trf-92 determination of tariff for hubco-dated 23-05-2008

National Electric Power Regulatory Authority Islamic Republic of Pakistan

2nd Floor, OPF Building, G-5/2, Islamabad.

Registrar Ph: 9207200, 9205225 Fax : 9210215 E-mail: [email protected]

No.NEPRA/R/TRF-92/HUBC0-2008/7607-9 May 23, 2008

Subject: Determination of the Authority in the Matter of Generation Tariff for Hub Power Company Ltd. (HUBCO) (Case # NEPRA/TRF-92/HUBCO-2008) Intimation of Determination of Tariff pursuant to Section 31 (4) of the Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997)

Dear Sir,

Please find enclosed the subject Determination of the Authority along with Annexure-I & II (36 pages) in Case No. NEPRA/TRF-92/HUBC0-2008.

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) and Rule 16(11) of the National Electric Power Regulatory Authority Tariff (Standards and Procedure) Rules, 1998.

3. Please note that only Order of the Authority at para 21.2 of the Determination relating to the reference tariff, adjustments & indexation along with Annexure-I & II needs to be notified in the official gazette. The Order is reproduced for the purpose of clarity and is attached herewith.

Enclosure: As above

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The Secretary NEPRACabinet Division u.:3 AUTHORITY Government of PakistanCabinet Secretariat Islamabad

CC:1. Secretary, Ministry of Water & Power, Islamabad.2. Secretary, Ministry of Finance, Islamabad.

13.0S. eg(Mahjoob Ahmad Mirza )

Order of the Authority regarding Generation Tarifffor Hub Power Company Ltd (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NAROWA L-2008

ORDER OF THE AUTHORITY IN CASE NO. NEPRAJTRF-92/HUBCO-NAROWAL TO BE NOTIFIED IN THE OFFICIAL GAZETTE

Pursuant to Rule 6 of the NEPRA Licensing (Generation) Rules 2000, HUB Power Company Limited (HUBCO-Narowal) is allowed to charge, subject to adjustment of Capacity Purchase Price on account of net dependable capacity as determined by a test jointly carried out by Central Power Purchasing Agency (CPPA) and thepetitioner, the following is approved as specified tariff for delivery of electricity to CPPA of NTDC for procurement on Distribution Companies:

Specified Reference Tariff

HUBCO-Narowal for behalf of Ex-WAPDA

Tariff Components

Capacity Charge PKR/kW/Hour)O&M Foreign O&M LocalCost of Working Capital InsuranceDebt Service — Local Return on EquityROE during Construction

Total Capacity Charge

Energy Charge on Operation on Furnace Oil Rs./kWh

Fuel Cost Component

Variable O&MForeignLocal

Lube Oil Routine R&M

Year 1 to 10 Year 11 to 25

0.1100 0.1100

0.0325 0.0325

0.0900 0.09000.1106 0.11061.2401 -0.4348 0.43480.0437 0.0437

2.0618 0.8217

4.7811 4.7811

0.2694 0.2694

0.1336 0.13360.0424 0.0424

Indexation

US$ /PKR & US CPI WPI

KIBORUS$ /PKR

KIBORUS$ /PKRUS$ /PKR

Fuel Price

US$ /PKR & US CPI WPIWPI

Note: i) Component wise proposed tariff for operation on RFO is indicated at Annex-I.

ii) Debt Servicing Schedule is attached as Annex-II.

The following adjustments /indexations shall be applicable to reference tariff;

I. Adjustment in EPC Cost (One Time)

The Authority has assessed offshore EPC cost as € 135.6 million and onshore as US$ 21.545 million (to be incurred in PKR). Since the exact timing of payment to EPC contractor is not known at this point of time therefore an adjustment for relevant foreign currency fluctuation for the portion of payment in the relevant foreign

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Order of the Authority regarding Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal) No . NEPRA/TRF-92/HUBCO-NA ROGVA L-2008

currency will be made. In this regard the sponsor will be required to provide all the necessary relevant details along with documentary evidence. Based upon such information the EPC cost components in Euro or Dollar shall be established and shall be applied to the corresponding EPC cost components. The adjustment shall be only for currency fluctuation against the reference parity values according to the following mechanism;

EPC (Offshore)(Adi PKR 13,912,560,000 / 102.60* E(PR)

EPC (Onshore)(Ado= PKR 1,420,892,750/ 65.95 * E(PR)

Where:

E(PR) = Respective Weighted Average PKR/EURO and PKR/US$ parity based upon timing of the payment

The tariff components i.e. Insurance, ROE, ROEDC, Principal Repayment and Interest Charges shall be adjusted according to the following formula at COD.

i) Insurance Adjustment Mechanism for EPC Cost Variation

Ins(Re I, ) = Ins(Re f) / EPC(Ref) x EPC (Adi )

Where:

Ins(Rev) = Revised insurance component of tariff

Ins(Ref) = Reference insurance component of tariff

EPC(Ref.) = Reference EPC in PKR.

EPC(Adi = Adjusted EPC in PKR

ii) Return on Equity Adjustment Mechanism for EPC Cost Variation

ROE (Rev) = ROE (Ref) / E (Ref) * E(Rev)

Where:

ROE(Rev) = Revised reference Return on Equity component of tariff in PKR

ROE(Ret) = Reference Return on Equity component of tariff as per originalschedule of tariff in PKR

E(Ref) = Reference Equity in PKR (Rs. 5,424.13 million)

E(Rev) = Revised amount of Equity in PKR

ROEDC Adjustment Mechanism for EPC Cost Variation

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Order of the Authority regarding Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/7'RF-92/HUBCO-NAROWAL-2008

ROEDC (Rev) = ROEDC (Ref) / EDC (Ref) * EDC (Rev)

Where:

ROEDC(Rev) = Revised Return on Equity during Construction component oftariff in PKR

ROEDC(Ref) = Reference Return on Equity During Construction componentsof tariff in PKR

EDC(Ref) Reference Equity During Construction in PKR

EDC(Rev) = Revised Equity During Construction in PKR

iv) Debt Servicing Adjustment Mechanism for EPC Cost Variation

DS (Rev) = DS (Ref) / Debt (Ref)* Debt (Rev)

Note: The adjustment factor established as per the above formula shall be applicable to the individual components of principal and interest during the entire repayment period.

DS (Rev) Revised Debt Servicing component of tariff

DS (Ref) Reference Debt Servicing component of tariff

Debt(Ref.)Reference amount of Debt in PKR (Rs. 12,656.31 million)

Debt(Rev.) Revised amount of Debt in PKR

II. Adjustment due to Variation in Net Capacity

The reference tariff has been determined on the basis of minimum net capacity of 213.60 MW at delivery point at mean site conditions. All the tariff components except fuel cost component shall be adjusted at the time of COD based upon the Initial Dependable Capacity (IDC) tests to be carried out for determination of contracted capacity. Adjustment shall not be made if IDC is established less than 213.60 MW net capacity at reference site conditions. The adjustments shall be made according to the following formula:

CC(Adi ) = CC(Re n x 213.60MW / NC(wc)

Note: Above formula shall be applicable to all the individual relevant components of Capacity Charges.

Where;

CC(AdJ) = Adjusted relevant Capacity Charge components of tariff

NEPRA AUTHORITY

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Order of the Authority regarding Generation Tarifffor Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NAROWAL-2008

CC(Ref)

NOinc) =

= Reference relevant Capacity Charge components of tariff

Net Capacity at reference site conditions established at the time of IDC test

Note:- Reference capacity charge components of Tariff i.e. Revised O&M Foreign, Revised O&M Local, Insurance, Debt Servicing, Return on Equity and ROEDC to be adjusted as per IDC test.

Reference Conditions:

• Ambient Air Temperature 30 °C• Ambient Air Pressure 989 mbar• Relative Humidity 61%• Charge Air temperature before cylinder 47 °C

III. Adjustment in Insurance as per actual

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 pass-through. Insurance component of reference tariff shall be adjusted as per actual on yearly basis upon production of authentic documentary evidence by HUBCO-Narowal according to the following formula;

Insurance (Rev) = AIC / (1.35 % x US$3.138 million) * AP

Where;

AIC = Adjusted Insurance Component (Rs. kW/hr) as per IDC Test

AP = Actual Premium subject to maximum of 1.35% of the adjusted EPC

N. Adjustment Based on Actual Interest During Construction

Debt Service, Return on Equity and ROE during construction shall be adjusted on account of actual variation in drawdown and Interest During Construction with reference to the estimated figures.

V. Adjustment due to Custom Duties & Taxes

Debt Service, Return on Equity and ROE during construction shall be adjusted on account of actual variation in custom duties & Taxes with reference to the estimated figures of US$ 10.547 million. The impact of withholding tax on local services is not known at this point of time. However, these will be adjusted along with other duties and taxes as per the actual on provision of documentary evidence at COD.

VI. Adjustment for variation in Rupee/Dollar parity

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Order of the Authority regarding Generation Tarifffor Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NAROWA L-2008

Relevant reference tariff components shall be adjusted at COD on account of variation in PKR/US$ parity.

VII. Adjustment in Return on Equity (ROE)

Return on Equity will be quarterly adjusted on account of variation in PKR/US$ parity according to the following formula:

ROE(Rev)= ROE(Ref) * ER(Rev)/ 65.95

"Where;

ROE (Rev)= Revised ROE

ROE (Ref)= Reference ROE

ER (Rev)= The revised TT & OD selling rate of US dollar as notified by the National Bank of Pakistan

VIII. Adjustment in Return on Equity during Construction (ROEDC)

Return on Equity during Construction will be quarterly adjusted on account of variation in PKR/US$ parity according to the following formula:

ROEDC(Rev)= ROEDC(Ref) * ER(Rev)/ 65.95

Where;

ROEDC (Rev) = Revised ROEDC

ROEDC (Ref) = Reference ROEDC

ER (Rev) = The revised TT & OD selling rate of US dollar as notified by the

National Bank of Pakistan

DC. Adjustment of Withholding Tax

Withholding tax will be adjusted on account of exchange rate variation according to the following formula:

WT (Rev) = W T(Ref) * ER (Rev)/65.95

Where;

WT (Rev) = Withholding tax revised

WT (Ref) = Reference Withholding tax ER(Rev) =

The revised TT&OD selling rate of US dollar as notified by the National Bank of Pakistan

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ift. J Order of the Authority regarding Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal)nnni No .NEPRA/TRF-92/HUBCO-NA ROWA L-2008

X. 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 HUBCO-Narowal 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 may be considered as pass-through (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, HUBCO-Narowal may also submit to CPPA details of any tax shield savings and CPPA will deduct the amount of these savings from its payment to HUBCO-Narowal 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 (NTDC) shall make payment on account of withholding tax at the time of actual payment of dividend subject to maximum of 7.5% of 15% reference equity i.e. hourly payment (Rs./kW/hour) spread over a 12 month period according to the following formula:

Withholding Tax Payable = [[15% * (E(Ref) — E(Red)) +ROEDC(Reo] * 7.5%

Where:

E(Ref) = Adjusted Reference Equity at COD

E(Red) = Equity Redeemed

ROEDC(Reo= 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 pay out.

