ISLAMABAD: The government is to approve amendments to Master Agreement (MA), Power Purchase Agreement (PPA) and the Novation Agreement (NA) of Uch Power (Private) Limited (UPL) as finalized by CPPA-G and the power project company, sources close to Managing Director PPIB told Business Recorder.
The Board of PPIB has also endorsed proposed amendments for onward submission to the Economic Coordination Committee (ECC) of the Cabinet for approval.
UPL is a 586 MW indigenous low BTU gas-based Independent Power Producer (IPP), located at Dera Murad Jamali, District Naseerabad, Balochistan which was commissioned on October 18, 2000. UPL had executed the Implementation Agreement (IA) on November 19, 1995, PPA on November 23, 1995 and first amended and restated Gas Supply Agreement (GSA) on November 2, 1995 in related to the project.
The sources said, to determine an effective way to make per unit price of electricity generated by UPL more competitive and provide benefit to electricity consumers of the country, OGDCL and UPL discussed and agreed to cap Marker Price Index under the clause 2.8 of the GSA.
UPL through its letter of October 14, 2022 informed GoP/PPIB that UPL and OGDCL have agreed to execute Amendment No.4 to the GSA to amend definition of the term ‘Marker Price Index’ in clause 1.5 of part 1 of Exhibit B to the GSA by including the following at the end of the definition as reproduced below for the sake of completeness:
“Marker Price Index” – A number computed to four decimal places which for any month equals (a) the base marker price, plus one-half of any positive difference between the marker price and the base marker price, divided by (b) the base marker price, where the marker price is determined in accordance with Paragraph 1.4 for the relevant price notification period in which such month occurs, however, that all of any positive difference between the marker price and the base marker price shall be added to the base marker price in subsection (a) after the twentieth anniversary of the Commercial Operation Date (COD); provided further notwithstanding anything to the contrary in this Exhibit B, the Marker Price Index shall not exceed 2.8 from July 1, 2021.”
The sources said, OGDCL, Oil and Gas Regulatory Authority and DG (Gas) office have provided their approvals/NoC on Amendment no. 4 to GSA, adding that since the change in GSA would be correspondingly reflected in a similar amendment to the definition of “Marker Price Index” in Clause 1.4 of Part 1-A of Schedule 6 to the PPA; hence in accordance to Section 17.1 of the PPA, it can be amended only by agreement between the Parties in writing.
The Section 17.1 of the PPA also states that: “no amendment of this agreement shall be effective if it materially increases obligation of the GoP upon termination of the Implementation Agreement or under the guarantee unless and until the GoP approves such amendment in writing”.
Subsequently, UPL through its letter of October 14, 2022 requested PPIB/GoP to grant its approval for relevant amendments in the applicable project agreements (i.e. GSA and PPA), to enable UPL to execute the Amendment no. 4 to GSA and Amendment No. 4 to the PPA.
In order to seek the CPPA-G’s point of view on the matter, especially with regards to impact on GoP obligations under the IA and the GoP guarantee through the proposed amendment, PPIB approached CPPA-G on November 11, 2022, pursuant to Section 24.1 of the IA and requested to review the changes proposed in the amendment, provide its concurrence as Power Purchaser, share a complete financial analysis of it , along with any adverse impacts on GoP obligations /liabilities, under IA and GoP Guarantee .
As per CPPA-G’s analysis there would be no adverse financial implications because the per unit price of electricity generated by UPL shall be more competitive.
The Marker Price Index was previously capped at 3.9223/MMBTU and if it is capped to 2.8/MMBTU from July 2021, the electricity consumers will be benefitted to the tune of Rs. 4.9 billion from July 1, 2021 to September 30, 2022 apart from future financial savings till the term of PPA. In the meantime, CPPA-G through its letter of December 6, 2022 informed PPIB that the matter regarding Amendment No. 04 to the GSA and the PPA was presented before its Board of Directors in a meeting held on November 30, 2022, wherein following decisions were made:
i) Resolved that “Power Purchase Agreement (PPA) Amendment no. 4 to be signed between CPPA-G and Uch Power (Private) Limited be and is hereby approved”; (ii) further resolved that “CPPA-G management be and is hereby authorized to forward the PPA Amendment No. 4 to be signed between CPPA-G and UPL to Nepra and PPIB for seeking approval from ECC of Federal Cabinet” and; (c) further resolved that “after approval from ECC , CEO CPPA-G be and is hereby authorized to sign and execute PPA Amendment No.4 between CPPA-G and UPL”.
In parallel, UPL, in a letter of December 14, 2022 requested PPIB/GoP for approval on the Amendment No. 05 of the GSA which relates to, inter alia, the extension of the term of the GSA.
Though GoP/PPIB is not legally obligated to issue consent for the extension as this is a bilateral agreement between UPL, and OGDCL which the parties have mutually agreed to extend pursuant to a commercial decision.
Nevertheless, GoP/PPIB in order to facilitate UPL can issue a consent to the Amendment No. 05 until the remaining term of the GSA with the condition that arrangement of gas for the project will be sole responsibility of UPL and further that for extended term of GSA GoP shall not be liable for payment obligations of OGDCL under the guarantee.
The PPIB, in its proposal already cleared by its Technical Committee proposed to its Board that since UPL power plant is supplying cheap and reliable electricity to National Grid and currently is at no.1 on NTDC’s merit order list hence in order to proceed further, PPIB Board may consider Amendment No. 4 to GSA and Amendment No. 4 to the PPA for capping Marker Price Index. Further PPIB may also consider Amendment No. 5 of the GSA.
The Board of PPIB has also approved project specific amendments to the Implementation Agreements and Guarantee.
Copyright Business Recorder, 2023