ISLAMABAD: With the approval of the federal cabinet, the government has notified the constitution of a new committee led by a former senior bureaucrat, Babar Yaqoob Fateh Mohammad, for negotiations with independent power producers (IPPs) for settlement of alleged Rs5 trillion overpayments and tariff reduction.
With this notification, a technical committee led by Special Assistant to the Prime Minister on Minerals and Marketing Shahzad Qasim on the same issue stands dissolved.
Mr Yaqoob, who retired as federal secretary last year, is currently working as chairman of the Federal Land Commission. He has been authorised under the notification to appoint a secretary of his choice to the negotiation committee.
The committee includes former chairman of the Securities and Exchange Commission of Pakistan Mohammad Ali, who as head of an investigation team had prepared a report on about Rs5tr overpayment to the IPPs through wrongful means. Two other members of the committee are Barrister Qasim Wadood, a lawyer from Khyber Pakhtun-khwa, and a joint secretary of the Power Division yet to be nominated.
According to Power Secretary Irfan Ali, the Cabinet Committee on Energy (CCOE) led by Planning Minister Asad Umar had constituted on April 2 a committee led by Minister for Power Omar Ayub Khan. The committee was mandated to negotiate with IPPs on the heat rate test, currency indexation for local investors, lengthening debt term, operation and maintenance costs and return on equity. The main committee included the SAPM on Coordination of Marketing and Development of Mineral Resources Shahzad Qasim and the secretaries of finance, power and law and justice divisions. The main committee also constituted a technical sub-committee under the chairmanship of Mr Qasim.
In the meantime, a report on the power sector with a future road map was submitted by the committee for power sector audit, circular debt resolution led by Mr Ali.
Based on this report, the CCOE decided on April 20 that “the recommendations of the Mohammad Ali Report relating to commercial and policy aspects be referred to the Technical Committee on IPPs, already working under the SAPM on Minerals”. However, the minister for power decided to constitute a sub-committee for negotiations with IPPs which also includes Mr Ali.
Under the notification, the negotiation committee is required to engage with various IPPs to negotiate on the amounts, rationale and mechanism of excess payments of the past under specific heads as well as due to systemic oversights highlighted in the report, reduction of interest rates and payments on debt and other components, extension of debt tenor, etc., and agree on changes required to ensure avoidance of these payments in the future.
The notification also makes it clear that excess payments were not restricted to the ones highlighted in the report and the negotiation committee might look into the excess payments which might not have been covered in the report.
The committee will also negotiate on a clawback mechanism for sharing efficiency and other gains and savings in the future between power purchasers and IPPs. These may be subject to verification of various costs, implementation of cost accounting order, heat rate tests, audit, etc. as the committee deems fit.
It will also negotiate with IPPs the change of rate and formula of their profits, return on investment and internal rate of return from dollar to rupee basis without any dollar indexation. The committee will also negotiate with IPPs on modalities and mechanisms for shifting from take or pay contract terms to take and pay contract terms besides redefining with IPPs any other terms, conditions, payments, etc.
The negotiation panel will coordinate with the petroleum division, Nepra, Central Power Purchasing Agency, National Transmission and Despatch Company, Power Holding Limited, Private Power and Infrastructure Board and Alternate Energy Development Board for any actions that may help these organisations in achieving the objectives.
The committee would document the understanding reached with various IPPs towards achieving the objectives of these terms of reference.
Published in Dawn, June 7th, 2020