Finance ministry to clear IPPs dues in two tranches

Published February 3, 2021
The deal bet­ween the government and Ind­ependent Power Producers (IPPs) has entered the implementation phase after the finance ministry agreed to clear about Rs400 billion dues in two instalments. — AFP/File
The deal bet­ween the government and Ind­ependent Power Producers (IPPs) has entered the implementation phase after the finance ministry agreed to clear about Rs400 billion dues in two instalments. — AFP/File

ISLAMABAD: The deal bet­ween the government and Ind­ependent Power Producers (IPPs) has entered the implementation phase after the finance ministry agreed to clear about Rs400 billion dues in two instalments of 40 per cent and 60pc within six months.

At the time of filing of this rep­ort, the power division of energy ministry was finalising a summary that could be placed before the Economic Coordination Com­m­ittee (ECC) of the cabinet for formal approval on Wednesday, as otherwise a special ECC meeting would have to be convened within a couple of days, a senior government official told Dawn on Tuesday.

In any case, he said, the agreements had to be cleared by the ECC before the next cabinet meeting so that all legal formalities were completed by February 12, the expiry date of memorandums of understanding (MoUs) signed by the IPPs and the government’s negotiation committee. The government claims a total of about Rs836bn saving over up to 20 years remaining life of IPPs.

Under the deal, the government would pay 40pc of dues soon after the signing of formal agreements for amendments to original power purchase agreements (PPAs). Of this 40pc, one-third would be paid in cash, one-third in Pakistan Investment Bonds (PIBs) and one-third in five-year Islamic Sukuk.

Power division to place summary before ECC today for approval

The PIBs involve rate of return on the basis of prevailing 10-year treasury bills plus 70 basis points while five-year Sukuk would entail a return of TBills minus 10 basis points. The structure has been designed in consultation with the banking sector to allow an equal exposure to conventional and Islamic banks.

A similar structure would be applied for the next tranche of 60pc i.e. one-third in cash and remaining two-third in PIBs and Sukuk on a 50:50 basis. All these would be paid within six months after the payment of the first tranche, but in that case both PIBs and Sukuk would be for 10 years.

The official said ‘almost all’ the IPPs, including Hub Power Company (Hubco) and Kot Addu Power Company (Kapco), were on board for the final settlement except eight wind power plants and the four IPPs commonly called Mansha Group that had been blamed for securing ‘excess payments’ in the past. This group of four has now agreed to have a three-member local arbitration comprising one retired judge of the Supreme Court to be nominated by either side who would then jointly choose a third member either an independent expert or a leading jurist.

The arbitration commission would settle within five months the dispute over Rs55bn alleged ‘excess payments’ to the four IPPs. The decision of this arbitration would be binding on both sides without any recourse to local litigation or international arbitration. This is being considered a major breakthrough by the government, as the Mansha group IPPs had strongly opposed adjudication by Nepra and instead wanted the settlement through international arbitration. Nepra had earlier taken suo motu notice of these excess payments but the IPPs had secured stay order from the Islamabad High Court.

The issues with eight wind power projects could not be finalised owing to their load curtailment issues with the national grid and distribution companies and dispute over sharing of operations and maintenance costs.

Meanwhile, Hubco reported to the stock exchange that it had reached an agreement with the government. Besides the payment schedule, Hubco reported that in the larger national interest and sectoral sustainability, the two sides “have agreed to reduce the existing fixed operating costs element by 11pc whilst keeping the existing arrangement of indexations”.

At the same time, the two sides have agreed to discontinue the dollar exchange rate and US CPI (inflation) indexation on the project company equity and fix it on National Bank of Pakistan’s TT/OD selling exchange rate prevailing on August 21, 2020 till the current exchange rate (at Rs160 per dollar) reached Rs168.60 per dollar; the existing arrangement under PPA for the current half year shall apply for future billing.

Hubco said the two sides also agreed to engage without delay in negotiations on pre-mature termination of the PPA that is valid until 2027 against a compensation for early retirement while certain outstanding disputes shall be resolved through arbitration under the PPA. Hubco will convert its two of the four units to coal and supply relatively cheaper power to K-Electric under separate terms and conditions.

Published in Dawn, February 3rd, 2021

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