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ISLAMABAD: The long-awaited deal between Uch Power (Pvt) Limited (UPL) and entities of Power Division and Petroleum Division for final approval will land in Federal Cabinet in its next meeting, sources close to Minister for Power told Business Recorder.

Sharing the details, they said based on the recommendation of Cabinet Committee on Energy (CCoE) and ECC of the Cabinet, Federal Cabinet on February 9, 2021 approved the revised payment mechanism and agreements with IPPs and further authorized Power Division to continue negotiations with the remaining IPPs.

In pursuance to decision, negotiations were conducted with M/s Uch Power (Pvt) Limited (UPL) on the same line as with other IPPs under 1994 Power Policy, and following mechanism was agreed, subject to terms as explained in the Novation Agreement, Master Agreement and PPA Amendment Agreement: (i) reduction in Capacity Purchase Price and Variable O&M Cost Component by 11%; (ii) exchange rate and US CPI indexations shall apply on (i) reduced variable O&M Cost Component, (ii) 50% of the reduced Escalable Component of the Capacity Purchase Price; (iii) payment of invoices will be made in order of its due dates; (iv) the Company agrees to forego/abandon all of its prior claims of interest on late payment interest invoices; and (v) payment mechanism for the payment of payables as on November 30, 2020 of Rs. 33.836 billion to be made in two instalments- first instalment will be forty percent of said payables of which 1/3rd will be paid in cash, 1/3d will be in the form of tradable 10-year floating rate Pakistan Investment Bonds (PIBs) and remaining 1/3 in the form of tradable 5-year floating rate GoP Ijara Sukuks while remaining sixty percent of the said payable will be paid by 10 June 2023 in the same manner.

Govt to approve amendments to MA, PPA and NA of Uch Power

Further ECC of the Cabinet on June 30, 2011 decided in-principle that the additional security cost to be incurred on implementation of the security plan for M/s Uch Power (Pvt) Limited shall be borne by Power Purchaser through pass-through arrangement in the Power Purchase Agreement (PPA) till the improvement of security situation around UPL. This decision was contingent upon construction of underground tanks by the company. Subsequently, the Company informed that the construction of underground tanks was technically unfeasible and hence June 2011 decision could not be implemented.

The Power Purchaser, on other hand, was of the view that the ECC decision of 2011 should be implemented in its entirety. Hence, the matter remained unresolved, and the Power Purchaser has not reimbursed any cost related to additional security incurred by the Company since 2011. The matter became contentious and PPIB requested that draft amendment to the PPA for reimbursement of additional cost be expedited to avoid arbitration. At the request of the Government of Pakistan, the Company has now agreed to amicably resolve the issues of reimbursement of past additional cost while CPPA-G has agreed to reimburse the cost prospectively through the amendment in PPA.

The sources further stated that UPL and OGDCL have agreed to cap Marker Price index under FSA/ GSA at 2.8 which shall render the unit price of UPL electricity generated more competitive with future savings. Therefore, the Company through its letter of October 14, 2022 informed GOP/ PPIB that UPL and OGDCL have executed Amendment No.4 to the FSA/ GSA to amend the definition of the term Marker Price Index in Clause 1.5 of Part 1 of Exhibit B to the FSA/ GSA.

Additionally, UPL and OGDCL have executed FSA/ GSA Amendment No.5 to align the contractual arrangements including Novation of PPA from WAPDA to CPPA-G and extension in GSA in line with reservoir dynamics. PPIB has been in communication with OGDCL on the same issue of indigenous reservoir potential available for UPL. Furthermore, the term from twenty-three years to thirty years is subject to similar amendment in the Implementation Agreement (IA), Gas Supply Agreement (GSA) and Assistance Agreement (AA) with Government of Balochistan.

The capping Marker Price Index, emanating from the Gas Supply Agreement between OGDCL & ÜPL is a project specific change in terms which is being reflected as an amendment to the definition of “Marker Price Index in Clause 1.4 of Part IA of Schedule 6 to the PPA.” CPPA-G placed the issues before its Board of Directors with the following proposals for further consideration and approval of the competent forum: (i) payment of outstanding dues of Rs. 33.836 billon to UPL as of November 30, 2020 as per payment mechanism approved by the Cabinet on February 09, 2021 with both instalments to be cleared during FY 23; (ii) signing of Novation Agreement, Master Agreement, PPA Amendment Agreement with M/s UPL; (iii) issuance of consent by PPIB/CPPA-G for extension in term of the GSA as agreed in Amendment-5 of the GSA between UPL and OGDCL; and (iv) signing of PPA amendment No. 4 to mirror the project specific change in PPA emanating from Gas Supply Agreement as approved by OGRA.

The sources said that ECC in its meeting held on May 25, 2023 approved the proposal which will be submitted to the Federal Cabinet for ratification in its next meeting.

Copyright Business Recorder, 2023

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