local (Rs./kw/hour) Variable 0 & M Gas (Rs./kwh.) Variable 0 & M HSD (Rs./kwh.) Indexation Values WPI (Manufacturers) US CPI Exchange rate (US$/PKR) Initial dependable capacity (MW) Cost Of Working Capital The Authority had allowed cost of working capital tariff component of Rs /kW/hr. for operations on gas fuel and Rs /kw/hr. for operations on HSD fuel in the determination on the basis of following parameters: Capacity 209 MW KIBOR 9.0% Sales Tax 15% HSD price Rs / litre 11.2 HPGCL has requested for allowing it cost of working capital tariff component of Rs /kw/hr. for operations on gas fuel and Rs /kW/hr. for operations on HSD fuel 11.3 The Authority has noted that HPGCL's claim of cost of working capital is based on the parameters at the time of actual COD, whereas, in all the comparable cases this has been adjusted on the basis of the parameters at the time of R-COD which are as follows: Capacity 209 MW KIBOR 13.40% Sales Tax 17% HSD price Rs / litre 9

11 11.4 Based on the revised parameters as stated above, the revised component of working capital works out to Rs /kw/hr. for operations on gas fuel and Rs /kW/hr. for operations on HSD fuel, which is hereby allowed. 12. Insurance Subsequent To COD 12.1 The Authority had allowed Rs per KW/hr. as insurance tariff component to HPGCL in the determination. The determination specified that actual insurance cost for the maximum cover required under contractual obligations with the power purchaser, not exceeding 1.35% of the EPC cost will be treated as pass through HPGCL has now claimed Rs million as insurance cost for the first year of its post COD operations and has submitted relevant documentary evidences in support of its claim The Authority has observed that actual insurance premium of Rs million claimed by HPGCL is less than the maximum cap of 1.35% of its allowed EPC cost. Accordingly the Authority has hereby allowed the actual insurance cost, that is Rs million and insurance component of Rs per kw/hr. 13. Return On Equity 13.1 The Authority had allowed Rs per kw /hr as return on equity (hereinafter referred to as "ROE") tariff component to HPGCL in the determination. HPGCL has requested to allow it ROE of Rs per kw/hr. at the COD stage The ROE is subject to adjustment on the basis of revised amount of equity allowed by the Authority, variation in exchange rate parity between US $/PKR and revised net capacity established at the time of COD. On the basis of revised project cost, the ROE component of tariff works out to Rs per kw /hr which is hereby allowed. 14. Return On Equity During Construction 14.1 The Authority had assessed return on equity during construction (hereinafter referred to as "ROEDC") of Rs per kw/hr. in the determination, which was subject to adjustment at the COD. HPGCL has requested to allow it ROEDC of Rs per kw/hr. at the COD stage Based on actual equity injections, variation in exchange rate parity between US $/PKR and construction period allowed by the Authority i.e. commencing from April 30, 2008 and ending on December 15, 2010 up to the amount of equity has been worked out on the basis of revised project cost, therefore, ROEDC to the tune of Rs. 1, million (US $ million) i.e. Rs per kw/hr. is hereby allowed. 15. Withholding Tax 15.1 Based on the revised ROE and ROEDC, the tariff component of withholding tax has also been revised from Rs per kw/hr. in the determination to Rs per kw/hr. 10