XI. Indexations:

The following indexation shall be applicable to the reference tariff as follows;

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Order of the Authority regarding Generation Tarifffor Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NA ROWA L-2008

a) Indexation applicable to O&M

The Fixed O&M local component of Capacity Charge will be adjusted on account of Inflation (WPI) and Fixed O&M foreign component on account of variation in US CPI and dollar/Rupee exchange rate. Quarterly adjustment for local inflation, foreign inflation and exchange rate variation will be made on 1" July, 1st October, 1" January and 1st April based on the latest available information with respect to WPI notified by the Federal Bureau of Statistics (FBS), US CPI issued by 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. 0.0325/kW/Hour * WPI (REV) /127.5

F O&M(FREV) Rs. 0.1100/kW/Hour * US CPI(REv)/ 211.08* ER(REv)/65.95

Where:

F O&M(LREv) = the revised applicable Fixed O&M Local Component of theCapacity Charge indexed with WPI

F O&M(FREV) = the revised applicable Fixed O&M Foreign Component of theCapacity Charge indexed with US CPI (All Urban) andExchange Rate variations

WPI(REv) = the revised wholesale Price Index (manufactures)

US CPLREv) ) = the revised US CPI (All Urban)

ER(REV) = the Revised TT & OD selling rate of US dollar as notified bythe National Bank of Pakistan

Note: The reference numbers indicated above shall be replaced by the revised numbers after incorporating the required adjustments at COD.

ii) Variable O&M

The formula for indexation of variable O&M component will be as under:

V O&M(LREV) = Rs. 0.1760 /kWh * WPI (REV) /127.5

V & M(FREV) Rs. 0. 2694/kWh * US CPI(REv)/ 211.08* ER(REv)/65.95

Where:

V O&M(LREv) = the revised price of lubricants Variable O&M LocalComponent of the Capacity Charge indexed with WPI

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Order of the Authority regarding Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NA ROWA L-2008

V O&M(wREv) = the revised water treatment Variable O&M Local Componentof the Capacity Charge indexed with WPI

V O& M(FREV) = the revised applicable Variable O&M Foreign Component ofthe Capacity Charge indexed with US CPI and Exchange Ratevariations

WPI(REV) = the revised wholesale Price Index (manufactures)

US CPI(REv) = the revised US CPI


Note: The reference Variable O&M indicated above shall be replaced with the revised number at COD after incorporating the required adjustment based upon the IDC Test.

iii) 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;

A I(L) = P(LREV) * ( M B 0 R(REV) - 10.45%) / 4

Where:

A I(L) = the variation in interest charges on local loan applicable corresponding to variation in quarterly KIBOR. i I can be positive or negative depending upon whether KIBOR(REv) > or < 9.75%. The interest payment obligation will be enhanced or reduced to the extent of A I for each quarter under adjustment applicable on quarterly basis

P (REV) = is the outstanding principal (as indicated in the attached debtservice schedule to this order) on a quarterly basis on the relevant quarterly calculations date. Period 1 shall commence on the date on which the 1st installment is due after availing the grace period.

iv) Fuel Price Variation

The Variable Charge Part of the tariff relating to fuel cost shall be adjusted on account of the fuel price variations according to the mechanism given below:

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Order of the Authority regarding Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NAROWAL-2008

FC (Rev) =

Where:

(Rs.4.3223 per kWh * FP(Rev) )/ Rs.23,247.07 per ton/40,792 * CV(Rev)+

(Rs.0.4588 per kWh * Ft(Rev) ) /Rs. 2,467.50 per ton

FC (Rev) =Revised fuel cost component of Variable Charge on RFO.

CV(Rev) =Revised Calorific Value

Ft(Rev) =Revised Freight Charges adjusted for NHV-GHV factor

FP (Rev) = The new price of RFO per Metric Ton adjusted forNHV/GHV factor of 1.05 as per the following mechanism;

Description US$/Ton Rs./Ton

HSFO Arab Gulf Average Price for applicable Fortnight (From Platts Oilgram Report) *

Black Premium (From OGRA) C

& F Price — A

Crude Handling and Incidental charges (7.282% of C&F Price)"

Sub-Total — B

EX Refinery Price — (C=A+B)

GST (15% of EX Refinery Price

Selling Price — D

OMC Margin (3.5% of Selling Price)

GST (15% on OMC Margin)

Sub Total — E

Market Price — (F=D+E)

Cost of RFO excluding GST (GHV)

Inland Freight

Total Cost of RFO excluding GST (GHV)

US$ Pak Rupee Exchange Rate-NBP Selling TT/OD at the date of applicable fuel price

* The supplier shall clearly indicate average Gross and Net calorific values of Arabian Gulf or any other source of which average reference fuel prices are used. Fuel supplier shall provide price adjustment mechanism due to variation in calorific value of the fuel being supplied to the IPP against the reference calorific values.

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" Fuel supplier shall provide item wise actual incidental charges prevailing at the time of receiving payment for fuel supply.

The fuel cost component will be adjusted after the commercial operation date, at the time of revision in RFO price.

Adjustment on account of local inflation, foreign inflation, foreign exchange rate variation, KIBOR variation and fuel price variation will be approved and announced by the Authority for immediate application within seven working days after receipt of HUBCO-Narowal request for adjustment in accordance with the requisite indexation mechanism stipulated herein.

For one time adjustment of relevant tariff components at COD according to the mechanism laid down in this order, HUBCO-Narowal shall submit the relevant documents to NEPRA within 30 days of COD for adjustment.

XII. Terms and Conditions of Tariff:

i) Capacity Charge Rs./kW/hour applicable to dependable capacity at the delivery point.

ii) The tariff is applicable for a period of 25 years commencing from the dateof the Commercial Operation.

iii) The plant availability shall be 88%.iv) All new equipment will be installed and the plant will be of standard

configuration.v) Dispatch criterion will be based on the Energy Charge.vi) Internal consumption (including air-cooled condenser) has been assumed

to be approximately 5.55 MW.vii) Scheduled Outage periods per annum shall be in accordance with the 2006

standardized PPA.viii) NTDC will be responsible for constructing the interconnection to the grid.ix) All invoicing and payment terms are assumed to be in accordance with the

2006 standardized PPA.x) Tolerance in Dispatch shall be in accordance with 2006 standardized PPA.xi) If there is any change in any assumption that may lead to change in the

tariff shall be referred to NEPRA for approval. xii) If IPP is required by the power purchaser to deliver power above 132 kV,

any additional cost to be incurred by the IPP shall be submitted to NEPRA for adjustment. The adjustment request by the IPP shall be duly verified by the power purchaser.

xiii) 100% of debt has been assumed to be local provided however that in the event HUBCO-Narowal uses a mix of foreign and local loan, the future

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benefits of the lower interest rates shall be passed on to the Power Purchaser.

xiv) No corporate income tax and no minimum turnover tax have been assumed.

xv) Working capital has been financed by a separate Working Capital facility, and is not included in the project cost.

The above tariff and terms and conditions be incorporated in the Power Purchase Agreement between HUBCO-Narowal and CPPA.

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NATIONAL ELECTRIC POWER REGULATORY AUTHORITY (NEPRA)

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No. NEPRA/TRF-92/HUBCO-Narowal-2008

PetitionerHUB Power Company Limited (HUBCO-Narowal) Islamic Chamber Building, Block No. 9, Clifton, P.O. Box No.

AUTHORITY

Zafar Ali Khan Member

Nasiruddin Ahmed Member

Abdul Rahim Khan Member

Maqbool Ahmad Khawaja Member <4-

NEPRA -4

may 21, 2008

13841, Karachi-75600

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Khalid Saeed Chairman

Determination of Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NAROWAL-2008

Background

1.1 Hub Power Company Ltd. (HUBCO) filed tariff petition on January 14, 2008 before National Electric Power Regulatory Authority (the "NEPRA" or the "Authority") pursuant to Rule 3 of the NEPRA (Tariff Standards and Procedure) Rules, 1998, read with paragraph 1.3 of the Guidelines for Determination of Tariff for Independent Power Producers issued by the Government of Pakistan in November 2005 and the applicable provisions of the Government of Pakistan's Policy for Power Generation Projects, 2002 (the "2002 Power Policy"). HUBCO also filed application for generation licence on January 14, 2008. The HUBCO intends to setting up power plant of approximately 220 MW (Gross) capacity based on reciprocating engine single fuel RFO fired technology in District Narowal, Punjab province. According to HUBCO net generation of the proposed power plant will be 213.6 MW (net at site conditions) at 132 kV Bus Bar in terms of the Policy for Power Generation Projects 2002 (the "Policy"). The electricity generated will be sold to Central Power Purchasing Agency (CPPA) within NTDC. The main components of the plant are eleven proven generating sets of type 18V48/60 manufactured by MAN and eleven heat recovery steam generators (HRSG) to provide steam to one condensing steam turbine.

1.2 This tariff petition was admitted for consideration by the Authority on January 22, 2008 and was assigned case number NEPRA/TRF-92/HUBCO-NAROWAL-2008. Salient features of the petition were advertised in the newspapers on 1" February, 2008 to inform all the interested persons/stakeholders and to invite participation in the tariff-setting proceedings through their comments or by becoming a party to the proceedings as interveners. Invitations were also sent to the concerned Federal & Provincial Government ministries, Chambers of Commerce and Industries, Representatives of Professional bodies and Experts, soliciting their views on the petition.

1.3 A public hearing on the petition was held on February 22, 2008 at NEPRA MainOffice, Islamabad. This hearing was participated by the applicant, stakeholders,commentators as well as general public.

2. TARIFF SUMMARY

2.1 HUBCO based its tariff petition on a typical two-part structure with an EPP for the energy actually dispatched and a CPP based on the available capacity. The energy charge is based on the actual kWh off-take, and consists of the fuel component and the variable O&M component.

2.2 According to HUBCO-Narowal its proposed tariff figures are result of a detailed financial analysis. Technical, economical, financial, legal and fiscal aspects have been

NEPRA AUTHORITY

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Determination of Generation Tariff Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NAROWAL-2008

considered in the evaluation of the Company's financial performance. The levelized tariff is based on a notional 60% plant factor as per the 2002 Power Policy and a 25-years PPA term.

