ISLAMABAD : The government and Independent Power Producers (IPPs) established under Power Policy 2002 have reportedly signed Memorandum of Understanding (MoU), which will pave the way for recovery of "excess" payments of billions of rupees made to IPPs.
The 11-point MoU has been finalized by a committee comprising Chairman Federal Land Commission, Babar Yaqoob Fateh Muhammad, an officer of Power Division not below a Joint Secretary, Muhammad Ali, former Chairman, Securities and Exchange Commission of Pakistan, Barrister Qasim Wadood and a senior officer of Inter Services Intelligence (ISI).
However, pacts with power projects established under the Generation Policy, 1994 and RLNG and coal fired power plants set up under Power Generation, 2015 are yet to be signed.
According to the draft MoU, the committee for negotiations with IPPs notified by the Government of Pakistan and the IPPs representing the 2002 Power Policy projects had several rounds of negotiations to arrive at the following mutually agreed changes in their existing contractual relationship: (i) for oil fired projects, any savings in fuel will be shared on a sliding scale starting from 70:30 in favor of the Power Purchaser for the first 0.5% efficiency improvement above currently NEPRA determined benchmark efficiency, followed by 60:40 for next 0.5%, followed by 50:50% for next 0.5%, and finally 40:60 for any efficiency above that. Power purchaser will not share in any efficiency losses;(ii) for oil fired projects, any savings in O&M will be shared 50:50 after accounting for any reserves created, or to be created, for major overhauling, to be reviewed by power purchaser or NEPRA as mutually agreed. If the reserve for major overhaul remains unutilized, it will be shared in the ratio of 50:50 between the power purchaser and the IPP. Power purchaser will not share in O&M and major overhaul losses;(iii) for gas fired projects, the fuel and O&M will be taken as one consolidated line and any net savings will be shared 60:40 in favor of the Power Purchaser, after accounting for any reserves created, or to be created for major overhaul, to be reviewed by power purchaser or NEPRA as mutually agreed. If the reserve for major overhaul remains unutilized, it will be shared in the ratio of 60:40 between the power purchaser and the IPP. Power purchaser will not share in fuel, O&M and major overhaul losses;(iv) in order to ensure that the actual efficiency is matching the efficiency reported in the accounts, the GoP shall conduct a heat rate test for all projects for which the GoP and IPPs' representatives will agree on the TORs and corrections required;(v) Late Payment Surcharge (LPS) will be lowered from currently KIBOR + 4.5% to KIBOR + 2.0% but it will be ensured that payments follow the PPA mandated FIFO payment principles for this rate to be effective. Compounding and interest on interest provided for in the PPA, etc. will be adjusted to match the settlement agreement initialed (but never put into effect) by the GoP and some of the IPPs in 2019;(vi) for foreign investors registered with SBP, the Return on Equity will be 12% prospectively. For local investors, the Return on Equity will be changed to 17% in PKR with no dollar indexation. In recalculating the return, the equity approved by NEPRA on COD in USD shall be converted into PKR at the exchange rate of Rs.145 for prospective calculation; (vii) on "miscalculation" of IRR on account of periodicity of payments, no adjustment shall be made for the past as the regulator had expressly allowed this in its decisions. For the future, NEPRA shall make the calculation of IRR on a monthly basis and shall consider on merit adjustments for costs denied in lieu thereof;(viii) all projects will convert their contracts to Take and Pay basis, when Competitive Trading Arrangement is implemented and becomes fully operational, as per the terms defined in the license of each IPP;(ix) in order to assess if a company has made any "excess profits", the reconciled financials between the Committee and the IPPs engaged in this exercise, shall be submitted to NEPRA. As a legal body vested with the authority for tariffs, NEPRA shall decide in this matter and provide for a mechanism for recoveries where applicable ;( x) payment of the receivables of the IPPs is an integral part of this settlement. The Power Purchaser and GOP will devise a mechanism for repayment of the outstanding receivables with agreement on payment of receivables within an agreed time period which will be reflected in the final agreement to be signed and ;(xi) once NEPRA and Federal Cabinet approve the terms of this MoU, the parties shall agree and document details and procedures of these understandings within 15 days, after which the same shall be submitted to NEPRA and CPPA, to be followed by legal documentation to reflect the amendments needed in the relevant agreements.
The sources said, any revision in agreements related to RLNG and coal-fired power plants established under CPEC are being discussed with the Chinese top leadership and will be announced during the forthcoming visit of the Chinese President. Power sector experts are of the view that Pakistan can save upto $ 400 million through extension in payment period of loans.
The IPPs are tight lipped on the pacts. Chairman IPPAC, Khalid Mansoor, who is also CEO Hub Power Company (Hubco), could not be reached for his comments.
Copyright Business Recorder, 2020
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