LAHORE: The federal government suffered a setback when the London Court of International Arbitration (LCIA) rejected its request to halt arbitration proceedings initiated on the request of independent power producers (IPPs) for the recovery of their unpaid capacity payments of Rs16 billion, including interest costs amounting to Rs5 billion.

The National Transmission and Despatch Company (NTDC) had approached the international arbitrator in November last year to request it to pause the arbitration proceedings, pleading that a local civil court in Pakistan had already stayed the matter on a petition filed by the Ministry of Water and Power.

The ministry had moved the court after a local arbitrator, Sair Ali, a former Supreme Court judge, ruled in favour of the affected power producers in the NTDC’s dispute on capacity payments with them in August last year.

In its ruling, the LCIA not only rejected the NTDC’s request to stay the arbitration proceedings, but also ordered the power purchaser to withdraw its application before a court in Lahore. The arbitrator also told the NTDC not to take any step in future to disrupt the arbitration proceedings.

NTDC had approached international arbitrator in November last year

The capacity charges of nine independent power producers are being withheld by the government since June 2013 on the pretext that the affected power producers did not “run their plants on full load” as per their agreements with the NTDC during the period for which they had claimed the payments, the chief executive officer (CEO) of an IPP told Dawn here on Tuesday.

The independent power producers (IPPs) argue that they were unable to run their plants on full load because the government had defaulted on its payments, which had created a liquidity crunch for them and prevented optimal production of electricity as they could not procure fuel.

The delay in payment of capacity charges had forced the power producers to file a petition with the apex court, which was later withdrawn after the government offered them to resolve the dispute through local arbitration.

The local arbitrator had ordered the government to reimburse the actual capacity payments of Rs11 billion. But instead of implementing the decision, the government decided to challenge the local arbitrator’s ruling, forcing the affected power producers to approach the international arbitrator.

Requesting anonymity, the chief executive officer claimed the power purchase agreement between producers and purchaser allowed the latter to approach the international arbitrator in case of an adverse ruling in the local arbitration only after payment of the unpaid dues.

“But instead of availing this option, the government decided to obtain a court stay against the decision of the local arbitrator because it knew that it had little chance of winning in international arbitration,” he said.

He added that the nine power producers had no choice but to invoke international arbitration because of unwillingness of the government to pay their dues.

Published in Dawn, July 20th, 2016