2.3 HUBCO-Narowal based on the RFO price of PKR 25,714.50 per metric ton (RFO priceincluding transportation), output of 213.60 MW (net at site conditions) and detailedfinancial analysis, established the following tariff:

CPP US Cents/kWh Energy Charge Total tariff Total tariffat 60% Plant Factor US Cents/kWh US Cents/kWh PKR /kWh

Levelized tariff 4.0651Average tariff 3.3288

Average (1-10 years) Average (11-25 years) : Average (1-25 years) Levelized (1-25 years) :

3. Investment

8.6871 12.7522 7.77888.6871 12.0159 7.3297

US cents 13.6111/kWh (or PKR8.3027/kWh) US cents 10.9524 /kWh (or PKR6.6810/kWh) US cents 12.0159/kWh (or PKR7.3297/kWh) US cents 12.7522/kWh (or PKR7.7788/kWh)

3.1 According to the petitioner following investment is estimated in the Project.

Investment / Cost Million USDEPCC Cost 191.36Non EPCC Cost 6.85Housing Colony Cost 2.00Land Acquisition & Land Development Cost 3.88Taxes & Duties 9.75Development Costs 4.89Emergency & Safety Spare Parts 2.60Mobilization & Other Costs 2.65Start-up Expenses & Utilities 1.29Pre-COD Insurance Cost 2.58Financing Fees & Charges 3.89

Interest During Construction 12.60

Total Project Cost 244.34

4. GENERAL ASSUMPTIONS

4.1 According to HUBCO-Narowal in addition to the other assumptions made in theforegoing paragraphs, the following general assumptions have been taken into account while calculating the tariff. Changes in any of these assumptions will result in a change to the proposed tariff:

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Determination of Generation Tarifffor Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NAROWAL-2008

4.2 Internal consumption (including air-cooled condenser) has been assumed to be approximately 5.55 MW.

4.3 Annual plant availability of 88% in terms of the GOP's policy. Scheduled outage allowance of 30 days per engine per annum, except in any year in which a major overhaul is required, the scheduled outage period shall be 60 days per engine. Annual unscheduled outages (MWH) of 500 hours shall be allowed.

4.4 NTDC/Power Purchaser shall be responsible for procuring, financing, constructing, operating and maintenance of the interconnection, metering and transmission facilities at Project site.

4.5 In case of open cycle mode (including during startups or peaking operation), heat tate and efficiency will be different. Accordingly, energy component of tariff will be adjusted.

4.6 All fuels and chemicals, consumables, and associated costs during plant tests after synchronization is assumed to be paid for by the Power Purchaser.

4.7 The tariff is calculated on the basis of a notional 60% plant load factor.

4.8 A constant ROE is assumed, which results in an IRR of 15% over 25 years.

4.9 No hedging cost has been assumed for exchange rate fluctuations during construction.

4.10 The cost of working capital has not been included as part of the project cost.

4.11 Project contingency/debt service reserves are not included in tariff calculations. If required by lenders, these will be adjusted accordingly in the tariff.

4.12 The 5% of the customs duties have been assumed for reference purposes, any change therein would be pass-through. No other tax including any Federal Excise Duty on the import of plant and equipment is assumed. It is assumed that no part of the power plant and the associated equipment supplied under the ESC will be treated as locally manufactured.

4.13 Tax on any income of the Company including sales proceeds from NTDC, general sales tax and all other corporate taxes will be treated as pass-through items.

4.14 No withholding tax on supply of plant and equipment assumed. Only 6% withholding tax on onshore construction services and works assumed.

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Determination of Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal)

Rein No . NEPRA/TRF-92/HUBCO-NAROWAL-2008

4.15 Withholding tax on dividends (currently at 7.5%) as required to be deducted underthe Income Tax Ordinance, 2001 or any other law for the time being in force at thetime of such payment is considered as pass-through.

4.16 100% local debt is assumed.

4.17 No LC confirmation charges have been assumed. If applicable, the adjustment basedon actual, up-to- a maximum of 3%, shall be treated as pass-through to the Power Purchaser.

4.18 The tariff table shall be further updated at COD in order to adjust the tariff according to the actual KIBOR and exchange rates (PKR/USD, PKR/ Euro and USD/ Euro) and other re-openers.

4.19 All invoicing and payment terms are assumed to be in accordance with the 2006 standardized PPA.

4.20 If Power Purchaser requires the dispatched delivery to be made in excess of that to the existing 132kv Narowal Badomali Transmission line or to any other additional circuit, the additional cost incurred by the Company will be paid by the Power Purchaser.

4.21 The cost of metering system (except back up meter) and remote terminal unit (RTU) to be borne by the Power Purchaser. In case HUBCO is required to meet this cost, it would be claimed under the non EPC Cost.

4.22 All other assumptions not expressly stated herein are based upon the 2006 standardized PPA. Consequently any change in any such assumption may lead to change in the tariff.

4.23 Any incentives given to any other project of the same technology shall also be given to HUBCO.

5. DETERMINATION SOUGHT

5.1 Petitioner requested the Authority to approve the Company's generation tariff together with the pertinent indexations to remain effective for a period of 25 years from the COD.

6. ISSUES

6.1 Following issues have emerged out of the proceedings;

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Determination of Generation Tarifffor Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NA ROWA L-2008

A. Plant Capacity B. Project Cost

i). EPC Costii). Non EPC Costiii) Emergency Spare Partsiii). Mobilization/Pre-Operation Costiv). Development Costv). Land Acquisition and Land Development Cost

C. Financing Fees D. Interest During Construction E. Capital Structure F. Capacity Charge

i). Fixed O&Mii). Insuranceiii). Cost of Working Capitaliv). Return on Equityv). Return on Equity During Constructionvi). Debt Servicing

G. Energy Charge i). Fuel Costii). Variable O&M Cost

H. Timeline/Completion of Project

6.2. The petitioner provided the following information;

i) Copy of Memorandum of Understanding (MoU) for Supply of Equipment and construction of complex;

ii) Copy of Reservation Agreement for Equipment;

iii) Copy of Equipment Supply Contract (ESC);

iv) Copy of draft Construction Contract;

v) Copy of Technical Specifications and scope of work;

vi) Copy of Offer prices for different activities;

vii) Copy of Proposals from the consultants;

viii) Back-up calculations of different costs; and

ix) Copies of the communications with the EPC Contractor regardingclarifications on certain cost items;

6.3. The Authority while making assessment in the instant case in addition to above information and documentary evidence also considered the determinations of the

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Determination of Generation Tarifffor Hub Power Company Ltd. (HUBCO-Narowal) No . NEPRA/TRF-92/HUBCO-NAROWA L-2008

similar/comparable cases. Issue wise discussion and decisions are given in following paragraphs:

7. Plant Capacity

7.1 The petitioner submitted that the proposed plant will produce 213.6 MW (net at sitereference conditions) in Combined Cycle mode. The main component of the plant are eleven proven generating sets of type 18V48/60 manufactured by MAN and eleven heat recovery steam generators (HRSG) to provide steam to provide steam to one condensing steam turbine. According to the documentary evidence its auxiliary consumption (including air-cooled condenser) would be approximately 5.55 MW. The equipment is designed to operate within the following ambient conditions:

• Altitude above sea level (maximum) 200 m• Wet bulb temperature 24 °C• Minimum ambient air temperature 3 °C• Maximum ambient air temperature 50 °C

7.2 The manufacturer has guaranteed 213.6 MW continuous power of the plant which iscalculated for the following reference conditions:

• Ambient Air Temperature 30 °C• Ambient Air Pressure 989 mbar• Relative Humidity 61%

• Charge Air temperature before cylinder 47 °C

7.3 The above reference conditions are in accordance with the technical specifications provided by the petitioner therefore the same are being adopted. The tariff components have been assessed on the basis of minimum guaranteed net capacity of 213.6 MW at site conditions. In case at the time of COD the net plant capacity at site conditions is determined higher than the minimum net capacity of 213.6 MW the relevant tariff components would be required to be adjusted accordingly. However, there would be no adjustment if net capacity at reference site conditions is established less than 213.6 MW at Initial Dependable Capacity (IDC). The adjustment in the relevant tariff component for higher net capacity shall be made according to the following formula:


Where;

Page 7 of 36


CC(Adj) = Adjusted relevant Capacity Charge components of tariff

CC(Ref) = Reference relevant Capacity Charge components of tariff

NCupc) = Net Capacity at reference site conditions established at the time ofIDC test


8. PROJECT COST

8.1 EPC Cost

8.1.1 The petitioner submitted that EPC cost was €149.500 million comprising of Equipment Supply Contract (ESC) price of € 135.60 million or US$173.57 (converted at the reference exchange rate of Euro 1 = USD 1.28) and the Construction Contract (CC) price of €13.90 million or US$ 17.79 million (converted at the reference exchange rate of Euro 1 = USD 1.28). According to the petitioner its ESC was lump sum cost and included the cost of 11 diesel engine generating sets with one steam turbine and one 132-kV 2-bay switchyard together with all the necessary auxiliary machinery, equipment and systems including the erection and commissioning of the equipment and construction of buildings. The ESC price also included the cost of the fuel tank for 30 days inventory of RFO along with fuel pumping system with all heating and piping arrangements as well as the fire containment area and the fire fighting system.

8.1.2 In order to substantiate its claim the petitioner provided Memorandum of Understanding (MOU) which was signed on November 13, 2007. As per the terms of MOU both parties had to sign an EPC contract within two months of signing of MOU. Commercial Operation Date (COD) as per MOU is March 2010. The copies of the reservation agreement along with copy of ESC contract were also provided by HUBCO-Narowal. According to clause 4.2 of the reservation agreement the contract price covers:

"the supply, transportation, erection, construction, installation testing, commissioning and completion of the complex as described/set out under the initialed (by both parties) appendices I &A of the Equipment Supply Contract (ESC) and Construction Contract (CC) respectively and that upon such completion of the complex it shall have fully operational all equipment and facilities necessary for the complete, safe, and reliable operation and maintenance of the complex and that all portions of the complex will be able to be safely and in particular in accordance with the generally accepted prudent utility and engineering practices."


8.1.3 The ESC cost has been compared with other similar projects and is observed that the ESC cost of HUBCO-Narowal of € 135.6 million is higher by about € 2 million as against € 133.4 million in the case of Bestway Power Limited (BPL). It is also observed that despite the higher ESC cost, the ESC price does not cover the cost of emergency spares and part of the insurance cost as required under Schedule 8 of Standard PPA. The HUBCO-Narowal requested the cost for emergency spares of € 2.031 and insurance (Pre COD EAR/CAR and marine insurance) cost of € 2.016 separately. If it is included in the ESC price the comparable ESC would be € 140.21 which is about 5% higher as compare to BPL.

8.1.4 Based upon the analysis and comparison of the ESC cost, the Authority considers that although the ESC cost is slightly high but is still within the reasonable range keeping in view the international market trends and availability of the equipment. The Authority has therefore decided to accept the ESC of €133.4 million.

