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ISLAMABAD: The bitterness between M/s Hubco Power Company (Hubco) and Central Power Purchasing Agency- Guaranteed (CPPA-G) on alleged disparity in allocation of payment to different IPPs is rising with each passing day.

The power company’s Chief Executive Officer (CEO) Kamran Kamal, has responded to CEO CPPA-G in his letter dated August 16, 2022, expressing disappointment at CPPA-G’s response to his letter, adding that unfortunately, despite agreeing to address the disparity in recent meetings, CPPA-G continues to afford biased treatment to Hubco in terms of payment allocation and has provided irrelevant excuses to cover its glaringly unfair and discriminatory actions.

According to him as of end of July 2022, Hubco’s unpaid invoices were nine months overdue as compared to 1-3 months for similar IPPs.

He has claimed that the amount of receivables of Hubco stood at Rs 43 billion of which Rs 6 billion were up to 1 month, Rs 9 billion up to 1-2 months, Rs 5 billion up to 2-3 months, Rs 12 billion up to 3-6 months and Rs 11 billion up to 6-9 months. This stock is excluding the disputed amount of Rs 11.5 billion.

The stock of receivables of Kapco were Rs 46 billion, of which Rs 15 billion are up to 1 month, Rs 27 billion 1-2 months, Rs 4 billion 2-3 months but nothing is pending for 3-6 months and 6-9 months. The stock of receivable of Lalpir power company is Rs 1 billion while Pakgen’s pending claims are Rs 8 billion for 1 month and Rs 3 billion for 1-2 months, totalling Rs 11 billion.

‘Fairness’ of payments: CPPA-G, Hubco lock horns

CEO Hubco maintained that CPPA-G’s linking the payments to Economic Merit Order (EMO) is grossly misplaced and not supported by any agreement, adding that EMO only relates to energy payments whereas under the terms of Power Purchase Agreement (PPA), Hubco is also entitled to capacity payments based on its availability for which CPPA-G is obliged make timely payments, as well. Disregarding capacity payments because a plant is not being despatched is, in fact, against the spirit of PPA.

He has sent the following para wise response to CPPA-G comments: (i) whereas the aging of overdue receivables in Hubco’s letter includes the disputed amount of Rs. 11.525 billion, even after excluding the amount, its overdue receivables are considerably higher than similar IPPs in terms of their aging, i.e., 9 months as compared to 1-3 months for similar IPPs;(ii) the payments of 110% to 118% of verified invoices in the years 2020-21 and 2021-22 were primarily due to payments under PPA amendment agreement which were made to other IPPs, as well and does not resolve the issue of disparity.

Comparative aging of overdue receivables for similar IPPs should also be presented for meaningful analysis. CFO/ CEO CPPA-G may recall that pursuant to the PPA amendment agreement, the overdue balances as of November 30, 2020, were paid to IPPs in two instalments of 40% and 60% bringing the IPPs at par in terms of payment percentages and aging. Hubco fails to understand that subsequently how it can have an overdue aging of around 9 months whereas other similar IPPs have an aging of only 1-3 months.

In meeting in June 2022, it was discussed and agreed that Hubco was lagging in terms of payments as compared to other IPPs and we were assured that this disparity would be resolved by September 2022. Unfortunately, the significant difference in overdue aging between Hubco and other IPPs persists which constrains us to raise this issue again;(iii) application of industry-wise FIFO is not going to conflict with economic merit order system as all IPPs will have a better visibility when their invoices will be paid and thus will be able to better plan their cash flows and operations with their working capital lines accordingly;(iv) the implementation of industry-wise FIFO will bring fairness and transparency in the payment system and redress the issue of disparity in payment as it discourages the exercise of discretion. On the other hand, exercising discretion and linking the payments to despatches has created inefficiencies and complacency leading to disparity in payments.

Concluding the letter CEO Hubco said that as per the PPA, CPPA-G is under a contractual obligation to make timely payments. Hubco has always supported CPPA-G and GoP in running the energy system and whenever requested by CPPA-G and GoP, Hubco has sacrificed its own interest for the larger national interest. However, the present disparity in payments has forced the company to raise its serious concerns and reservations.

“Hubco expects to be treated fairly and requests that the issue of disparity is addressed by the end of this quarter as committed by CPPA-G to bring it’s overdue aging in line with other similar IPPs,” he said adding that as per the company’s estimates, CPPA-G needs to pay a amount of Rs23 - 25 billion immediately to bring Hubco at par with similar IPPs.

Copyright Business Recorder, 2022

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