ISLAMABAD: Independent Power Producers (IPPs) are still in the dark about the templates of proposed agreements which will replace Memoranda of Understandings (MoUs) into PPAs and payment mode of agreed amount of Rs 400 billion. Background interviews with officials and other stakeholders reveal that the government's team, which is to finalise the templates of pacts is still working on the wording at the offices of Central Power Purchasing Agency- Guaranteed (CPPA-G). However, the IPPs established under the 1994, 2002 and 2006 policies and signed the MoUs with the government's team, are not aware about the wording of the agreements, and most importantly the payment mode of agreed amount.
The government has to take the International Monetary Fund (IMF) on board on the payment mechanism. Recently, a member of private sector who extended help to the government in evolving consensus on review of Power Purchase Agreements (PPAs) briefed the IMF on mode of payment. However, nothing has yet been shared with the IPPs. The MoUs between the government and IPPs were signed in the middle of August 2020. The applicability period of the MoUs is six of months. The revised agreements have also to be approved by the Cabinet.
Unconfirmed reports, however, suggest that the government intends to pay the agreed amount in three installments in two years, of which 33 per cent of total outstanding amount will be paid upfront whereas the second installment will be paid in one year's time while the third installment in the next 12 months. The State Bank of Pakistan (SBP) will be guarantor. The government is also considering paying directly to the fuel suppliers like PSO, SNGPL and SSGCL.
The IPPs, however, are of the view that the MoUs were signed on the understanding that these will be converted into agreements, only when the payment is cleared, adding that they are still in the dark about government's planning.
"If our agreed outstanding dues are to be paid in the shape of peanuts, then we are the key losers. We left substantial amounts on the table on the commitment from the government that our outstanding amounts will be cleared in one go. We gave this understanding to the shareholders," said one of the representatives of IPPs, who is also a signatory to the MoUs. The government has claimed that the revised pacts with the IPPs will translate into a saving of Rs 840 billion in next ten years. He said IPPs are waiting for the drafts for the last couple of days but nothing is shared with the power producing companies so far. "We are conveyed that drafts of the agreements will be shared this week and later on it is said that drafts will come next week," he added.
In reply to a question, the IPPs representative said that they are worried about the proposed plan of payment to them.
"The main issue for the IPPs is liquidity. First, we will examine the drafts of the agreements with special reference to payment mode. If a government does not honour its contracts, how can their assurance be trusted?" he questioned.
According to him, IPPs are of the view that if 33 per cent outstanding amount will be paid in first installment, "then who will pay their approved monthly capacity payment." The government should distribute the available amount amongst the 50-55 IPPs which have signed the MoUs. "We are not aware if we will be given CPPs, EPPs or Sukuk," he maintained.
IPPs are also of the view that the government will not be able to pay the capacity charges in time in future as there is substantial gap in energy purchase price and recovery. "We are expecting that the government will pay us all our outstanding amounts and will not allow capacity payment to build up in future," he maintained. The government team, sources said, is now negotiating with Uch Power, TNB Liberty and a few wind power projects in which foreign governments are involved. They are also asking for guarantee of payment. The sources said, once the IPPs signed the PPAs, then they will approach Nepra for tariff review in the light of new agreements.
"We have heard that CPPA-G is working on five templates for IPPs established in 1994, 2002, 2006 as well as wind and solar projects," said an official on condition of anonymity.
Copyright Business Recorder, 2020
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