8.1.5 During hearing HUBCO-Narowal stated that their construction contract was for Euro 13.9 million but they were negotiating with the ESC contractor to convert the Construction Contract in US$. Subsequently HUBCO-Narowal informed in writing that they have negotiated an exchange rate of 1 Euro at 1.55 US$ to convert its construction contract into Dollar. According to the petitioner at the agreed Euro/$ parity of 1.55 the construction contract price worked out as US$21.545 million. The Authority considers that the agreed construction cost of US$21.545 million is comparable with the other similar projects therefore is being accepted.

8.2 Non EPC Cost

8.2.1 The petitioner requested US$ 8.772 million for non-EPC to cover costs which werenot part of MAN's scope of work pursuant to the EPC contract. According to thepetitioner the requested non-EPC cost was required for the following activities;

• Water(including pipeline for facility, main storage tank, waste water system)• Sludge disposal system• On SITE Corporate Office• Water treatment and softening plant• Fence around switchyard• Site compaction work & surface leveling• Control room for switch yard & switch yard surface covering• Tube wells etc.• Generator Rent, diesel etc• Station vehicles, office and etc.• Fire tenders, ambulance & pick-up• Automatic control of switch yard• Additional transport costs to Pulli• Power Stabilizer System (Basic)

NEPRA AUTHORITY

Page 9 of 36

Determination of Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal)

Bp'

• Truck weighing machine

No .NEPRA/TRF-92/HUBCO-NAROWAL-2008

• Additional Interconnection to Grid 4 bay instead of 2 bay• Civil Works for Sub- Station extension for further 2 OHL• Filling, compaction and Piling cost

8.2.2 The Authority, having examined all the relevant documentary evidence, considering the justification given by the petitioner and determinations made in the cases of other similar projects, observed that some of the costs were either duplicate or were not legitimate while most of the costs were over-estimated and required to be rationalized. Based upon the detailed item wise analysis the Authority has assessed US$ 2.2918 million to cover the above costs at serial no.1,2,4,5,7,8,9,11,13,14,15&16 under non-EPC head.

8.3 Emergency & Safety Spare Parts

8.3.1 The petitioner requested for US$ 2.6 million (Euro 2.031 million) for Emergency and safety spare parts aimed to reduce, as much as possible, the stop times for maintenance of the plant and to ensure the required annual plant availability. According to the petitioner these costs were estimated at 1.5% of ESC price which was consistent with the Authority's ruling in other similar projects.

8.3.2 The review of the technical specifications indicates that the item 7.1.4 of the technical specifications provide brief scope of plant spares. The technical specifications further provide that the detailed spare parts list would be submitted after final engineering which means that the list indicated in the technical specification is not complete. The Authority was unable to validate the detailed scope of plant spares from the information provided by the HUBCO-Narowal.

8.3.3 Having examined all the relevant information the Authority is convinced thatHUBCO-Narowal's request for provision of emergency spare parts is not justified;therefore is not accepted.

8.4 Staff Housing Colony Cost

8.4.1 Petitioner stated that the Project SITE is located approximately 60-km from Sialkot and 120-km from Lahore therefore housing colony was essential to be established at SITE in view of the long distance from major cities and in order to maintain the safety/ security of key personnel (including expatriates) on SITE for the maintenance of the plant and the reliabiwere are also following the same practice of keeping key personnel on SITE.

8.4.2 The Authority examined the information and evidence provided by the petitioner and found that the petitioner's estimates were slightly on the higher side and needed to be corrected. The Authority also compared cost requested by the petitioner for staff

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Determination of Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NAROWA L-2008

housing colony with costs of US$ 1.675 million and US$ 1.551 million allowed toother similar projects. Having considered all the relevant documentary evidence andthe costs allowed to other similar projects has assessed US$ 1.804 million in the instantcase.

8.5 Land Acquisition and Land Development Cost

8.5.1 Petitioner requested US$ 3.89 million to cover the cost of purchase of land, togetherwith stamp duty and registration fees, the fees of the broker and the legal consultants, the cost of backfilling of the SITE as well as construction of the bOundary wall and topographic and geotechnical surveys. The cost under this head also included the construction of 60 ft x 50 ft Bridge to cross a feeder canal and an access metal road of approximately 500-meters.

8.5.2 The Authority has been informed that the cost requested by the petitioner was for 45 Acers of land. In the cases of WARDA, Nishat Chunian, Nishat Power, Atlas Power and Gujranwala Energy Limited, the Authority determined a ceiling of 25 Acers for such type of plants. The justification of procurement of additional land was sought from the petitioner. The petitioner stated that land was not available in a square and it had to procure the land in rectangular shape. Consequently the EPC contractor had to modify its layout plan according to which 28 Acers of land was required for plant only. The remaining land was procured for constructing staff colony and approach road from the main road etc. Only for approach road 7 acres were required.

8.5.3 The Authority considers that the justification given by the petitioner in support of procurement of 45 Acers of land does carry weight therefore is accepted. Accordingly the Authority has decided to allow US$ 0.67 million for procurement of land.

8.5.4 The petitioner's request for allowing US $ 2.14 million for backfilling and compaction etc. has been evaluated and analyzed on the basis of documentary evidence provided by the petitioner. In this regard the petitioner provided relevant pages of the study carried out by the NESPAK according to which the petitioner is required to replace soil to gain required soil bearing capacity. The soil replacement and compaction is required only to the extent of plant area as against for the entire land as requested by the petitioner. The petitioner did not provide authentic/valid evidence in support of its cost calculation therefore for the purpose of fair assessment of the costs on this account the information provided by Liberty Power Tech Limited (LPTL) has been used as reference.

8.5.5 Having considered the information provided by the petitioner the cost of backfilling pertaining to the 7 Acers of land procured for approach road was duplication because the cost for constructing approach road covered such cost and was separately claimed by the petitioner. As compared to LPTL in the instant case cost of filling and compaction has increased due to the additional land procurement. Additionally the

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Determination of Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NA ROWA L-2008

level of the area is lower than the flood level of the area (as per the draft report of Hydrological Study by NESPAK). Having considered all the relevant aspects and after incorporating the inflationary impact and allowance for low level area the Authority has assessed US$ 1.1623 million on this account to be adjusted as per actual subject to maximum of US$2.14 million

8.5.6 The petitioner requested US$ 0.66 million for road inside/outside the facility about 5 kM. According to the scope of the EPC contract the road inside the boundary wall is the responsibility of the EPC contractor therefore the cost needed to be adjusted accordingly. After incorporating the adjustment for roads inside the boundary wall the cost has been assessed as US$ 0.462 million for roads outside the facility.

8.5.7 The petitioner requested US$ 0.36 million for pulli/bridge, topographic and geotechnical surveys and construction of boundary wall. The Authority considers that costs requested by the petitioner are comparable with the similar projects therefore decided to allow as such.

8.5.8 In light of the above, the Authority has assessed the overall cost of US$ 2.6543 millionon account of land acquisition and land development as against US$ 3.89 million

requested.

8.6 Import Duty & Taxes

8.6.1 Petitioner requested US$ 9.75 million for import duty and Taxes. According to the petitioner it covers custom duties and import taxes @ 5% of the cost of plant and equipment under the ESC. The withholding tax of 6% of the CC price has been included. Any duties or taxes in excess thereof (or any new taxes or duties) shall be treated as "pass-through" items to the Power Purchaser.

8.6.2 The Authority in other similar cases adopted 5% custom duties with the provision of adjustment as per actual at COD. The same has been assumed in the instant case. Accordingly based on the adjusted EPC price the Authority for the purpose of tariff calculation has assessed customs duty/withholding tax of US$ 10.547 million to be adjusted as per the actual on provision of documentary evidence at COD.

8.7 Project Development Costs

8.7.1 The Petitioner requested for US$ 4.89 million for project development costs to covercost of Bankable Feasibility Study, Load Flow & Short Circuit Studies, Fees for

Engineering & Technical Consultants, Legal Consultants (Local + Foreign), Performance Guarantees/Fees to PPIB / NEPRA, WAPDA L/C Cost and Independent Engineer Cost (Required under the PPA).

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Determination of Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal) No .NEP RA/TRF-92/HUBCO-NAROWA L-2008

8.7.2 In order to make fair assessment of the project development cost, each component has been evaluated on the basis of information provided by the petitioner and compared with most recent determinations. The Authority also considered the information provided by the petitioner in support of its claim i.e. financial proposal from FICHTNER for bankable feasibility study and Owner's Engineer for HUBCONarowal. From the available information the cost requested by the petitioner for bankable feasibility could not be validated. In absence of any reliable information the Authority had to rely on the determinations made in the similar cases.

8.7.3 From the available information although it was confirmed that the petitioner acquired the services of Mot-Macdonald Pettit (MMP), Ireland as its owner engineer/technical consultant, however the total cost of the assignment could not be validated. The payment to the extent of US$ 125,000 + traveling and out of pocket expenses to be made to MMP, for reviewing the design information and technical specifications, advising on risk reviews and assisting negotiations and finalization of the EPC contract document was also confirmed from the documents.

8.7.4 Having considered the relevant documentary evidence and the costs allowed in other similar projects the Authority has assessed US$ 2.55 million for project development cost.

8.8 Mobilization & Other Costs

8.8.1 The petitioner requested US$ 2.65 million on account of O&M mobilization costs for six months, HUBCO'S personnel prior to COD including HUBCO's Lahore/Narowal Office & establishment cost, Review design information, review risk, review of technical specifications, negotiation with EPC Local assistance to O&M Contractor, Training abroad for HUBCO'S O&M personnel.

8.8.2 Based on the information provided by the petitioner and allowed in other similar cases, all the costs except for the cost of review design etc are reasonable therefore are being allowed as such. The cost for review design information, review risk, review of technical specifications, and negotiation with EPC has been covered under the project development cost. Having considered all the relevant information, the overall mobilization and other costs have been assessed as US$ 2.5 million.

8.9 Start-up Expenses & Utilities

8.9.1 Petitioner requested US$ 1.29 million on account of start-up expenses and utilities.The petitioner requested US$ 100,000 for Utilities (Electricity, telephone, watersupply, internet etc.) during construction and US$ 1,190,000 Initial Filling of diesel, chemical and lubricants for startup and testing before synchronization.

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Determination of Generation Tarifffor Hub Power Company Ltd. (HUBCO-Narowal) No . NEPRA/TRF-92/HUBCO-NA ROWA L-2008

8.9.2 The examination of the information revealed that most of the costs were already covered under different heads therefore the Authority has excluded these costs from the start-up expenses and utilities. After adjusting the amounts allowed under different heads the Authority has assessed and allowed an amount of US$ 0.25 million on this account.

9. Pre-COD Insurance Cost

9.1 Pre-COD Insurance cost covers the cost of insurances of the Complex during the construction phase and up-to the COD. This is estimated at 1.35% of EPC cost and is in line with the Authority's ruling in other projects.

