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Govt set to start talks with IPPs for relief in PPAs

By Our Correspondent
April 13, 2020

ISLAMABAD: The PTI government is quite serious to start next week renegotiations of Power Purchase Agreements (PPAs) with Independent Power Producers (IPPs) with positive mode seeking relaxations based on mutual agreement, but not with the intent to harassthem as PPAs are supported by sovereign guarantees.

To this effect, a committee headed by Federal Energy Minister Omar Ayub Khan, comprising other members of Federal Minister for Law and Justice Barrister Dr Muhammad Farogh Naseem, Special Assistant to Prime Minister on Coordination of Marketing & Development of Natural Resources Shahzad Syed Qasim, Secretary for Law Muhammad Khashish-ur-Rehman, Secretary Finance Naveed Kamran and Secretary Power Division Irfan Ali, has been notified by the government. The said committee will start the crucial talks.

"Yes, a six-member committee has been notified to start parleys with IPPs seeking some relaxations in PPAs based on mutual agreements as the government side does not want to harass the electricity producers as the PPAs are backed with the sovereign guarantees and government does not want to violate them unilaterally," Secretary Power Division Irfan Ali told The News.

"We have already held talks in an amicable atmosphere with nine IPPs seeking settlement agreement after London Court of International Arbitration (LCIA) gave award in the favour of said IPPs. Though the agreement is not signed, but the talks are held in an enabling atmosphere. Now the government will hold talks with all IPPs which were installed under 1994, 2002 and 2015 power policies."

However, a senior official of the Power Division when contacted for more details said that the committee members will first meet and brainstorm as to what factors are causing hike in the tariff and will also know if there is a room to change the PPAs legally and what the law of land and international law says about it. When asked if there is any example of changing the PPAs through renegotiation with IPPs in any country, he said that at present he doesn’t know, but in a country like Pakistan, masses and all sectors of economy are now sick of high tariff, which contributes a lot in the hike of input cost.

The factor of capacity payments is the main reason for hike in the tariff. The main issue is that the government has to pay about Rs900 billion to IPPs in the head of capacity payments in the current financial year and in 2025, the capacity payments will increase to Rs1,500 billion. The situation that emerged after COVID-19 spread has also multiplied the financial miseries for masses and all sectors of economy.

Now it is high time to seek an amicable solution to all financial miseries being caused because of the high tariff in the country. "We may focus on Return on Equity (RoE) and guaranteed Rate of Return with US dollar Indexation and many other areas from where the maximum relaxations could be attained and more importantly top officials of PPIB (Private Power Infrastructure Board) will give their technical input in identifying the arrears in PPAs of all IPPs for negotiations."

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