Prime Minister Shahid Khaqan Abbasi has directed Power Division to address anomalies in various agreements with Independent Power Producers (IPPs) to avoid litigation and discriminatory treatment, sources close to Minister for Power Division told Business Recorder.
He gave these instructions while presiding over a meeting of the Economic Coordination Committee (ECC) of the Cabinet on December 29, 2017 on a summary of Power Division titled "authorizing Central Power Purchasing Agency- Guaranteed (CPPA-G) to sign interim agreement regarding revised payment terms for generation on RLNG by IPPs ie Orient, Saif, Saphire and Halmore, currently running on HSD".
Power Division informed the ECC that in view of shortage of indigenous natural gas in the country, the government decided to import LNG for consumption in the newly established public-sector power plants viz Bhikhi, Balloki and Haveli Bahadar Shah. LNG is being imported by PSO and others, re-gasified and made available to SSGC and SNGPL for onward supply.
Currently SNGPL is supplying RLNG to M/s Saif Power Ltd, M/s Orient Power Ltd., M/s Sapphire Electric Company Limited and M/s Halmore Power Generation Company Ltd (on as and when available basis). On certain occasions any RLNG volumes not off-taken by any of mega RLNG plants would be diverted and consumed by these four small IPPs. The four IPPs have dual fuel plants, which can be operated on natural gas as primary fuel and (HSD) as secondary/alternative fuel. Due to non-availability of indigenous gas, the plants are constrained to operate on costly HSD fuel. If these plants are provided with RLNG, they can make significant cost saving each month.
A comparison of Fuel Cost Component (FCC) based on both fuel types as per merit order of October 16, 2017 was as follows: (i) Saif Power - Rs 12.75/kWh HSD, Rs 6.64/kWh RLNG ;(ii) Orient Power - Rs 12.67/kWh HSD, Rs 6.64/kWh RLNG;(iii) Sapphire Electric - Rs 12.58/kWh HSD, Rs 6.64/kWh RLNG and (iv)
Halmore Power Gen - Rs 12.54/kWh HSD, Rs 6.64/kWh RLNG.
Power Division further revealed that SNGPL had allocated a quantity of 40 MMCFD to each of the above stated four IPPs, which would be provided on as and when available basis. From the end of November-2017, new LNG has become operative, resultantly additional supply of LNG is also available in the SNGPL system. The existing Power Purchase Agreements (PPAs) of these IPPs entitle them to raise Energy Purchase Price (EPP) invoices on the 1st of every month, payable by the CPPA after 30 days of receipt of such invoices ie a billing cycle of 60 days. However, to match the billing cycle with gas supply companies SNGPL has demanded a billing cycle of 7 + 3 days from the IPPs (ie raising of invoices after every seven days, which would be due after three days of receipt). Since the said demand is not covered under their existing Gas Supply Agreements (GSAs), the IPPs, before agreeing to this demand, have desired a back to back arrangement with CPPA to neutralize them against any additional financial implications.
According to sources, Power Division apprised that the parties acknowledged that certain amendments were to be made in the Gas Supply Agreements (GSA) between SNGPL and IPPs as well as in Power Purchase Agreements (PPAs) between CPPA and IPPs. Since the IPPs were not willing to make amendments in GSAs and PPA, parties were agreeing to enter into an interim arrangement.
For this purpose, a draft tripartite agreement has been initialed between SNGPL, CPPA/NTDC and IPPs. The agreement has been drafted on the analogy of the agreement of M/s Rousch Power Ltd and Fauji Kabirwala Power Ltd. which was signed and executed with the approval of the ECC meeting on June 28, 2016. The salient features of the draft agreement are as follows: (i) IPPs shall invoice CPPA-G, the Fuel Cost Component (FCC) along with GST after 7 days of generation using RLNG for first three weeks of the calendar month, while the fourth invoice shall he raised for the remaining number of days of the month and CPPA shall pay such invoices without any deductions; (ii) at the end of each month, the IPPs shall submit EPP invoices to CPPA-G, which shall include, fuel cost, variable O&M and GST components, deducting the FCC already invoiced to CPPA. These invoices shall be processed as per existing PPAs; (ii) for electricity generated by the IPPs using swapped gas in lieu of RLNG or RLNG itself, the Fuel Cost Component (FCC) of RLNG, determined by NEPRA, shall be applicable to CPPA and it shall have no nexus with the payment due to be made by the IPPs to SNGPL for supply of RLNG; (iii) the rate of delayed payment interest charged by IPPs to CPPA shall be one (1) month KIBOR + 2% for first 30 days of the delay, and 1 month KIBOR + 45% for any period exceeding 30 days. Whereas, the existing PPAs provide that the delayed payment rate shall be three (3) month KIBOR + 4.5% for the entire period of delay. The FCC was apprised that for Rouche and Fauji Kabirwala Power Plants the new terms were made 1 month KIBOR + 2% only. Both the IPPs are single fuel plants and they agreed to the interest reduction. The case under consideration for the 4 IPPs is different in this regard as they are dual fuel plants and they were not ready to agree to the arrangement made with Rouche and Fauji Kabirwala; (iv) each IPP shall provide a Standby Letter of Credit (SBLC) to SNGPL amounting to Rs 2.0 billion based on the current RLNG price of US$ 8.6116 per MMBTU. The SBLC shall be maintained during the terms of this agreement and its amount may be reviewed if the price of the RLNG changed by I5% from present level; (v) partial or total non-availability of the power plant due to non-availability of the RLNG or the swapped natural gas will be treated as other force majeure as the four IPPs will no longer be able to run on HSD after approval of the instant case; and (vi) this agreement shall be valid until GSAs/PPAs are amended.
Power Division submitted the following proposals for consideration of the ECC: (i) approve new payment mechanism pertaining to M/s Saif Power Ltd, M/s Orient Power Ltd., M/s Sapphire Electric Company Limited and M/s Halmore Power Generation Company Ltd as spelled out in the draft agreement to be signed by CPPA to facilitate timely payments to R-LNG supplier, and (ii) on the analogy of already approved agreements (Rousch and FKPCL), allow to adopt the same for other IPPs under 1994 power policy running on RLNG instead of indigenous gas.
During ensuing discussion, Prime Minister observed that there was a dire need to review all PPAs, Implementation Agreements (IAs) and Gas Purchase Agreements (GPAs). If there is any anomaly therein, it should be brought before the ECC with recommendation to remove it. He directed Power Division to take necessary action in this regard. He also directed the Power Division to get the draft agreement vetted by Law & Justice Division prior to signing the document. Power Division was also directed that remaining cases (if any) of similar nature may be brought before the ECC for approval, on case to case basis.
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