9.2 In Authority's opinion Article 14 of the ESC which deals with the general obligations with respect to insurance is entirely ambiguous. The Article does not clearly indicate the responsibilities/obligations of the contractor and the owner. It is observed that the parties have not yet finalized the insurance terms of EPC contract. In the absence of any authentic evidence the exact amount payable by the petitioner cannot be determined at this point of time. The Authority considers that an adjustment to the extent of payment to be made by the petitioner, if any, on this account can be made at the time of COD, subject to the condition that the overall insurance amount payable by both EPC contractor and the petitioner in accordance with the PPA terms does not exceed 1.35% of the EPC price.

10. Financing Fees & Charges

10.1 The petitioner requested US$ 3.89 million as financing fees and charges whichincluded the upfront fee US$ 1.5 million, arrangement fee US$ 2 million andmonitoring fee US$ 0.39 million. These fees and charges are assumed at 2.5% of the debt amount, which will be adjusted at COD as per actual, subject to the maximum of 3% of such debt amount.

10.2 The Authority considers that the petitioner's request is reasonable and in line with the decisions in other similar cases therefore is accepted. Accordingly based on the revised Capital Structure, the financing fee has been assessed as US$ 4.33 million to be adjusted as per actual at the time of COD subject to the maximum of 3% of the borrowing.

11. Interest during Construction (IDC)

11.1 According to the petitioner the calculation of IDC of US$ 12.6 million (subject toactual adjustment) were based on the payment schedules keeping in view the equity and debt injections together with the applicable interest/mark up rates. In view of the delivery schedule under the ESC, the Project's implementation period will be 24 months corresponding to 31 March 2010.

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Page 14 of 36

Determination of Generation Tarifffor Hub Power Company Ltd. (HUBCO-Narowal) No . NEPRA/TRF-92/HUBCO-NAROWA L-2008

11.2 After adjusting the EPC price for exchange rate parity and the interest rate of 13.45%,the IDC in the instant case has been assessed as US$ 14.722 million which is subject toadjustment as per actual at the time of COD based upon the actual disbursement etc.

12. CAPITAL STRUCTURE

12.1 The petitioner submitted the following capital structure of the Project:

Million USDEquity 73.30Debt 171.04Total Project Cost 244.34Debt : Equity Ratio 70:30

12.2 Based on the adjusted Capital Expenditure (CAPEX) the revised capital structure isindicated as under:

Million USDEquity 82.246Debt 191.908Total Project Cost 274.154Debt : Equity Ratio 70:30

13. CAPACITY CHARGE

13.1 Fixed O&M

13.1.1 According to the petitioner the fixed O&M component of the escalable CPP of Rs. 0.1500 per kW per hour represented the fixed costs of all the staff for O&M, cost associated with periodic maintenance for ensuring availability, plant administration, security, transportation, overheads, office costs, professional fees such as audit, tax and legal, as well as some other fixed operational costs such as environmental monitoring and obsolescence, that do not change with dispatch levels. The breakdown of fixed O&M cost in local and foreign portion is as under:

Local Fixed O&M Cost Component 30%Foreign Fixed O&M Cost Component 70%

13.1.2 The information provided by the petitioner in support of its claim is not consistent with the original submission of the petitioner. According to the information provided by the petitioner its fixed O&M cost comprised of O&M operator fee Rs. 0.1174 per kW per hour and HUBCO's cost Rs. 0.0326 per kW per hour. The amount requested by the petitioner in the instant case is much higher as compared to other similar

Page 15 of 36

Determination of Generation Tarifffor Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/7'RF-92/HUBCO-NA ROWA L-2008

projects recently decided by the Authority. Since the tariff determination of similar cases, the depreciation of rupee against Euro/US$ has been observed therefore some adjustment on this account in the O&M foreign component of cost is considered justified. After incorporating the adjustment for exchange rate parity the foreign component of fixed O&M cost in the instant case has been assessed as Rs. 0.1100 per kW per hour and local component of fixed O&M as Rs. 0.0325 per kW per hour. The overall fixed O&M cost in the instant is allowed as Rs. 0.1425 per kW per hour.

13.2 Cost of Working Capital

13.2.1 Petitioner requested 0.0945 per kW per hour as cost of financing working capital. According to the petitioner working capital loan facility of USD 23.29 million is assumed in order to finance the inventory level of RFO equivalent to 30 days generation at 100% load factor and energy payment at 60% receivable along with GST for 30 days. The cost of Working Capital Facility is assumed at 12.45% (3 month KIBOR (10.45%) + 2% margin) with no other charges (e.g. commitment fee).

13.2.2 As per the terms of PPA the IPP is required to maintain fuel inventory level equivalent to 30 days generation at 100% load factor. The working in the instant case for inventory is inline with the PPA requirement. Based upon the reference fuel price of Rs.22,140 + Freight Rs.2,350 per M/Ton, the fuel stock requirement at 100% load factor, has been assessed as US$ 11.149 million.

13.2.3 The petitioner requested receivables — Variable 100% for 30 days (60% load factor), which is in accordance with the PPA terms. The Authority considers that the petitioner will require additional working capital because it will raise its invoice for energy payment after each 30 days and the power purchaser will make payment after next 30 days. On the average 30 days energy charge at 60% dispatch will remain in the billing cycle. The petitioner's request being legitimate is accepted as such. For this purpose only fuel cost will be considered relevant. On the basis of aforementioned, the assessed working capital requirement for HUBCO-Narowal is US$ 6.689 million.

13.2.4 The petitioner's request regarding provision of 15% sales tax on inventory and receivables is justified. The Authority in the instant case has assessed US$ 2.6758 million in this context.

13.2.5 Based upon the working capital requirement of US$ 20.5147 million at Rupee/dollar parity of 65.95, the financing cost @ 12.45% (KIBOR 10.45% + 200 points spread) has been assessed as US$ 2.554 million or Rs. 0.0900 per kW per hour. This cost will be adjusted according to the actual prices prevalent at the time of first fill at COD according to the following formula;

CWC(ad)) = 0.0900 / 25,715 * FP (current)

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Page 16 of 36

Determination of Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal) No . NEPRA/TRF-92/HUBCO-NAROWAL-2008

Where:

CWC(adj) = Adjusted cost of working capitalFP (current) = Actual fuel price at the time of first fill

13.3 Insurance

13.3.1 The petitioner requested US$ 2.5834 million or Rs. 0.0842 per kW per hour on account of insurance @ 1.35% of EPC cost

13.3.2 Since the request is in line with the already determined cases by the Authority therefore is accepted. The Authority has accordingly assessed the insurance cost of US$ 3.138 million or Rs. 0.0116 per kW per hour to be adjusted as per actual subject to maximum of 1.35% of EPC price.

14. Return on Equity (ROE)

14.1 The petitioner requested Rs. 0.3738 per kW per hour as return on equity of US$73.881 million to achieve net 15% IRR. On the basis of revised project cost HUBCONarowal's equity has been calculated as US$ 82.246 million. Accordingly ROE works out as Rs. 0.4348 per kW per hour. The petitioner's request for allowing indexation to the ROE is in line with the GoP policy therefore is accepted. The adjustment will be made according to the following formula

ROE(Rev)= ROE(Reo * ER(Rev)/ 65.95 Where;

ROE (Rev)= Revised ROE ROE (Ref)= Reference ROE ER (Rev)= The revised TT & OD selling rate of US dollar as notified by the


15. Return on Equity During Construction (ROEDC)

15.1 The petitioner requested ROEDC of US$ 18.84 million or Rs. 0.0950 per kW perhour, which is based on 24 months construction period.

15.2 On the basis of 2 year construction period ROEDC in the instant case has been assessed as US$ 8.019 million or Rs. 0.0437 per kW per hour subject to adjustment at the time of COD on account of exchange rate variation and variation in disbursement as compared to projected disbursement plan according to the following formula:


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Page 17 of 36

Determination of Generation Tarifffor Hub Power Company Ltd. (HUBCO-Marowal) No .NEPRA/TRF-92/HUBCO-NAROWAL-2008

ROEDC (Rev)= Revised ROEDC

ROEDC (Ref)= Reference ROEDC

ER (Rev)= The revised TT & OD selling rate of US dollar as notified by the


16. Withholding Tax

16.1 HUBCO-Narowal requested that withholding tax should be allowed at 7.5% or the actual applicable rate on the ROE and ROEDC subject to adjustment in US$/PKR exchange rate variation.

16.2 The Authority considers that the petitioner's request is justified therefore is being accepted. Withholding tax shall be adjusted accordingly on account of exchange rate variation according to the following formula;

WT(Rev> = 0.0359/65.95 * ER(Rev)

Withholding tax revised

The revised TT & OD selling rate of US dollar as notified by the National

Bank of Pakistan

17. Debt Servicing

17.1 The petitioner requested debt service of Rs. 0.9840 per kW per hour on the basis of debt of US$ 172.438 million and interest rate of KIBOR 13.45%.

17.2 Due to adjustment of exchange rate the project cost has been revised. Accordingly the debt amount has also been revised as US$ 191.908 million. Assuming interest rate of 13.45% (3 — month KIBOR i.e. 10.45% + 300 basis points) the debt servicecomponent of Rs. 1.2401 per kW per hour has been assessed subject to adjustment for variation in KIBOR on quarterly basis according to the following formula:

A I = P(REV) * ( M BOR(REV) - 10.45%) / 4

Where:

DI the variation in interest charges applicable corresponding tovariation in quarterly KIBOR. A I can be positive or negative depending upon whether KIBOR (REV) > or < 10.45%. Theinterest payment obligation will be enhanced or reduced to the extent of A I for each quarter under adjustment applicable on quarterly

Page 18 of 36


P(REV) =

18. ENERGY CHARGE

18.1 Fuel Cost

is the outstanding principal (as indicated in the attached debt service schedule to this order) on a quarterly basis on the relevant quarterly calculations date. Period 1 shall commence on the date on which the 1st installment is due after availing the grace period.

18.1.1 The petitioner requested fuel cost of Rs. 4.7811 per kWh on the basis of following reference numbers;

RFO Price: Rs. 25,714.50 per ton (including transportation cost of PKR2,350, subject to adjustment as per actual). GST is notincluded in the RFO Price and shall be pass through to thePower Purchaser at actual

Thermal efficiency 45% (at reference site conditions) at 100% plant load factor.net:Output: 213.60 MW (net at reference site conditions)Heat Rate: 8,000 kJ/kWh at 100% plant capacity factorCalorific Value 40,792 BTU/kg subject to adjustment at the time of

finalization of Fuel Supply Agreement Partial Loading: Heat rate curves from MAN to be used for partial load heat

rate calculation and payment in case the plant load falls below 100%.

18.1.2 This component represents the fuel consumption at a guaranteed efficiency level of 45% at 100% plant load factor over 25 years of life of the project.

