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.