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ISLAMABAD: Power Division is said to have put payment of first installment of Rs 403 billion amount agreed with the Independent Power Producers (IPPs) on ice by shifting responsibility of delay in execution of pacts on National Accountability Bureau (NAB) and Federal Board of Revenue (FBR), well-informed sources told Business Recorder.

The half-hearted efforts of Power Division to pay the IPPs were supplemented by the Ministry of Law and Justice, which argued that it has nothing to do with it, as it is a matter related to policy whereas Finance Division maintains that payment should not be made until NAB clears the contracts. The IPPs have indicated disappointed at the way the government is treating contracts that it proactively negotiated and signed.

“The main factor is fear of NAB action amongst the officials due to which payment is not being made as per the agreements,” the sources added. Not only the Power Division but other government organizations are also facing the same situation. Payment for Roosevelt Hotel New York is also not being made due to NAB investigation.

It has been learnt that Power Division will not take the risk on its own despite the fact that one on the one hand no reduction in tariff will be applicable on the basis of discounted rate and on the other hand circular debt is increasing with each passing day due to non- payment of first installment. Late Payment Surcharge (LPS) will also be paid by the government to the IPPs.

“Revised contract benefits have not materialized but routine payments are being made to all IPPs irrespective of cases,” said an insider.

However, official sources said that the issue was placed before the ECC on April 7, 2021, which deferred the decision, and constituted a sub-committee to discuss the issue thoroughly.

“Power Division cannot accept responsibility alone, as all the government stakeholders including agencies and NAB has to take a collective decision to proceed ahead,” said an official on condition of anonymity.

No government functionary will take any risk until NAB factor is rooted out through re-promulgation of NAB Ordinance stipulating that if bureaucracy or any other functionary takes a decision in good faith it should not come under the purview of NAB. Those who take such a decision should not go to jail for 90 days without any bail, he added.

“Several government agencies, state organizations, ECC and Cabinet must decide whether payment will be made to the IPPs or not, when pacts are under scrutiny of NAB,” the official said, adding that as the government and state organizations including NAB are not agreed on making the payment that is why the matter has been place before the ECC.

“There is a need that all the concerned entities come on one page on this matter. NAB sought documents of all IPPs which we have provided. We requested NAB to expedite the process and give a clean chit as then payments will be made to IPPs. NAB has conveyed that it will scrutinize the MoUs according to its own process and cannot do the process in haste on the demand of Power Division,” the official continued.

Power Division wants payment to be made to the IPPs, as with this circular debt will reduce, LPS will come down, good news will go in the market, liquidity will rise and tariff will come down. Payments will also be enabled to gas companies and PSO.

Power Division has to pay Rs 85 billion to Hubco and Kapco as 40 per cent of total agreed amount.

The ECC was informed that the Federal Cabinet constituted a Negotiation Committee to negotiate the tariffs and various other matters with IPPs. The Negotiation Committee signed MoUs with IPPs and its report was considered and approved by the Cabinet Committee on Energy (CCoE) and ratified by the Cabinet.

Subsequently an Implementation Committee was constituted to convert the MoUs into binding agreements. The CCoE and ECC considered the reports by Implementation Committee, mandated to convert MoUs into binding agreements, and approved the payment mechanism and agreements with IPPs in meetings held on February 8, 2021.

The decisions were ratified by the Cabinet on February 9, 2021. Pursuant to the Cabinet's approval, agreements with 32 IPPs have been signed on February 11, 12, 16 and 19, 2021.

As per the payment mechanism included in the agreements, the first installment of outstanding payables of IPPs is to be paid within 30 days of signing of the agreement for IPPs under pre-Nepra regime and after tariff determination for IPPs under Nepra regime. Tariff adjustment application for the IPPs under Nepra regime was to be filed within five days of signing of the agreements. The tariff adjustment applications were filed with Nepra on February, 17 2021. Nepra has held a hearing on the matter on March 3, 2021, and issued decisions on April 5, 2021. Payment to these IPPs has also become due after notification of the revised tariffs.

