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ISLAMABAD: Power Division has sought Rs90 billion supplementary grant to pay 40 per cent agreed amount to Independent Power Producers (IPPs) established under Generation Policy 1994 and Generation Policy pre-1994, official sources told Business Recorder.

Power Division has also proposed that payments to all IPPs under Power Policy 2002 that signed agreements pursuant to MoUs, may be withheld till the conclusion of NAB investigation and to suspend the process of signing ASA with IPPs under 2002 Power Policy, with a notification of their revised tariff as determined by Nepra, till the conclusion of NAB investigation, the sources added. Federal Cabinet had 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 report by the 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 IPPs were signed.

As per the payment mechanism, included in the agreements, first instalment of outstanding payables of IPPs was 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 which held a hearing on the matter on March 3, 2021.

Nepra announced determinations of IPPs on the established Generation Policy 2002 on April 2, 2021 after which payment to these IPPs was due as their tariffs were revised.

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 & future roadmap. Subsequently, Committee for Negotiations with IPPs notified on June 3, 2020, signed MoUs with the 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 (ASA) with the IPPs of Policy 2002. The draft ASA has been agreed and initialled 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 1994 Power policy was subject to adjustments based on any change in assumptions specifically with reference to the taxation of contractors at the rate of 4 percent 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.

National Accountability Bureau (NAB) is conducting investigation on the allegations of corruption and corrupt practices against owners/management of Nishat Chunian Power Limited (one of the Power Policy 2002 IPPs), officers/officials of Nepra and officers/officials of CPPA and others. The inquiry has been converted into an investigation by NAB which 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 responded that they have received the agreements but have neither informed that these have been examined nor have validated these, stating that execution of the contracts by any Ministry does not fall in the ambit and purview of Section 9 of NAO.

Power Division argues that since, NAB is apparently conducting investigation into the issue of excess profitability and this matter relates to IPPs of Power Policy 2002, it would be appropriate to wait for the conclusion of NAB investigations before proceeding with payments to the IPPs of Power Policy 2002.

A summary was submitted to ECC by Power Division on February 17, 2021 on this subject. The summary was considered by ECC on February 19, 2021 and its consideration was deferred till next meeting of ECC.

On April 7, 2021, the ECC discussed the summary briefly and again deferred it which was ratified by the Cabinet on April 20, 2021.

Meanwhile, on April 16, 2021, Finance Ministry while replying to a letter of Power Division sent on March 8, 2021 expressed willingness to pay 40 per cent of the agreed amount to the IPPs.

"The first instalment 40 per cent duly divided in cash, PIBs and Sukuk to be paid to the concerned IPPs shall be adjusted against power sector subsidy claims for the FY 2019-20 and 2020-21. Disbursement of remaining 60 per cent will be taken care of in the next financial year," the sources quoted Finance Ministry as conveying to Power Division.

The government had contracted to pay 40 percent of Rs404 billion to the IPPs by March 29, 2021 but nothing has been paid by the Power Division so far which has angered the IPPs.

Power Division, in its summary to be considered by the ECC on April 28, 2021 has submitted the following proposals for consideration of the committee headed by the Finance Minister: (i) Federal Board of Revenue (FBR) may review the matter of taxation of contractors at the rate of 4 percent of the relevant payment and determine whether the allegations of the report by the Negotiations Committee are based on facts and if any recoveries are due to be made from the relevant IPPs. Such recoveries may be made from future payables of the relevant IPPs after the determination of FBR; (ii) payments to all IPPs under Power Policy 2002 that signed agreements pursuant to MoUs, may be withheld, till the conclusion of NAB investigation; (iii) suspend the process of signing ASA with IPPs under 2002 Power Policy, and notification of their revised tariff as determined by Nepra, till the conclusion of NAB investigation; (iv) payments to all other IPPs may proceed according to the signed agreements; (v) to take any other action ancillary thereto which may assist NAB investigation; and (vi) supplementary grant equivalent to Rs89.86 billion for the payment of first instalment may be approved and released to the Power Division, in accordance with the payment mechanism agreed.

However, an official told this correspondent that the Power Division will clear the payments of all the IPPs including IPPs of 2002 policy, if ECC or Cabinet approves it.

"I suggest the case of Nishat Chunian Power Limited be segregated and all others paid as per signed agreements," he concluded.

Copyright Business Recorder, 2021

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