PG encashment: PPIB agrees to stop LoS of SEL’s coal-fired project till conclusion of litigation

ISLAMABAD: Private Power Infrastructure Board (PPIB) is said to have agreed to stop Letter of Support (LoS) of 330 MW coal-fired project of Siddiqsons Energy Limited (SEL) till the conclusion of litigation against Performance Guarantee (PG) encashment, as both SEL and KE intend to sign electricity sale purchase agreement, sources close to Managing Director PPIB told Business Recorder.

Earlier, PPIB had decided to terminate LoS to the company and take stern action against its own legal department for allegedly conniving with company in court proceedings.

Sharing the details, sources said, in compliance with the decision of PPIB Board in its 134th meeting held on September 27 2021, PPIB repeatedly requested Siddiqsons Energy Limited to fulfil necessary formalities (doubling the existing Performance Guarantee to $ 7 million and submission of Financial Close (FC) Date extension fee of $ 165,000) for issuance of 8th extension in FC date up to December 31, 2021 through an amendment to Letter of Support.

However, SEL failed to fulfil requirements of doubling of existing PG and also failed to deposit FC date extension fee to obtain extension in LoS or achieved FC within its extended FC deadline of December 31, 2021. Subsequently, PPIB proceeded with encashment of Performance Guarantee and issued Demand Notice to issuing Bank on December 31, 2021 for encashment of PG. However, SEL approached Court of District Judge, Islamabad and immediately obtained stay order.

In the meantime, the matter was discussed in 135th meeting of PPIB Board held on June 21, 2022, wherein PPIB Board directed to vigorously pursue the court case and once stay order is vacated, the PG should be encashed. Subsequently, after vigorously following up the court case, the stay order was finally vacated on July 29, 2022 and PPIB encashed PG on August 2, 2022 on account of failure to achieve FC by SEL.

Feeling aggrieved by the decision of Civil Court, SEL approached Islamabad High Court (IHC) which in its order dated August 2, 2022 gave directions to PPIB to freeze the encashed performance guarantee’s proceeds in an interest-free bearing account until a decision. The judgment in the matter has been reserved by IHC.

In the meantime, SEL approached PPIB as well as Prime Minister’s Office and expressed its intention to sell electricity to K-Electric, instead of national grid and solicited support of Government of Pakistan (GoP) in this regard. According to SEL, the lenders of the project are more comfortable with this arrangement and are willing to arrange debt financing required for the project.

As per Power Purchase Agreement (PPA) signed by SEL with CPPA-G, SEL shall pay to CPPA-G by way of Liquidated Damages (LDs), a pro-rata amount equivalent to the Transmission Service Charge (TSC) payable by NTDC to Pak Matiari-Lahore Transmission Company Limited (PMLTC), however, the PPA is not yet effective in its entirety.

Consequently, NTDC which is the operator of transmission network has approached PPIB for recovery of amount equivalent to TSC for capacity payments to PMLTC which achieved COD in September 2021.

Furthermore, SEL has been removed from the list of committed projects, in the latest Indicative Generation Capacity Expansion (IGCEP) 2022-31.

In order to sort out various issues of SEL, a meeting was held on September 22, 2022 under the chairmanship of Special Assistant to the Prime Minister on Government Effectiveness, Jehanzeb Khan wherein certain decisions regarding LDs to be imposed on SEL were taken. On October 6, 2022, SEL submitted a draft settlement agreement to PPIB, with GoP and SEL as Parties.

As per terms and conditions of draft Settlement Agreement, IA, PPA and LoS with GoP will be terminated (together with all rights and obligations under each instruments) and encashment of its PG in full by GoP. Draft Settlement Agreement also stipulates that the Parties shall immediately withdraw any lawsuits, claims, counterclaims, applications and appeals filed before any courts in Pakistan.

Furthermore, GoP shall provide support to SEL for (a) continued development of the project with K-Electric as the new power purchaser; and (b) procurement of all consents required for the project from the public sector entities including provision of interconnection and transmission facilities by or wheeling arrangement with NTDC.

According to sources, the sponsors (SEL) and the buyer (K-Electric) are both private sector entities and if it is decided by PPIB to terminate the LoS for the purposes of off-take by KE, priorities may be explored where PPIB may facilitate the Company in the development of the project.

NEPRA Power Procurement Regulations 2022 give option to KE to utilize PPIB’S services for the purposes of project facilitation.

The matter was submitted for perusal of Projects’ Committee of PPIB Board in its ninth meeting and recommendations of the Committee were as follows: (i) LoS termination may be stopped till the conclusion of litigation against PG encashment; (ii) PPIB Board guidance may be sought upon transfer of the project for sale of electricity to KE and in line with Board guidance a settlement may be discussed with SEL; and (iii) NTDC and CPPA-G to provide firm opinion and way forward if any, for pursuing the recovery of HVDG LDs and whether the termination of LoS will have any impact on that proposed way forward; and (iv) since the decision for recovery of proportionate HVDC payment as LDs for delayed project commissioning, the CCOE approval in the matter may be obtained.

Copyright Business Recorder, 2023