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Wednesday July 16, 2025

Turning MoUs with IPPs into revised PPAs: Five Master Agreements finalised

By Khalid Mustafa
November 14, 2020

ISLAMABAD: In a major development, the government has finalised templates of Five Master Agreements for turning MOUs signed with IPPs installed under power policies 1994, 2002, and 2006 into legal, amended power purchase agreements.

The first template deals with IPPs set up under 1994 power policy, two templates are for IPPs established under the 2002 power policy (one template deals with power plants that run on gas and other one deals with those power plants that run either on furnace oil or diesel). And two templates deal with master agreements for IPPs under the 2006 power policy; one for windmills and the second one for solar power plants.

“We have completed drafts of Five Master Agreements for turning MoUs into revised PPAs and the government is also in the process of finalising the mode to pay the dues of IPPs," well-placed sources privy to the development told The News. "Once the revised PPAs are implemented, then in next 10-12 years, the government will have benefit of Rs836 billion.”

“The government wants to pay the dues in three installments in the next two years time. The mode of payment will be supported with the guarantee by the State Bank of Pakistan. And at the time of signing the revised PPAs, the government will pay 25-30 percent of the total amount of dues as the first upfront payment. The second installment will be paid after 12 months and the third one again after another 12 months.”

The IMF has already rejected the financial instrument of Zero Coupon Bond for offloading the IPPs' dues. Now relevant officials in the finance ministry are making up their minds to pay the dues to IPPs in cash but in three installments within two years time along with guarantee from the State Bank of Pakistan. However, this proposed mechanism to pay the dues to IPPs has not yet been finalised. So far the government has signed MoUs with 47 IPPs and will sign in next week more MOUs with six IPPs.

“There is a realization that the government has been much too slow as the MOUs were signed on August 13, 2020 and it took almost three months to get the MOUs approved by the federal cabinet which met last Tuesday.”

More importantly, official sources say, the Cabinet Committee on Energy (CCoE), headed by Federal Minister for Planning and Initiatives, had delayed in giving a green signal to the MoUs signed with the IPPs, which shows how slow the government is on this front. Under the MoUs, the government was given six months time to convert them into legal, amended PPAs. The MOUs will expire on February 12, 2021. Three months have elapsed and only three months are left with the government and a lot is to go for implementation of the amended PPAs, which are yet to be signed with IPPs. For the amended PPA, the government has to take prior action of carving out a sustainable mechanism to offload the dues to IPPs supported by some guarantee under which 25-30 percent payment of dues will be paid first at the time of signing of amended PPAs.

However, for turning agreements based on ‘take or pay’ mode to the ones based on ‘take and pay’, the government needs to develop the competitive power market, which will be materialized after two years' time.