LAHORE: The Lucky Electric Power Company has served the Central Power Purchasing Agency (CPPA) a notice, initiating dispute resolution procedures under its Power Purchase Agreement (PPA), as its 660 megawatt coal-fired plant faces a delay in commercial operations owing to the failure of the National Transmission & Despatch Company (NTDC) to timely build the interconnection facility to connect the plant with the national grid.

In its notice, the Lucky Electric has also challenged the CPPA claim that the completion of the interconnection facility is delayed on account of the Coronavirus outbreak in the country. The facility should have been ready by Nov 1, or four months prior to the scheduled Commercial Operation Date (COD) of the power plant on March 1 next year, under the agreement between CPPA and the power company.

In order to cover the delay in the project, CPPA has invoked the Force Majeure Event (FME) clauses of the PPA because of the Covid-19 outbreak to declare the period from March 27 to Sept 30 as ‘Excused Period’ and sought an extension in time for completing the facility.

The Lucky Electric has, however, contested that invocation of FME, insisting that the facility is delayed as a result of CPPA/NTDC’s inability to resolve the ‘Right of Way’ issues with FOTCO, Pakistan Steel Mills, Port Qasim and the Sindh government “in whose geographical jurisdiction the interconnection works need to be carried out”.

“Thus, the conditions of the PPA for invoking FME (Covid-19) are not met specifically as a consequence of the concurrent delay to acquire the Right of Way before the reported occurrence of the claimed FME,” a Lucky Electric executive told Dawn on Thursday. Additionally, the power firm thinks that the government intends to defer its capacity payment obligation of nearly Rs2.5bn/month by delaying the COD of its plant.

The invocation of FME is feared by the executive to defer the plant’s commercial operations by at least three months to June. “CPPA has also ignored our repeated requests for FME details as per the PPA, which reflects the Agency’s non-serious demeanour.”

As per the PPA, the Arbitrator will be appointed in accordance with the rules of the London Court of International Arbitration. If the dispute is not resolved through the expert mediation it will be decided through arbitration in London since the disputed amount is in excess of $10m. The disputes involving less than that amount can be arbitrated in Lahore.

The company could potentially become entitled to a damage claim of around Rs2bn a month if it wins the dispute, a point being cited by PPIB, CPPA and NTDC in their communication for expediting the interconnection works and resolving the Right of Way issues. If the dispute is decided in favour of CPPA, the period from March 27 to Sept 30 will be considered as ‘Excused Period’.

In either case, the Bin Qasim plant – the first power project that will use local coal after completion of the mine expansion in Thar in spite of being located away from the mine – will not be able to feed power into the national grid as the interconnection facility is necessary for evacuation of electricity from the plant.

“The sad part is that the national grid will not be able to take advantage of cheaper coal power and the dispute will negatively impact the government’s image besides hurting its efforts to reduce the energy basket price to reduce the cost of doing business and stop increase in the Rs2.3tr power-sector circular debt,” the executive concluded.

The Lucky Electric claims that its plant will be among top five power projects on the NTDC’s merit order list with energy cost of below Rs5 per unit, generating yearly savings of over Rs36bn. Further, coal-operated plant would reduce reliance on the furnace oil-fired plants. Coal has a current share of 21pc in the country’s electricity generation mix and is the cheapest source of electricity from hydel.

Published in Dawn, November 20th, 2020