ISLAMABAD: Karachi Electric (KE) has proposed amendments in the draft Arbitration Agreement (AA), prepared for resolution of disputes in receivables between KE and Government entities, sources close to Privatisation Commission told Business Recorder. The power utility has forwarded the proposed amendments in the draft AA in the light of discussion between KE’s Chairman KE and Board members and Finance Minister Shaukat Tarin and other relevant stakeholders on February 7, 2022.

The pending issues related to KE are scheduled to be discussed at an inter-ministerial meeting on Wednesday (toady). Finance Minister, Shaukat Tarin, will preside over the meeting.

KE has proposed amendments in clause 3 and 8 of draft AA, which other stakeholders have yet to agree on. The Arbitration Agreement will be signed between Federal Government, NTDC, CPPA-G, SSGC and KE.

The language of original Clause 3 of AA states: The Arbitrator shall determine and calculate the principal and the quantum of compensation (including delayed payment rate, late payment surcharge, mark-up and interest) liable to be paid in respect of each claim on the basis of applicable law, contracts and principles of equity and fairness. The Arbitrator in determining the claims and the quantum on compensation shall examine the facts and circumstances which led to the current situation and apply fair methods of determining compensation including the costs of funds of a party where such is warranted.

KE’s proposed language is as follows: The Arbitrator shall determine and calculate (a) the principal and (b) the quantum of compensation (including delayed payment rate, late payment surcharge, mark-up and interest) liable to be paid in respect of each claim so as to compensate each claimant for the delay in payments. The Arbitrator in determining the claims and the quantum on compensation shall take into account all the relevant facts and circumstances which led to the current situation and apply fair methods of determining compensation including the costs of funds of a party where such is warranted.

The draft agreement says in clause 8, the parties agree that all claims and matters mentioned in clause-1 will be heard and decided together with adjustments given in line with the contracts, principles of equity, fairness and the law.

KE’s proposed clause-8 is as follows: the parties agree that all claims and matters mentioned in clause 1 will be heard and decided together with the requisite adjustments.

Privatisation Commission in its brief to the Finance Minister on National Security Certificate (NSC) explained that in November 2016, KES Power applied to the Privatisation Division for grant of National Security Certificate for transfer of its 66.49% shares in KE to Shanghai Electric Power Company Limited (SEP) under clause 5.3 (b) of the Share Purchase Agreement, which bounds KES Power to obtain certificate from the Federal Government (GoP) that the proposed transfer/ transaction does not affect the national security interests of Pakistan. Since then, the matter has remained under discussion at various forums for resolution of outstanding issues, especially the issue of Karachi Electric’s payables/ receivables with the Government parties, which has been intrinsically linked to the grant of NSC.

Delegation of KE meets Tarin

On 15 Feb, 2021, the Prime Minister directed the Minister for Privatisation to come up with clear recommendations to resolve KE’s transaction issues. Resultantly, Privatisation Commission coordinated with all stakeholders to finalize the terms of arbitration agreement to be signed by K-Electric (KE) with relevant Ministries and public sector entities to resolve the issue of past receivables and payables.

These meetings were attended by Attorney General and senior level representations from all the relevant Ministries and entities. After a general consensus of the stakeholders on draft arbitration agreement in March, 2021, the matter was discussed in the meeting of Inter-Ministerial Committee (established by PM Office on 26th Dec 2018), held on March 24, 2021 wherein it was decided that the matter (along with reservations of Power Division) be presented before ECC for recommending further course of action to the Cabinet. Accordingly, a summary presented by PC was discussed in the meeting of ECC held on May 21, 2021 and it was decided that Power Purchase Agency Agreement (PPAA) and agreement on Tariff Differential Subsidy (TDS) may be signed initially in order to address future issues.

A Committee was also constituted by ECC to finalize the draft arbitration agreement with KE. Decision of ECC was ratified by the Cabinet with modification that the Committee will be headed by the Minister for Energy. While discussing terms of arbitration agreement, Power Division did not agree to include KE’s point of view in the arbitration agreement that in case the GoP fails to make payment of agreed subsidy without plausible reason, cost of funds may be added in tariff and NEPRA may also ask the GoP for holding inquiry for delay in the payment of subsidy. This disagreement was to be settled in the other agreements to be signed between the parties.

Consequently, Power Purchase Agency Agreement, Interconnection Agreement and Tariff Differential Subsidy Agreement remained under negotiation between concerned Ministries/ entities and KE. Finally, the draft summary was circulated by the Power Division on Nov 17, 2021, seeking comments of the concerned Ministries/ Divisions on the draft PPAA and other referred agreements to be signed with KE. PC rendered its comments on Nov 24, 2021 but so far approval of these documents has not been conveyed to PC for proceeding further to convene meeting of the Committee for finalizing the draft arbitration agreement to address issue of past receivables/ payables of KE.

According to the PC, issuance of NSC to KE is contingent upon resolution of KE’s payables and receivables issue.

Copyright Business Recorder, 2022

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