Power Division was of the view that the issue of excess profitability of 2002 Power Policy IPPs has been highlighted through the report of Committee for power sector audit circular debt resolution and future roadmap. Subsequently, the Committee for Negotiations with Independent Power Producers notified on June 3, 2020, signed MoUs with the said IPPs containing the following clause: "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 recommended signing of an Arbitration Submission Agreement with the said IPPs. The draft Arbitration Submission Agreement has been agreed and initialed between GoP and 12 IPPs under Power Policy 2002.

One of the recommendations of the Negotiation Committee was as follows: “the committee was informed that tariff of IPPs under the Power Policy 1994 was subject to adjustments based on any change in assumptions specifically with reference to the taxation of contractors at the rate of 4% of the relevant payment. It was alleged that tax was assumed as a part of the set-up cost; however, income tax was not deducted by the IPPs on offshore part in certain cases. It was not possible for the Committee to review this matter in the absence of data from IPPs, contractors or tax authorities; therefore, the GoP shall look into this matter."

After approval of the report by the CCoE followed by the ratification of the Federal Cabinet, the matter was referred by the Power Division to Federal Board of Revenue (FBR) through two communications. No response has been received from FBR so far.

Power Division further stated that National Accountability Bureau (NAB) has stated that the Bureau is conducting investigation on the allegations of corruption and corrupt practices against owners /management of Nishat Chuanian Power Limited (one of the Power Policy 2002 IPPs), officers/officials of Nepra and officers/officials of CPPA-G and others.

Power Division is of the view that the inquiry has been converted into an investigation by NAB and has asked for provision of record and present status of MoU/agreement signed and final negotiations between IPPs and GoP under section 19 of National Accountability Ordinance 1999. Accordingly, the relevant record has been provided to NAB Lahore.

Subsequently, Power Division requested NAB to examine the process of negotiation and agreements with the IPPs for validation. NAB has said that they have received the agreements, stating that execution of the contracts by any Ministry does not fall in the ambit and purview of Section 9 of NAO.

“Since, NAB is apparently conducting investigations into the issue of excess profitability and this matter relates to IPPs of the Power Policy 2002, it would be appropriate to wait for the conclusion of NAB investigations before proceeding further with payments to the IPPs of Power Policy 2002,” the sources quoted Power Division as suggesting.

A summary was submitted to ECC by Power Division on February 17, 2021 on the same subject. The summary was considered by ECC on February 19, 2021 and its consideration was deferred till the next meeting of ECC. The summary was again placed on the agenda of ECC on March 10, 2021 and was deferred due to paucity of time.

According to the Power Division, it has not been brought on the agenda of ECC after that date, so far, adding that since additional events have taken place, subsequent to the submission of the summary of February 17, 2021, new summary was submitted.

Power Division, in its new summary placed the matter before ECC for consideration and approval of following proposals: (i) Federal Board of Revenue (FBR) may review the matter of taxation of contractors at the rate of 4% of the relevant payment and determine whether the allegation is based on facts and if any recoveries are due to be made from the relevant IPPs; (ii) payments to all IPPs under Power Policy 2002, which have signed agreements pursuant to MoUs, may be withheld till the conclusion of NAB investigation; (iii) payments to all other IPPs (except those mentioned in (i) and (ii) above, may proceed according to the signed agreements; (iii) to suspend the process of signing Arbitration Submission Agreements with IPPs under 2002 Power Policy, till the conclusion of NAB investigation; and (iv) to take any other action ancillary thereto which may assist NAB investigation.

The draft summary was circulated to Finance Division, Federal Board of Revenue and Ministry of Law and Justice. Finance Division has supported the proposal. FBR has concurred with the proposal and stated that withholding “the payment of second installment to the relevant IPPs “is not consented. The Law Division has not offered any comments perhaps in view of the fact that the matter relates to Policy.

Copyright Business Recorder, 2021