ISLAMABAD: Chinese power company M/s Huaneng Shandong Ruyi (Pak) Energy Pvt. Ltd (HSR), which has established 1320-MW coal-fired power plant at Sahiwal, urged CPPA-G to establish a long-term mechanism to prevent future occurrences of capacity payment deductions instead of outlining illogical solution to the issue.
In a letter to CEO, CPPA-G, Rehan Akhtar, CEO, HSR, Dr Li Xin, explained the history of issue of capacity payment’s deduction which have not been given any weightage by the concerned authorities.
According to the letter, the deduction imposed by CPPA-G is unfair and unreasonable as Government of Pakistan (GoP) has been in breach of the Implementation Agreement (IA) due to the extremely inadequate payment from CPPA-G. Meanwhile, the GoP has failed to comply with its obligations under Section 10.4 and 10.5 of the IA as the SBP delayed and even rejected to remit/ make available to the Company the specified foreign currency for payment of amounts due for imported coal to the coal supplier. The GoP has; therefore, itself breached its contractual obligations, and instead of compensating the Company for such breaches, is unfairly imposing capacity payment deductions on the Company on grounds for which the GoP is itself directly responsible through such breaches.
M/s HSR argued that CPPA-G, as an agency of GoP, must fully comprehend the adverse consequences and damages resulting from it and the latter’s delayed payments to the Company.
These impacts are not limited to the capacity payment deduction amount of around Rs 8.6 billion, but also extend to significant financial losses due to the conversion of late payments to USD and steep devaluation of rupee against USD resulting in an exchange loss of over $10 million till such time for which adequate compensations are warranted. Furthermore, as a result of the capacity payment deduction, the Company has already defaulted to the O&M contractor and has been warned by lenders exposing the Company to significant risks of breach of contract, lawsuits and other defaults, losses for which are incalculable.
The Company has brought to the attention of CEO CPPA-G that the losses which the Company has suffered, including the capacity payment deduction, have arisen as a result of the GoP’s breach of its clear obligations under the IA. Therefore, the GoP is responsible for compensating the Company for these losses, as well as, all/ any further related losses suffered by the Company.
However, the fundamental reason behind the GoP’s breach is the in sufficient payment by CPPA-G. Hence, CPPA-G should bear all such losses, whether directly or indirectly caused to the Company. The principle is addressed within Section 73 of the Contract Act, 1872, which is reproduced below for reference:
“When a contract has been broken, the party who suffers by such breach is entitled to receive from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.”
The Company has recognized that a proposal exists to classify the power plant’s unavailability caused by a lack of coal as “Force Majeure Event”. This categorization would treat the period of unavailability as an extension of the Agreement Year/ PPA term, with compensation for the unavailable period paid several years later.
“It should be noted that the solution proposed remains unacceptable to the Company with the present state of affairs, as the Company holds back-to-back obligations towards its lenders, O&M contractors and sponsors, necessitating immediate settlement of deductions rather than a deferred payment plan spanning over multiple years,” said Dr Li Xin, CEO, HSR.
After explaining its position, the Company urged CPPA-G to prioritize addressing the issue and provide prompt compensation for the deducted amounts, as well as, other contractual breaches by the GoP. Moreover, the Company has also requested CPPA-G to establish a long-term mechanism to prevent future occurrences of capacity payment deductions.
Copyright Business Recorder, 2023