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Govt to convert MoUs with IPPs into amended PPAs

By Khalid Mustafa
November 05, 2020

ISLAMABAD: For converting the MoUs signed with the IPPs into final legal agreements, the government is currently engaged in finalizing the templates and to this effect the IPPs are also on board. According to a senior official, the government team will soon invite the IPPs' CEOs to get the templates for final amended Power Purchase Agreements (PPAs) approved.

Under the MOUs signed, the government has managed to introduce with the consent of IPPs material changes in the existing PPAs that will yield reasonable dividends amounting to Rs835 billion in the next 10-12 years. The main clause of the agreement of 15pc profit plus dollar offered to IPPs under the previous power policies has been changed to 17 percent rate of return with Pak Rupee indexation. And IPPs will be paid the profit as per value of dollar at Rs148. However, the rate of return of foreign funded IPPs has been reduced from 15 percent to 12 percent with US dollar indexation. As per the MoUs, the agreements based on take or pay mode will be converted into those based on take and pay only when the competitive market system having multi-buyers of electricity being generated by IPPs is established and becomes operational. However, for oil fired power houses, any saving in fuel will be shared with government also. But all is possible, the official said, only when MoUs are converted into formal legal amended agreements.

The IPPs, under the MoUs, had set the condition that they would only sign the amended agreements when their dues got cleared. The senior official said that to this effect, out of four templates, one has almost been finalized. But the main issue the government is facing is as to how it should clear the dues of Rs392 billion to the 50 IPPs. "Once the financial tool under which the huge amount is to be paid gets finalized, then the template for offloading the arrears with a time-frame will be made, supported with some guarantees." The Finance Ministry’s officials are working on the financial tool, which should be also acceptable to the IMF. The IMF has already shot down the proposal of Zero Coupon for offloading the dues of IPPs.

On the other hand, the official admitted the fact that MoUs with IPPs were signed on August 13 and despite the passage of more than two and a half months, no MoU has been turned into a formal agreement. “In case the government fails to convert MoUs into amended PPAs, then MoUs would lose their worth and IPPs would not be bound to stick with signed MoUs.”

More importantly, the Cabinet Committee on Energy (CCoE), headed by Federal Minister for Planning and Initiative, has not yet approved the MoUs signed with the IPPs, which shows how slow the government is on this front. The official said that the CCoE approved the report on IPPs but did not accord approval to MoUs and this was also mentioned in the first steering committee of MOUs Implementation Committee headed by Dr Hafeez Shaikh. "However, the Power Division is going to again pitch before CCoE the summary seeking approval of MoUs."