Wind power producers agree to increase plant terms by five years

Updated 15 Aug 2020

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MOU says the WPPs have, in the larger national interest, voluntarily agreed to provide certain concessions on prospective basis. — Reuters/File
MOU says the WPPs have, in the larger national interest, voluntarily agreed to provide certain concessions on prospective basis. — Reuters/File

ISLAMABAD: The government and wind power producers (WPPs) on Friday formally signed a memorandum of understanding (MOU) to increase term of plants by five years against certain relief in key items of the tariff.

The MOU was signed by Babar Yaqoob Fateh Muhammad, who leads the government’s negotiation committee and Rumman Arshad Dar, chairman Pakistan Wind Energy Association — representing more than 24 WPPs.

Under the MOU, the two sides “have agreed to alter their existing contractual arrangements to the extent of, and strictly with respect to, the matters listed under the MOU”, reads the signed agreement seen by Dawn.

For some conditions to materialise, the government would have to change the Alternative & Renewable Energy Policy (AREP) 2020 approved earlier this month by the Council of Common Interests. Meanwhile, some other conditions are also subject to uncertainties.

The MoU terms are subject to an approval from the Federal Cabinet, the National Electric Power Regulatory Autho­rity (Nepra) and WPP’s board of directors, shareholders, lenders and others. The MOU is valid for six months with effect from August 14 and shall stand terminated on signing of the detailed agreements.

The MOU says the WPPs have, in the larger national interest, voluntarily agreed to provide certain concessions on prospective basis. They will coordinate with their lenders and make all efforts to extend the debt-tenor by five years, reduce the spread over Libor by 50-75 basis points and reduce the spread over Kibor by 100-125bps. Entire benefit from these changes shall be passed on to the power purchaser — the National Transmission & Dispatch Company (NTDC).

The government shall support the WPPs in replacing their current Kibor-based long-term domestic debt with the State Bank of Pakistan’s refinancing facility for renewable projects.

The WPPs shall coordinate with their operations and maintenance (O&M) operators and make all efforts to reduce their O&M costs by 20-25 per cent. They would also reduce their insurance during operations from existing arrangement to actual, subject to a cap of 0.7pc of engineering, procurement and construction cost approved under the respective tariff.

For WPPs developed under the upfront tariff regime of 2015, tariff sharing will remain the same for net annual plant capacity factor (NAPF) till the NAPF approved in the respective lenders’ technical advisor report (P90 level). For NAPF above the P90 level, the tariff shall be reduced to 50pc for the WPP.

In future, the return on equity (RoE) including RoE during construction shall be reduced to 13pc per annum. The miscalculation of internal rate of return, on account of periodicity of payments, has been addressed through this reduction in return component.

The committee shall recommend the government to explore the possibility of allowing the existing WPPs to develop hybrid wind-solar projects at the existing wind farm sites. For this, the AREP 2020 would have to be amended and hence may remain a wish.

The government committee acknowledged that getting relief from lenders and the O&M operator will require support from the government which shall be provided to the WPPs.

For WPPs where delayed payment rate (DPR) is set at Kibor plus 4.5pc in their existing contractual arrangements, the DPR in all future invoices shall be reduced to Kibor plus 2pc for the first 60 days after the due date, and thereafter at Kibor plus 4.5pc

Furthermore, for all invoices the NTDC would ensure that payments including the DPR invoices follow the first in first out payment principle under the Energy Purchase Agreement.

The parties also acknowledged that curtailment and payment of the receivables of the WPPs are integral consideration of the MOU. The mechanism for cessation or compensation of curtailment shall be devised by the WPPs, NTDC and the government collectively whereas the mechanism for outstanding receivables shall be devised by the NTDC and government, each of which shall be reflected in the final agreements with each WPP. The NTDC and government would have to ensure adherence to its contractual obligations.

The parties also agreed that nothing contained in the signed MoU shall be deemed or be construed as an admission liability, wrong doing or improper action on the part of the WPPs.

Once Nepra, Federal Cabinet and WPPs Board of Directors, shareholders and lenders approve the terms of the MoU, the parties shall agree and document details and procedures of these understandings preferably within 30 days, after which the same shall be submitted to Nepra and the Central Power Purchasing Agreement (G), to be followed by legal documentation to reflect the amendments needed in the tariff and relevant agreements.

Published in Dawn, August 15th, 2020