12 z.) en 16. Debt Servicing Component 16.1 The Authority had assessed debt servicing component of Rs per kw/hr. which include)rs /kw/hr., for local financing and Rs /kw/hr on foreign financing, in the determination. HPGCL has requested to allow it debt servicing component of Rs per kw/hr. at the COD stage on the basis of revised financing structure Based on the project cost of Rs. 18, million allowed by the Authority, at actual debt of Rs million and revised debt equity ratio : 21.65, the revised debt serving component on the basis of 3-months KIBOR of % +3% spread and capacity of MW, works out to Rs per /kw/hr. 17. ORDER Pursuant to Rule 6 of the National Electric Power Regulatory Authority Licensing (Generation) Rules, 2000 read with section 31(4) of Regulation of Generation, Transmission and Distribution of Electric Power Act 1997, and in supersession to the Authority's determination dated April 2013 in the Matter of Interim Relief allowed to Halmore Power Generation Company Limited (HPGCL) in Generation tariff from the Commercial Operations Date (COD), HPGCL is hereby allowed to charge, the following approved revised tariff for delivery of electricity to CPPA of NTDC for procurement on behalf of Ex-WAPDA Distribution Companies with effect from COD: REFERENCE TARIFF Tariff Components Years 1 to 10 Years 11 to 25 Indexation Capacity Charge (Rs./kW/Hour) Fixed O&M - Local WPI - Foreign US$/PKR & US CPI Insurance US$/PKR Cost of working capital- Gas Operations KIBOR Debt service local KIBOR Return on equity US$/PKR Return on equity during construction US$/PKR Total Capacity Charge-Gas * In case the plant operations on HSD fuel, Cost of orking Capital shall be paid on 15 days inventory level basis as Rs /kW/Hr. I

13 Tariff Components A) Energy Charge on operations on Gas Rs./kWh Years 1 to 10 Years 11 to 25 Indexation Fuel cost component Fuel Price Variable O&M US$/PKR & US CPI Total Variable charge A B) Energy Charge on operations on HSD Rs./kWh Fuel cost component Fuel Price Variable O&M US$/PKR & US CPI Total Variable charge A Note: i) Capacity charge Rs./kW/hr. is applicable to the dependable capacity at the delivery point. ii) Dispatch criterion will be based on the energy charge. iii) The above tariff is applicable for a period of 30 years commencing from the date of the commercial operations. iv) Component wise tariff for operations on Gas and HSD is indicated at Annex-I and Annex-II. v) Debt Servicing Schedule is attached as Annex-III I) Adjustment in Insurance Component The actual insurance cost for the minimum cover required under contractual obligations with the Power Purchaser not exceeding 1.35% of the EPC cost will be treated as a pass through. II) Pass-Through Items i) No provision for income tax, workers profit participation fund and workers welfare fund, any other tax, excise duty or other duty, levy, charge, surcharge or other governmental impositions, payable on the generation, sales, exploration has been accounted for in the tariff. If HPGCL is obligated to pay any tax on the income purely generated from its operation i.e. Electricity Generation of power producer, the exact amount should be reimbursed by CPPA on production of original receipts. This payment will be considered as a pass-though (as Rs./kW/hour) hourly payment spread over a 12 months period in addition to the capacity purchase price in the reference tariff. Furthermore, in such a scenario, HPGCL shall also submit to CPPA details of any tax shield savings and CPPA shat

14 deduct the amount of these savings from its payment to HPGCL on account of taxation. ii) Withholding tax on dividend is also a pass-through item just like other taxes as indicated in the government guidelines for determination of tariff for new IPPs. In a reference tariff table withholding tax number is indicated as reference and CPPA shall make payment on account of withholding tax at the time of actual payment of dividend subject to maximum of 7.5% of 15% of reference equity i.e. hourly payment (Rs./kW/hour) spread over a 12 months period. Withholding Tax Payable = [15% * (E(REF) + ROEDC (REF))] * 7.5% Where: E(REF) = Adjusted reference equity at COD ROEDC (REF) = Reference return on equity during construction iii) In case Company does not declare a dividend in a particular year or only declares a partial dividend, then the difference in the withholding tax amount (between what is paid in that year and the total entitlement as per the net return on equity) would be carried forward and accumulated so that the company is able to recover the same in hourly payments spread over 12 months period as a pass-through from the power purchaser in future on the basis of the total dividend payout. III) Indexations The following indexations shall be applicable to reference tariff. a) Indexations applicable to O&M The local component of fixed 0 & M part of capacity charge will be adjusted on account of local inflation (WPI) and foreign component on account of US CPI and dollar/rupee exchange rate. Quarterly adjustment for local inflation, foreign inflation and exchange rate variation will be made on P July, 1" October, 1" January and 1st April based on the latest available information with respect to WPI notified by the Federal Bureau of Statistics, US CPI notified by the US Bureau of Labor Statistics and revised TT & OD selling rate of US dollar notified by the National Bank of Pakistan. The mode of indexation will be as under: i) Fixed O&M F O&M (LREV) = Rs per kw per hour * WPI (REV) / F O&M (FRE = Rs per kw per hour * US CPI (REV) / * ER (REV) / Where: 13

