ISLAMABAD: The Alternative Energy Development Board (AEDB) has reportedly accused the US government’s Development Finance Corporation (DFC) of hampering negotiation process with wind Independent Power Producers (IPPs), well-informed sources told Business Recorder.
Sharing the details, sources said the Cabinet Committee on Energy (CCoE) and Economic Coordination Committee (ECC) considered the report by Implementation Committee and approved payment mechanism and agreements with IPPs in meetings held on February 8, 2021 which were ratified by the Federal Cabinet on February 9, 2021.
In the report 46 IPPs initialed the agreements which include 14 wind IPPs that initialed the agreements with the condition that these agreements will be signed and executed subject to their lender’s approval. These wind IPPs have financing arrangements with various International Financial Institutions (IFIs).
The sources said, wind IPPs approached their respective lenders for consideration of terms of initialed agreements with the Government of Pakistan (GoP) so that payment may be released to wind IPPs under the payment mechanism. In the initialed agreements the wind IPPs agreed to tariff discounts in terms of reduction in RoE (Return on Equity), RoEDC (Return on Equity During Construction), O&M (Operation and Maintenance) and Insurance and agreed to take up the matter with lenders approval.
Rs100bn payment to IPPs okayed by ECC
According to sources, multiple meetings and discussions were held with the lenders to apprise them of overall power sector reforms aimed at managing the circular debt so that the tariff discounts agreed in initialed agreements maybe secured for GoP. Total payables agreed under approved payment mechanism for these 14 IPPs as of November 30, 2020 were Rs 33.73 billion.
During these meetings the lenders such as IFC and ADB were positive for reduction in the RoE and insurance as per initialed agreements, however there was no formal commitment provided to proceed further due to US government’s Development Finance Corporation (DFC) proposal in the field.
DFC has offered to extend debt tenor by 5 years along with reduction in spread by 5%, DPC has claims that its proposal will entail more than the savings resulting out of reduction in RoE, RoEDC, O&M and insurance as per initialed agreements. In the backdrop of DFC’s claim, an analysis has been conducted by CPPA-G which shows that estimated savings from reduction in RoE, RoDC, O&M and insurance is Rs 36 billion for four projects financed by DFC, whereas DFC proposal will initially provide a temporary relief in cash flows for the first 6 years but GoP will eventually have to bear an additional financing cost of Rs 10 billion approx. for temporary relief.
The PPIB argues that DFC’s proposal is not in line with the initialed agreements as approved by Cabinet for all wind IPPs, and any deviation from the approved decision will be taken as discrimination by the other wind IPPs.
The proposal was circulated for comments to Finance Division, the AEDB and CPPA-G. Finance Division maintained that the matter may be resolved by Power Division without causing any financial implication to the GoP while the AEDB stated that the offer of DFC is hampering other wind IPPs for proceeding with the initialed agreement and a time limit may be set for the negotiations.
“If the stalemate continues the offer may be considered for acceptance subject to reduction of spread by 1.5% instead of 0.5 percent,” the sources quoted the AEDB as saying.
The PPIB has submitted two proposals to the CCoE: (i) to continue negotiations with the wind IPPs, financed by lenders other than DFC, in line with the initialed agreements; and (ii) to continue engagement with DFC with a view to convince it to allow its projects to sign and execute the initialed agreements and inform DFC that its proposal has been analyzed and found less favorable than the initialed agreements.
Ministry of Foreign Affairs, sources said, has also forwarded a request from the US embassy Islamabad for a meeting with Minister for Energy Hammad Azhar on undergoing process of negotiations with DFC tariff reduction.
Copyright Business Recorder, 2022
Comments
Comments are closed.