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ISLAMABAD: The government has decided to allow effectiveness of Power Purchase Agreement (PPA) of 1320-MW of Shanghai Electric Power Company Limited at Thar from August 27, 2019 sans Financial Closure (FC) as the sponsor has almost completed the project with equity of $ 2 billion, well informed sources in CPPA-G told Business Recorder.

Sharing the details, sources said, Central Power Purchasing Agency -Guarantee Ltd (CPPA-G) in its letter of October 17, 2022 conveyed decision of its Board of Directors (BoD) to seek approval of ECC of the Cabinet with regards to amendment on Power Purchase Agreement (PPA) of 2X660 MW indigenous coal fired Thar Block-l project.

During third meeting of the high-level working group for Prime Minister’s visit to China held on October 13, 2022, the matter was deliberated and it was decided that since the project is 90% complete, Power Division should ensure early financial closure. Shanghai Electric Power Company Limited through M/s Thar Coal Block-1 Power Generation Company (Private) Limited (TCB-1) has almost completed construction of a power plant of 1320MW installed capacity at Thar Block-1, Sindh.

The sources said, project is listed as a prioritized project under CPEC framework signed between the Government of Pakistan and the Government of China. The project is under the applicable standard regime in the Power Generation Policy 2015, and all of the rights, incentives and obligations accruing under the Letter of Support (LoS) become effective upon achieving a declaration of financial close.

The declaration of Financial Close acknowledges that the project documentation has been executed and the conditions precedent have been satisfied or waived for allowing drawdown of loan to ensure project implementation. The Company, through a letter of October 6, 2022 has conveyed that it was unable to achieve the FC due to unforeseen events and reasons beyond its control which led to delay in Sinosure and lenders approvals, the sources added.

Closing date of Thar Coal Block-1 Power Generation Co: One-year extension approved by govt

However, in the interest of expediency, TCB-I undertook project implementation with its own equity in March 2019 foregoing the need of FC or drawdown of any loan. Currently the power plant had reached 90% completion.

According to sources, the unwavering commitment and seriousness of TCB-1 is demonstrated through $ 2 billion invested out of its equity while developing the power project, as well as, the coal mine and has further said that it is committed to achieve the Commercial Operations Date (CoD) by end of December 2022. To start the commissioning process, including testing of the power plant during the current week, the project required various authorizations under Power Purchase Agreement.

The sources said, PPA Required Commissioning Date (RCOD) is May 31, 2022, and Liquidated Damages (LDs) to the tune of $ 3 million per month can be imposed by the power purchaser only if the PPA is effective on achieving FC by the Company. However, these LDs cannot be imposed as the Company has not achieved the FC and the PPA has not become effective. Similarly, the Company’s claims for COVID-19 force majeure were also not entertained on the grounds that the PPA is not effective. Owing to PPA not being effective, the Company cannot claim its COVID-19 force majeure and Power Purchaser cannot impose LDs hence warranting corrective action.

With this background, the Power Purchaser (CPPA-G) deliberated on the matter and sought comments from PPIB and analysis from NTDC/ NPCC for feedback. NPCC/ NTDC shared generation analysis which showed that costlier RFO and imported fuel will be replaced by cheap coal-based generation on commissioning of TCB-1. It was estimated that basket price of power will be reduced by approx. Rs 22 billion ($ 100 million) per month.

“In case the issue of PPA’s effectiveness is not resolved, Power Purchaser will not be able to evacuate cheap power from TCB-1 and the same power will be generated through costlier RFO or other imported fuels. Accordingly, it was recommended that the entire PPA be made effective from the date of its execution; i.e., August 27, 2019, to enable the testing and commissioning activities, avail pre-COD power and entitle the Company to claim Covid-19 force majeure at par with other IPPs having effective PPAs,” the sources maintained. After evaluation of all aspects, the government has decided to allow effectiveness of the PPA from the date of its execution, i.e., August 27, 2019 and authorize CPPA-A to amend the PPA accordingly.

Copyright Business Recorder, 2022

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Rana Altaf Nov 05, 2022 11:21am
Fact Sheet The replacement of imported energy with domestic energy consumerism is the most important decision. Benefits Saving foreign exchange Creating employment opportunities Stable and trusted supplier of energy Future planning by not effected by price of energy swing hedging Future for electric vehicle and train PSO should think to switch its resource's to Thar and leaving LNG Planning.
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ZAKAULLAH Nov 05, 2022 06:17pm
@Rana Altaf, thar coal ke mutasreen ko Kiya Mila he un se zameen gaon sbh Kuch chheena he thar ka coal poore mulik ke Liye tarqi he thar ke log buhot preshan he un ke Liye koi awaz e nhn uthata he saare journalist companies ki tareefon ka pul bandte he wahan ke local mutasreen se buhot brra zulim ho Raha he bhai
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ZAKAULLAH Nov 05, 2022 06:20pm
What about thar coal affected people's
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