15 F O&M(LREV) F O&M(FREV) WPI(REV) WPI(REF) US CPI (REV) = The revised applicable fixed O&M local component of the capacity charge indexed with WPI The revised applicable fixed O&M foreign component of the capacity charge indexed with US CPI (all urban) and exchange rate variations The revised wholesale price index (manufacturers) wholesale price index (manufacturers) of November 2010 notified by the Federal Bureau of Statistics The revised US CPI (all urban consumers) US CPI (REF) = US CPI (all urban consumers) for the month of November 2010 as notified by the US Bureau of Labor Statistics ER(REV) = The revised TT & OD selling rate of US dollar as notified by the National Bank of Pakistan ER(Ref) = The reference exchange rate of Rs = 1 US$. ii) Variable O&M V O&M (Revg) = Rs per kw per hour * US CPI (RD!) / * ER (REV) / V O&M (Revd) = Rs per kw per hour US CPI (REv)/ * ER (REV) / Where; V O&M(Revg) V O&M(Revd) WPI(REV) WPI(REF) US CPI (REV) US CPI (REF) The revised applicable variable O&M foreign component of the energy charge indexed with US CPI and exchange rate variation on gas operations The revised applicable variable O&M foreign component of the energy charge indexed with US CPI and exchange rate variation on operation on HSD fuel = The revised wholesale price index (manufacturers) = wholesale price index (manufacturers) of November 2010 notified by the Federal Bureau of Statistics The revised US CPI (all urban consumers) US CPI (all urban consumers) for t e month of

16 ".) November 2010 as notified by the US Bureau of Labor Statistics ER(REV) = The revised TT & OD selling rate of US dollar as notified by the National Bank of Pakistan ER(Ref) = The reference exchange rate of Rs = 1 US$. b) Adjustment for KIBOR variation The interest part of fixed charge component will remain unchanged throughout the term except for the adjustment due to variations in interest rate as a result of variation in quarterly KIBOR according to the following formula: Where; P (LREV) * (KIBOR (REV) 13.40%) / 4 The variation in interest charges applicable corresponding to variation in quarterly KIBOR. A I (1.) can be positive or negative depending upon whether KIBOR (REV) is > or < 13.40%. The interest payment obligation will be enhanced or reduced to the extent of A I for each period of quarter under adjustment. P(REV) The outstanding principal (as indicated in the attached debt service schedule to this order) on a quarterly basis on the relevant calculation date. Period 1 shall commence on the date on which the 1st installment is due after availing the grace period. c) Fuel Price Variation The variable charge part of the tariff relating to fuel cost will be adjusted on account of the fuel price variation as and when notified by the relevant authority, which in the intant case is the Oil & Gas Regulatory Authority (OGRA). In this regard, the variation in HPGCL's allowed rate relating to fuel cost shall be revised according to the following formula: FCg (Rev) Rs per kwh. * FPg (Rev)/ Rs per MMBTU Where: FCg (Rev) FPg (Rev) Revised fuel cost component of variable charge on gas. The new price of gas as notified by the relevant Authority per MMBTU 15

