ISLAMABAD/KARACHI: The federal government has reportedly given consent to pay the agreed amounts to clear the dues of Independent Power Producers (IPPs) in three installments within one year, i.e., by December 2021, well-informed sources told Business Recorder.
This was conveyed by the Finance Minister Dr. Abdul Hafeez Shaikh Chairman Implementation Committee, at a meeting with the IPPs. The meeting was attended by members of the Implementation Committee as well as the Minister for Power, Omer Ayub Khan.
IPPs, which had signed a Memoranda of Understanding (MoUs) and were participating in the negotiations were present via Zoom him.
The sources said Dr. Abdul Hafeez Shaikh provided an update on three areas for the benefit of the IPPs, which are as follows; (i) MoUs that have been signed need to be converted into contractual obligations and the concerned team is in talks with the IPPs regarding this process of conversion; and (ii) payment mechanism as put forward by the GoP at this point in time shall be in three installments of 33% each. In further elaboration to Khalid Mansoor, CEO Hubco’s request for clarification, the Finance Minister stated that each of these 33% installment payments shall be split into two components, namely cash and tradeable bonds. Accordingly, 1/3 of the first instalment shall be paid in cash and the remaining two-thirds (2/3) in tradeable instruments, with the same mechanism being replicated for the second and third installments.
Dr Shaikh emphasized that this was the mechanism that was most feasible to the GoP due to fiscal constraints imposed upon them as part of the IMF’s program.
Upon IPPs’ request for details on the precise nature of the payment mechanism, the Finance Minister elaborated that: (i) depending upon the speed with which the contracts were negotiated, the disbursements could take place in January, June and December; (ii) the tradeable instrument would be a treasury bond (and accordingly for 10 years) and was to be viewed as “cash equivalent” and; (iii) both cash and the tradeable instrument shall be available right away once disbursed and accordingly, the cash portion should not be viewed as a meager amount.
Finance Minister, according to sources was of the view that the alleged “excess” payments matter be discussed only once Nepra has confirmed the reconciled figure. According to insiders, the government would prefer for the IPPs to agree to the tariff components reduction and to revisit the matter of excess payment at a more opportune time.
The government has conveyed to the IPPs that if the agreements are signed in January, first installment will be paid in the same month.
Certain IPPs contested the requirement to send the matter of reconciled numbers to Nepra on the basis that the regulator had no role to play and that the participation of Nepra would be a “deal breaker” for such IPPs.
The IPPs suggested that rather than involving Nepra, reference in the draft agreements vis-à-vis alleged excess payments should be that the issue shall be “settled in accordance with the law”.
The main concern of the IPPs was who will pay the difference if the instruments, rate of which will be equal to T-Bills, with 0.7 per cent addition, are sold at lower rates.
"The million-dollar question is who will pay the discount amounts," said one of the participants.
Chairman Nishat Group Mian Muhammad Mansha, who was also attendance through a video link, reportedly rejected Muhammad Ali's report on the IPPs, saying it is a “bogus” report prepared. According to Mansha, Muhammad Ali was biased against IPPs as Chairman SECP and he should not have been appointed as the head of the inquiry committee.
He said, there is nothing in the agreements (in writing) that Nepra can recheck, the profits etc. He also indicated that if the government insisted on what it is suggesting, the IPPs have the right to go for arbitration.
Finance Minister suggested that a committee of a couple of people can be formed to sort out differences. And decided to park the issue and convene a smaller group that could specifically discuss the matter of “excess payments” with the relevant parties.
The representatives of the IPPs argued that delayed payment invoices for the last six years are not being paid on the basis of the FIFO principle as contained in the PPAs. The IPPs invited the attention of the Finance Minister to this issue maintaining that it is creating liquidity issues for IPPs since they are required to make quarterly payments to banks.
The Finance Minister, sources said, stated that the issue would be dealt with in greater detail by the working group on draft agreements.
The Wind Power Projects (WPPs) representative emphasized their position as projects set up by international DFIs noting that their lenders shall not approve any amendments until the matter of curtailment is satisfactorily resolved. The WPPs requested the GoP to reach out to the relevant foreign lenders in order to a initiate dialogue on approval process with them.
The Finance Minister stated that these were valid concerns which need to be resolved by the working group constituted to work on the drafts.
The issue of CTBCM was also raised and the effect that this market reform could have upon the IPPs. A committee member stated that Nepra had approved the CTBCM roadmap design, and a monitoring group had been set up to commence the process of implementation and that a 15-month time-frame had been provided by the GoP for the CTBCM map to be put into effect.
The meeting concluded with Babar Yaqoob requesting the attending IPPs to submit the CPPA-G drafts with red-line changes. From Monday onwards, the process for finalization of the drafts, commencing with the 2002 IPPs, would begin whereas IPPs of 1994 Policy will hold a meeting on January 6, 2021.
The Finance Minister reiterated that a smaller group would be convened to discuss the way forward on the “excess payments” issue and the role of NEPRA, as well as discussion on the language that may require to be used regarding the incorporation of such a matter in the draft agreement(s).
The resolution of the circular debt of energy chain companies with IPPs is almost finalized with a roadmap for the payment of outstanding receivables.
Out of the total outstanding amount of Rs 1.1 trillion (as at June 2020), Rs 400-450 billion pertains to IPPs.
“We believe this development will ease off the liquidity position of IPPs significantly”, an analyst at Arif Habib Limited said.
Copyright Business Recorder, 2021