18.1.3 In the case of other similar projects, a mechanism for determination of fuel cost component along with adjustment on account of fuel price variation has already been prescribed. In order to maintain consistency the Authority has decided to adopt the same mechanism. For the purpose of calculation of fuel cost component, the following reference values have been used;

RFO Price (HHV) Rs. 22,140 per tonInland Freight Rs. 2,350Total Price RFO (HHV) Rs. 24,490LHV, HHV adjustment factor 1.05RFO Price (LHV) Rs. 25,714.5 per tonCalorific Value 40,792 BTU/Kg

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Page 19 of 36


18.1.4 Based upon the above reference values the fuel cost component in the instant case has been assessed as Rs. 4.7811 per kWh i.e. fuel cost Rs. 4.3223 and freight Rs. 0.4588. The Variable Charge Part of the tariff relating to fuel cost shall be adjusted on account of the fuel price variations according to the mechanism given below:

Fuel Price Variation

The Variable Charge Part of the tariff relating to fuel cost shall be adjusted on account of the fuel price variations according to the mechanism given below:

FC (Rev)

Where:

FC (Rev) =

CV(Rev) =

Ft(Rev)

FP (Rev) =

Description

(Rs.4.3223 per kWh * FP(Rev) )/ Rs.23,247.07 per ton /40,792 *

CV(Rev)+ (Rs.0.4588 per kWh * Ft(Rev) )/Rs.2,467.50 per ton

Revised fuel cost component of Variable Charge on RFO Revised Calorific Value

= Revised Freight Charges adjusted for NHV-GHV factor

The new price of RFO per Metric Ton adjusted for NHV/GHV factor of 1.05 as per the following mechanism;

US$/Ton Rs./Ton

HSFO Arab Gulf Average Price for applicable Fortnight (From Platts Oilgram Report) `


& F Price — A

Crude Handling and Incidental charges (7.282% of C&F Price)**

Sub-Total — B



Selling Price — D



Sub Total — E



Inland Freight



k- ^72, 0

NEPRA _1 AUTHORITY.6_

Page 20 of 36



** Fuel supplier shall provide item wise actual incidental charges prevailing at the time of receiving payment for fuel supply.

18.2 Variable O&M Cost

18.2.1 The petitioner requested the variable O&M cost of Rs. 0.5180 per kWh whichcomprises of:

Local Variable O&M Rs. 0.1036 per kWhForeign Variable O&M Rs. 0.4144 per kWh

Local Variable O&M

18.2.2 Petitioner requested to allow local variable O&M of Rs. 0.1036 per kWh that included the cost of lubricant consumption, which is directly related to the electricity actually generated. The cost of lube oil for the engines will be indexed to the prevailing Pakistan Wholesale Price Index ("WPI") manufacturing as notified by the Pakistan Federal Bureau of Statistics. The petitioner requested for quarterly indexation of Local Variable O&M Cost Component. Subsequently the petitioner, vide its letter No. 04_NEPRA/wmk dated April 10, 2008 submitted calculation of variable O&M cost. The breakup is given as under:

Description Rs. /kWhLube Oil 0.1336Routine Repair & Maintenance & Other Operating Cost 0.0424

Total 0.1760

18.2.3 The petitioner's calculation for lube oil is based on the technical specifications of MAN Diesel (according to which the lube oil consumption at the reference SITE conditions will not exceed 199.5 Kg per hour) and estimated lube oil price of Rs. 145 per Kg. The Authority considers that the petitioner's request for allowing Rs. 0.1336 in this regard is reasonable; therefore decides to allow as such. The Authority further considers that the routine repair and maintenance and other operating cost of Rs. 0.0424 per kWh requested by the petitioner is comparable with the cost allowed to other similar projects therefore decides to allow the same as such. The Authority has accordingly determined overall Variable O&M - local component as Rs.0.1760/kWh to be adjusted according to the following formula:

V O&M(LREV) = Rs. 0.1760 /kWh * WPI (REV) /127.5

Where:

Page 21 of 36


V O&M(LREV) = The revised variable O&M local component of tariff


Note: The reference Variable O&M indicated above shall be replaced with the revised number at COD after incorporating the required adjustment based upon the IDC Test.

Foreign Variable O&M

18.2.4 Petitioner submitted that foreign variable O&M of Rs. 0.4144 per kWh included imported spare parts and consumables to be changed during scheduled maintenance and unscheduled maintenance. It also includes chemicals as well as specialized technical services from the manufacturer during maintenance of the plant. The generating sets and associated equipment have manufacturer-recommended overhauling schedules that are commonly based on actual running hours. The actual timing of the major overhaul depends on the actual plant dispatch. The petitioner supported its request with backup calculations based on the annual scheduled maintenance budgetary costs for one engine indicated by the MAN Diesel. The petitioner also requested to allow the following quarterly indexation on foreign Variable O&M Cost Component of the Energy Purchase Price:

(a) the USD /PKR exchange rate, based on the revised TT & OD selling rate of USDnotified by the National Bank of Pakistan; and

(b) US CPI, as issued by the US Bureau of Labor Statistics.

18.2.5 Based on the information provided by the petitioner, the major overhauling cost for spare parts at exchange rate of Rs. 65.95 per US$ including 5% import duty on spare parts, the Authority has assessed Rs. 0.2369 as against of Rs. 0.3004 estimated by the petitioner. Similarly the variable cost for operator fee has been assessed as Rs. 0.0159 per kWh as against Rs. 0.0250 per kWh worked out by the petitioner.

18.2.6 The Authority considers that the cost of Rs. 0.0166/kWh on account of other chemicals and consumable requested by the petitioner is reasonable therefore decides to allow the same as such.

18.2.7 Having considered all the components of foreign variable O&M, the Authority assessed overall variable O&M foreign component as Rs. 0.2694 per kWh. The foreign variable O&M component will be adjusted according to the following formula:

V O&M(FREV) =Rs. 0. 2694/kWh * US CPI(Rev)/211.08* ER(REv)/65.95

Where:

V O& M (FREV) = the revised applicable Variable O&M Foreign Component ofthe Capacity Charge indexed with US CPI and Exchange Rate variations

NEPRA u" AUTHORITY

\ '.\(1314-/

Determination of Generation Tarifffor Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRIUTRF-92/HUBCO-NAROWAL-2008

US CPI(REv) = the revised US CPI

ER(REV) the Revised TT & OD selling rate of US dollar as notified by the National Bank of Pakistan

Note: The reference Variable O&M indicated above shall be replaced with the revisednumber at COD after incorporating the required adjustment based upon the IDCTest.

19. Timeline/Completion of Project

19.1 As per the documentary evidence timeline of COD by MAN Diesel is indicated as 31stMarch 2010 which is accepted as such.

20. Adjustments at the COD

20.1 The petitioner requested that at COD, the escalable component and the non-escalablecomponents may be adjusted by the inflation factors and reference exchange rates as defined and described herein:

o The non-escalable component may also be adjusted by the then prevailing 3-month KIBOR.

o The final local amount at the COD to be based on actual Euro exchange rates used by the lenders to make payment to the EPC contractors.

o No contingency has been included in the Project costs.

20.2 The Authority considered the request of the petitioner and decided to allow the sameadjustment at COD as allowed in other similar cases based on decisions made in theearlier paragraphs.

21. Summary of the Decisions

21.1 The generation tariff has been assessed on the basis of following;

Plant Capacity (Gross ISO) MW 220.00Plant Capacity (Net at reference site conditions) MW 213.60

Auxiliary consumption (including air-cooled condenser) MW 5.55Plant Availability 88%EPC PriceOffshore € 135.6 Million

EPC PriceOnshore US$ 21.545 MillionNon-EPC US$ 2.298 Million

Staff Housing Colony Cost US$ 1.804 MillionLand Acquisition and Land Improvement US$ 2.654 MillionImport Duties & Taxes US$10.547 MillionProject Development Cost US$ 2.550 Million

Page 23 of 36


Mobilization and Other Costs Start-up Expenses and Utilities Financing FeesInterest During Construction Debt:Equity RatioDebtEquityReference PKR/Euro exchange rate Reference PKR/$ exchange rateReference Calorific Value of HSFO HHV/LHV Adjustment FactorReference Fuel Price (LHV) Reference Inland FreightReference Thermal Efficiency (Net LHV) Reference KIBOR (3-monthly)IRR (Net of withholding tax of 7.5%)


US$ 2.500 Million US$ 0.250 Million US$ 4.332 Million US$14.722 Million 70:30US$ 191.908 Million US$ 82.246 Million102.6065.9540,792 BTUs/Kg1.05Rs.22,140.07/M.Ton Rs. 2,350/M.Ton45%10.45% + 300 basis 15%

Tariff Components Year 1 to 10

Capacity Charge PKR/kW/Hour)O&M Foreign 0.1100O&M Local 0.0325Cost of Working Capital 0.0900Insurance 0.1106Debt Service — Local 1.2401Return on Equity 0.4348

ROE during Construction 0.0437

Total Capacity Charge 2.0618

Energy Charge on Operation onFurnace Oil Rs./kWh 4.7811

Fuel Cost ComponentVariable O&M

ForeignLocal 0.2694

Lube Oil 0.1336Routine R&M 0.0424

Year 11 to 25

0.11000.03250.09000.1106

0.43480.0437

0.8217

4.7811

0.26940.13360.0424

Indexation


KIBORUS$ /PKR


Fuel Price


WPI



21.2 In view of the above the Authority hereby approves the tariff of HUBCO-Narowal as set out in the following order;

ER RE V

Page 24 of 36

Determination of Generation Tariff for Hub Power Company Ltd. (HUBCO-Narowal) No . NEPRA/TRF-92/HUBCO-NAROWA L-2008

ORDER

Pursuant to Rule 6 of the NEPRA Licensing (Generation) Rules 2000, HUB Power Company Limited (HUBCO-Narowal) is allowed to charge, subject to adjustment of Capacity Purchase Price on account of net dependable capacity as determined by a test jointly carried out by Central Power Purchasing Agency (CPPA) and the petitioner, the following is approved as specified tariff for HUBCO-Narowal for delivery of electricity to CPPA of NTDC for procurement on behalf of Ex-WAPDA Distribution Companies:


Tariff Components

Capacity Charge PKR/kW/Hour)O&M Foreign O&M LocalCost of Working Capital InsuranceDebt Service — Local Return on EquityROE during Construction

Total Capacity Charge

Energy Charge on Operation on Furnace Oil Rs./kWh

Fuel Cost Component

Variable O&MForeignLocal

Lube Oil Routine R&M

Year 1 to 10 Year 11 to 25

0.1100 0.1100

0.0325 0.03250.0900 0.0900

0.1106 0.11061.2401

0.4348 0.4348

0.0437 0.0437

2.0618 0.8217

4.7811 4.7811

0.2694 0.26940.1336 0.13360.0424 0.0424

Indexation


KIBORUS$ /PKR


Fuel Price

US$ /PKR & US CPI WPIWPI



The following adjustments /indexations shall be applicable to reference tariff;

I. Adjustment in EPC Cost (One Time)

The Authority has assessed offshore EPC cost as € 135.6 million and onshore as US$ 21.545 million (to be incurred in PKR). Since the exact timing of payment to EPC contractor is not known at this point of time therefore an adjustment for relevant foreign currency fluctuation for the portion of payment in the relevant foreign currency will be made. In this regard the sponsor will be required to provide all the necessary relevant details along with documentary evidence. Based upon such

n.c) -v,,/- o0 73w NEPRAu.i..3 AUTHORITY t

ti Z

Page 25 of 36

Determination of Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal) No . NEPRA/TRF-92/HUBCO-NA RO WA L-2008

information the EPC cost components in Euro or Dollar shall be established and shall be applied to the corresponding EPC cost components. The adjustment shall be only for currency fluctuation against the reference parity values according to the following mechanism;

EPC (Offshore)(Adj )= PKR 13,912,560,000 / 102.60* E(PR)

EPC (Onshore)(Ad, )= PKR 1,420,892,750/ 65.95 * E(PR)

Where:

E(PR) = Respective Weighted Average PKR/EURO and PKR/US$ parity basedupon timing of the payment

The tariff components i.e. Insurance, ROE, ROEDC, Principal Repayment and InterestCharges shall be adjusted according to the following formula at COD.

i) Insurance Adjustment Mechanism for EPC Cost Variation

AIS(Re v) = inS(Re f EPC(Re f) x EPC (Adj.)