17 of Halrnore Power Generation Company Limited AND FCd (Rev) Rs per kwh. * [FPd (Rev) Rs. Per MMBTUs]/ Rs per MMBTU (Excl-GST) Where: FCd (Rev) FPg (Rev) Revised fuel cost component of variable charge on Diesel. The new price of diesel as notified by the relevant Authority per litre of fuel adjusted for NCV-GCV factor, Specific gravity and Calorific value (gross). Reference values used in the calculations: HSD Fuel Price with GST (GCV) GST HSD Fuel Price without GST (GCV) HHV-LHV adjustment factor HSD fuel price without GST (NCV) HSD fuel price without GST * Calculated by using following reference values Reference specific 15 C or 15.6 C Reference calorific value (Gross) Rs per litre 15% Rs per litre 1.06 Rs per litre Rs per MMBTU* ,880.7 BTUs/kg d) Adjustment of Return on Equity (ROE) Return on equity component of the tariff will be quarterly adjusted on account of variation in PKR/US$ parity according to the following formula; ROE (Rev) = Rs per kw per hour * ER/ (Rev), FR (Ref) Where; ROE(Rev) = Revised return on equity component in R./kW/h ER(Rev) = The revised TT & OD selling rate of US$ as notified by the National Bank of Pakistan ER(Ref) = The reference exchange rate of Rs = 1 US$. e) Adjustment of Return on Equity during Construction (ROEDC) 16

18 Return on equity during construction will be quarterly adjusted on account of variation in PKR/US$ exchange rate according to the following formula; ROEDC (Rev) = Rs per kw per hour * ER (Rev), / ER (Ref) Where; ROEDC(Rev) = Revised return on equity during construction ER(Rev) = The revised TT & OD selling rate of US$ as notified by the National Bank of Pakistan ER(Ref) = The reference exchange rate of Rs = 1 US$. Adjustments on account of local inflation, foreign inflation, foreign exchange variation, KIBOR variation and fuel price will be approved and announced by the Authority for immediate application within seven working days after receipt of HPGCL's request for adjustment in accordance with the requisite indexation mechanism stipulated herein. IV) Terms and Conditions of Tariff: i) Use of gas will be considered as primary fuel. ii) iii) iv) All new equipment will be installed and the plant will be of standard configuration. Dispatch criterion will be based on Energy Charge. Diesel oil will be used only for startups and other contingent requirements. Use of Diesel Oil shall be allowed in accordance with the GOP's fuel policy announced from time to time. 17

19 v) General assumptions of HPGCL, which are not covered in this decision and earlier determination, may be dealt with in the PPA according to its standard terms. AUTHORITY (Maj. (R) Haroon Rashid) Member (Habibullah Khilji) Member (Khawaja Muhammad Naeem) Vice Chairman/Member 18

20 Halmore Power Generation Company Limited Tariff at COD (GAS) Annex- I Year Fuel Variable Charge (PKR/kWh) Variable 0 & M Fixed 0 & M Total Local Foreign Local Foreign Insurance Working Capital Component Capacity Charge (PKR/kW/Hour) Return on Equity Return on Equity during Construction Withholding Tax Loan Repayment Interest Charges Total Capacity Charge Levelized Tariff (1-30 Years) Net Capacity Reference Exchange Rate (PKR/1S$) Reference US CPI Reference WPI (manufacturers) Levelized Tariff (at 60% plant factor) PKR per kwh MW (US cents/kwh)

21 Halmore Power Generation Company Limited Tariff at COD (HSD) Annex- II Year Fuel Variable Charge (PKR/kWh) Variable 0 & M Fixed 0 & M Total Local Foreign Local Foreign Insurance Working Capital Component Capacity Charge (PKR/kW/Hour) Return on Equity Return on Equity during Construction Withholding Tax Loan Repayment Interest Charges Total Capacity Charge Levelized Tariff (1-25 Years) Net Capacity Reference Exchange Rate (PKR/IS$) Reference US CPI Reference WPI (manufacturers) Levelized Tariff (at 60% plant factor) PKR per kwh MW (US cents/kwh)

22 Halmore Power Generation Company Limited Debt Repayment Schedule Annex-Ill Year Quarter Principal Amount Million Rs. Repayment Million Rs. Mark Up Million Rs. Debt Service Million Rs. Principal Amount Million Rs. 1 14, , , , , , Annual Principal Repayment Rs/Kw/hr Annual Interest Rs/kW/hr Annual Debt Serving Rs/kW/hr 14, , , ,864 13, ,680 13, ,488 13, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , (0)