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ISLAMABAD: Kot Addu Power Company (Kapco) has expedited efforts for renewal of its Power Purchase Agreement (PPA) saying that some of the lending banks have withdrawn credit lines whereas some have reduced credit lines.

The company’s viewpoint was shared in a letter to concerned stakeholders written by its Chief Executive Officer, Aftab Mahmood Butt.

The PPA of June 27, 1996 (as amended from time to time) was entered into at the time of the company’s privatisation in 1996 along with a number of other agreements (facilitation agreement, GoP sovereign guarantee, Gas Supply Agreement (GSA), Oil Supply Agreement (OSA) etc).

The term of the PPA is 25 years (and following the settlement of a liquidated damages dispute with the Power Purchaser) is set to expire on October 24, 2022. In accordance with the provisions of the PPA, the company formally notified the Power Purchaser to enter into good faith negotiations for the renewal of the PPA in 2019. However, matters have not progressed due to disruptions caused by the pandemic (COVID-19) in early 2020 and thereafter for other reasons attributable to the power sector of Pakistan.

The government and the power purchaser, while negotiating and agreeing to the terms and conditions, explicitly undertook and stated in the Master Agreement of February 11, 2021, to assist and support the company in getting tax exemption similar to other IPPs after the initial term of the PPA and subject to the completion of legal and corporate formalities, issuance of the consent to the extension of the PPA for an additional term.

According to Kapco, inordinate delay in renewal of the PPA is a matter of grave concern for the company, despite the fact the company is being dispatched at high levels during this period and the power purchaser/system cannot afford disruption/stoppage of power generation from the company’s power plant.

Kapco claims that it has continued to fully support the system by providing the necessary required power while accepting higher (negative) late payment charges payable to fuel supplier.

The company has already generated and supplied electricity well in excess of the forecast of the Indicative Generation Capacity Expansion Plan (IGCEP) during the current period due to system requirements and this further strengthens the critical importance of the company’s power plant in the system.

The company’s CEO maintained that notwithstanding the company’s desire to enter into commercial operations, it is in the interest of the power purchaser/system operator/GoP that the PPA should be renewed beyond October 2022, for the following reasons: (i) the company has ten multi-fuel fired gas turbines, five steam turbines, and ten Heat Recovery Steam Generators (HRSG). The company’s power plant also consumes LSFO produced by Attock Refineries Limited (ARL). This not only provides backup fuel in case of gas shortage, but also ensures continuation of ARL operations.

The company’s power plant is situated at a key location to the National Grid with 12 transmission lines, six each on 132 kV and 220 kV interconnected through having a transformation capacity of 500 MVA. The power complex has a maintained capability to support quick recovery in case of transmission collapse. The capability has been demonstrated successfully over the years and in the recent blackouts.

The power complex has one of the most extensive fuel oil storage facilities in Pakistan of 156K MT of LSFO and 4OM liters of HSD, which ensures fuel/energy security for the country.

A 32 km dedicated 10-inch diameter fuel oil pipeline from PSO’s Lalpir Depot to the power complex with a capacity of 3,800 MT per day. The power complex also has a facility for direct decantation of road tankers as well and six fuel oil treatment plants (the largest facility in Pakistan) to treat furnace oil for burning in the gas turbines. There is a well-connected gas supply network through three pipelines. Two 15-inch pipelines from SNGPL network have 400 MMSCFD and one 12-inch pipeline from Dhodak with a capacity of 80 MMSCFD.

The company has to its credit the following, which further warrants that its PPA be renewed: (i) being an outstanding example of public-private partnership, the company has given a very handsome return on equity to its major shareholder, the Pakistan Water and Power Development Authority (Wapda) over the years in form of cash dividend of Rs, 63.74 billion;(ii) the company maintains an excellent relationship with it lending banks. The company was able to obtain credit lines to bridge finance the payment defaults of the power purchaser and to support the System;(iii) total receivables from the power purchaser as of June 13, 2022 stood at the exorbitant level of Rs. 68.744 billion, out of which Rs. 55.575 billion are overdue. Based on the trend and should the company continue to generate and despatch, the amount is expected to be around Rs. 120 billion by October 2022; and (iv) the company continues to meet despatch requirements of the System Operator (NPCC), which is reflected by a few highlights from the recent operating regime i.e. maximum load sharing of 1,525 MW at 10:00, January 14, 2022 and during July 2021, plant utilization of 87.5 %.

“Delay in renewal of the PPA is causing considerable hardships for the company. Some of the company’s lending banks have withdrawn credit lines and some have reduced their credit lines,” the CEO said adding that cancellation/withdrawal of credit lines will constrain the company to require the power purchaser to settle outstanding receivables forthwith, which may lead to making a call under the GoP guarantee.

Kapco’s generation licence was set to expire on September 21, 2021. The company, in accordance with applicable regulations, duly filed an application before the National Electric Power Regulatory Authority (Nepra) for renewal/extension of its generation licence for a period of ten years. Nepra provisionally allowed the company to continue to generate and supply electricity to the power purchaser/national grid under the obligation of its existing generation licence pending its final decision.

Nepra sought comments from different stakeholders, and key stakeholders (including NPCC, NTDC and Mepco, etc) gave favourable comments for extension of its generation licence. A public hearing was conducted by Nepra on March 31, 2022 on the company’s generation licence application. The decision is still pending which is causing unrest among the banks and fuel suppliers because of their exposures and commitments.

“As the term of the PPA is set to expire on October 24, 2022, the company will need to submit a tariff petition before Nepra, which will take 120 days as per timeline for tariff determination,” Aftab Butt said, requesting the concerned authorities to direct CPPA-G, NPCC and NTDC to forthwith complete formalities including issuance of consent letter for power acquisition, which will enable the company to file a tariff petition before Nepra.

Copyright Business Recorder, 2022

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