Where:

Ins(Rev) = Revised insurance component of tariff

Ins(Ref) = Reference insurance component of tariff

EPC(Ref.) = Reference EPC in PKR.

EPC(Ad).) = Adjusted EPC in PKR

ii) Return on Equity Adjustment Mechanism for EPC Cost Variation

ROE (Rev) = ROE (Ref) / E (Ref) * E(Rev)

Where:

ROE(Rev) = Revised reference Return on Equity component of tariff in PKR

ROE(Ref) = Reference Return on Equity component of tariff as per originalschedule of tariff in PKR

E(Ref = Reference Equity in PKR (Rs. 5,424.13 million)

E(Rev) = Revised amoupt of Equity in PKR

iii) ROEDC Adjustment Mechanism for EPC Cost Variation

ROEDC (Rev) = ROEDC (Ref) / EDC (Ref) * EDC (Rev)

Page 26 of 36


Where:

ROEDC(Rev) Revised Return on Equity during Construction component oftariff in PKR

ROEDC(Rep = Reference Return on Equity During Construction componentsof tariff in PKR

EDC(Reo = Reference Equity During Construction in PKR

EDC(Rev) = Revised Equity During Construction in PKR

iv) Debt Servicing Adjustment Mechanism for EPC Cost Variation

DS (Rev) = DS (Ref) / Debt (Ref)* Debt (Rev)

Note: The adjustment factor established as per the above formula shall be applicable to the individual components of principal and interest during the entire repayment period.

DS (Rev) Revised Debt Servicing component of tariff

DS (Ref) Reference Debt Servicing component of tariff

Debt(Ref ) Reference amount of Debt in PKR (Rs. 12,656.31 million)

Debt(Rev.) Revised amount of Debt in PKR

II. Adjustment due to Variation in Net Capacity

The reference tariff has been determined on the basis of minimum net capacity of 213.60 MW at delivery point at mean site conditions. All the tariff components except fuel cost component shall be adjusted at the time of COD based upon the Initial Dependable Capacity (IDC) tests to be carried out for determination of contracted capacity. Adjustment shall not be made if IDC is established less than 213.60 MW net capacity at reference site conditions. The adjustments shall be made according to the following formula:


Where;

CC(Ad)) = Adjusted relevant Capacity Charge components of tariff

CC(Ref) = Reference relevant Capacity Charge components of tariff

V

Page 27 of 36


NCapc) = Net Capacity at reference site conditions established at the time ofIDC test


Reference Conditions:

• Ambient Air Temperature 30 °C• Ambient Air Pressure 989 mbar• Relative Humidity 61%• Charge Air temperature before cylinder 47 °C

III. Adjustment in Insurance as per actual

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 pass-through. Insurance component of reference tariff shall be adjusted as per actual on yearly basis upon production of authentic documentary evidence by HUBCO-Narowal according to the following formula;

Insurance (Rev) = AIC / (1.35 % x US$3.138 million) * AP

Where;

AIC = Adjusted Insurance Component (Rs. kW/hr) as per IDC Test

AP = Actual Premium subject to maximum of 1.35% of the adjusted EPC

N. Adjustment Based on Actual Interest During Construction

Debt Service, Return on Equity and ROE during construction shall be adjusted on account of actual variation in drawdown and Interest During Construction with reference to the estimated figures.

V. Adjustment due to Custom Duties & Taxes

Debt Service, Return on Equity and ROE during construction shall be adjusted on account of actual variation in custom duties & Taxes with reference to the estimated figures of US$ 10.547 million. The impact of withholding tax on local services is not known at this point of time. However, these will be adjusted along with other duties and taxes as per the actual on provision of documentary evidence at COD.

VI. Adjustment for variation in Rupee/Dollar parity

Relevant reference tariff components shall be adjusted at COD on account of variation in PKR/US$ parity.

Ct.

C.,Ill—1U.1

...A

NtIER RE

0

N EP R A 1>

AUTHORITY C--I

4i Page 28 of 36

Determination of Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal) No . NEPRA/TRF-92/HUBCO-NA ROWA L-2008

VII. Adjustment in Return on Equity (ROE)

Return on Equity will be quarterly adjusted on account of variation in PKR/US$ parity according to the following formula:

ROE(Rev)=ROE(Reo * ER(Rev)/ 65.95

Where;

ROE (Rev)= Revised ROE

ROE (Ref)= Reference ROE

ER (Rev)= The revised TT & OD selling rate of US dollar as notified by the National

Bank of Pakistan

VIII. Adjustment in Return on Equity during Construction (ROEDC)

Return on Equity during Construction will be quarterly adjusted on account of variation in PKR/US$ parity according to the following formula:


Where;

ROEDC (Rev) = Revised ROEDC

ROEDC (Ret) = Reference ROEDC

ER (Rev) = The revised TT & OD selling rate of US dollar as notified by the


IX. Adjustment of Withholding Tax

Withholding tax will be adjusted on account of exchange rate variation according to the following formula:

WT (Rev) = W T(Ref) * ER (Rev)/65.95

Where;

WT (Rev) = Withholding tax revised

WT (Ref) = Reference Withholding tax

ER(Rev) = The revised IT&OD selling rate of US dollar as notified by the National Bank of Pakistan

X. 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

Page 29 of 36

Determination of Generation Tarifffor Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NAROWA L-2008

accounted for in the tariff. If HUBCO-Narowal 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 may be considered as pass-through (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, HUBCO-Narowal may also submit to CPPA details of any tax shield savings and CPPA will deduct the amount of these savings from its payment to HUBCO-Narowal 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 (NTDC) shall make payment on account of withholding tax at the time of actual payment of dividend subject to maximum of 7.5% of 15% reference equity i.e. hourly payment (Rs./kW/hour) spread over a 12 month period according to the following formula:

Withholding Tax Payable = R15% * (E(Ref) — E(Red)} +ROEDC(Reo] * 7.5%

Where:

E(Ref) = Adjusted Reference Equity at CODE(Red) = Equity RedeemedROEDC(Reo= 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 pay out.

XI. Indexations:

The following indexation shall be applicable to the reference tariff as follows;

a) Indexation applicable to O&M

The Fixed O&M local component of Capacity Charge will be adjusted on account of Inflation (WPI) and Fixed O&M foreign component on account of variation in US CPI and dollar/Rupee exchange rate. Quarterly adjustment for local inflation, foreign inflation and exchange rate variation will be made on 1st July, 1st October, 1st January and 1St April based on the latest available information with respect to WPI notified by the Federal Bureau of Statistics (FBS), US CPI issued by US Bureau of Labor Statistics

9./

Page 30 of 36

Determination of Generation Tariff for Hub Power Company Ltd. (HUBCO-Narowal) No .NEPRA/TRF-92/HUBCO-NA ROWA L-2008

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. 0.0325/kW/Hour * WPI (REV) /127.5

F O&M(FREV) = Rs. 0.1100/kW/Hour * US CPI(REV)/ 211.08* ER(REv)/65.95

Where:

F O&M(LREv) = the revised applicable Fixed O&M Local Component of theCapacity Charge indexed with WPI

F O&M(FREv) = the revised applicable Fixed O&M Foreign Component of theCapacity Charge indexed with US CPI (All Urban) andExchange Rate variations


US CPI(REV) the revised US CPI (All Urban)


Note: The reference numbers indicated above shall be replaced by the revised numbers after incorporating the required adjustments at COD.

ii) Variable O&M

The formula for indexation of variable O&M component will be as under:

V O&M(LREV) =

V O& M (FREV)

Where:

V O&M(LREv) =

V O&M(wREv) =

V O&M(FREv) =

WPI(REV) =

US CPI(REV) =

NNER

Rs. 0.1760 /kWh * WPI (REV) /127.5

Rs. 0. 2694/kWh * US CPI(REV)/ 211.08* ER(REv)/65.95

the revised price of lubricants Variable O&M Local Component of the Capacity Charge indexed with WPIthe revised water treatment Variable O&M Local Component of the Capacity Charge indexed with WPI

the revised applicable Variable O&M Foreign Component of the Capacity Charge indexed with US CPI and Exchange Rate variations

the revised wholesale Price Index (manufactures) the

revised US CPI

V

Page 31 of 36


ER(REV) the Revised TT & OD selling rate of US dollar as notified by

the National Bank of Pakistan

Note: The reference Variable O&M indicated above shall be replaced with the revised

number at COD after incorporating the required adjustment based upon the IDC Test.

iii) Adjustment for KIBOR variation

The interest part of fixed charge component will rema in 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;

A I(L) = P(LREV) * (KIBOR(REV) 10.45%) / 4

Where:

A 4) = the variation in interest charges on local loan applicablecorresponding to variation in quarterly KIBOR. A I can be

positive or negative depending upon whether KIBOR(REv) > or < 9.75%. The interest payment obligation will

be enhanced or reduced to the extent of A I for each quarter under

adjustment applicable on quarterly basis

P(REV) = is the outstanding principal (as indicated in the attached debtservice schedule to this order) on a quarterly basis on the

relevant quarterly calculations date. Period 1 shall commence on the date on which the lst installment is due after

availing the grace period.

iv) Fuel Price Variation

The Variable Charge Part of the tariff relating to fuel cost shall be adjusted on account of the

fuel price variations according to the mechanism given below:

FC (Rev) = (Rs.4.3223 per kWh * FP(Rev) )/ Rs.23,247.07 per ton/40,792 * CV(Rev)+

(Rs.0.4588 per kWh * Ft(Rev)) /Rs. 2,467.50 per ton

Where:

FC (Rev) =Revised fuel cost component of Variable Charge on RFO.

