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ISLAMABAD: The Federal Government and 44 Independent Power Producers (IPPs) are all set to sign the revised agreements on Thursday (today), with a clear understanding that there will be no halt in ongoing/future investigations in National Accountability Bureau (NAB), Securities and Exchange Commission of Pakistan (SECP) or the power regulator (Nepra) against them.

"40 IPPs will sign agreements with the government today whereas two IPPs, M/s Lalpir and Pakgen will ink their pacts on Friday( tomorrow) as the MoUs expiry date is February 12, 2021," said an insider.

Talking to a select group of media persons, Minister for Energy, Omar Ayub and Special Assistant to the Prime Minister on Power, Tabish Gauhar shared details of the arrangements agreed with the IPPs. Minister for Information and Broadcasting Shibli Faraz also briefly joined the session.

Both the Minister and SAPM revealed that the IMF's nod has already been obtained and mode of payment of Rs 403 billion payable to the IPPs as on November 30, 2020 agreed. The role of Director General Inter-Services Intelligence (ISI), Lt. General, Faiz Hameed, who initiated the process, also came under discussion.

Tabish Gauhar further stated that the government has also initiated negotiations with the banks who lent for the power projects to spread the tenor of repayment of loans. Initially, talks have begun with the National Bank of Pakistan (NBP) and Habib Bank of Pakistan (HBL).

Omar Ayub stated that the idea to start negotiations came under discussion when NAB arrested Director General Nepra, Syed Insaf Ahmed.

The government of Pakistan constituted a Committee in August 2019, under the chairmanship of former Chairman SECP, Muhammad Ali, to look into the issues faced by the power sector, including purportedly excess profits made by the IPPs, and to recommend a way forward.

The Committee presented its report in March 2020, highlighting the issues faced across the power sector. In pursuance of these recommendations and the decision of the Cabinet Committee on Energy, the Federal Government constituted another Committee to negotiate (Negotiation Committee) with the IPPs.

Following successive rounds of discussions with the IPPs and other Power Sector stakeholders, the Negotiation Committee signed Memoranda of Understanding (MoUs) with 47 IPPs. The Negotiation Committee submitted its complete report to Cabinet Committee on Energy (CCoE), which approved the constitution of another Committee (Implementation Committee) on September 24, 2020 for the implementation of the MoUs and the recommendations in the report. Subsequently, the CCoE also gave explicit approval to the MoUs which was was approved and ratified by the Cabinet on December 1, 2020. The Implementation Committee conducted various sessions with IPPs to prepare a payment mechanism to clear their outstanding payables and to convert the MoUs into binding agreements. The Implementation Committee had succeeded to initial agreements with 44 out of 47 IPPs. As a result of negotiations, certain variances from MoUs had been made in the agreements.

The 1994 Power Policy. The exchange rate agreed in the MoUs was Rs 168.60/USD (the rate on the date of signing of MOUs i.e. August 12, 2020) to prevent further increase in tariff on account of further devaluation of PKR. This did not take into account the devaluation of USD (factual case), which created an anomaly. Agreements were initialed on the condition that the exchange rate prevailing on the date of signing of the Master Agreements would be used as the floor for the exchange rates, and Rs 168.60/USD as the ceiling for the said exchange rates. The risk of a devaluation of the USD would lie with the power purchaser. This risk is, however, adequately covered through the 11% reduction in capacity purchase price and variable O&M of this group.

The savings to be obtained through this arrangement will be fully eroded only if the USD devalues below approximately Rs 130/USD.

2002 Power Policy. The Exchange rate agreed in the MoUs was Rs 148/USD (the rate which corresponded to the USD rate on the date of signing of MOUs i.e. August 12, 2020 coupled with an increase of the RoE and RoEDC to 17% from 15%) to prevent further increase in tariff on account of further devaluation of PKR. This did not take into account the devaluation of USD (factual case), which created an anomaly. In order to address this anomaly, the agreements provide that the USD indexation on this component will continue as per the respective tariffs at Rs 160/ USD till the date dollar reaches Rs 168/USD. Thereafter RoE & RoEDC would be fixed at 17% per annum on USD exchange rate of Rs 148/USD for local investors with no further indexation.

An Arbitration Submission Agreement option was provided to cater for all IPPs under the 2002 Power Policy, instead of referring the matter to Nepra, for amicable resolution of the issue. Two former Supreme Court judges will be appointed arbitrators to resolve dispute on excess payment of Rs 58 billion.

Certain IPPs out of the twelve under the 2002 Power Policy, that had agreed in the MoUs to refer the case of excess profitability to Nepra, were reluctant for incorporation of the same into the Master Agreements. The corresponding clause - Clause 9 of the MoU, which is the same for all twelve IPPs, is as follows: "In order to assess if IPPs have made any excess profits, the reconciled numbers between the Committee and the IPPs shall be submitted to Nepra . As a legal body vested with the authority for tariffs, Nepra shall hear and decide this matter in accordance with the 2002 Power policy, tariff determinations and PPAs and provide for a mechanism for recoveries, where applicable."

The Implementation Committee discussed the issue at length with these IPPs and agreed with the alternate option of the Arbitration Submission Agreement for all IPPs under the 2002 Power Policy. Furthermore, the IPPs have agreed that this arbitration will be binding and final as far as the dispute of excess profitability is concerned. One paramount consideration to agree with locally-based arbitration was to avoid the situation where the IPPs could have eventually taken the dispute to the LCIA (London Court of International Arbitration), and further to avoid declaration of “Government of Pakistan Event of Default” under the Implementation Agreement(s), which could potentially have resulted in significant loss to the public exchequer.

As per payment mechanism, the payment of the said amount will be made in two installments; first installment will be forty percent (40%) of said payables and will be paid 1/3rd in cash, 1/3rd in five-year-Sukuk and 1/3rd in ten years PIBs at floating rate of T-Bill +70 basis points and remaining sixty percent (60%) of the said payable within 6 months of the first installment in almost the same manner.

Replying to a question as to whether any right of the Government has been compromised/affected including the forensic audit of the IPPs Minister for Energy, Omar Ayub and Tabish Gauhar stated that no right of the Government would be affected. The IPPs are fully cognizant of this fact and there is no such impression either explicit or implicit, that the Government has given up any of its rights.

"We have made it clear to the IPPs that in case of any criminality, investigation by NAB, SECP or Nepra will continue and legal course will be followed," said Omar Ayub. The minister also dispelled the impression that there would be any NRO being given to the IPPs. The government has the right of forensic audit of IPPs. However, the decision of Arbitration panel will be final and binding.

He said, of Rs 403 billion, Rs 122 billion was interest payment, Rs 72 billion payment to PSO and other public sector stakeholders like ODGCL and gas companies. Of Rs 1.3 trillion, Rs 700 billion will go to IPPs whereas Rs 600 billion is earmarked for Gencos and nuclear power plants. He further stated that the government will accrue Rs 836 billion savings in next 20 years. Its impact on tariff will be 37 Paisa per unit. Of Rs 836 billion, saving from Hubco will be Rs 31.8 billion, Kapco, Rs 81 billion, Generation Policy 1994, Rs 64.8 billion, Generation Policy 2002, Rs 182 billion, O&M, Rs 33 billion, solar, Rs 3 billion, Generation Policy 2013, Rs 147 billion, wind, Rs 19 billion and baggasse, Rs 147 billion.

Copyright Business Recorder, 2021