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ISLAMABAD: Independent Power Producers (IPPs) Tuesday reportedly refused to accept federal government's proposed payment of Rs400 billion in three years, terming it as violation of already signed Memorandum of Understandings (MoUs), well-informed sources told Business Recorder.

The government's team comprising Special Assistant to the Prime Minister on Power, Tabish Gohar, Federal Land Commission Chairman Babar Yaqoob Fateh Muhammad Secretary Power, Ali Raza Bhutta, officials of ISI, Acting CEO CPPA-G, CFO and other legal experts of the CPPA-G, held discussions with IPPs established under Power Policies 1994 and 2002.

The government's team has not shared any template of agreements with the IPPs and just conveyed its intention. IPPs have been asked to consult their Boards and come up with their suggestions. The templates are expected to be shared with 47 IPPs before December 4, 2020.

The government is expecting a monetary benefit of Rs 840 billion in 10-12 years period. Asad Umar, Minister for Planning, Development and Special Initiatives maintains that review in agreements with IPPs would help in reducing electricity prices by Rs 1.40 per unit. He said that in 2022, the price would go down by Paisa 74 per unit while in 2023 it would further decline by Paisa 66 per unit. The overall relief to the consumers will be of Rs 300 billion.

The government has indicated to the IPPs that it will clear their overdue receivables in three installments in three years' time, ie, 33 percent upfront and remaining two installments in three years which has been turned down by the IPPs.

The clause 8 of the MoUs signed in August 2020 states that "the parties recognize that payment of the receivables of the IPPs is an integral part of the MoU as key consideration. The Power Purchaser and GoP shall devise a mechanism for payment of the outstanding receivables within agreed time period which shall be reflected in the final agreement to be signed. The power purchaser shall ensure adherence to its contractual obligations, and GoP and power purchaser shall work towards resolution of the Expert's adjudication for the relevant IPPs."

The sources said, IPPs have agreed on revised terms and conditions on the promise that all the outstanding amounts will be cleared at once but now the government is unwilling to honour its commitment on the plea that IMF will not allow full payment in one go.

"The government offered 1/3rd on signing of PPAs and remaining 2/3 over the span of three years of the IPPs overdues. However, IPPs have insisted that it will be hard to get their sponsors to agree as key commitment of government was to pay full overdue," the sources added.

The IPPs, sources said, were unhappy at the offer from the government side and felt that they are not being treated as per the conditions agreed in the MoUs. IPPs have also refused to give any further concession to the government over and above those already agreed in the MoUs.

"IPPs want all other disputes and sectoral issues to be part of amendments now while GoP's representatives say they will try and not to make these as condition precedent," the sources continued.

IPPs, sources said, have conveyed to the government's team that understanding was reached on 100 per cent advance payment and now the government can not renege on its commitment, adding that IPPs are not willing to show any flexibility from now onwards.

An insider told BR that IPPs are unlikely to agree to less than 75 per cent upfront payment of overdue amounts as well as to declare instruments for the remaining payments.

"If our agreed overdue amounts are to be paid in small amounts, 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 our Boards," said one of the representatives of IPPs.

IPPs have also conveyed to the government team that core issue of high cost and circular debt relates to Discos, suggesting that the government must take needed steps to privatize them. One of the participants told Business Recorder that it was basically a kick off meeting with all 2002 power policy sponsors.

Copyright Business Recorder, 2020