CV(Rev) =Revised Calorific Value

Ft(Rev) =Revised Freight Charges adjusted for NHV-GHV factor

FP (Rev) = The new price of RFO per Metric Ton adjusted for

NHV/GHV factor of 1.05 as per the following mechanism;

BIER Vi. -5,7,,c., 0fir....11.11

..-%

NEPRAAUTHORITY

73-<3"c

-2,Page 32 of 36

*

Determination of Generation Tarifff or Hub Power Company Ltd. (HUBCO-Narowal) No ,NEPRA/TRF-92/HUBCO-NAROWA L-2008

Description US$/Ton Rs./Ton

HSFO Arab Gulf Average Price for applicable Fortnight (From Platts Oilgram Report) *


& F Price — A

Crude Handling and Incidental charges (7.282% of C&F Price)**

Sub-Total — B



Selling Price — D



Sub Total — E



Inland Freight




** Fuel supplier shall provide item wise actual incidental charges prevailing at the time of receiving payment for fuel supply.

The fuel cost component will be adjusted after the commercial operation date, at the time of revision in RFO price.

Adjustment on account of local inflation, foreign inflation, foreign exchange rate variation, KIBOR variation and fuel price variation will be approved and announced by the Authority for immediate application within seven working days after receipt of HUBCO-Narowal request for adjustment in accordance with the requisite indexation mechanism stipulated herein.

\11 ER

42-

NEPRA

S.AUTHORITY

Page 33 of 36


For one time adjustment of relevant tariff components at COD according to the mechanism laid down in this order, HUBCO-Narowal shall submit the relevant documents to NEPRA within 30 days of COD for adjustment.

XII. Terms and Conditions of Tariff:

i) Capacity Charge Rs./kW/hour applicable to dependable capacity at the delivery point.

ii) The tariff is applicable for a period of 25 years commencing from the dateof the Commercial Operation.

iii) The plant availability shall be 88%.iv) All new equipment will be installed and the plant will be of standard

configuration.v) Dispatch criterion will be based on the Energy Charge.vi) Internal consumption (including air-cooled condenser) has been assumed

to be approximately 5.55 MW.vii) Scheduled Outage periods per annum shall be in accordance with the 2006

standardized PPA.viii) NTDC will be responsible for constructing the interconnection to the grid.ix) All invoicing and payment terms are assumed to be in accordance with the

2006 standardized PPA.x) Tolerance in Dispatch shall be in accordance with 2006 standardized PPA.xi) If there is any change in any assumption that may lead to change in the

tariff shall be referred to NEPRA for approval. xii) If IPP is required by the power purchaser to deliver power above 132 kV,

any additional cost to be incurred by the IPP shall be submitted to NEPRA for adjustment. The adjustment request by the IPP shall be duly verified by the power purchaser.

xiii) 100% of debt has been assumed to be local provided however that in the event HUBCO-Narowal uses a mix of foreign and local loan, the future benefits of the lower interest rates shall be passed on to the Power Purchaser.

xiv) No corporate income tax and no minimum turnover tax have been assumed.

xv) Working capital has been financed by a separate Working Capital facility, and is not included in the project cost.

The above tariff and terms and conditions be incorporated in the Power Purchase Agreement between HUBCO-Narowal and CPPA.

NEPRA AUTHORITY

Page 34 of 36

Annex-I

Hub Power Company Limited (HUBCO-Narowal) Reference Tariff Table

Capacity

Energy Charge (Rs./kWh)

YearVariable Variable

Fuel O&M O&M TotalForeign Local

1 4.7811 0.2694 0.1760 5.2265

2 4.7811 0.2694 0.1760 5.2265

3 4.7811 0.2694 0.1760 5.2265

4 4.7811 0.2694 0.1760 5.2265

5 4.7811 0.2694 0.1760 5.2265

6 4.7811 0.2694 0.1760 5.2265

7 4.7811 0.2694 0.1760 5.2265

8 4.7811 0.2694 0.1760 5.2265

9 4.7811 0.2694 0.1760 5.2265

10 4.7811 0.2694 0.1760 5.2265

11 4.7811 0.2694 0.1760 5.2265

12 4.7811 0.2694 0.1760 5.2265

13 4.7811 0.2694 0.1760 5.2265

14 4.7811 0.2694 0.1760 5.2265

15 4.7811 0.2694 0.1760 5.2265

16 4.7811 0.2694 0.1760 5.2265

17 4.7811 0.2694 0.1760 5.2265

18 4.7811 0.2694 0.1760 5.2265

19 4.7811 0.2694 0.1760 5.2265

20 4.7811 0.2694 0.1760 5.2265

21 4.7811 0.2694 0.1760 5.2265

22 4.7811 0.2694 0.1760 5.2265

23 4.7811 0.2694 0.1760 5.2265

24 4.7811 0.2694 0.1760 5.2265

25 4.7811 0.2694 0.1760 5.2265

Levelized Tariff 0.2694 0.1760 5.2265

Capacity Charge (Rs./kW/Hour)

Fixed Fixed Cost ofO&M O&M Working Insurance ROE ROEDCLocal Foreign Capital0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1 100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

0.0325 0.1100 0.0900 0.1106 0.4348 0.0437

Withhol-Loan Interest

ding TaxRepayment Charges

@7.5%0.0359 0.3473 0.8927

0.0359 0.3965 0.8436

0.0359 0.4526 0.7875

0.0359 0.5166 0.7235

0.0359 0.5896 0.6504

0.0359 0.6730 0.5670

0.0359 0.7682 0.4719

0.0359 0.8769 0.3632

0.0359 1.0009 0.2392

0.0359 1.1424 0.0976

0.0359 - -

0.0359 -

0.0359 -

0.0359

0.0359 - -

0.0359

0.0359 -

0.0359 -

0.0359 -

0.0359 -

0.0359

0.0359 -

0.0359

0.0359

0.0359

0.0359 0.4132 0.4263

*ER R6-

NEPRAAUTHORITY

1.2401

Total

2.0977

2.0977

2.0977

2.0977

2.0977

2.0977

2.0977

2.0977

2.0977

2.0977

0.8576

0.8576

0.8576

0.8576

0.8576

0.8576

0.8576

0.8576

0.8576

0.8576

0.8576

0.8576

0.8576

0.8576

0.8576

1.6970

Chargeat 60% PF

Rs. perkWh

3.4961

3.4961

3.4961

3.4961

3.4961

3.4961

3.4961

3.4961

3.4961

3.4961

1.4293

1.4293

1.4293

1.4293

1.4293

1.4293

1.4293

1.4293

1.4293

1.4293

1.4293

1.4293

1.4293

1.4293

1.4293

2.8284

Tariff

Rs. per0 per kWh

kWh

8.7226 13.8143

8.7226 13.8143

8.7226 13.8143

8.7226 13.8143

8.7226 13.8143

8.7226 13.8143

8.7226 13.8143

8.7226 13.8143

8.7226 13.8143

8.7226 13.8143

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

6.6558 10.6805

8.0549 12.8019

Page 35 4-56

ANNEX - II

Hub Power Company Limited (HUBCO) Debt Servicing Schedule

Local Debt

Period Principal Repayment Mark-up

Million Rs. Million Rs. Million Rs.

12,656.31 $154.51 425.5712,501.80 159.71 420.3712,342.09 165.08 415.0012,177.00 170.63 409.45

1 12,656.31 649.94 1,670.4012,006.37 176.37 403.7111,830.00 182.30 397.7811,647.70 188.43 391.6511,459.28 194.77 385.32

2 12,006.37 741.86 1,578.4711,264.51 201.31 378.7711,063.20 208.08 372.0010,855.11 215.08 365.0010,640.03 222.31 357.77

3 11,264.51 846.79 1,473.5410,417.72 229.79 350.3010,187.93 237.51 342.579,950.42 245.50 334.589,704.92 253.76 326.33

4 10,417.72 966.56 1,353.789,451.16 262.29 317.809,188.88 271.11 308.988,917.77 280.22 299.868,637.55 289.65 290.44

5 9,451.16 1,103.26 1,217.078,347.90 299.39 280.708,048.51 309.45 270.637,739.06 319.86 260.237,419.21 330.61 249.47

6 8,347.90 1,259.31 1,061.037,088.59 341.73 238.356,746.86 353.22 226.866,393.64 365.10 214.996,028.55 377.37 202.71

7 7,088.59 1,437.42 882.915,651.17 390.06 190.025,261.11 403.18 176.904,857.93 416.74 163.354,441.20 430.75 149.34

8 5,651.17 1,640.72 679.614,010.45 445.23 134.853,565.22 460.20 119.883,105.01 475.68 104.412,629.34 491.67 88.41

9 4,010.45 1,872.78 447.552,137.67 508.20 71.881,629.46 525.29 54.791,104.17 542.96 37.13

561.21 561.21 18.8710 2,137.67 2,137.67 182.67

(.)

Balance Debt Service

Million Rs. Millin Rs.

12,501.80 $580.0812,342.09 580.0812,177.00 580.0812,006.37 580.0812,006.37 2,320.3311,830.00 580.0811,647.70 580.0811,459.28 580.0811,264.51 580.0811,264.51 2,320.3311,063.20 580.0810,855.11 580.0810,640.03 580.0810,417.72 580.0810,417.72 2,320.3310,187.93 580.089,950.42 580.089,704.92 580.089,451.16 580.089,451.16 2,320.339,188.88 580.088,917.77 580.088,637.55 580.088,347.90 580.088,347.90 2,320.338,048.51 580.087,739.06 580.087,419.21 580.087,088.59 580.08

7,088.59 2,320.336,746.86 580.086,393.64 580.086,028.55 580.085,651.17 580.085,651.17 2,320.335,261.11 580.084,857.93 580.084,441.20 580.084,010.45 580.084,010.45 2,320.333,565.22 580.083,105.01 580.082,629.34 580.082,137.67 580.082,137.67 2,320.331,629.46 580.081,104.17 580.08

561.21 580.080.00 580.080.00 2,320.33

0

AnnualPrincipal

Repayment Rs./kW/ hr.

0.3473

0.3965

0.4526

0.5166

0.5896

0.6730

0.7682

0.8769

1.0009

1.1424

Annual Annual DebtInterest Servicing

Rs./kW/ hr. Rs./kW/ hr.

0.8927 1.2401

0.8436 1.2401

0.7875 1.2401

0.7235 1.2401

0.6504 1.2401

0.5670 1.2401

0.4719 1.2401

0.3632 1.2401

0.2392 1.2401

0.0976 1.2401

NEPRAUJ

AlJTHORITY

Pn (le -66 of 36

trf-92 determination of tariff for hubco-dated 23-05-2008

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