Underlying Power Policy

The Project is being implemented under the Policy for Power Generation Project 2002. The key concessions under the Policy are:

  • Revenue in the form of fixed capacity payment payable per kW/month to defray the Company’s fixed costs.
  • The power purchaser will assume the hydrological risk provided the plant is available.
  • The fixed capacity payment, regardless of water availability or generation, includes debt servicing, equity return, insurance and fixed O&M covering almost 94% of the tariff.
  • The variable component of the tariff, which is about 6% of the tariff, is payable for the actual generation and despatch to the national grid.
  • The Foreign Debt, Equity and Foreign operational expenses are indexed for the change in US$/PKR parity on a periodic basis ensuring that project revenues are generated in constant US$ terms and no foreign exchange risk is borne by the investors.
  • CPI indexation is also provided for operational and maintenance expenses to adjust for inflation.
  • The investors in power projects get a effective return of 17% (IRR) in US$ terms and do not suffer dilution in return due to devaluation of the Pakistan Rupee.
  • The Government ensures availability of foreign exchange for project related payments and dividends
  • The sovereign guarantee by GOP back-stops payment obligations of the governmental entities and provides protection to the investors against default of governmental entities under respective concession agreement.
  • Adequate protection is available against change in laws, change in taxes and specified political risks.
  • Import of plant and equipment (not manufactured locally) for hydel projects is allowed at concessionary customs duty rate of five (05) percent.
  • Profits earned through electricity generation are exempt from corporate income tax, including turnover tax.
  • Being a CPEC Energy Project, a reduced rate of sales tax (1%) on construction services is allowed.
  • Distribution by IPP’s attracts a concessional income tax at 7.5% which is deducted from dividends paid to the investors and as a further concession this is invoiced by the Company and refunded by the power purchaser.

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